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Joint Minerals, Business and
Economic Development Interim Committee
Oil & Gas Commission May 22, 2001
Casper, Wyoming
PRESENT: Senator Bill Hawks, Co-chair;
Representative Clarene Law, Co-chair
Senators Decaria, Mockler and Youngbauer.
Representatives Anderson, Childers, Esquibel, Eyre, Illoway, Lockhart, Meyer and Miller.
Legislative Service Office: Glenn Lang, Staff Attorney
Others: See Appendix (A) 1.
ABSENT: Sen. Schiffer
AGENDA: See A 2.
MEETING PACKET: See A 3.
* * * * * * * * * *
Co-chair Hawks called the meeting to order at 9:00 a.m.
Rules
Motion to approve rules for 2001 interim as presented – Rep. Law; 2nd, Rep. Illoway. Favorable.
Report from Rep. Lockhart on Western Governors Assn. (WGA) Meeting
Rep. Lockhart provided a copy of the meeting agenda and a list of the participants. A 4. A number of western governors were in attendance, including the governor of Wyoming. The focus of the meeting was state collaboration with the federal government to minimize problems in permitting transmission lines.
A core group of approximately 50 individuals signed up to develop an action plan for presentation at the August 2001 meeting of the WGA. Efforts at developing RTOs has been a slow process. The action plan will outline what needs to done immediately; development of RTOs is too far into the future.
Co-chair Hawks stated the committee will not address royalty payments at this time. Royalty payments are a matter of private contract. Perhaps there is a need for a default provision relating to completion of the production process, but for now the committee will focus on taxation only.
The “Scott amendment” creating W.S. 39-14-211 (j) has never been workable by the Dept. of Revenue (DOR). It is to take effect July 1, 2002. SF 9 passed during the 2001 session did not solve the problem. Johnnie Burton, Dir. DOR, noted the draft bill attempts to provide a method for allocation of coal bed methane sales so that a portion of the revenue from sales of all natural gas can be deposited into the permanent Wyoming mineral trust fund (PMTF). Under the bill, Dir. Burton noted the ratio is 12% and the severance tax total is $178 M, so between $10M and $11M would be deposited into the PMTF. Don Likwartz, Oil and Gas Conservation Comm., noted CBM is projected to account for approximately 25% of all natural gas sales in the future.
Sen. Mockler noted that under the “Scott amendment,” deposit into the PMTF comes “off the top” before distribution from the severance tax distribution account. The Capital Finance Committee is developing a bill which provides that a percentage of the severance tax distribution account be allocated to the PMTF. This would put the deposits in the PMTF on the same plane as all other severance taxes. Dir. Burton favored this methodology, at least in part, because it is done on a quarterly basis which is less cumbersome for the department.
The committee determined to review the proposed Capital Finance Comm. bill and 01LSO0035.W2 together at the committee’s next meeting.
The issue is whether the completion of the production process for CBM should be defined differently than that for other natural gas for purposes of determining fair market value used to calculate taxes. Further, many producers have an interest in the pipeline that moves the gas to various points in the process. The draft bill would reduce uncertainty and increase uniformity with respect to completion of the production process for CBM and therefore do the same for purposes of calculation of the tax. Essentially, a “bright line” would be created.
Dir. Burton indicated DOR cannot accommodate all the variability in the scenarios of completion of the production process in the field. In contrast, Sen. Youngbauer noted that DOR’s position treats like taxpayers differently.
The committee discussed whether the 600 psi criterion should be used in the bill or whether some other criterion should be used. Rep. Illoway offered standards from the American Petroleum Institute. A 5.
Bob Ugland, Petroleum Association of Wyoming (PAW)
Mr. Ugland introduced two speakers, Mr. Chandler and Ms. Hinkle. He was of the opinion that the current statute does not need to be changed.
John Chandler - Western Gas Resources
Mr. Chandler provided a diagram of the statute, W.S. 39-14-203(b)(iv). A 6. He was of the opinion that no change in the statute is needed. He stated that point of valuation already is covered in the existing statute. His view was that the term “initial” in the statute means the first (#1) compressor.
Kathy Hinkle – Devon Energy Production Co., L.P.
She described how the company moves the gas from the well field through a processing plant and into a transportation pipeline. Each company has a different configuration and definition of gathering. She indicated that the company has a 75% interest in the pipeline from the well field to the processing plant.
Margo Sabec – attorney representing Devon
She offered that DOR can figure out fair market value for CBM taxation using the existing statute.
Ralph Thomas – Western Gas Resources
Offered that the existing statute is written in terms of functionality.
Rick Robitaille – Anadarko Petroleum Corp.
The company is only involved in drilling at this time. The current statute was written in 1989-1990. Two relevant cases in this area are McDermott (1962) and Hillard v. Big Horn Coal. He was unsure whether the current statute could accommodate the CBM situation; it was not contemplated at the time the existing statute was created. However, the functions are not different for CBM as opposed to other natural gas.
Discussion of, and vote on, 01LSO0009.W2
Discussion
Co-chair Hawks provided a diagram of the CBM production and transportation process. A 7.
Dir. Burton could not provide an estimate of the percentage of CBM that is sold at arms length; however, she believed that a large portion of CBM is not transferred at arms length. Only the Dept. of Audit would know.
Mike Geesy of Dept. of Audit reported that valuation generally occurs further upstream. Audits generally are done three (3) years after the fact. It is a fact that that there is a great deal of variation among companies.
Rep. Childers and Esquibel and Sen. Mockler stated they were in favor of a “bright line” method. Sen. Youngbauer expressed that he was not in favor of a of bright line method. Rep. Eyre expressed his desire to use a benchmark other than pounds per square inch.
Vote
Sen. Hawks moved to introduce the draft as a committee bill; 2nd Rep. Anderson. Sen. Mockler moved to amend the draft by deleting the new language beginning at p.2, l. 11 relating to completion of the production process when an arms length transaction is consummated. On the amendment the vote was favorable. Sen. Youngbauer moved to amend at p. 2, l. 14 to delete “600” and insert “75”; 2nd Rep. Miller. Amendment defeated. On the bill as amended the vote was 8 yes, 5 no. The committee bill will be introduced as a senate bill.
Energy Rate Relief
Management Council added this topic as an interim study of the joint minerals committee. Neither the speaker nor the president gave any direction with respect to the study. SF 178 Engrossed was passed by the senate 30 to 0, but died in house revenue.
Co-chair Hawks noted a number of items to consider in an energy relief bill, including: 1) Keep it simple; 2) Immediate relief; 3) Across the board application; 4) No negative effect on LIEAP or TANF; 5) No new programs; 6) No entitlement; 7) Relief for one year which can be renewed; 8) Cities and counties must be held harmless; and 9) Type of relief given must be constitutional. He also would like representatives from the Dept. of Family Services, the Public Service Comm. and the Dept. of Administration and Info. to testify at the next meeting of the committee regarding how best to provide relief from rapidly rising energy costs.
Rep. Childers noted that relief must be provided not only to individuals, but also to businesses. Additionally, there must be a way to separate those who truly need relief from those who do not. Sen. Youngbauer noted that relief must have some kind of floor.
Rep. Lockhart noted that there is no answer to the question of providing equitable relief, since some consumers are in immediate need of relief while others are not facing much in the way of an increase.
Committee members wanted to hear an update from the Energy Commission at the committee's next meeting.
Next meeting
The committee determined to next meet on Wed., June 27 in Cheyenne.
Adjournment
The meeting adjourned at approximately 3:20 p.m.
Respectfully submitted,
Representative Bill Hawks
Co-chair
All appendices referenced are on file at the Legislative Service Office.