Welcome to The New Interior, a periodic update from Steptoe & Johnson LLP to keep you informed of coming changes at the Department of Interior, and for related matters on Capitol Hill and elsewhere with a new administration taking charge in Washington, DC.  We intend to bring you the very latest on anticipated moves by the Obama Administration and in the 111^th Congress over the next several months, as a new direction takes shape for Interior-related positions and policies.

If you would like to speak with a Steptoe attorney about our Interior practice, please reply to this email or contact Tom Collier (202.429.6242 or tcollier@steptoe.com) or Jody Cummings (202.429.8096 or jcummings@steptoe.com). 

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President’s 2010 Budget: $12 Billon for Interior, Oil & Gas Excise Tax, and Cap-and-Trade Revenues

The 2010 budget proposed by President Obama this week includes $12 billion for the Department of the Interior, slightly more than the $11.3 billion that Interior will receive in 2009.  The Department indicated that the proposal would allow it to undertake initiatives to promote energy security with a focus on clean renewable sources and strategies to address climate change, protect and preserve America's national parks and public lands, strengthen Native American communities, enhance outdoor opportunities for youth, and conserve wetlands and wildlife habitat.

Highlights of the proposed funding for Interior include:

• More than $50 million for renewable energy projects on Federal lands and waters.
  
  
• Provides state and federal land management agencies with more than $130 million in additional funding to monitor, manage and assess the impacts of climate change on lands, fish and wildlife.
  
  
• Provides national parks with $100 million in additional funds to operate and maintain park facilities and resources and $25 million to leverage private donations for park projects.
  
  
• Conserves new federal and state lands and protects endangered species with appropriations of about $420 million from the Land and Water Conservation Fund for Interior and the U.S. Forest Service, with annual increases to reach full funding of $900 million by 2014.
  
  
• Increases by more than $100 million funding for enhanced law enforcement and education in Native American communities.
  
  
• Creates a new contingent funding reserve of $75 million for DOI catastrophic wildfires costs.

The White House has indicated that it also seeks to provide a better return to taxpayers from mineral development, and is looking to close loopholes, charge appropriate fees, and reform how mineral royalties are set.  The budget proposes several actions to reach these goals:

• Imposing a new excise tax to begin in 2011 on offshore oil and gas production in the Gulf of Mexico to close loopholes that have previously provided royalty relief to oil companies.  This tax is projected to raise more than $2.2 billion, and is targeted at companies that do not pay royalties on oil and gas operations due to what some say is an oversight in their contracts.
  
  
• Terminating payments to coal-producing states that no longer need funds to clean up abandoned coal mines.
  
  
• Charging user fees to oil companies for processing oil and gas drilling permits on Federal lands.
  
  
• Increasing the return from oil and gas production on Federal lands through administrative actions, such as reforming royalties and adjusting rates.

Opposing the excise tax is likely to be a key focus of major and large independent oil and gas companies.

The proposal also assumes revenues from a cap-and-trade system designed to curb carbon dioxide emissions and reduce the threat of global warming.  The Administration looks to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050.  The cap-and-trade system is described as a “100 percent auction,” a position that business advocates are unlikely to support as they could be looking to free allowances as a way to lower the costs of reducing carbon and other greenhouse gas emissions levels from the atmosphere.  Revenues from the system will be used to fund clean energy investments totaling $150 billion over 10 years starting in 2012, with the remainder going to related purposes.

Salazar Nixes Bush Oil Shale Lease Plan, Re-Opens Comment Period

In another blow to last minute energy-related policies set in place by the Bush Administration, Secretary Salazar announced this week that Interior will offer a second round of research, development, and demonstration (RD&D) leases for oil shale in Colorado and Utah and withdraw the previous administration's proposal for expanded RD&D leases that was offered in mid-January 2009.  The new proposal was published in the Federal Register on February 27 asking industry, local communities, states, and stakeholders for their advice on what the terms and conditions of the second round of RD&D leases should be. That comment period will be open for 90 days.  The notice published indicates that the Department will specifically look at lease acreage and the rules that would govern conversion of an RD&D lease to a commercial lease, particularly those rules related to royalty rates.

In criticizing the Bush proposal, the Secretary indicated that that plan included several flaws, which included locking in low royalty rates that would shortchange taxpayers and making the parcels four times the size of the current six RD&D leases, which were issued in 2005.  Salazar also indicated that questions linger about the commercial viability of a process to remove the oil from the rock.  He  identified four issues that need to be addressed to move forward with the program and regulations:

• Is there a viable technology?
  
  
• How much water will it need? (some estimate that up to five barrels of water would be needed for each barrel of oil produced)
  
  
• How much power will it require? (some estimate that the process will need the amount of electricity produced by five coal-fired power plants)
  
  
• What will be the impact on land, wildlife and communities?

Comments on the RD&D leases are being accepted by the Bureau of Land Management until May 28, 2009.

FY 2009 Omnibus Appropriations: Funding Proposed for Interior, Could Undo Bush Midnight ESA Rules

House Appropriations Chairman Dave Obey (D-WI) introduced a $410 billion bill (H.R. 1105) this week to wrap up work on the fiscal year 2009 appropriations bills.  The legislation includes a proposal of $27.6 billion for Interior and the environment for 2009, which includes funding for DOI and its bureaus, as well as EPA.  Interior-related highlights in the package include:

Bureau of Indian Affairs: $2.4 billion ($85 million above 2008) for law enforcement officers, teachers, and jobs programs, which is aimed at reversing cuts to elementary and adult education programs, tribal technical colleges, early childhood development programs, and housing improvements programs.
 
Indian Health Service: $3.6 billion ($235 million above 2008) to improve health services and increase access to health care. $49 million will address domestic violence, substance abuse, and law enforcement problems in Indian country. This funding would provide more tribal law enforcement officers, new and upgraded detention centers, improved tribal courts, and increased access to health programs in order to fight domestic violence and substance abuse.

Wildland Fire: $3 billion ($239 million above 2008) for efforts to fight wildfires at the Forest Service and the Department of the Interior, including hazardous fuels reduction projects, state and volunteer fire assistance activities and forest health projects.

National Parks: $2.5 billion for the National Parks ($135 million above 2008) to continue the 10 year initiative to upgrade parks before the 100th anniversary of the National Park Service in 2016.

National Wildlife Refuge System: $463 million to reverse the loss of staffing that has occurred on the National Wildlife Refuges to improve conservation efforts.
 
Republicans were upset this week as House Democrats inserted a rider into the bill that would give the Obama Administration authority to overturn two Bush Administration rules that were finalized late last year concerning Endangered Species Act (ESA) consultation requirements and protection of polar bears.  If passed, the bill would give the Secretaries of Interior and Commerce 60 days to withdraw the controversial rules. 

House Natural Resources Committee Republicans argue that if the rules are withdrawn, any project that increases carbon dioxide or any greenhouse gas emissions would require consultation with the US Fish &Wildlife Service on mitigation against the potential impacts on global warming and harming of the polar bear, or else face potential lawsuits.  They indicate that the threat posed to job creation and the economy by such action would impact energy production, agricultural practices, increases in livestock numbers, construction of buildings such as schools or hospitals, and any other activity that emits greenhouse gas.

Appointments Buzz – An Updated Recap

Over the last few weeks, we have provided you with the latest information – both published and off-the-record insider talk – about high level appointments within the Department.   Below is a recap of that list, including new developments that came out this week.

• Deputy Secretary – David Hayes (Senate confirmation awaits)
  
  
• Secretary Salazar’s Chief of Staff – Tom Strickland
  
  
• Secretary Salazar’s Deputy Chief of Staff – Renee Stone
  
  
• Deputy Secretary Hayes’ Chief of Staff  -- Laura Daniels Davis
  
  
• Assistant Secretary for Fish, Wildlife and Parks – Tom Strickland (first Interior Assistant Secretary nomination by President Obama; will keep COS position also)
  
  
• Assistant Secretary for Indian Affairs – Larry EchoHawk (BYU law professor, nomination not yet official)
  
  
• Solicitor – Hilary Tompkins (UNM law professor, nomination not yet official)
  
  
• Assistant Secretary for Land and Minerals Management – Lucy Blake (former Director of the California League of Conservation Voters and former President of the Sierra Business Council) is in the mix
  
  
• Assistant Secretary for Water and Science – Anne Castle (Denver lawyer specializing in water issues) is in the mix
  
  
• Bureau of Reclamation, Commissioner – Michael Connor (Senate Energy & Natural Resources Committee staffer) is in the mix
  
  
• Bureau of Land Management, Director – Mike King (Deputy Director of the Colorado Department of Natural Resources and former State Assistant Attorney General) is in the mix
  
  
• National Park Service, Director – Tom Kiernan (National Parks Conservation Association, President) is in the mix for the job
  
  
• Fish & Wildlife Service, Director – Dan Ash, Russ Mason, and Tod Stevenson remain in the mix for the job
  
  
• National Indian Gaming Commission, Commissioner – Jerry Danforth (former Oneida Wisconsin Chairman) is in the mix for one of the open positions
  
  
• Director of External and Intergovernmental Affairs – Ray Rivera (Colorado State Director for Obama Campaign, Political Director for AFSCME)
  
  
• Secretary Salazar’s Counsel on Energy – Steve Black (former Salazar Senate staffer)
  
  
• Secretary Salazar’s White House Liaison – Brian Screnar (worked for Obama and Edwards campaigns, and Democratic Congressional Campaign Committee)
  
  
• Counselor to Secretary Salazar – Ken Lane (former Salazar Senate staffer)
  
  
• Interior Director of Communications – Betsy Hildebrandt (former Senior Manager for Technology Marketing and Communication at Accenture)
  
  
• Deputy Director of Communications – Matt Lee-Ashley (former Salazar Senate office Director of Communications)
  
  
• Interior Press Secretary – Kendra Barkoff (former press secretary for Sen. Bob Casey (D-PA))