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Rahall: Reform Royalty Collection System

Securing our nation’s energy future is one of the most complex, yet most critical, issues that we as Americans face today. While a transition to renewable sources of energy is a laudable goal, it will not happen overnight. Realistically, we simply cannot ignore the importance of fossil fuels in our energy mix — oil and gas and coal will certainly continue to be major components in America’s energy portfolio through the foreseeable future.

In addition to helping us meet our energy needs, production of these fuels provides billions of dollars in royalties that are funneled into the federal Treasury every year. These monies, which huge multinational corporations pay in exchange for the extraction of energy resources owned by the American people, help to offset the costs of programs important to all citizens.

And even though these lucrative companies complain that they are paying huge sums in bonus bids and royalties, numerous studies have found that the amounts they pay our government are far less than they pay to other countries. Given our nation’s substantial fiscal challenges, the absolute need for the American people to get a fair return for the disposition of public energy resources is indisputable.

Yet rampant fraud and outright failure to collect these federal oil and gas royalties have cost the American taxpayer millions, perhaps billions, in lost monies owed to the Treasury. As a result, families that are struggling to pay the mortgage, put groceries on the table, and cover their annual tax bills have been getting tougher treatment from Uncle Sam than do these wealthy multinational oil conglomerates. In the meantime, basic domestic needs in this country go unaddressed because of a lack of federal investment.

For these reasons, I have long been committed to reforming the Interior Department’s royalty collection system. I was a member of the committee that crafted the Federal Onshore Oil and Gas Royalty Management Act of 1982. I was also the chairman of what was the Subcommittee on Energy in 1987, when Rep. George Miller (D-Calif.) and I championed the Federal Onshore Oil and Gas Reform Act. And I have been hard at work during my time as chairman of the Natural Resources Committee performing oversight and pushing for the legislation necessary to bring some clarity and certainty to the royalty collection process.

But then, last September, the former inspector general of the Interior Department, Earl Devaney, released the contents of a salacious report detailing the jaw-dropping antics of certain employees of the Royalty-in-Kind program within the Minerals Management Service — the federal agency responsible for collecting royalties owed to American citizens from federal oil and gas leaseholders. These employees had not only broken government rules, they had created a stunning “culture of ethical failure— by accepting gifts from, and engaging in cozy relationships with, oil and gas industry representatives.

The RIK program — about which I have consistently raised concerns and have tried to abolish through legislative efforts — was initially set up as a pilot program to allow energy companies to pay the government in product rather than in cash. Since the pilot program was first launched, it has expanded to the point where the federal government now takes nearly half of all its royalties in the form of oil or gas, rather than cash. For the MMS, tracking the flow of money over the years has been hard enough — but the extreme ethical lapses related to the RIK program have proven that keeping track of oil and gas taken in-kind is a slippery business indeed.

The activities revealed by the IG last year were not the first instances in which the federal oil and gas leasing program had run afoul of the law; there have been numerous others. But not since the Teapot Dome scandal erupted in the 1920s has the program exhibited such outright and jaw-dropping corruption as that which was uncovered last year. The Royalty-in-Kind program has grown into a royal mess indeed, and, as a result, I requested that it be thoroughly reviewed. Already, the Government Accountability Office has found additional systematic problems within the program, and more are expected to be uncovered.

For years, during an administration populated with oil and gas industry executives, federal oversight of the industry was neglected. Since the time I gained the chairmanship of the Natural Resources Committee, I have led a series of oversight hearings, and I will continue those efforts to ensure that the American people are fairly compensated for the oil and gas extracted from federal lands and waters.

After all, these are the people’s resources. From the moment companies buy a lease, through the time they start paying royalties on the oil and gas they sell, we must make sure that the people are not being taken for a ride.

In light of the scandals and corruption hanging over the MMS, I have circulated a discussion draft of legislation in recent weeks that would direct the agency to be disbanded and reformulated under a new regime that consolidates the federal onshore and offshore oil and gas leasing programs. This draft legislation would also require Senate confirmation for the new bureau’s director and require its employees to comply with the highest ethical and professional standards.

President Barack Obama and Interior Secretary Ken Salazar are moving in the right direction and have signaled strongly the need for a more thoughtful balance in managing our public energy resources. My aim is to support and enhance their efforts. The American people are owed no less — in fact, they are owed a lot more than they have been getting.

Rep. Nick Rahall (D-W.Va.) is chairman of the House Natural Resources Committee.

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