43076 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

between 9 a.m. and 4 p.m., Monday

through Friday.

1. Soffritti, M., C. Maltoni, F. Maffei, and

R. Biagi, ‘‘Formaldehyde: An Experimental

Multipotential Carcinogen,’’ Toxicology and

Industrial Health, vol. 5, No. 5, pp. 699–730,

1989.

2. Til, H. P., R. A. Woutersen, V. J. Feron,

V. H. M. Hollanders, H. E. Falke, and J. J.

Clary, ‘‘Two-Year Drinking Water Study of

Formaldehyde in Rats,’’ Food Chemical

Toxicology, vol. 27, No. 2, pp. 77–87, 1989.

3. Memorandum of conference concerning

‘‘Formaldehyde;’’ meeting of the Cancer

Assessment Committee, FDA; April 24, 1991,

and March 4, 1993.

4. Bushy Run Research Center,

‘‘Ethylenediamine Dihydrochloride TwoYear Feeding Study in the Rat; Report 46–

27,’’ Mellon Institute-Union Carbide Corp.,

Export, PA.

5. Memorandum of conference concerning

‘‘Ethylenediamine Dihydrochloride

(EDA•2HCl);’’ meeting of the Cancer

Assessment Committee, FDA; June 7, 1996.

List of Subjects in 21 CFR Part 175

Adhesives, Food additives, Food

packaging.

Therefore, under the Federal Food,

Drug, and Cosmetic Act and under

authority delegated to the Commissioner

of Food and Drugs, 21 CFR part 175 is

amended as follows:

PART 175—INDIRECT FOOD

ADDITIVES: ADHESIVES AND

COMPONENTS OF COATINGS

1. The authority citation for 21 CFR

part 175 continues to read as follows:

Authority: Secs. 201, 402, 409, 721 of the

Federal Food, Drug, and Cosmetic Act (21

U.S.C. 321, 342, 348, 379e).

2. Section 175.300 is amended in

paragraph (b)(3)(viii)(b) by

alphabetically adding a new entry to

read as follows:

§ 175.300 Resinous and polymeric

coatings.

* * * * *

(b) * * *

(3) * * *

(viii) * * *

(b) * * *

* * * * *

3-Pentadecenyl phenol mixture

(obtained from cashew nutshell liquid)

reacted with formaldehyde and

ethylenediamine in a ratio of 1:2:2 (CAS

Reg. No. 68413–28–5).

* * * * *

Dated: August 5, 1997.

William K. Hubbard,

Associate Commissioner for Policy

Coordination.

[FR Doc. 97–21292 Filed 8–11–97; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 227, 228, and 229

RIN 1010–AC25

Delegation of Royalty Management

Functions to States

AGENCY: Minerals Management Service,

Interior.

ACTION: Final rulemaking.

SUMMARY: The Minerals Management

Service (MMS) is adding new rules

authorizing the delegation of several

Federal royalty management functions

to States. These rules implement

recently-enacted legislation.

EFFECTIVE DATE: September 11, 1997.

FOR FURTHER INFORMATION CONTACT:

David Guzy, Chief, Rules and

Publications Staff, Royalty Management

Program, Minerals Management Service,

telephone (303) 231–3432, Fax (303)

231–3385, e-Mail

DavidlGuzy@mms.gov.

SUPPLEMENTARY INFORMATION: The

principal authors of this final

rulemaking are Larry Cobb, Harry

Corley, Jim Detlefs, Clare Onstad, Robert

Prael, Todd McCutcheon, Dave Steiber,

Cecelia Williams, and Sam Wilson,

MMS; and Peter Schaumberg and Sarah

Inderbitzin of the Office of the Solicitor.

I. General

On August 13, 1996, Congress enacted

the Federal Oil and Gas Royalty

Simplification and Fairness Act of 1996,

Pub. L. 104–185, as corrected by Pub. L.

104–200 (RSFA). The RSFA amends

portions of the Federal Oil and Gas

Royalty Management Act of 1982

(FOGRMA), 30 U.S.C. 1701 et seq. Prior

to the RSFA enactment, section 205 of

FOGRMA, 30 U.S.C. 1735, provided for

the delegation of only audits,

inspections, and investigations to the

States. The RSFA amendments to

section 205 now provide that the

Minerals Management Service (MMS)

may delegate other Federal royalty

management functions to requesting

States for Federal oil and gas leases

onshore.

The royalty management functions

MMS may delegate under the RSFA

amendments are:

(1) Conducting audits and

investigations;

(2) Receiving and processing

production and royalty reports;

(3) Correcting erroneous report data;

(4) Performing automated verification;

and

(5) Issuing demands, subpoenas,

orders to perform restructured

accounting, and related tolling

agreements and notices to lessees or

their designees.

The RSFA amendments to section

205(d) also provide that within 12

months after the date of enactment, after

consultation with the States, the

Secretary must issue standards and

regulations pertaining to delegable

functions and other relevant

responsibilities, including:

(1) Audits to be performed;

(2) Records and accounts to be

maintained;

(3) Reporting procedures to be

required by the States under this

section;

(4) Receipt and processing of

production and royalty reports;

(5) Correction of erroneous report

data;

(6) Performance of automated

verification;

(7) Issuance of standards and

guidelines in order to avoid duplication

of effort;

(8) Transmission of report data to the

Secretary; and

(9) Issuance of demands, subpoenas,

and orders to perform restructured

accounting, for royalty accounting

purposes.

In response to the section 205 RSFA

amendments, MMS formed the 205

Consultation Team, comprised of MMS,

interested States, representatives from

State associations, and a representative

of the Bureau of Land Management to

discuss how to implement the

delegation provisions of the RSFA.

MMS proposed rules implementing

the section 205 RSFA amendments (62

FR 19967 April 24, 1997. As part of that

proposed rulemaking, MMS explained

that it would develop MMS Standards

for Delegation (Standards) which would

contain further information States

would need to perform delegated

functions. MMS held several outreach

meetings in June of 1997 at various

locations to discuss the MMS Standards

for Delegation (Standards) document

with States and industry attendees.

II. Indian Lands

In the proposed rule, MMS proposed

to amend 30 CFR parts 228 and 229 to

remove references to cooperative

agreements and delegations for Federal

lands under those parts since delegation

for Federal lands are now covered under

new part 227. MMS also proposed to

amend those parts to conform to the

principles of ‘‘Plain English.’’ Because

MMS is not under a statutory deadline

to publish parts 228 and 229 like it is

for part 227, MMS is not removing the

references to Federal lands in, or

making the ‘‘Plain English’’ changes to
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43077

those parts at this time. However, MMS

is making an interim change to parts 228

and 229 by adding a sentence to those

parts that will state that, ‘‘As of the

effective date of this rule, this part does

not apply to Federal lands.’’ This

sentence will make clear that from this

time forward, those parts only apply to

Indian cooperative agreements and

delegation agreements for audits,

inspections, and investigations with

States for Indian lands within the State.

We will amend the language in parts

228 and 229 to ‘‘Plain English,’’ and

make any other changes to those parts

at a future date.

III. Comments on Proposed Rule

The proposed rulemaking provided a

30-day public comment period, which

ended May 27, 1997. MMS received

comments from thirteen commenters

during the comment period. One

additional commenter submitted late

comments that MMS received on June 2,

1997. Thus, we accepted a total of

fourteen comments for review. Four of

the comments were from States, two

were from mining associations, two

were from oil and gas trade associations,

and six were from industry.

We reviewed and analyzed all of the

comments, and in some instances

revised the language of the final rule

based on these comments. The

following is a discussion of the

comments received and our response.

First, we address five general concerns

the comments raised. Second, we

respond to the specific comments

referred to by regulation paragraph

number. Third, we address the

questions and issues where we asked

the public for specific comment.

I. General Concerns

Delegation of Functions for Solid

Mineral, Geothermal, and OCSLA 8(g)

Leases

One State, two mining associations,

and two mining companies commented

on delegating royalty management

functions to States for solid mineral

leases. The State supported the concept,

but believed we should not issue

regulations until the Department

provides a legal opinion on this issue.

The mining industry objected to the

delegation of functions for solid mineral

leases because they believed we lack the

statutory authority. One company

agreed that we should obtain a legal

opinion before issuing the final

regulation. One trade association stated

that it did not oppose delegation for

Outer Continental Shelf Lands Act

(OCSLA), section 8(g) leases, but that

MMS should not split the reporting for

leases or units that contain both section

8(g) and non-section 8(g) properties.

MMS Response—MMS has obtained a

legal opinion from the Office of the

Solicitor, which concludes that Pub. L.

102–154 does not provide authority to

apply the section 205 RSFA

amendments to solid mineral,

geothermal, and offshore leases subject

to section 8(g) of OCSLA. Based on that

opinion and the comments, we omitted

from the final rule delegations of

additional functions for solid mineral

leases, geothermal leases, and oil and

gas leases subject to section 8(g) of

OCSLA, 43 U.S.C. 1337(g). However,

States may continue to perform audit

functions for solid mineral, geothermal,

and OCSLA section 8(g) leases under

the existing and successive delegation

agreements. Because MMS is not

delegating the additional royalty

management functions for OCSLA

section 8(g) leases, there is no issue

regarding split reporting for such leases.

Furthermore, we combined proposed

§ 227.100 with proposed § 227.101 to

conform with comments received from

the mining industry and the

Departmental legal opinion. Thus,

although MMS will not delegate RSFA’s

additional royalty management

functions for solid, geothermal, or

section 8(g) leases, when requesting the

function of audits and investigations, a

State must still follow the procedures

under this part.

In addition, we added language to

clarify that a State performing delegated

functions must perform those functions

for all applicable Federal leases within

the State’s boundaries.

For example, assume that there are

100 Federal oil and gas leases within a

State’s boundaries. If that State requests

delegation of the royalty management

functions of audit and receiving and

processing production and royalty

reports, it cannot choose to perform

audits and receive and process

production and royalty reports for only

25 of those Federal oil and gas leases.

Rather, it must accept delegation of

audit and receiving and processing

production and royalty reports

responsibility for all 100 of those

Federal leases.

Regulatory Flexibility—We received

three comments from States expressing

concern that the regulations did not

provide enough flexibility. One of these

commenters stated, ‘‘An organization

should be allowed to adjust to a

changing environment and apply a

better approach or technique without

having the fear of the audit contract

being withdrawn or the audit findings

negotiated.’’ In particular, they were

opposed to the extensive use of the

word ‘‘must,’’ because they believe it

would require their programs to operate

in only one way. One commenter

indicated that the delegation proposal

contained too many detailed

requirements. Conversely, one State

commented that the regulations ‘‘* * *

appear to be a reasonable interpretation

* * *’’ of RSFA.

Industry commented that they would

like to see the specific standards that

provided the details of how the States

would perform the delegated functions.

One industry oil and gas trade

association maintained that ‘‘* * * the

standards should have been published

along with the proposed rule and

included in the regulations.’’ This

industry oil and gas trade association,

another oil and gas association, plus two

industry representatives protested that

they were forced to comment on the

proposed rule without the benefit of

reviewing the standards. Two of these

commenters requested that MMS extend

the comment period until after it issues

the standards.

MMS Response—On the issue of

flexibility, RSFA section 3(a), FOGRMA

section 205(d) mandated that the

Government and delegated States

maintain a consistent royalty

management program. Moreover, RSFA

specifically stated that States must agree

to adopt ‘‘standardized reporting

procedures’’ unless all affected parties

agree otherwise, RSFA section 3(a),

FOGRMA section 205(b)(4), and that the

delegations ‘‘will not create an

unreasonable burden on any lessee,’’

RSFA section 3(a), FOGRMA section

205(b)(3). We believe that the rule

allows for as much flexibility as

possible within the constraints that

RSFA mandates, while maintaining a

consistent royalty management program

and minimizing any burden on lessees.

Like RSFA section 3(a), FOGRMA

section 205(b)(4), the rule provides that

States may use alternative reporting

procedures if all affected parties agree.

See 30 CFR 227.106(d). In addition, we

anticipate that States may achieve

further flexibility in performing

delegated functions when they work

with us to develop their delegation

agreements, as provided in 30 CFR

227.108.

Our intent in developing the rule and

Standards was to provide the basic

framework necessary to maintain

uniform royalty management standards,

not to inhibit any flexibility in

complying with those Standards. Thus,

in describing the royalty management

functions, we used the word ‘‘must’’ for

both MMS and the States for required

performance. Although we did not

eliminate the word ‘‘must,’’ we
43078 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

modified § 227.300 to provide for

flexibility in this function. Section

227.300(a) shows the activities that

must be performed under an audit,

while § 227.300(b) lists additional

activities that would be appropriate to

perform only in certain situations.

In our attempt to try to achieve further

flexibility, we also reviewed our use of

the word ‘‘all.’’ Upon review, we believe

that it was correctly used in describing

the activities performed in the various

functions. We, therefore, did not make

any changes to the word ‘‘all.’’ However,

we acknowledge that additional

flexibility can be attained in certain

areas, such as the delegation proposal in

§ 227.103(e). Therefore, we modified the

final rule by deleting the requirements

of §§ 227.103(e)(2)(ii) and (iv) from the

proposed rule.

With respect to the comment that we

extend the comment period until MMS

issues the Standards, RSFA’s

requirement that MMS issue a final rule

within 12 months of enactment makes it

extremely difficult for us to extend the

comment period. Accordingly, we will

not extend the comment period. We

believe that we are complying with the

statutory mandates of RSFA. We also

believe we made a sufficient effort to

share the Standards with industry as

soon as they were developed. While we

did not consult with industry during the

initial phase of development, we did

conduct outreach meetings with

industry in June 1997 to share a first

draft of the Standards and receive their

input.

Further, while we published the

proposed regulation for notice and

comment, we do not intend to formally

publish the Standards document in the

Federal Register for notice and

comment because it merely offers

additional clarification on the basic

standards contained in the rule

detailing, for example, day-to-day

operational information States need to

perform delegated functions. We will

publish a notice in the Federal Register

advising when the Standards are

available and will post the Standards on

the MMS Website. Moreover, while we

understand industry’s concerns, we

believe the proposed rule provides

sufficient standards information for

commenters to be knowledgeable of the

process and requirements. Finally, we

consider the Standards to be a living

document that will change, as we

reengineer and as States, in

coordination with MMS, develop their

procedures with industry involvement.

Industry Participation—One oil and

gas trade association and two industry

representatives requested more industry

participation in the entire delegation

process, including the proposed

regulation, the Standards, and the

delegation proposal. One industry

commenter believed that because

industry is vitally affected by the

process, they must be allowed an

opportunity to provide input. This

commenter also stated that the Federal

Advisory Committee Act (FACA)

requires that industry be included in the

development of the standards and

procedures for delegation. Another

industry commenter pointed out that

industry participation would ‘‘* * *

minimize the lessee’s burden, ensure

uniformity, eliminate duplication and

protect confidential data.’’ Two

commenters suggested making the

delegation agreement a public

document.

MMS Response—We believe we have

included industry in the process to the

maximum extent possible given the

limited time available. RSFA only

requires that MMS consult with States

in developing these rules and

Standards. Nonetheless, MMS included

industry through outreach meetings and

consideration of their comments to the

proposed rule. In addition, MMS has

incorporated industry’s feedback in both

the rule and Standards.

With respect to the comments on the

applicability of FACA, in the preamble

to the proposed rule, 62 FR 19967, April

24, 1997, MMS suggested formation of

an advisory committee consisting of

States receiving delegations and MMS to

help develop the standards and

procedures for performing delegable

functions. Such meetings are

specifically exempted from FACA, 5

U.S.C. App., under section 204(b) of the

Unfunded Mandates Reform Act of

1995, Pub. L. 104–4 (UMRA). Section

204(b) of the UMRA provides that:

(b) Meetings Between State * * * and

Federal Officers: [FACA] shall not apply to

actions in support of intergovernmental

communications where—

(1) Meetings are held exclusively between

Federal officials and elected officers of State

* * * governments (or their designated

employees with authority to act on their

behalf) acting in their official capacities; and

(2) Such meetings are solely for the

purposes of exchanging views, information,

or advice relating to the management or

implementation of Federal programs

established pursuant to public law that

explicitly or inherently share

intergovernmental activities or

administration.

Clearly, meetings MMS officials, or

their delegates, have with delegated

State officials, or their delegates, to

develop the standards and procedures

necessary for States to assume delegated

functions ‘‘are solely for the purposes of

exchanging views, information, or

advice relating to the management or

implementation of Federal programs

established pursuant to public law that

explicitly or inherently share

intergovernmental activities or

administration.’’ Thus, any State-MMS

advisory committee meetings regarding

delegations would be exempt from

FACA under section 204(b) of UMRA.

Finally, the delegation agreements are

public documents evidencing an

agreement between MMS and the State.

Because industry is not a party to the

agreement, we believe that only the

States and MMS should be involved in

the negotiating process. However, MMS

and States will consult with industry

when it is specifically impacted by the

agreement. For example, if a State wants

to initiate an innovative reporting

procedure, we would seek industry

concurrence with the procedure before

its implementation.

Plain English—One industry

commenter expressed concern that

rewriting regulations for parts 228 and

229 in ‘‘Plain English’’ would change

their meaning and interpretation.

MMS Response—The Federal

Government endorses the use of ‘‘Plain

English’’ writing for all Government

documents. E.O. 12866, 58 FR 51735,

October 4, 1993. As stated above, we

will amend parts 228 and 229 at a future

date to remove references to cooperative

agreements and delegations for Federal

lands under those parts and to conform

to ‘‘Plain English’’ principles.

Simplify and Streamline Royalty

Management Practices and the

Relationship to Costs—Two industry

commenters stated that the regulations

at part 227 should simplify and

streamline royalty management

requirements and practices. These

commenters were concerned about the

additional costs that industry would

incur under the new regulations such as

the increase in information collection

requirements.

MMS Response—RSFA mandates

promulgation of these regulations.

However, the decentralization of

functions authorized under RSFA and

these implementing regulations does not

necessarily guarantee streamlining, nor

a reduction in costs. Although we have

minimized the burden to lessees in this

rulemaking, the impact of RSFA’s

mandates may result in some additional

cost to industry. We identified the

potential additional costs as stemming

primarily from an increase in

coordination between industry and

multiple royalty management entities.

But, the cost figure was an estimate and

may not actually be realized by

industry.
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43079

II. Specific Comments

Section 227.102—One State

commented that impacted States must

be allowed to participate in settlement

negotiations, even though they do not

have a delegation agreement. In

particular, the commenter stated

‘‘(MMS) * * * must depart from its

current settlement procedures in order

to comply with RSFA. RSFA expands

the authority of all States concerned, not

just those with delegations of authority,

granting them the ability to veto

compromises of royalty obligations.

Under RSFA, each State will need to

represent itself.’’

MMS Response—MMS agrees that

under RSFA section 4(a), FOGRMA

section 115(i), the ‘‘State concerned’’

(defined as a State which statutorily

receives royalties and other payments

under mineral leasing laws, RSFA

section 2(2), FOGRMA section 3(31))

may participate in the negotiation

process. RSFA section 4(a), FOGRMA

section 115(i), provides that for royalties

due on production after September 1,

1996, ‘‘the parties shall hold not less

than one settlement consultation and

the Secretary and the State concerned

may take such action as is appropriate

to compromise and settle a disputed

obligation. * * *’’

However, this language does not

expressly grant States authority to settle

a dispute or prevent the Secretary from

settling a dispute over a State objection

or ‘‘veto.’’ Rather, the Secretary must

determine what is the appropriate

action and has done so in this

rulemaking through the retention of

ultimate settlement authority. This is

consistent with the entire structure of

RSFA because: (1) Under RSFA section

4(a), FOGRMA section 115(h), the

Secretary retains authority to decide

appeals, even appeals of orders that a

delegated State issues; (2) RSFA section

12 provides that ‘‘(n)othing in this Act

shall be construed to give a state a

property right or interest in any Federal

lease or land,’’ and the power to settle

a dispute is at least an inchoate property

right which Congress has specifically

stated it did not grant to any State; and

(3) as a practical matter, many

settlements involve more than one State,

and we do not believe it was Congress’

intent to allow one State to frustrate the

settlement process in such instances

when it enacted RSFA section 4(a),

FOGRMA section 115(i). Thus, we

believe, as we always have, that the

appropriate action involves consultation

with the States. Accordingly, while all

concerned States may participate in

negotiations or other alternative dispute

resolution, MMS must retain settlement

authority over Federal royalties.

Section 227.102(d)—Two industry

commenters expressed concern about

possible duplication that might result

from the splitting of enforcement

procedures between the States and

MMS.

One oil and gas trade association

supported MMS retaining enforcement

actions. This commenter recommended

that MMS continue to apply its current

tolerances for error rates, compliance,

and other applications at the payor code

level for all Federal leases instead of by

State.

MMS Response—We do not believe

that there will be any duplication

regarding enforcement procedures.

RSFA does not allow for the splitting of

enforcement procedures. Rather, the

only enforcement procedures that RSFA

allows the States are issuing demands,

subpoenas, and orders to perform

restructured accounting. MMS will

retain all other enforcement activities.

See 30 CFR 227.102(c).

Importantly, as stated in the proposed

rule, MMS will continue to process and

decide all appeals, including appeals

from demands or orders a delegated

State issues, 30 CFR 227.102(d), and

will continue to decide all valuation

policies. 30 CFR 227.102(f).

Accordingly, although a State may issue

a demand, MMS will retain ultimate

authority for its enforcement. This

process will prevent ‘‘duplicative’’ or

‘‘split’’ enforcement procedures.

We agree that we must retain

enforcement actions not specifically

delegated by RSFA. We will address

how we will apply tolerances to payors

in various States in the regulations

relevant to the particular type of

application, such as error rates.

Section 227.103(i)—One State

commenter and one oil and gas trade

association pointed out that § 227.103(i)

was incomplete. Another commenter

‘‘urge(d) that MMS strictly enforce

confidentiality obligations * * * where

the same state auditors are conducting

federal and state royalty audits

simultaneously, along with state tax

audits.’’

MMS Response—We agree that there

is a typographical error in the last

sentence of § 227.103(i). Thus, we have

deleted the semicolon and the word

‘‘and.’’ In addition, to clarify what we

mean by the phrase in § 227.103(i) that

‘‘persons who have access to

information received under delegated

functions are subject to the same

provisions of law regarding

confidentiality and disclosure as that of

Federal employees’’ we are adding the

following language to that paragraph:

Therefore, persons who have access to

information received under delegation

agreements may not use such information or

provide such information to any other

person, including State personnel, for

purposes other than performing delegated

functions. However, this limitation does not

apply if the person submitting the

information consents in writing to its use for

other State purposes.

We are adding the additional language

because under existing laws, Federal

employees are prohibited from

disseminating confidential commercial

information to a State, except for

delegation situations where certain

restrictions exist. For example, MMS

cannot provide information it obtains in

a royalty audit to a State for the State

to use in a tax audit. Likewise, a State

employee acting as the Federal

Government’s delegatee is prohibited

from disseminating information to other

State personnel for purposes other than

delegated functions, unless the person

providing the information agrees to the

further dissemination. Moreover, some

State employees will perform delegated

functions and also other State functions

such as State severance tax audits. If

that person receives information from a

company under an MMS delegation, the

person cannot use the information

gathered under the delegation for State

enforcement purposes without obtaining

written consent from the company.

Section 227.103(c)(1)—Two State

commenters recommended making the

word ‘‘entity’’ plural because more than

one State agency may perform delegated

functions.

MMS Response—We agree and have

made this change in this rule. We also

added language to clarify that if more

than one entity is delegated

responsibility for performing delegated

functions, the State must include in its

proposal the position of the highest

ranking State official having ultimate

authority over the collection of royalties

from leases on Federal lands within the

State.

Section 227.105—Two State

commenters questioned whether MMS

would require a hearing in all cases,

even if a State requested only to make

minor changes to an existing delegation.

These commenters suggested holding a

hearing only if necessary or appropriate

and using language to that effect.

MMS Response—We agree that we

will hold a hearing only if necessary

and have changed the final rule to state

that we will require a hearing when

MMS determines it is appropriate.

Section 227.106(d)—One oil and gas

trade association supported maintaining

uniformity in the delegation program.

MMS Response—We agree.
43080 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

Section 227.107—One oil and gas

industry commenter expressed concern

about industry having enough time to

modify their systems to comply with

any new reporting requirements. This

commenter suggested allowing a 6-

month grace period before the effective

date of the delegation.

MMS Response—This section does

not address the effective date of

delegation agreements or ‘‘grace

periods.’’ Rather, it informs States that

submit a delegation proposal that the

MMS Director will decide whether to

approve the proposal within 90 days

after the proposal is complete. The 90-

day period is mandated under RSFA

section 3(a), FOGRMA section 205(c)

and cannot be changed. However, we

agree that a transition time is necessary

between the date a delegation agreement

becomes effective and the date industry

must comply with any new

requirements under such agreements.

Although not raised by this comment,

during its review of this comment MMS

realized that it had not included an

effective date for delegation agreements

in its proposed rule. Therefore, we will

modify § 227.110(a) as follows:

(a) Delegation agreements are effective

for 3 years from the first day of the

month following the date the MMS

Director signs the delegation agreement.

However, during the development of the

State’s delegation proposal under

§ 227.108 of this part, MMS, the

delegated State and any other affected

person will determine an appropriate

transition period for industry to modify

their systems to comply with any new

requirements under a delegation

agreement. Thus, the MMS Director will

not sign any delegation agreement until

after the agreed to transition period.

MMS will publish notice of the effective

date of a State’s delegation agreement in

the Federal Register and that notice will

inform industry of any transition period.

Thus, MMS, the delegated State, and

affected industry will determine the

amount of transition time necessary on

a case-by-case basis depending on the

type and number of functions that we

agree to delegate to a given State. We

will ensure that sufficient time is

provided to all affected parties to allow

for a successful transition.

Section 227.108—One State

commenter suggested cross-referencing

the standards in this section to the

standards in §§ 227.200 and 227.201.

MMS Response—We disagree. We do

not see any benefit in cross-referencing

to only those sections in the rule.

Although this rule and the Standards

provide the basic framework for uniform

performance of the delegated functions,

we believe further flexibility can be

achieved through development of the

delegation agreement under this section.

Section 227.109—One State

commenter pointed out that this section

does not address a State’s ability to

appeal if it is denied a delegation. This

commenter indicated that a review of

the decision at the administrative level

is a logical first step.

MMS Response—We disagree. RSFA

section 3(a), FOGRMA section 205(g)

expressly provides that disapproval of a

delegation proposal is reviewable in

Federal district court. Thus, consistent

with RSFA section 3(a), FOGRMA

section 205(g), the MMS Director’s

decision to deny a delegation with the

concurrence of the Secretary is final

agency action that a State may appeal in

Federal district court.

Section 227.110—Two oil and gas

trade associations recommended, at a

minimum, that we publish notice of a

State’s request for delegation in addition

to its request to renew a delegation.

Further, they recommended that upon

such notice, any affected or interested

party, including industry, could request

a hearing. One of these commenters

requested that a hearing be held in all

renewal cases.

MMS Response—We agree that we

should publish notice of a State’s

proposal for delegation, renewal of an

existing delegation, and any successive

delegation agreement. Therefore, we

will publish such notices and notice of

the effective date of a State’s delegation

agreement in the Federal Register. We

will post the proposals on the MMS

Website and also will send a copy of

delegation proposals to trade

associations or anyone else upon

request. The trade associations may

make further distribution to their

members, as necessary. MMS has added

a new paragraph at § 227.105(d) in

response to this comment. See also

§ 227.110(g).

In addition, MMS agrees that affected

parties should be able to request a

hearing when States request a renewal

or a successive delegation agreement

under this section. Accordingly, we are

modifying the final rulemaking by

adding a new paragraph (e) to this

section as follows:

(e) If a State does not request a hearing

under paragraphs (b)(1) or (d) of this section,

any other affected person may submit a

written request for a hearing under those

paragraphs to the MMS Associate Director for

Royalty Management.

Section 227.112—We received several

comments on costs from three States.

One State commenter was concerned

about the adequacy of our cost

accounting system and how States

would be compensated under it. The

other two State commenters protested

the requirement to submit vouchers

with a level of detail above current

delegation agreements. They did

support, however, making cost and

voucher information available for

review. One State commenter was

concerned that we would determine

costs on a micro-level of activity. This

commenter believed that costs related to

the audit function should be consistent

with current funding for delegated audit

work. Another State commenter

believed that we must make any cost

comparisons by looking at the whole

picture rather than a single part.

MMS Response—Through the net

receipt sharing process, MMS has

refined the costs regarding the

program’s royalty management

functions. Although the process is not

based on a detailed cost accounting

system, the Office of the Inspector

General concurred in our methodology

for allocating costs to States. However,

we appreciate the State’s concerns and

will contract with an independent

accounting firm to review MMS costs

related to all delegable functions and

recommend a methodology for

determining what funds should be made

available to States requesting a

delegation agreement for one or more

functions. This issue is important

because of RSFA’s requirement that

compensation to a State may not exceed

the Secretary’s reasonably anticipated

expenditure for performance of such

delegated activities by the Secretary.

The vouchers referred to in the

proposed rule need only show the level

of cost categories that are presently

required under existing delegated audit

agreements, not each individual

expenditure. The States will not need to

provide the detailed supporting

documentation with the vouchers, for

example, an employee’s travel voucher.

States will need only to make the

detailed supporting documentation

available, if we request it. We confirm

that we will focus on the overall costs

under the agreement.

Section 227.200—Two State

commenters objected to the requirement

that States obtain MMS guidance on any

applicable Federal requirement, such as

valuation interpretation or policy. One

State commenter was concerned about

repercussions for not following our

interpretation or guidance. This State

commenter stated that, ‘‘A delegation

may decide not to follow the guidance

due to discovery of new pertinent facts

and may elect, for purposes of effective

use of resources, to not have MMS issue

new guidance.’’ This State also
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43081

suggested that MMS can convey

guidance orally, without a formal

written procedure. Therefore, this

commenter recommended that we

delete the requirement for a written

request. Conversely, one oil and gas

trade association strongly supported the

requirement for a State to submit a

written request for interpretation of

applicable Federal requirements and for

MMS to respond in writing. This

commenter believed that, ‘‘Besides

ensuring uniform and consistent

application of Federal requirements, it

will also provide lessees with greater

certainty that they are properly

reporting and paying their royalties.’’

One State commenter requested that the

States be held to no higher standard

than MMS in performing delegated

functions.

MMS Response—The Department of

the Interior (DOI) has the final

responsibility for deciding appeals and

must maintain a uniform valuation

policy. In particular, for unique

questions and complex situations, such

as valuation issues, we believe it is more

efficient for us to provide written

guidance to all impacted parties early in

a developing situation than to provide it

late in the process. Further, this

encourages consistency in the

application of laws and regulations

because it eliminates confusion during

the administrative process. We concur

that for routine or procedural matters

States could obtain guidance orally. We

have clarified our position in the final

regulation.

We will not hold States to standards

higher than those we perform. However,

we encourage States to improve the

efficiency and effectiveness of the

Federal royalty management program

they are delegated.

Section 227.300—Two States

commented that the list of delegable

audit functions was too detailed and

restrictive. These commenters pointed

out that not all functions would apply

in every audit situation, such as site

visits, close-out conferences, and

records releases. One of these

commenters further contended that

MMS should compensate the States for

the costs of conducting any special

audit initiatives. Another State

commenter recommended deleting the

reference in this section to MMS

deciding all appeals because it may

adopt the recommendation of the

Royalty Policy Committee.

MMS Response—We agree with the

idea of increased flexibility. We have

modified the rule to only require

performance of the specific audit

functions as appropriate.

Compensation for special audit

initiatives is subject to Congressional

funding. Thus, when audit initiatives

arise and additional funds are not

available, the audit work plans of

affected States and MMS would have to

be modified in response to the higher

priority work. This could result in lower

priority work not being accomplished

with existing resources, unless Congress

provides additional funding.

We are retaining the language in the

final rules that the Department will

decide all appeals as provided in RSFA.

We are reviewing the recommendations

by the Royalty Policy Committee on

appeals and will issue an amended rule

on this matter if necessary.

Section 227.301—Three State

commenters stated that the

responsibilities for performing audits

were too restrictive, and that MMS

should allow them to develop their own

audit strategies. They pointed out that,

for example, the annual work plan is

subject to frequent change and that the

regulations need to allow for that kind

of flexibility.

MMS Response—Although, we

understand the need for flexibility in

developing audit strategies, we stress

the need for a coordinated audit

program. Thus, we agree that the annual

audit work plans can be changed to

reprioritize work with our approval and

have modified § 227.301(e) accordingly.

Section 227.400—One State

commenter advocated State collection of

royalty payments, similar to Indian

lockboxes, to minimize the

complications resulting from erroneous

reports. A second State commenter

raised the issue that RSFA’s term ‘‘State

concerned’’ (in the context of granting

exceptions from reporting and payment

requirements under 30 U.S.C. 1726(c))

applies to a broader universe than the

term ‘‘delegated State’’ used in this rule,

and requested that its meaning not be

changed. An oil and gas industry

representative questioned whether a

lessee could appeal a State’s denial of

an exception request.

MMS Response—As we stated in the

preamble to the proposed rule, RSFA

does not authorize MMS to delegate

collection functions. Thus, MMS has

reserved this function because it is

necessary for uniform administration of

the royalty management system among

the States. Further, we believe that no

complication results from a centralized

collection function.

The commenter has misinterpreted

the application of §§ 227.400(b)(1) and

(2) in this rulemaking. With respect to

§ 227.400(b)(1), RSFA provides, in the

section applicable to allocation of

production to leases within a unit or

communitization agreement, that ‘‘[t]he

Secretary or the delegated State shall

grant an exception from the reporting

and payment requirements for marginal

properties.’’ 30 U.S.C. 1721(k)(4)

(emphasis added). That is the applicable

section of RSFA that was addressed in

§ 227.400(b)(1) of this rulemaking and

does not require consent of the ‘‘state

concerned.’’ However, RSFA also

provides in the section applicable to

marginal properties in general that the

State concerned must consent to

alternative accounting and auditing

procedures for marginal properties. 30

U.S.C. 1726(c). We are in the process of

separately promulgating rules

implementing section 1726(c) of RSFA

that do require consent of the State

concerned before it will grant

alternative accounting and auditing

procedures for marginal properties.

With respect to § 227.400(b)(2), RSFA

also provides, in the section applicable

to allocation of production to leases

within a unit or communitization

agreement, that ‘‘(f)or any unit or

communitization agreement if all

lessees contractually agree to an

alternative method of royalty reporting

and payment, the lessees may submit

such alternative method to the Secretary

or the delegated State for

approval. * * *’’ 30 U.S.C. 1721(k)(3)

(emphasis added). That is the applicable

section of RSFA that was addressed in

§ 227.400(b)(2) of this rulemaking and

does not require consent of the ‘‘state

concerned.’’

Section 227.401—One oil and gas

industry commenter suggested that

States accept all forms of electronic

media as currently done by MMS.

MMS Response—We agree. We intend

to continue this policy in our delegation

program.

Section 227.500—One oil and gas

trade association and one oil and gas

industry commenter recommended that

we assess interest and erroneous

reporting at the payor code level for all

Federal leases and not at the individual

State level.

MMS Response—We will address how

we will assess for interest and erroneous

reporting in other appropriate

rulemakings.

Section 227.600—A State commenter

opposed the requirement to verify ‘‘unit

prices for reasonable product

valuation,’’ because MMS does not

perform that function. Two other State

commenters suggested that cost

effectiveness be taken into account to

optimize the return on the resources

spent when performing automated

verification. An oil and gas industry

trade association stated that it ‘‘ * * *

does not object to a State calculating
43082 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

interest, but we have concerns on how

the excessive overpayment provision of

FOGRSFA will be interpreted. (It)

believes that this provision must be

viewed on a Payor Code level for all

federal leases. We do not believe that

this provision should be made on a

state-by-state basis. What if a reporter

had only one lease within a delegated

state, but hundreds of federal leases in

other states?’’

MMS Response—We do perform a

limited product value verification

within certain broad parameters and

have left the provision unchanged in the

final rule. We would not require the

States to perform under a more stringent

standard than we do. Further, we

support flexibility and will work with

States to develop customized

approaches to automated verification

that are cost effective and meet their

needs. We will address the issue of

calculating interest on excessive

overpayments in another separate

rulemaking.

Section 227.601—One oil and gas

industry representative was concerned

about States’ abilities to verify the

proper volume of gas plant products as

currently done by MMS. This

commenter suggested that States have

the same capability to avoid extraneous

reporting by industry. Two State

commenters objected to their having to

perform verification under a higher

standard than MMS. One oil and gas

trade association commented that the

word ‘‘update’’ in § 227.601(d) should

be ‘‘updated.’’

MMS Response—If States request this

function, we will assure that they have

the capability to verify plant production

volumes. We will not require a State to

perform verification at a higher standard

than we do; however, we will work with

States to develop verification tolerances

that best suit each State’s needs. We

agree that the word in § 227.601(d)

should be ‘‘updated’’ and corrected this

section.

Section 227.800—Two oil and gas

industry trade associations supported

establishment of a MMS monitoring

team. They further suggested that the

team consult industry on a regular basis.

MMS Response—We agree that the

monitoring team should serve as a point

of contact with industry to address their

concerns. Upon review of this section,

we modified it to clarify the annual and

periodic reviews performed by the

monitoring team.

Section 227.801—Two State

commenters believed that States should

have the ability to appeal a finding by

MMS that it is not performing a

delegated function adequately. Two oil

and gas trade associations asserted that

we must take corrective actions if a

State has not performed its delegated

function satisfactorily, so the word

‘‘may’’ must be changed to ‘‘will.’’ One

of these commenters also recommended

that we put any notices of a State’s

noncompliance in writing.

MMS Response—The process we

proposed provides appropriate

administrative due process for the

delegated State. If a State’s performance

problem is not corrected through

informal discussion, we may then begin

to terminate the delegation. Any

termination of a delegated function will

be decided by the MMS Director, with

concurrence by the Secretary. This

decision would be appealable to Federal

district court.

In situations involving corrective

actions, we wish to retain the latitude to

work with States in improving their

performance of the delegated functions.

Some situations may not require us to

take a formal corrective action, for

example, where problems can be

resolved verbally. Further, MMS wishes

to assure that before it terminates an

agreement, a State will have ample

opportunity to correct any harmful or

significant deficiencies. Therefore, MMS

is retaining the word ‘‘may’’ in the

sections involving corrective actions.

Although the rule provides that MMS

will notify a State in writing of the

State’s failure to adequately perform

delegated functions, MMS will not

inform industry of a State’s

noncompliance. Industry may request

information on a State’s performance

under its delegation agreement under

the Freedom of Information Act. If

industry has concerns regarding a

State’s performance of delegated

functions, industry may contact the

monitoring team described under

§ 227.800 of this part.

Section 227.804—Two oil and gas

trade associations requested that we

provide industry with 180 days for

systems changes, if a State elects to

terminate its delegation. One of these

commenters also asked that industry be

notified of such terminations.

MMS Response—This section does

not explicitly address the effective date

of terminations of delegation agreements

or time periods for industry to make

systems changes once a termination

becomes effective. Rather, it informs

States that they must provide MMS with

a 90-day written notice of their intent to

terminate a delegation agreement.

However, MMS agrees that a transition

time is warranted and is modifying

§ 227.804 to address this concern.

Although not raised by this comment,

during its review of this comment, MMS

realized that it had not included an

effective date for termination of

delegation agreements in its proposed

rule. Accordingly, we have modified

§ 227.804 to provide that MMS will

determine a termination date based on

the number and type of delegation

function(s) and the number of affected

parties. Therefore, in attempting to

provide flexibility, we will work with

each State and industry, as appropriate,

to determine the appropriate amount of

time for termination of their particular

delegated function(s).

III. Comments That MMS Specifically

Requested

We specifically asked for comment on

the following issues:

Removal of Part 229 ‘‘As an

alternative proposal, MMS would like

comment on whether it should remove

part 229 completely and incorporate

delegations to States for audits,

inspections, and investigations on

Indian lands into new Part 227.’’

Comment—One industry commenter

recommended that MMS retain separate

delegation regulations for audits,

inspections and investigations for

Indian leases in part 229. Another

industry commenter pointed out that

FOGRSFA did not affect leases on

Indian lands.

MMS Response—We agree and we are

retaining this authority in part 229.

Delegation Proposal

‘‘MMS specifically requested

comments on additional information

that you believe would be important to

include in a State’s delegation

proposal.’’

Comment—We did not receive any

specific comments on this issue.

However, one oil and gas trade

association requested timely access to

delegation proposals.

MMS Response—We addressed this

issue under § 227.110.

Formation of an Advisory Committee

‘‘MMS would suggest formation of an

advisory committee comprised of States

receiving delegations and MMS

representatives. The committee would

be responsible for providing advice and

recommendations about the standards

and procedures required for the

performance of delegable functions.

MMS would like comments on this

suggestion.’’

Comment—One oil and gas industry

trade association advocated that

industry also be included in the

advisory committee.

MMS Response—RSFA requires that

MMS and the States consult in the

development of procedures and

standards for States to perform royalty
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43083

management functions. We believe that

it may be helpful for States with

delegations and MMS to work

informally together through a Stateinitiated advisory group on the

continuing development and

coordination of the delegation program.

The discussions would involve mostly

the day-to-day coordination of activities

between MMS and States and would

have little, if any, effect on industry’s

activities. Once standards, procedures,

and coordination techniques are

developed, industry will have the

opportunity for review.

Monitoring Team—‘‘Please provide

comment to MMS if you have

suggestions on how MMS should form

the monitoring team.’’

Comment—One oil and gas trade

association stated that the monitoring

team should consist of MMS subject

matter experts. Further, this commenter

suggested that the team consult with

affected payors on a regular basis.

MMS Response—We agree that the

monitoring team members should be

subject matter experts and that the team

will consult with affected payors on a

regular basis.

Reporting Burden—‘‘As part of our

continuing effort to reduce paperwork

and respondent burden, MMS invites

the public and other Federal agencies to

comment on any aspect of the reporting

burden.’’

Comment—One oil and gas trade

association emphasized that reporting

burdens could exist when payors report

in more than one State. Further, this

commenter stated that industry

participation is essential to eliminate

duplication and provide a uniform

reporting format.

MMS Response—While we agree that

under RSFA there may be an additional

reporting burden for those payors

reporting to multiple States, we are

committed to coordinating with States

and industry to minimize this burden.

Paperwork Reduction Act

Requirements—‘‘In compliance with the

requirement of section 3506(c)(2)(A) of

the Paperwork Reduction Act of 1995,

MMS is providing notice and otherwise

consulting with members of the public

and affected agencies concerning

collection of information in order to

solicit comment to: (a) Evaluate whether

the proposed collection of information

is necessary for the proper performance

of the functions of the agency, including

whether the information shall have

practical utility; (b) evaluate the

accuracy of the agency’s estimate of the

burden of the proposed collection of

information; (c) enhance the quality,

utility, and clarity of the information to

be collected; and (d) minimize the

burden of the collection of information

on those who are to respond, including

through the use of automated collection

techniques or other forms of information

technology.’’

Comment—We did not receive any

comments on this issue.

Section-by-Section Analysis

Section 227.100 What States may

request delegation?

We removed this section and

combined the information with

§ 227.101 to conform with comments

received from the mining industry and

the Departmental legal opinion.

Section 227.101 What royalty

management functions may MMS

delegate to a State?

We combined the proposed § 227.100

with this section for clarity purposes.

At § 227.101(a), we added language to

clarify that a State performing delegated

royalty management functions must

perform those functions for all Federal

oil and gas leases within the State

boundaries.

At § 227.101(b), we added language to

clarify that a State performing delegated

audits and investigations must perform

those functions for all federal leases

subject to OCSLA section 8(g) and solid

mineral leases and geothermal leases on

Federal lands within the State

boundaries.

Section 227.103 What must a State’s

delegation proposal contain?

We modified § 227.103(c)(1) to

include the word ‘‘entities’’ in response

to comments and added language to

clarify that if more than one entity is

delegated responsibility for performing

delegated functions, the State must

provide in its proposal the position of

the highest ranking State official having

ultimate authority over the collection of

royalties from leases on Federal lands

within the State.

At § 227.103(e)(2), we deleted

paragraphs (ii) and (iv) in response to

comments.

At § 227.103(i), we added language to

clarify the responsibilities of handling

confidential information.

Section 227.105 What are the hearing

procedures?

At § 227.105, we added the words ‘‘if

appropriate’’ in response to comments.

We inserted a new paragraph at

§ 227.105(d) also in response to

comments.

Section 227.110 When and for how

long are delegation agreements

effective?

We changed the section title to add

clarity. We added information at

§ 227.110(a) to clarify our language

regarding the effective date for

delegation agreements. We added new

language at § 227.110(d) to clarify our

original proposal.

In response to comments, we added

§ 227.110(e) to further explain the

hearing process.

Section 227.111 Do existing delegation

agreements remain in effect?

We added language at § 227.111(a) to

further explain our requirements in this

section.

Section 227.112 What compensation

will a State receive to perform delegated

functions?

We added language at § 227.112(d) to

provide an option to the States for

voucher submittal.

Section 227.200 What are a State’s

general responsibilities if it accepts a

delegation?

We modified § 227.200(a) to provide

flexibility to States in response to their

comments.

We deleted the phrase ‘‘and the MMS

Standards for Delegation (Standards)’’

from § 227.200(e) for clarity purposes.

We added the phrase ‘‘and the

delegation agreement;’’ to 227.200(f) for

clarity purposes.

Section 227.300 What audit functions

may a State perform?

We modified § 227.300 to provide

greater flexibility to the States in

response to their comments.

Section 227.301 What are a State’s

responsibilities if it performs audits?

We modified the language at

§ 227.301(e) of the proposed rule to

provide flexibility to States regarding

their audit plans, as expressed in their

comments.

We also modified the language at

§ 227.301(f) of the proposed rule to

clarify our requirements regarding the

appeals process.

Section 227.400 What functions may a

State perform in processing production

reports or royalty reports?

We modified § 227.400(a)(7) to clarify

our requirements regarding the appeals

process.

Section 227.401 What are a State’s

responsibilities if it processes

production reports or royalty reports?

We modified § 227.401(b) to clarify

our requirements for processing fatal
43084 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

errors. At § 227.401(h), we modified the

language to clarify our requirements

regarding the appeals process.

Section 227.500 What functions may a

State perform to ensure that reporters

correct erroneous report data?

We modified § 227.500(b) for further

clarity.

Section 227.501 What are a State’s

responsibilities to ensure that reporters

correct erroneous data?

We changed § 227.501(b) for

simplicity. We modified § 227.501(d) to

clarify our requirements regarding the

appeals process.

Section 227.600 What automated

verification functions may a State

perform?

We modified § 227.600(b)(4) as a

result of mining industry comments

regarding the delegation of additional

royalty management functions for solid,

geothermal, and § 8(g) leases.

We deleted § 227.600(b)(7) to correct

this final rulemaking because this item

is not a separate, identifiable automated

verification function. We modified

§ 227.600(d) to clarify our requirements

regarding the appeals process.

Section 227.601 What are a State’s

responsibilities if it performs automated

verification?

We changed § 227.601(d) to correct a

typographical error. We modified

§ 227.601(e) to provide further clarity

regarding the appeals requirements.

Section 227.700 What enforcement

documents may a State issue in support

of its delegated function?

We deleted language from

§ 227.700(a) as a result of mining

industry comments regarding the

delegation of additional royalty

management functions for solid,

geothermal, and § 8(g) leases.

Section 227.800 How will MMS

monitor a State’s performance of

delegated functions?

We modified § 227.800 in response to

comments and to further specify our

review process.

Section 227.802 How will MMS

terminate a State’s delegation

agreement?

We added further information about

the termination of delegation agreement

process at § 227.802 for clarity purposes.

Section 227.804 How else may a

State’s delegation agreement terminate?

We modified § 227.804 as a result of

industry comments.

V. Procedural Matters

The Regulatory Flexibility Act

The Department certifies that this rule

will not have a significant economic

effect on a substantial number of small

entities under the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.). This rule

provides guidance to States about the

delegation of royalty management

functions.

Approximately 4,500 reporters

provide royalty and production reports

on mineral production from Federal and

Indian lands to MMS. However, many of

these companies report both royalty and

production information to MMS. The

total number of companies reporting to

MMS is about 2,500. The majority of

these are considered small businesses

under the criteria of the Small Business

Administration.

Some small entities might have

activities in more than one State. While

these companies could be required to

report to several States instead of only

the Federal Government under this

rulemaking, they would file the same

reports that they do now, but to a greater

number of regulatory agencies. For the

small entity, this will require further

communication and coordination

between the States and MMS. If the

entity has several leases in more than

one State, we estimate an additional

burden of 50 hours for coordination

between the several States and MMS.

Under this scenario, the annual cost

burden estimate to a small entity is

$1,750.

If a payor reports for Federal mineral

leases located in only one State, we

estimate no additional burden hours or

costs imposed by this rule because the

payor is already required to send in the

same production reports and royalty

payments but to a different address. A

$1,750 annual cost for a small business

to comply with this rule is not

considered a significant impact on a

typical small entity in the oil and gas

extraction industry.

This rulemaking will not have a

significant economic impact on a

substantial number of small entities.

Executive Order 12630

The Department certifies that the rule

does not represent a governmental

action capable of interference with

constitutionally protected property

rights. Thus, there is no need to prepare

a Takings Implication Assessment under

Executive Order 12630, ‘‘Governmental

Actions and Interference with

Constitutionally Protected Property

Rights.’’

Executive Order 12866

This rule was determined to be

significant by the Office of Management

and Budget (OMB). Although this rule

will result in an increased reporting

burden, there will be an offsetting

benefit of incentives to States to

participate in Federal activities. MMS

estimates the economic impact of this

rule to be about $7 million.

Executive Order 12988

The Department has certified to OMB

that this proposed regulation meets the

applicable standards provided in

sections 3(a) and 3(b)(2) of E.O. 12988.

Paperwork Reduction Act

The Office of Management and Budget

approved the information collection

requirements contained in this rule

under 44 U.S.C. 3501 et seq., and

assigned OMB Control Number 1010–

0088, titled: Delegation of Authority to

States. This OMB approval has an

expiration date of June 30, 2000.

National Environmental Policy Act of

1969

We have determined that this

rulemaking is not a major Federal action

significantly affecting the quality of the

human environment, and a detailed

statement under section 102(2)(C) of the

National Environmental Policy Act of

1969 (42 U.S.C. 4332(2)(C)) is not

required.

Unfunded Mandates Reform Act of 1995

The Department has determined and

certifies according to the Unfunded

Mandates Reform Act, 2 U.S.C. 1502 et

seq., that this rule will not impose a cost

of $100 million or more in any given

year on local, tribal, State governments

or the private sector.

List of Subjects in 30 CFR Parts 227,

228 and 229

Coal, Continental shelf, Geothermal

energy, Government contracts, Mineral

royalties, Natural gas, Petroleum, Public

lands—mineral resources, Reporting

and recordkeeping requirements.

Dated: July 26, 1997.

Bob Armstrong,

Assistant Secretary, Land and Minerals

Management.

For the reasons set out in the

preamble, Title 30, Chapter II of the

Code of Federal Regulations is amended

as follows:

1. Part 227 is added to read as follows:

PART 227—DELEGATION TO STATES

Sec.
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43085

Delegation of MMS Royalty Functions

227.1 What is the purpose of this part?

227.10 What is the authority for

information collection?

227.101 What royalty management

functions may MMS delegate to a State?

227.102 What royalty management

functions will MMS not delegate?

Delegation Proposals

227.103 What must a State’s delegation

proposal contain?

227.104 What will MMS do when it

receives a State’s delegation proposal?

Hearing Process

227.105 What are the hearing procedures?

Delegation Process

227.106 What statutory requirements must

a State meet to receive a delegation?

227.107 When will the MMS Director

decide whether to approve a State’s

delegation proposal?

227.108 How will MMS notify a State of its

decision?

227.109 What if the MMS Director denies a

State’s delegation proposal?

227.110 When and for how long are

delegation agreements effective?

Existing Delegations

227.111 Do existing delegation agreements

remain in effect?

Compensation

227.112 What compensation will a State

receive to perform delegated functions?

States’ Responsibilities to Perform Delegated

Functions

227.200 What are a State’s general

responsibilities if it accepts a delegation?

227.201 What standards must a State

comply with for performing delegated

functions?

227.300 What audit functions may a State

perform?

227.301 What are a State’s responsibilities

if it performs audits?

227.400 What functions may a State

perform in processing production reports

and royalty reports?

227.401 What are a State’s responsibilities

if it processes production reports or

royalty reports?

227.500 What functions may a State

perform to ensure that reporters correct

erroneous report data?

227.501 What are a State’s responsibilities

to ensure that reporters correct erroneous

data?

227.600 What automated verification

functions may a State perform?

227.601 What are a State’s responsibilities

if it performs automated verification?

227.700 What enforcement documents may

a State issue in support of its delegated

function?

Performance Review

227.800 How will MMS monitor a State’s

performance of delegated functions?

227.801 What if a State does not adequately

perform a delegated function?

227.802 How will MMS terminate a State’s

delegation agreement?

227.803 What are the hearing procedures

for terminating a State’s delegation

agreement?

227.804 How else may a State’s delegation

agreement terminate?

227.805 How may a State obtain a new

delegation agreement after termination?

Authority: 30 U.S.C. 1735; 30 U.S.C. 196;

Pub L. 102–154.

Delegation of MMS Royalty Functions

§ 227.1 What is the purpose of this part?

This part provides procedures to

delegate Federal royalty management

functions to States under section 205 of

the Federal Oil and Gas Royalty

Management Act of 1982 (the Act), 30

U.S.C. 1735, as amended by the Federal

Oil and Gas Royalty Simplification and

Fairness Act of 1996, Pub. L. 104–185,

August 13, 1996, as corrected by Pub. L.

104–200. This part also provides

procedures to delegate only audit and

investigation functions to States under

Pub. L. 102–154 for solid mineral leases,

geothermal leases and leases subject to

section 8(g) of the Outer Continental

Shelf Lands Act, 43 U.S.C. 1337(g). This

part does not apply to any inspection or

enforcement responsibilities of the

Bureau of Land Management for

onshore leases or the MMS Offshore

Minerals Management program for

leases on the Outer Continental Shelf.

§ 227.10 What is the authority for

information collection?

(a) The information collection

requirements contained in this part have

been approved by Office of Management

and Budget (OMB) under 44 U.S.C. 3501

et seq. and assigned OMB Control

Number 1010–0088. We will use the

information collected to review and

approve delegation proposals from

States wishing to perform royalty

management functions.

(b) Public reporting burden is

estimated as follows. MMS estimates

400 annual burden hours per function

for each State performing the delegated

functions. The Federal Government will

reimburse some of these costs as

provided by statute. However, States

could incur additional start-up costs,

such as purchasing equipment

necessary to perform a delegated

function, that may not be reimbursable.

MMS estimates that, if applicable, each

payor or reporter would spend 50

burden hours annually coordinating

their interactions and communications

among the several States and with

MMS. Send comments regarding this

burden estimate or any other aspect of

this collection of information, including

suggestions for reducing burden, to the

Information Collection Clearance

Officer, Minerals Management Service,

1849 C Street, NW, Washington, DC

20240; and to the Office of Information

and Regulatory Affairs, Office of

Management and Budget, Attention:

Desk Officer for the Interior Department,

OMB Control Number 1010–0088, 725

17th Street, NW, Washington, DC 20503.

§ 227.101 What royalty management

functions may MMS delegate to a State?

(a) If there are oil and gas leases

subject to the Act on Federal lands

within your State, MMS may delegate

the following royalty management

functions for all such Federal oil and

gas leases to you under this part:

(1) Conducting audits and

investigations;

(2) Receiving and processing

production or royalty reports;

(3) Correcting erroneous report data;

(4) Performing automated verification;

and

(5) Issuing demands, subpoenas, and

orders to perform restructured

accounting, including related notices to

lessees or their designees, and entering

into tolling agreements under section

115(d)(1) of the Act, 30 U.S.C.

1725(d)(1).

(b) If there are oil and gas leases

offshore of your State subject to section

8(g) of the Outer Continental Shelf

Lands Act, 43 U.S.C. 1337(g), or solid

mineral leases or geothermal leases on

Federal lands within your State, MMS

only may delegate authority to conduct

audits and investigations for all such

Federal leases to you under this part.

MMS will not delegate other functions

that may be delegated for oil and gas

leases on Federal lands.

§ 227.102 What royalty management

functions will MMS not delegate?

This section lists the principal royalty

management functions that MMS will

not delegate to a State. MMS will not

delegate to a State the following

functions:

(a) MMS must collect all moneys

received from sales, bonuses, rentals,

royalties, civil penalties, assessments

and interest. MMS also must collect any

moneys a lessee or its designee pays

because of audits or other actions of a

delegated State;

(b) MMS must compare all cash and

other payments it receives with

payments shown on royalty reports or

other documents, such as bills, to

reconcile payor accounts. MMS also

must disburse all appropriate moneys to

States and other revenue recipients,

including refunds and interest owed to

lessees and their designees;

(c) The Department of the Interior will

receive, process, and decide all

administrative appeals from demands or
43086 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

other orders issued to lessees, their

designees, or any other person,

including demands or orders a

delegated State issues;

(d) Only MMS may take enforcement

actions other than issuing demands,

subpoenas and orders to perform

restructured accounting. MMS or the

appropriate Federal agency will issue

notices of non-compliance and civil

penalties, collect debts, write off

delinquent debts, pursue litigation,

enforce subpoenas, and manage any

alternative dispute resolution. MMS

will conduct, coordinate and approve

any settlement or other compromise of

an obligation that a lessee or its

designee owes;

(e) MMS will decide all valuation

policies, including issuing valuation

regulations, determinations, and

guidelines, and interpreting valuation

regulations; and

(f) MMS may reserve additional

authorities and responsibilities not

included in paragraphs (a) through (f) of

this section.

Delegation Proposals

§ 227.103 What must a State’s delegation

proposal contain?

If you want MMS to delegate royalty

management functions to you, then you

must submit a delegation proposal to

the MMS Associate Director for Royalty

Management. MMS will provide you

with technical assistance and

information to help you prepare your

delegation proposal. Your proposal

must contain the following minimum

information:

(a) The name and title of the State

official authorized to submit the

delegation proposal and execute the

delegation agreement;

(b) The name, address, and telephone

number of the State contact for the

proposal;

(c) A copy of the legislation, State

Attorney General opinion or other

document that:

(1) States which State entity or

entities are responsible for performing

delegated functions, and if more than

one entity is delegated such

responsibility, the position of the

highest ranking State official having

ultimate authority over the collection of

royalties from leases on Federal lands

within the State;

(2) Demonstrates the State’s authority

to:

(i) Accept a delegation from MMS;

and

(ii) Receive State or Federal

appropriations to perform delegated

functions;

(d) The date you propose to begin

performing delegated functions;

(e) A detailed statement of the

delegable functions that you propose to

perform. For each function, describe the

resources available in your State to

perform each function, the procedures

you will use to perform each function,

and how you will assure that you will

meet all Federal laws, lease terms,

regulations and relevant performance

standards. As evidence that you have or

will have the resources to perform each

delegable function, provide the

following information:

(1) A description of the personnel you

have available to perform delegated

functions, including:

(i) How many persons you will assign

full-time and part-time to each

delegated function;

(ii) The technical qualifications of the

key personnel you will assign to each

function, including academic field and

degree, professional credentials, and

quality and amount of experience with

similar functions; and

(iii) Whether these persons are

currently State employees. If not,

explain how you propose to hire these

persons or obtain their services, and

when you expect to have those persons

available to perform delegated

functions;

(2) A description of the facilities you

will use to perform delegated functions,

including:

(i) Whether you currently have the

facilities in which you will physically

locate the personnel and equipment you

will need to perform the functions you

propose to assume. If not, how you

propose to acquire such facilities, and

when you expect to have such facilities

available; and

(ii) How much office space is

available;

(3) Describe the equipment you will

use to perform delegated functions,

including:

(i) Hardware and software you will

use to perform each delegated function,

including equipment for:

(A) Document processing, including

compatibility with MMS automated

systems, electronic commerce

capabilities, and data storage

capabilities;

(B) Accessing reference data;

(C) Contacting production or royalty

reporters;

(D) Issuing demands;

(E) Maintaining accounting records;

(F) Performing automated verification;

(G) Maintaining security of

confidential and proprietary

information; and

(H) Providing data to other Federal

agencies;

(ii) Whether you currently have the

equipment you will need to perform the

functions you propose to assume. If not,

how you propose to acquire such

equipment and when you expect to have

such equipment available;

(f) Your estimates of the costs to fund

the following resources necessary to

perform the delegation:

(1) Personnel, including hiring,

employee salaries and benefits, travel

and training;

(2) Facilities, including acquisition,

upgrades, operation, and maintenance;

and

(3) Equipment, including acquisition,

operation, and maintenance;

(g) Your plans to fund the resources

under paragraph (f) of this section,

including any items you will ask MMS

to fund under the delegation agreement;

(h) A statement identifying any areas

where State law, including State

appropriation law, may limit your

ability to perform delegated functions,

and an explanation of how you propose

to remove any such limitation;

(i) A statement that in accordance

with section 203 of the Act (30 U.S.C.

1733) persons who have access to

information received under delegated

functions are subject to the same

provisions of law regarding

confidentiality and disclosure of that

information as Federal employees.

Applicable laws include the Freedom of

Information Act (FOIA), the Trade

Secrets Act, and relevant Executive

Orders. In addition, your statement

must acknowledge that all documents

produced, received, and maintained as

part of any delegation functions are

agency records for purposes of FOIA.

Therefore, persons who have access to

information received under delegated

functions may not use such information

or provide such information to any

other person, including State personnel,

for purposes other than performing

delegated functions. However, this

limitation does not apply if the person

submitting the information consents in

writing to its use for other State

purposes.

§ 227.104 What will MMS do when it

receives a State’s delegation proposal?

When MMS receives your delegation

proposal, it will record the receipt date.

MMS will notify you in writing within

15 business days whether your proposal

is complete. If it is not complete, MMS

will identify any missing items

§ 227.103 requires. Once you submit all

required information, MMS will notify

you of the date your application is

complete.
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43087

Hearing Process

§ 227.105 What are the hearing

procedures?

After MMS notifies you that your

delegation proposal is complete, MMS

will schedule a hearing on your

proposal, if MMS determines a hearing

is appropriate, as follows:

(a) The MMS Director will appoint a

hearing official to conduct one or more

public hearings for fact finding

regarding your ability to assume the

delegated functions requested. The

hearing official will not decide whether

to approve your delegation request;

(b) The hearing official will contact

you about scheduling a hearing date and

location;

(c) The MMS will publish notice of

the hearing in the Federal Register and

other appropriate media within your

State;

(d) MMS will publish notice of the

proposal in the Federal Register. MMS

will also post the proposal on the MMS

Website, and upon request, MMS will

send a copy of the delegation proposal

to the trade associations to distribute to

their members, as necessary;

(e) At the hearing, you will have an

opportunity to present testimony and

written information in support of your

proposal;

(f) Other persons may attend the

hearing and may present testimony and

written information for the record;

(g) MMS will record the hearing;

(h) MMS will maintain a record of all

documents related to the proposal

process;

(i) After the hearing, MMS may

require you to submit additional

information in support of your

delegation proposal.

Delegation Process

§ 227.106 What statutory requirements

must a State meet to receive a delegation?

The MMS Director will decide

whether to approve your delegation

request and will ask the Secretary of the

Interior to concur in the decision. That

decision is solely within the MMS

Director’s and the Secretary’s discretion.

The MMS Director’s decision, which the

Secretary concurs in, is the final

decision for the Department of the

Interior. The MMS Director may

approve a State’s request for delegation

only if, based upon the State’s

delegation proposal and the hearing

record, the MMS Director finds that:

(a) It is likely that the State will

provide adequate resources to achieve

the purposes of the Act;

(b) The State has demonstrated that it

will effectively and faithfully administer

the MMS regulations under the Act in

accordance with subsections (c) and (d)

of section 205 of the Act;

(c) Such delegation will not create an

unreasonable burden on any lessee;

(d) The State agrees to adopt

standardized reporting procedures MMS

prescribes for royalty and production

accounting purposes, unless the State

and all affected parties (including MMS)

otherwise agree;

(e) The State agrees to follow and

adhere to regulations and guidelines

MMS issues under the mineral leasing

laws regarding valuation of production;

and

(f) Where necessary for a State to carry

out and enforce a delegated activity, the

State agrees to enact such laws and

promulgate such regulations as are

consistent with relevant Federal laws

and regulations.

§ 227.107 When will the MMS Director

decide whether to approve a State’s

delegation proposal?

The MMS Director will decide

whether to approve your delegation

proposal within 90 days after your

delegation proposal is considered

complete under § 227.104. MMS may

extend the 90-day period with your

written consent.

§ 227.108 How will MMS notify a State of

its decision?

MMS will notify you in writing of its

decision on your delegation proposal. If

MMS approves your delegation

proposal, then MMS will hold

discussions with you to develop a

delegation agreement detailing the

functions that you will perform, the

standards and requirements you must

comply with to perform those functions,

and any required transition period.

§ 227.109 What if the MMS Director denies

a State’s delegation proposal?

If the MMS Director denies your

delegation proposal, MMS will state the

reasons for denial. MMS also will

inform you in writing of the conditions

you must meet to receive approval. You

may submit a new delegation proposal

at any time following a denial.

§ 227.110 When and for how long are

delegation agreements effective?

(a) Delegation agreements are effective

for 3 years from the date the MMS

Director signs the delegation agreement.

However, during the development of the

State’s delegation proposal under

§ 227.108 of this part, MMS, the

delegated State, and any other affected

person will determine an appropriate

transition period for lessees and their

designees to modify their systems to

comply with any new requirements

under a delegation agreement. MMS

will publish notice of the effective date

of a State’s delegation agreement in the

Federal Register and that notice will

inform lessees and their designees of

any transition period. MMS also will

post the proposals on the MMS Website

at www.mms.gov, and upon request,

will send a copy of the delegation

proposals to trade associations to

distribute to their members.

(b) You may ask MMS to renew the

delegation for an additional 3 years no

less than 6 months before your 3-year

delegation agreement expires. You must

submit your renewal request to the

MMS Associate Director for Royalty

Management as follows:

(1) If you do not want to change the

terms of your delegation agreement for

the renewal period, you need only ask

to extend your existing agreement for

the 3-year renewal period. MMS will

not schedule a hearing unless you

request one;

(2) If you want to change the terms of

your delegation agreement for the

renewal period, you must submit a new

delegation proposal under this part.

(c) The MMS Director may approve

your renewal request only if MMS

determines that you are meeting the

requirements of the applicable

standards and regulations. If the MMS

Director denies your renewal request,

MMS will state the reasons for denial.

MMS also will inform you in writing of

the conditions you must meet to receive

approval. You may submit a new

renewal request any time after denial.

(d) After the 3-year renewal period for

your delegation agreement ends, if you

wish to continue performing one or

more delegated functions, you must

request a new delegation agreement

from MMS under this part. MMS will

schedule a hearing on your request, if

MMS determines a hearing is

appropriate. As part of the decision

whether to approve your request for a

new delegation, the MMS Director will

consider whether you are meeting the

requirements of the applicable

standards and regulations under your

existing delegation agreement.

(e) If you do not request a hearing

under paragraphs (b)(1) or (d) of this

section, any other affected person may

submit a written request for a hearing

under those paragraphs to the MMS

Associate Director for Royalty

Management.

Existing Delegations

§ 227.111 Do existing delegation

agreements remain in effect?

This section explains your options if

you have a delegation agreement in

effect on the effective date of this

regulation.
43088 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

(a) If you do not want to perform any

royalty management functions in

addition to those authorized under your

existing agreement, you may continue

your existing agreement until its

expiration date. Before the agreement

expires, if you wish to continue to

perform one or more of the delegated

functions you performed under the

expired agreement, you must request a

new delegation agreement meeting the

requirements of this part and the

applicable standards.

(b) If you want to perform royalty

management functions in addition to

those authorized under your existing

agreement, you must request a new

delegation agreement under this part.

(c) MMS may extend any delegation

agreement in effect on the effective date

of this regulation for up to 3 years

beyond the date it is due to expire.

Compensation

§ 227.112 What compensation will a State

receive to perform delegated functions?

You will receive compensation for

your costs to perform each delegated

function subject to the following

conditions:

(a) Compensation for costs is subject

to Congressional appropriations;

(b) Compensation may not exceed the

reasonably anticipated expenditures

that MMS would incur to perform the

same function;

(c) The cost for which you request

compensation must be directly related

to your performance of a delegated

function and necessary for your

performance of that delegated function;

(d) At a minimum, you must provide

vouchers detailing your expenditures

quarterly during the fiscal year.

However, you may agree to provide

vouchers on a monthly basis in your

delegation agreement;

(e) You must maintain adequate books

and records to support your vouchers;

(f) MMS will pay you quarterly or

monthly during the fiscal year as stated

in your delegation agreement; and

(g) MMS may withhold compensation

to you for your failure to properly

perform any delegated function as

provided in section 227.801 of this part.

States’ Responsibilities To Perform

Delegated Functions

§ 227.200 What are a State’s general

responsibilities if it accepts a delegation?

For each delegated function you

perform, you must:

(a) Operate in compliance with all

Federal laws, regulations, and

Secretarial and MMS determinations

and orders relating to calculating,

reporting, and paying mineral royalties

and other revenues. You must seek

information or guidance from MMS

regarding new, complex, or unique

issues. If MMS determines that written

guidance or interpretation is

appropriate, MMS will provide the

guidance or interpretation in writing to

you and you must follow the

interpretation or guidance given;

(b) Comply with Generally Accepted

Accounting Principles (GAAP). You

must:

(1) Provide complete disclosure of

financial results of activities;

(2) Maintain correct and accurate

records of all mineral-related

transactions and accounts;

(3) Maintain effective controls and

accountability;

(4) Maintain a system of accounts that

includes a comprehensive audit trail so

that all entries may be traced to one or

more source documents; and

(5) Maintain adequate royalty and

production information for royalty

management purposes;

(c) Assist MMS in meeting the

requirements of the Government

Performance and Results Act (GPRA) as

well as assisting in developing and

endeavoring to comply with the MMS

Strategic Plan and Performance

Measurements;

(d) Maintain all records you obtain or

create under your delegated function,

such as royalty reports, production

reports, and other related information.

You must maintain such records in a

safe, secure manner, including taking

appropriate measures for protecting

confidential and proprietary

information and assisting MMS in

responding to Freedom of Information

Act requests when necessary. You must

maintain such records for at least 7

years;

(e) Provide reports to MMS about your

activities under your delegated

functions. MMS will specify in your

delegation agreement what reports you

must submit and how often you must

submit them. At a minimum, you must

provide periodic statistical reports to

MMS summarizing the activities you

carried out, such as:

(1) Production and royalty reports

processed;

(2) Erroneous reports corrected;

(3) Results of automated verification

findings;

(4) Number of audits performed; and

(5) Enforcement documents issued.

(f) Assist MMS in maintaining

adequate reference, royalty, and

production databases as provided in the

Standards issued under § 227.201 of

this part and the delegation agreement;

(g) Develop annual work plans that:

(1) Specify the work you will perform

for each delegated function; and

(2) Identify the resources you will

commit to perform each delegated

function;

(h) Help MMS respond to requests for

information from other Federal

agencies, Congress, and the public;

(i) Cooperate with MMS’s monitoring

of your delegated functions; and

(j) Comply with the Standards as

required under § 227.201 of this part.

§ 227.201 What standards must a State

comply with for performing delegated

functions?

(a) If MMS delegates royalty

management functions to you, you must

comply with the Standards. The

Standards explain how you must carry

out the activities under each of the

delegable functions.

(b) Your delegation agreement may

include additional standards

specifically applicable to the functions

delegated to you.

(c) Failure to comply with your

delegation agreement, the Standards, or

any of the specific standards and

requirements in the delegation

agreement, is grounds for termination of

all or part of your delegation agreement,

or other actions as provided under

§§ 227.801 and 227.802.

(d) MMS may revise the Standards

and will provide notice of those changes

in the Federal Register. You must

comply with any changes to the

Standards.

§ 227.300 What audit functions may a

State perform?

An audit consists of an examination

of records to verify that royalty reports

and payments accurately reflect actual

production, sales, revenues and costs,

and compliance with Federal statutes,

regulations, lease terms, and MMS

policy determinations.

(a) If you request delegation of audit

functions, you must perform at least the

following:

(1) Submitting requests for records;

(2) Examining royalty and production

reports;

(3) Examining lessee production and

sales records, including contracts,

payments, invoices, and transportation

and processing costs to substantiate

production and royalty reporting;

(4) Providing assistance to MMS for

appealed demands or orders, including

preparing field reports, performing

remanded actions, modifying orders,

and providing oral and written briefing

and testimony as expert witnesses.

(b) If necessary for a particular audit,

you may also perform any of the

following:

(1) Issuing engagement letters;

(2) Arranging for entrance

conferences;
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43089

(3) Scheduling site visits; and

(4) Issuing record releases and audit

closure letters; and

(5) Holding closeout conferences.

§ 227.301 What are a State’s

responsibilities if it performs audits?

If you perform audits you must:

(a) Comply with the MMS Audit

Procedures Manual and the Government

Auditing Standards issued by the

Comptroller General of the United

States;

(b) Follow the MMS Annual Audit

Work Plan and 5-year Audit Strategy,

which MMS will develop in

consultation with States having

delegated audit authority;

(c) Agree to undertake special audit

initiatives MMS identifies targeting

specific royalty issues, such as valuation

or volume determinations;

(d) Prepare, construct, or compile

audit work papers under the appropriate

procedures, manuals, and guidelines;

(e) Prepare and submit MMS Audit

Work Plans. You may modify your

Audit Work Plans with MMS approval;

and

(f) Comply with procedures for

appealed demands or orders, including

meeting timeframes, supplying

information, and using the appropriate

format.

§ 227.400 What functions may a State

perform in processing production reports

or royalty reports?

Production reporters or royalty

reporters provide production, sales, and

royalty information on mineral

production from leases that must be

collected, analyzed, and corrected.

(a) If you request delegation of either

production report or royalty report

processing functions, you must perform

at least the following:

(1) Receiving, identifying, and date

stamping production reports or royalty

reports;

(2) Processing production or royalty

data to allow entry into a data base;

(3) Creating copies of reports by

means such as electronic imaging;

(4) Timely transmitting production

report or royalty report data to MMS

and other affected Federal agencies as

provided in your delegation agreement

and the Standards;

(5) Providing training and assistance

to production reporters or royalty

reporters;

(6) Providing production data or

royalty data to MMS and other affected

Federal agencies; and

(7) Providing assistance to MMS for

appealed demands or orders, including

meeting timeframes, supplying

information, using the appropriate

format, performing remanded actions,

modifying orders, and providing oral

and written briefing and testimony as

expert witnesses.

(b) If you request delegation of either

production report or royalty report

processing functions, or both, you may

perform the following functions:

(1) Granting exceptions from reporting

and payment requirements for marginal

properties; and

(2) Approving alternative royalty and

payment requirements for unit

agreements and communitization

agreements.

(c) You must provide MMS with a

copy of any exceptions from reporting

and payment requirements for marginal

properties and any alternative royalty

and payment requirements for unit

agreements and communitization

agreements you approve.

§ 227.401 What are a State’s

responsibilities if it processes production

reports or royalty reports?

In processing production reports or

royalty reports you must:

(a) Process reports accurately and

timely as provided in the Standards and

your delegation agreement;

(b) Identify and resolve fatal errors to

use in subsequent error correction that

the State or MMS performs;

(c) Accept multiple forms of

electronic media from reporters, as

MMS specifies;

(d) Timely transmit required

production or royalty data to MMS and

other affected Federal agencies;

(e) Access well, lease, agreement, and

reporter reference data from MMS and

provide updated information to MMS;

(f) For production reports, maintain

adequate system software edits to

ensure compliance with the provisions

of 30 CFR part 216, the PAAS Onshore

Oil and Gas Reporter Handbook, the

PAAS Reporter Handbook-Lease,

Facility/Measurement Point, and Gas

Plant Operators, any interagency

memorandums of understanding to

which MMS is a party, and the

Standards;

(g) For royalty reports, maintain

adequate system software edits to

ensure compliance with the provisions

of 30 CFR part 218, the Oil and Gas

Payor Handbook, Volume II, ‘‘Dear

Payor’’ letters, and the Standards; and

(h) Comply with the procedures for

appealed demands or orders, including

meeting timeframes, supplying

information, and using the appropriate

format.

§ 227.500 What functions may a State

perform to ensure that reporters correct

erroneous report data?

Production data and royalty data must

be edited to ensure that what is reported

is correct, that disbursement is made to

the proper recipient, and that correct

data are used for other functions, such

as automated verification and audits. If

you request delegation of error

correction functions for production

reports or royalty reports, or both, you

must perform at least the following:

(a) Correcting all fatal errors and

assigning appropriate confirmation

indicators;

(b) Verifying whether production

reports are missing;

(c) Contacting production reporters or

royalty reporters about missing reports

and resolving exceptions;

(d) Documenting all corrections made,

including providing production

reporters or royalty reporters with

confirmation reports of any changes;

(e) Providing training and assistance

to production reporters or royalty

reporters;

(f) Issuing notices, orders to report,

and bills as needed, including, but not

limited to, imposing assessments on a

person who chronically submits

erroneous reports; and

(g) Providing assistance to MMS for

appealed demands or orders, including

preparing field reports, performing

remanded actions, modifying orders,

and providing oral and written briefing

and testimony as expert witnesses.

§ 227.501 What are a State’s

responsibilities to ensure that reporters

correct erroneous data?

To ensure the correction of erroneous

data, you must:

(a) Ensure compliance with the

provisions of 30 CFR parts 216 and 218,

any applicable handbook specified

under 30 CFR 227.401 (f) and (g),

interagency memorandums of

understanding to which MMS is a party,

and the Standards;

(b) Ensure that reporters accurately

and timely correct all fatal errors as

designated in the Standards. These

errors include, for example, invalid or

incorrect reporter/payor codes, incorrect

lease/agreement numbers, and missing

data fields;

(c) Submit accepted and corrected

lines to MMS to allow processing into

the Auditing and Financial System

(AFS) and the Production Accounting

and Auditing System (PAAS) in a timely

manner as provided in the Standards

and 30 CFR part 219; and

(d) Comply with the procedures for

appealed demands or orders, including

meeting timeframes, supplying
43090 Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations

information, and using the appropriate

format.

§ 227.600 What automated verification

functions may a State perform?

Automated verification involves

systematic monitoring of production

and royalty reports to identify and

resolve reporting or payment

discrepancies. States may perform the

following:

(a) Automated comparison of sales

volumes reported by royalty reporters to

sales and transfer volumes reported by

production reporters. If you request

delegation of automated comparison of

sales and production volumes, you must

perform at least the following functions:

(1) Performing an initial sales volume

comparison between royalty and

production reports;

(2) Performing subsequent

comparisons when reporters adjust

royalty or production reports;

(3) Checking unit prices for

reasonable product valuation based on

reference price ranges MMS provides;

(4) Resolving volume variances using

written correspondence, telephone

inquiries, or other media;

(5) Maintaining appropriate file

documentation to support case

resolution; and

(6) Issuing orders to correct reports or

payments;

(b) Any one or more of the following

additional automated verification

functions:

(1) Verifying compliance with lease

financial terms, such as payment of rent,

minimum royalty, and advance royalty;

(2) Identifying and resolving improper

adjustments;

(3) Identifying late payments and

insufficient estimates, including

calculating interest owed to MMS and

verifying payor-calculated interest owed

to MMS;

(4) Calculating interest due to a lessee

or its designee for an adjustment or

refund, including identifying

overpayments and excessive estimates;

(5) Verifying royalty rates; and

(6) Verifying compliance with

transportation and processing allowance

limitations;

(c) Issuing notices and bills associated

with any of the functions under

paragraphs (a) and (b) of this section;

and

(d) Providing assistance to MMS for

any of these delegated functions on

appealed demands or orders, including

meeting timeframes, supplying

information, using the appropriate

format, taking remanded actions,

modifying orders, and providing oral

and written briefing and testimony as

expert witnesses.

§ 227.601 What are a State’s

responsibilities if it performs automated

verification?

To perform automated verification of

production reports or royalty reports,

you must:

(a) Verify through research and

analysis all identified exceptions and

prepare the appropriate billings,

assessment letters, warning letters,

notification letters, Lease Problem

Reports, other internal forms required,

and correspondence required to perform

any required follow-up action for each

function, as specified in the Standards

or your delegation agreement;

(b) Resolve and respond to all

production reporter or royalty reporter

inquiries;

(c) Maintain all documentation and

logging procedures as specified in the

Standards or your delegation agreement;

(d) Access well, lease, agreement, and

production reporter or royalty reporter

reference data from MMS and provide

updated information to MMS; and

(e) Comply with procedures for

appealed demands and orders,

including meeting time frames,

supplying information, and using the

appropriate format.

§ 227.700 What enforcement documents

may a State issue in support of its

delegated function?

This section explains what

enforcement actions you may take as

part of your delegated functions.

(a) You may issue demands,

subpoenas, and orders to perform

restructured accounting, including

related notices to lessees and their

designees. You also may enter into

tolling agreements under section

15(d)(1) of the Act, 30 U.S.C. 1725(d)(1).

(b) When you issue any enforcement

document you must comply with the

requirements of section 115 of the Act,

30 U.S.C. 1725.

(c) When you issue a demand or enter

into a tolling agreement under section

15(d)(1) of the Act, 30 U.S.C. 1725(d)(1),

the highest State official having ultimate

authority over the collection of royalties

or the State official to whom that

authority has been delegated must sign

the demand or tolling agreement.

(d) When you issue a subpoena or

order to perform a restructured

accounting you must:

(1) Coordinate with MMS to ensure

identification of issues that may concern

more than one State before you issue

subpoenas and orders to perform

restructured accounting; and

(2) Ensure that the highest State

official having ultimate authority over

the collection of royalties signs any

subpoenas and orders to perform

restructured accounting, as required

under section 115 of the Act, 30 U.S.C.

1725. This official may not delegate

signature authority to any other person.

Performance Review

§ 227.800 How will MMS monitor a State’s

performance of delegated functions?

This section explains MMS’s

procedures for monitoring your

performance of any of your delegated

functions.

(a) A monitoring team of MMS

officials will annually review your

performance of the delegated functions

and compliance with your delegation

agreement, the Standards, and 30 U.S.C.

1735, including conducting fiscal

examination to verify your costs for

reimbursement.

(b) The monitoring team also will:

(1) Periodically review your statistical

reports required under § 227.200(e) to

verify your accuracy, timeliness, and

efficiency;

(2) Check for timely transmittal of

production report or royalty report

information to MMS and other affected

agencies, as applicable, to allow for

proper disbursement of funds and

processing of information;

(3) Coordinate on-site visits and

Office of the Inspector General, General

Accounting Office, and MMS audits of

your performance of your delegated

functions; and

(4) Maintain reports of its monitoring

activities.

§ 227.801 What if a State does not

adequately perform a delegated function?

If your performance of the delegated

function does not comply with your

delegation agreement, or the Standards,

or if MMS finds that you can no longer

meet the statutory requirements under

§ 227.106, then MMS may:

(a) Notify you in writing of your

noncompliance or inability to comply.

The notice will prescribe corrective

actions you must take, and how long

you have to comply. You may ask MMS

for an extension of time to comply with

the notice. In your extension request

you must explain why you need more

time; and

(b) If you do not take the prescribed

corrective actions within the time that

MMS allows in a notice issued under

paragraph (a) of this section, then MMS

may:

(1) Initiate proceedings under

§ 227.802 to terminate all or a part of

your delegation agreement;

(2) Withhold compensation provided

to you under § 227.112; and

(3) Perform the delegated function,

before terminating or without

terminating your delegation agreement,
Federal Register / Vol. 62, No. 155 / Tuesday, August 12, 1997 / Rules and Regulations 43091

1The uniform offering circular was published as

a final rule on January 5, 1993 (58 FR 412).

Amendments to the circular were published on

June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR

13906), July 16, 1996 (61 FR 37007), August 23,

1996 (61 FR 43626), October 22, 1996 (61 FR

54908), January 6, 1997 (62 FR 846), and May 8,

1997 (62 FR 25113).

including, but not limited to, issuing a

demand or order to a Federal lessee, or

its designee, or any other person when:

(i) Your failure to issue the demand or

order would result in an underpayment

of an obligation due MMS; and

(ii) The underpayment would go

uncollected without MMS intervention.

§ 227.802 How will MMS terminate a

State’s delegation agreement?

This section explains the procedures

MMS will use to terminate all or a part

of your delegation agreement:

(a) MMS will notify you in writing

that it is initiating procedures to

terminate your delegation agreement;

(b) MMS will provide you notice and

opportunity for a hearing under

§ 227.803 of this part;

(c) The MMS Director, with

concurrence from the Secretary, will

decide whether to terminate your

delegation agreement.

(d) After the hearing, MMS may:

(1) Terminate your delegation

agreement; or

(2) Allow you 30 days to correct any

remaining deficiencies. If you do not

correct the deficiency within 30 days,

MMS will terminate all or a part of your

delegation agreement.

(e) MMS will determine the date your

agreement is terminated and will notify

you of that date in writing. MMS will

determine the termination date based on

the number of delegated functions and

the impact of the termination on all

affected parties.

§ 227.803 What are the hearing procedures

for terminating a State’s delegation

agreement?

(a) The MMS Director will appoint a

hearing official to conduct one or more

public hearings for fact finding and to

determine any actions you must take to

correct the noncompliance. The hearing

official will not decide whether to

terminate your delegation agreement;

(b) The hearing official will contact

you about scheduling a hearing date and

location;

(c) The hearing official will publish

notice of the hearing in the Federal

Register and other appropriate media

within your State;

(d) At the hearing, you will have an

opportunity to present testimony and

written information on your ability to

perform your delegated functions as

required under this part, your

delegation agreement, and the

Standards;

(e) Other persons may attend the

hearing and may present testimony and

written information for the record;

(f) MMS will record the hearing;

(g) After the hearing, MMS may

require you to submit additional

information; and

(h) Information presented at each

public hearing will help MMS to

determine whether:

(1) You have complied with the terms

and conditions of your delegation

agreement; or

(2) You have the capability to comply

with the requirements under § 227.106

of this part.

§ 227.804 How else may a State’s

delegation agreement terminate?

You may request MMS to terminate

your delegation at any time by

submitting your written notice of intent

6 months prior to the date on which you

want to terminate. MMS will determine

the date your agreement is terminated

and will notify you of that date in

writing. MMS will determine the

termination date based on the number of

delegated functions and the impact of

the termination on all affected parties.

§ 227.805 How may a State obtain a new

delegation agreement after termination?

After your delegation agreement is

terminated, you may apply again for

delegation by beginning with the

proposal process under this part.

PART 228—COOPERATIVE

ACTIVITIES WITH STATES AND

INDIAN TRIBES

2. The authority citation for part 228

is revised to read as follows:

Authority: Sec. 202, Pub. L. 97–451, 96

Stat. 2457 (30 U.S.C. 1732).

3. A new § 228.3 is added to read as

follows:

§ 228.3 Limitation on applicability.

As of the effective date of this rule,

September 11, 1997, this part does not

apply to Federal lands.

PART 229—DELEGATION TO STATES

4. The authority citation for part 229

is revised to read as follows:

Authority: 30 U.S.C. 1735.

5. A new § 229.3 is added to read as

follows:

§ 229.3 Limitation on applicability.

As of the effective date of this rule,

September 11, 1997, this part does not

apply to Federal lands.

[FR Doc. 97–21162 Filed 8–11–97; 8:45 am]

BILLING CODE 4310–MR–P

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 356

Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds

(Department of the Treasury Circular,

Public Debt Series No. 1–93)

AGENCY: Bureau of the Public Debt,

Fiscal Service, Department of the

Treasury.

ACTION: Final rule.

SUMMARY: The Department of the

Treasury (‘‘Treasury’’ or ‘‘Department’’)

is publishing in final form an

amendment to 31 CFR part 356

(Uniform Offering Circular for the Sale

and Issue of Marketable Book-Entry

Treasury Bills, Notes, and Bonds). This

amendment makes the necessary

changes to accommodate three decimal

competitive bidding, in .005 percent

increments, for regular Treasury bills—

13-, 26-, and 52-week bills—and a

reduction in the net long position

reporting threshold amount for all

Treasury bill auctions (including cash

management bills). The final rule also

makes certain technical clarifications

and conforming changes.

DATES: The effective date is September

11, 1997, except for the change to

§ 356.13 (Net long position) which is

effective November 10, 1997.

ADDRESSES: This final rule has also been

made available for downloading from

the Bureau of the Public Debt’s Internet

site at the following address:

www.publicdebt.treas.gov.

FOR FURTHER INFORMATION CONTACT: Ken

Papaj (Director), Lee Grandy or Kurt

Eidemiller (Government Securities

Specialists), Department of the

Treasury, Bureau of the Public Debt,

Government Securities Regulations

Staff, (202) 219–3632.

SUPPLEMENTARY INFORMATION: 31 CFR

part 356, also referred to as the uniform

offering circular, sets out the terms and

conditions for the sale and issuance by

the Department of the Treasury to the

public of marketable Treasury bills,

notes, and bonds. The uniform offering

circular, in conjunction with offering

announcements, represents a

comprehensive statement of those terms

and conditions.1 The Department