Helium Stewardship Act of 2013: Bureau of Land Management Needs More Information to Fully Implement the Act
Published: 2015-07-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Helium is a key nonrenewable resource with a variety of uses. The federal government maintains an underground reservoir near Amarillo, Texas, for the storage of both federally owned helium and helium owned by private companies. The Helium Stewardship Act of 2013 establishes a phased process for the privatization of the federal helium reserve in a competitive market fashion. As part of that process, BLM conducted an auction and two sales of federal helium in the summer of 2014.
This testimony highlights the key findings of GAO's April 2015 report (GAO-15-394). Accordingly, it addresses (1) the outcomes of BLM's summer 2014 helium auction and sales, (2) BLM's administration of the act's tolling provision (tolling refers to a helium refiner processing or refining another party's crude helium for an agreed upon price), and (3) upcoming decisions BLM faces as it continues implementing the act. For the April 2015 report, GAO reviewed the 2013 act, BLM's auction and sales results, and tolling agreement reports; interviewed BLM and other Interior officials and representatives of 12 of the 13 refiners and nonrefiners that registered to participate in the auction.
section_title: What GAO Found
paragraphs: In April 2015, GAO found that refiners purchased all the helium offered in the Department of the Interior's Bureau of Land Management's (BLM) first-ever competitive helium auction, held in July 2014, at higher than expected prices. Two refiners purchased all 93 million cubic feet of helium that was auctioned at an average price of $161 per thousand cubic feet--significantly above the prices offered by most other bidders. BLM, refiners, and nonrefiners identified possible reasons for the auction's outcome, including that nonrefiners said that refiners had an advantage because their costs for refining crude helium were lower than nonrefiners'. After the auction, BLM sold more than 1 billion cubic feet of helium in two sales restricted to refiners.
BLM has taken steps to help improve reporting by refiners, but GAO found in its April 2015 report that the agency did not have full assurance that refiners were satisfying the tolling provision of the Helium Stewardship Act of 2013. The tolling provision requires refiners, as a condition of sale or auction of helium under the act, to make excess refining capacity available at commercially reasonable rates to certain nonrefiners. BLM officials said that one way refiners can satisfy the provision is to attempt to negotiate tolling agreements. The act does not require refiners to report information to BLM about their attempts to negotiate agreements that do not result in signed agreements, so such reporting is voluntary. BLM requested that refiners report this information, but the refiners' responses were inconsistent. For example, some refiners reported that they had attempted to negotiate agreements but did not report details about rates offered. Officials from Interior's Office of the Solicitor said BLM may need to issue a rule to require refiners to report about their attempts to negotiate tolling agreements. However, BLM officials said they do not intend to issue a rule because it is a time-consuming process. Nevertheless, without information about refiners' attempts to negotiate agreements, BLM cannot determine the extent to which refiners with excess capacity are satisfying the tolling provision. Interior disagreed with GAO's recommendation that BLM issue a rule to, among other things, require refiners to report information about their attempts to negotiate tolling agreements that do not result in signed agreements. Interior disagreed with the recommendation because it believes existing mechanisms provide needed information. By relying on existing mechanisms, refiners' reporting of this information remains voluntary, and not all refiners provided the information when BLM previously requested it. GAO continues to believe that undertaking a rulemaking is necessary so that BLM can have better assurance that refiners are satisfying the tolling provision.
In addition, GAO found in April 2015 that BLM faces a number of decisions as it continues implementing the act, including a decision about how the agency will choose a method for conducting its auction of a portion of the helium BLM will make available for delivery during fiscal year 2016. The act requires BLM to conduct each auction using a method that maximizes revenue to the federal government. BLM officials said they considered multiple methods before selecting the live auction method used for the July 2014 auction, but they did not assess the methods based on maximizing revenue. As of the issuance of GAO’s April 2015 report, BLM officials had not evaluated various methods, such as sealed bids or simultaneously auctioning multiple lots. Without assessing auction method options based on revenue generation, BLM does not have assurance that a live auction will maximize revenue as required. Interior agreed with GAO’s recommendation that BLM assess and select an auction method that would maximize revenue.
section_title: What GAO Recommends
paragraphs: In its April 2015 report, GAO made two recommendations to Interior. Interior concurred with one recommendation but not the other. GAO continues to believe that all of its recommendations have merit and should be fully implemented.
For information, contact Anne-Marie Fennell at (202) 512-3841 or fennella@gao.gov

section_title: Letter
paragraphs: I am pleased to be here today to discuss our April 2015 report regarding  the Department of the Interior’s (Interior) Bureau of Land Management’s  (BLM) implementation of the Helium Stewardship Act of 2013. Helium is  an important nonrenewable natural resource with a variety of federal and  private uses. These uses include national security applications, scientific  research, medical instruments, and manufacturing. For many of its uses,  helium has no substitute. The federal government has been extensively  involved in the production, storage, and use of helium since the early  20th century. During the 1960s and 1970s, Interior purchased about  34 billion cubic feet of helium from private crude helium producers.  Subsequently, the Helium Privatization Act of 1996 required Interior to  offer nearly all of this crude helium for sale. As of the end of fiscal year  2013, roughly 9 billion cubic feet of crude helium remained in federal  ownership. In October 2013, the Helium Stewardship Act of 2013 was  enacted; the act is intended to complete the privatization of the federal  helium reserve in a competitive market fashion that ensures stability in  the helium markets, while protecting the interests of American taxpayers,  among other things. BLM is responsible for implementing the 2013 act.
The federal government stores its reserve of crude helium in a naturally  occurring underground reservoir near Amarillo, Texas. This reservoir also  holds the crude helium that private companies have purchased from BLM.  After companies purchase crude helium, BLM stores and then delivers  the helium from the reservoir through a pipeline to four private companies  that are connected to it, in accordance with storage contracts the agency   These companies are commonly referred to as  has with the companies.“refiners” since they receive the crude helium from BLM and refine it.
Nine other companies—commonly referred to as “nonrefiners”—have  either purchased small volumes of crude helium from BLM or have  expressed an interest in buying federal crude helium. The nonrefiners,  however, cannot receive crude helium directly because they are not  connected to the pipeline. Instead, each nonrefiner must enter into an  agreement with a refiner, whereby the refiner accepts delivery of the  crude helium and processes it on the nonrefiner’s behalf at an agreed  upon price. This practice is referred to as “tolling.”
The Helium Stewardship Act of 2013 changed the federal helium program  by, among other things, introducing several new provisions. The act  establishes a phased process through fiscal year 2021 for Interior to  dispose of the remaining helium in the federal helium reserve. The  process includes competitive auctions in addition to noncompetitive sales  for disposing of helium in the reserve. The act requires BLM to conduct  each auction using a method that maximizes revenue to the federal   The act also contains a tolling provision, which states that  government. as a condition of sale or auction to a refiner during the first two phases,  the refiner must make excess refining capacity available at commercially  reasonable rates to persons who acquire helium from BLM after the act’s  enactment.refiner and a nonrefiner do not agree on terms for tolling.
However, the act does not require a refiner to toll if the  In July 2014, BLM held its first-ever competitive auction for crude helium,  offering about 93 million cubic feet of the helium that it planned to make  available for delivery in fiscal year 2015 to qualified bidders, both refiners  and nonrefiners. Two weeks later, in August 2014, in two noncompetitive  sales, BLM sold the remaining helium that was to be made available for  delivery in fiscal year 2015 and a portion of the helium to be made  available for delivery in fiscal year 2016. Those two noncompetitive sales  offered more than 1 billion cubic feet of crude helium to refiners.
My testimony highlights the key findings of our April 2015 report on BLM’s  implementation of the Helium Stewardship Act of 2013 and includes  updated information concerning actions BLM has taken since the report’s  issuance. auction and sales held during the summer of 2014, (2) BLM’s  administration of the act’s tolling provision, and (3) upcoming decisions  BLM faces as it continues implementing the act.
GAO-15-394. we reviewed two sources of updated information from June 2015 that  Interior provided us: a Federal Register notice stating BLM’s proposal for  the fiscal year 2016 helium auction and sale, and a letter from Interior to  us containing the department’s response to the recommendations in our  April 2015 report. The work on which this testimony is based was  performed in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Refiners Bought All Helium Offered at Auction and Sales Held during the Summer of 2014 for Higher Than Expected Prices
paragraphs: As detailed in our April 2015 report, in the summer of 2014, refiners  purchased all the helium offered in BLM’s first-ever competitive helium  auction at higher than expected prices. Two refiners purchased all  93 million cubic feet of helium that was auctioned at an average price of  $161 per thousand cubic feet—significantly above the prices offered by  most other bidders. BLM set the minimum starting bid for each lot at  $100 per thousand cubic feet. At one point during bidding, the auction  price rose as high as $180 per thousand cubic feet. We observed that  participants who did not win at the auction stopped bidding when prices   Most of  reached from $105 to $130 per thousand cubic feet (see fig. 1).the representatives of refiners and nonrefiners we interviewed stated that  the auction prices were too high for crude helium, especially during a time  of global excess of helium supplies. BLM and some representatives of  nonrefiners and a refiner, however, said the auction was a success for the  federal government since it generated about $15 million in revenue, an  amount that a senior helium program official said exceeded the agency’s  expectations.
In interviewing BLM officials and representatives of refiners and  nonrefiners and reviewing BLM’s planned implementation actions, we  identified multiple, possible explanations for why refiners won all the  auctioned helium for higher than expected prices. These explanations  included:
Refiners may have been more willing to pay higher prices at the  auction since their costs for refining crude helium are lower than  those of nonrefiners. According to representatives of nonrefiners,  the costs of purchasing auctioned helium and turning it into refined  helium are lower for refiners than nonrefiners because refiners do not  have to pay another company to refine their helium, a situation that  gives refiners an advantage at the auction.
Nonrefiners may not have bid higher at the auction because they  did not know the costs and delivery terms for tolling.  Representatives of nonrefiners we interviewed said that few tolling  agreements were in place prior to the auction. Those agreements  would have specified the rates for tolling any helium they purchased  and provided details on when, where, and how purchased helium  would be delivered.
Changes to the way BLM proposed to deliver helium purchased  at the auction may have provided an incentive to refiners to  purchase as much helium at the auction as possible. BLM had  announced before the auction that it would reserve some of its  pipeline delivery capacity in fiscal year 2015 for helium purchased at  the auction. Based on our review of BLM’s July 2014 Federal  Register notice, purchasing helium at the auction would have allowed  refiners to take advantage of the new delivery method and maximize  volumes of helium they would receive through the pipeline.
In the past, BLM divided sale volumes into two portions, one offered to refiners, and one  offered first to nonrefiners. For example, in sales held in January and May 2014 under the  first phase of the act, BLM offered 10 percent of the total volume of helium that it made  available for sale to nonrefiners, and the refiners were offered 90 percent of the total  volume, excluding helium for federal users. BLM officials said they changed this approach  based on their interpretation of the 2013 act. the auction, nonrefiners purchased none of the federal helium that BLM  made available for delivery in fiscal year 2015. As a result, the number of  companies purchasing helium from BLM for delivery in fiscal year 2015  compared with fiscal year 2014 decreased from eight to four.
section_title: In Administering the Tolling Provision, BLM Does Not Have Full Assurance That Refiners Are Satisfying It
paragraphs: In our April 2015 report, we found that BLM had taken steps to help  improve reporting by refiners by clarifying one of the key terms in the  tolling provision, but the agency did not have full assurance that refiners  were satisfying the provision. The tolling provision requires refiners, as a  condition of sale or auction, to make excess refining capacity available at  commercially reasonable rates to certain nonrefiners. BLM officials told us  that they considered signed tolling agreements between refiners and  other parties, as well as refiners’ attempts to negotiate tolling agreements  that did not result in signed agreements, to be evidence of refiners’  satisfying the tolling provision. This is because, if a refiner and nonrefiner  do not agree on terms for tolling, the act does not require the refiner to  toll.
BLM has collected some information about refiners’ signed tolling  agreements and refiners’ attempts to negotiate tolling agreements, but  the agency has not obtained all relevant information about refiners’  efforts. In a July 2014 Federal Register notice, BLM directed refiners to  report information about tolling agreements that they entered into during  the preceding year by completing a tolling report form. However, refiners  inconsistently reported information about their signed tolling agreements  on these forms. For example, not all refiners reported the rates they  charged for tolling. According to BLM officials, a representative of one  refiner said that the refiner did not report the rate because the act does  not require refiners to disclose information about agreements covering   Officials we spoke with from  less than 15 million cubic feet of helium.
Interior’s Office of the Solicitor said that BLM could not require refiners to  report information about signed tolling agreements for less than 15 million  cubic feet in a Federal Register notice. BLM officials said they expect that  many signed tolling agreements will be for less than 15 million cubic feet  since nonrefiners typically accept delivery of helium in 1 million cubic feet  increments. As a result, BLM officials said that having information about  tolling agreements for smaller volumes from all refiners, including rates,  would provide BLM with a better understanding of refiners’ efforts to  satisfy the tolling provision.
In addition, BLM requested that refiners report information about attempts  to negotiate tolling agreements that did not result in signed agreements.  According to officials with the Office of the Solicitor, the act does not  require refiners to report this information, so reporting is voluntary. As a  result, the refiners’ responses to BLM’s request were inconsistent. For  example, some refiners reported that they had attempted to negotiate  agreements but did not report details about the volume or rates offered.
Officials from the Office of the Solicitor said BLM may need to issue a rule  to require refiners to report on their signed agreements for less than  15 million cubic feet and their attempts to negotiate tolling agreements  that do not result in signed agreements. But BLM officials said they do not  intend to issue a rule, in part, because it is a time-consuming process that  might delay future auctions and sales. However, options may be available  for the agency to shorten the rulemaking process if, for example, the  conditions for issuing an interim final rule without first issuing a proposed  rule for public notice and comment have been satisfied. Until refiners  consistently provide information about signed agreements to toll less than  15 million cubic feet of helium and about their attempts to negotiate tolling  agreements, BLM cannot determine the extent to which refiners are  satisfying the tolling provision by making excess capacity available at  commercially reasonable rates. To provide the agency with better  information to support its decisions when implementing the act, in our  April 2015 report, we recommended that the Secretary of the Interior  direct the Director of BLM to issue a rule—perhaps an interim final rule if  BLM finds there is good cause to do so, given the time constraints—to  require refiners to report information about (1) signed agreements to toll  less than 15 million cubic feet of helium and (2) their attempts to negotiate  tolling agreements that do not result in signed agreements.
In written comments on a draft of our report, Interior did not agree with  this recommendation and stated that existing mechanisms are providing  BLM with sufficient information for the agency to administer the tolling  provision, and that BLM is not in a position to develop a rule due to  reduced resources, current workloads, and other high priority rulemakings  and initiatives in which the agency is engaged. Also, Interior stated that  the expense and time necessary to undertake a rule outweighed any  immediate benefit. Interior said that the federal helium program would  likely be nearing its conclusion by the time such a rule is in place.
Subsequent to the issuance of our April 2015 report,letter addressing our recommendations, Interior further stated that to  address concerns we raised in our report, BLM plans to collect  information on tolling and tolling agreements through Federal Register  notices. Interior stated that the Federal Register notice for the fiscal year  2016 auction and sale will include a request for refiners to voluntarily  report tolling agreements for less than 15 million cubic feet and  information about efforts to negotiate tolling agreements that were not  successful. The letter stated that BLM believes making such requests in  Federal Register notices will be an effective means of collecting this  information.   in a June 2015  As we stated in our report, we do not agree that existing mechanisms,  including requests made in Federal Register notices, are providing or will  provide BLM with the information it needs to be assured that refiners are  satisfying the tolling provision. Under BLM’s approach, refiners’ reporting  of certain information—specifically, signed agreements to toll less than  15 million cubic feet and their attempts to negotiate tolling agreements  that did not result in signed agreements—remains voluntary, and not all  refiners provided this information to BLM when the agency previously  requested it. It is unclear how BLM would achieve a different result from  future information requests under its proposed approach.
We recognize that Interior and BLM must consider current workloads and  other priorities when determining how to expend limited resources.  However, if BLM does not issue a rule to require refiners to report this  information, the agency cannot determine the extent to which refiners are  making excess capacity available at commercially reasonable rates. Even  if BLM cannot shorten the rulemaking process by, for example, issuing an  interim final rule, the agency will continue implementing the act through  fiscal year 2021, and the administration of the tolling provision could  affect nonrefiners’ participation in the auctions. We continue to believe  that undertaking a rulemaking is necessary so that BLM can have better  assurance that refiners are satisfying the tolling provision through fiscal  year 2021.
section_title: BLM Faces a Number of Decisions As It Continues to Implement the Act
paragraphs: BLM faces a number of decisions about its continued implementation of  the act, including decisions related to its upcoming fiscal year 2016  helium auction and sale. On June 12, 2015, after we issued our  April 2015 report, BLM published a Notice of Proposed Action in the  Federal Register that outlined its proposal for holding the fiscal year 2016  auction and sale in August 2015. The notice stated that after a public  comment period, BLM plans to issue a final notice before holding the  fiscal year 2016 auction and sale.
Regarding the fiscal year 2016 auction, BLM officials face a decision  about how the agency will choose a method to conduct the auction,  among other decisions. BLM’s summer 2014 auction was conducted live  and in-person in Amarillo, Texas, and the agency broadcast the auction in  real time over the Internet for public viewing. According to the June 2015  Notice of Proposed Action published in the Federal Register, BLM intends  to use the live auction method for the fiscal year 2016 auction as well, but  according to Interior’s June 2015 letter, the method BLM selects will be  announced in the final Federal Register notice. The act requires BLM to  conduct each auction using a method that maximizes revenue to the  federal government. As stated in our report, representatives from  some of the refiners and nonrefiners that participated in the auction told  us they had concerns about BLM’s auction method. For example, a  representative from one nonrefiner questioned whether holding a live  auction where bids are offered sequentially would yield the highest  revenues.
BLM officials told us they considered multiple auction methods when  initially choosing the live auction for the summer 2014 auction, but that  they did not assess the auction methods based on maximizing revenue.  Instead, they determined which method would be most logistically  practical to administer. For example, they told us that they were  concerned about holding an Internet-based auction because they did not  want potential technological difficulties to disrupt the auction or prevent a  company from participating. However, BLM economists told BLM helium  program officials and us that there are several academic studies on  different auction methods Interior used in the past. These methods  included sealed-bid auctions and auctions where all lots were auctioned  simultaneously rather than sequentially. BLM economists said that these  academic studies could help identify an auction method that maximizes  revenue.
As of the issuance of our April 2015 report, however, BLM helium  program officials had not evaluated the various methods. Without  assessing each method based on revenue generation, we found that BLM  would not have reasonable assurance that the live auction method will  maximize revenue, as required by the act. As a result of this finding, we  recommended that the Secretary of the Interior direct the Director of BLM  to assess auction methods based on revenue generation, using available  information, and select a method that would maximize revenue for the  upcoming helium auction. In comments on our draft report, Interior  concurred with this recommendation. Subsequent to the issuance of our  report, BLM published its Notice of Proposed Action in June 2015 in the  Federal Register, stating the agency’s intent to hold a live auction for  fiscal year 2016. Three days later, Interior stated in its June 2015 letter  addressing our recommendations that BLM’s economists were evaluating  various auction methods to determine which is most appropriate to  maximize revenue. The letter stated that BLM will base its selection of an  auction method for the fiscal year 2016 auction on this evaluation and will  provide details on the selected method in the final Federal Register  notice.
Chairman Lamborn, Ranking Member Lowenthal, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to answer any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff members have any questions about this testimony,  please contact me at (202) 512-3841 or fennella@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this statement. Other individuals who made  key contributions to this testimony include Jeff Malcolm (Assistant  Director), Cheryl Arvidson, Carol Bray, Cheryl M. Harris, Josie H.  Ostrander, Leslie Kaas Pollock, Dan Royer, and Jeanette Soares.
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