After watching Sen. and Secretary of the Interior nominee Ken Salazar's (D-CO) confirmation hearing, and his commitment to restoring the integrity of the Department of the Interior, I'm cautiously optimistic and hope that he follows through. I was encouraged that he wants to strengthen the reforms by giving them a statutory basis. Of course, we have some very specific ideas about past legislation that Salazar should support, and a few other recommendations to offer in this effort.
On the same day, a press release from the Federal Energy Regulatory Commission (FERC) highlights a potential issue that wasn't high on my radar--collusion in the bidding process for drilling on federal lands. The FERC approved "four stipulation and consent agreements, representing more than $8 million in civil penalties and disgorgement of approximately $4 million, and issued two orders to show cause resulting from an 18-month investigation into allegedly fraudulent conduct in open season bidding for natural gas transportation capacity"--specifically, violating FERC's anti-manipulation regulation.
So it appears there may be problems with industry collusion in government bidding, in addition to the transparency issues, and the now famous December 19th Bureau of Land Management (BLM) auction that may confirm suspicions that the bidding process is not sufficiently competitive. For those who are interested in this issue, Joseph Stiglitz has done some great work on problems with the auction process in Escaping the Resource Curse--you can also get a taste of it in his Nobel Prize lecture. But lacking the personal expertise to say more, I think this news does suggest that there needs to be more transparency in the land management process, from the bidding to the collection and follow-up audits, to assure taxpayers they are getting the money they deserve for their natural resources.
But real assurances for taxpayers means that Salazar's confirmation hearing should have included more specific measures to make the department--and especially the Minerals Management Service (MMS)--more effective, in addition to making it more ethical. Like Ingrid and Peter, I have a few questions I would have liked raised:
- Oil and gas royalties collected from drilling on federal lands and waters is the second largest source of revenue for the federal government other than taxes. Management and ethical issues have been raised about the Royalty-In-Kind program by the Interior Department Inspector General and the Government Accountability Office (GAO). Alternatively, collecting oil and gas royalties through market price-based Royalty-In-Value increases the transparency and eases oversight to ensure that oil and gas companies pay all royalties owed for drilling on federal lands. Would you be willing to halt collecting royalty in-kind until it can be certified by the GAO that taxpayers benefit more from collecting royalties through Royalty-In-Kind than through market price-based Royalty-In-Value?
- Several auditors within the Minerals Management Service (MMS) have filed qui tam suits accusing oil and gas companies of underpaying the amount of royalties owed to taxpayers. In the past, the Department of the Interior has discouraged the Justice Department from joining these suits. Would you be willing to revisit this position and ask the Department of Justice to join these suits?
- The GAO has referred to the Royalty-In-Kind program's oversight as "an honor system." What management areas would you focus on in order to enhance oversight of the program? Are there any legislative remedies you would seek from Congress?
- Audits serve as a key oversight mechanism to assure taxpayers that companies are paying their royalties in full, and can also serve as a deterrent for companies underpaying what they owe to taxpayers. Many have raised concerns, however, that auditors cannot do their job effectively because the nature of the relationship MMS has with industry conflicts with the watchdog role auditors play. Many have suggested that the auditing function should be removed from MMS, and that these tasks should be moved to a separate and independent agency. Would you support this move?
- Congress has learned in recent years that MMS has made deep cuts in the staff who audit revenues received from oil and gas leases and has silenced auditors who raised concerns. What steps would you take to restore auditing and oversight in order to ensure that the taxpayers are not being ripped off?
- The recent Lakewood MMS scandal revealed an inappropriately close relationship between MMS and industry. What reforms do you think need to be made in order to restore propriety to this relationship?
- Do you think that there have been enough reforms of MMS to protect taxpayers' interests and make sure that a close relationship to industry is no longer their modus operandi?
Questions the GAO proposes that should be asked:
- What steps would you take to ensure that management of public oil and gas resources is efficient, effective, and generates an appropriate return to the public?
- The GAO, the department’s Inspector General, and the Royalty Policy Committee have made more than 100 recommendations to the Secretary of the Interior over the past year on ways to improve the accuracy, efficiency, and effectiveness of royalty collections for oil and gas produced on federal lands and waters. What specific steps should the department take to ensure that a system is in place to evaluate and implement these recommendations?
- What management controls would you find important to have in place to assure that fees were being set, charged, collected, and used properly?
-- Mandy Smithberger
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