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October 7, 2002
Oil and Gas Conservation Commission
Casper, Wyoming
Senator Bill Hawks, co-chair
Representative Clarene Law, co-chair
Senators Decaria, Mockler, Schiffer and Youngbauer
Representatives Anderson, Childers, Esquibel, Illoway, Lockhart, Meyer and Miller
Emily Birtell Gardyasz
Please refer to Appendix 1 to review the Committee Sign-in Sheet for a list of other individuals who attended the meeting.
Representative Eyre
All meeting materials and handouts provided to the Committee by the Legislative Service Office (LSO), public officials, lobbyists, and the public are referenced in the Meeting Materials Index, attached to the minutes. These materials are on file at the LSO and are part of the official record of the meeting.
Chairman Hawks called the meeting to order at 8 a.m. and roll call was taken. Appendix 3. Representative Illoway moved approval of the minutes for the July 11th and 12th meeting. Representative Childers seconded. Passed. See Appendix 4, Summary of Proceedings.
The following sections summarize the Committee proceedings by topic. Please refer to Appendix 2 to review the Committee Meeting Agenda.
The committee heard testimony from Randy Bolles and Craig Grenvik, Department of Revenue. Marion Loomis, Wyoming Mining Association, and others also testified as noted below.
The Committee considered the change in taxable value resulting from the Powder River Coal decision both in terms of amended returns filed for years 1996-2001 and also the estimated greater tax impact related to depletion. See Appendix 5.
The Department and industry met a number of times to resolve and clarify the statutory classification of costs—direct vs. indirect. The Department presented proposed statutory changes resulting from their work with industry. See Appendix 6.
Mr. Bolles testified that the Department does not agree that federal lease bonus payments are "indirect costs" as held by the Wyoming Supreme Court. The Department has filed another appeal on the issue.
Depletion expense is accounted for as a direct cost in the oil and gas industry. A case currently pending, BP Amoco, involves the issue of whether production taxes belong in the direct cost ratio. BP Amoco is relying on the Powder River Coal decision to argue that if a cost is not enumerated, then it is not a direct cost and comes out of the direct cost ratio.
Marion Loomis explained that industry feels that nothing is inherently wrong with the existing statutes and that by changing the language, an opportunity for different interpretations is created and further litigation will follow.
The Department testified that a consistent point of valuation, for example at the silo, is needed. Mr. Loomis testified that point of valuation issues are generally resolved with the individual company and that some mines have to be dealt with individually. Industry is opposed to moving the point of valuation downstream.
Mr. Mike Geesey, Director, Department of Audit, testified to the amount of training the auditors receive each year.
Mr. Bolles testified that coal has an inherent value and that the State should always receive some minimum value for its coal. Recognizing that coal is dependent upon mining versus production however, a floor for coal is not needed. The price of coal would have to be very low before a floor would be applicable. A statutory floor that will not be used, is not necessary. Mr. Loomis agreed.
Mr. Grenvik has prepared information on the cost-buildup method for coal valuation. Copies will be distributed by LSO staff to the Committee members.
Mr. Bolles testified that this draft bill will address the valuation of coal extracted from captive mines, putting into statute what the Department does in practice to value non-arms length sales of coal.
Bill Hartzler, RAG American Coal and Greg Koenig, Black Hills Corporation (Wyodak) testified before the Committee. Mr. Koenig urged the Committee to wait until the Wyoming Supreme Court hands down a decision in the Wyodak case concerning the valuation of non-arms length sales of coal. Mr. Koenig testified that the existing statute is not ambiguous and is easy to apply.
Bob Tarantola and Matt Thalman of PacifiCorp proposed that the current twelve month statutory period be extended to thirty-six months in order that the Department might be able to find comparable sales.
Vince Mockensturm, Kennecott Energy, testified that his company engages in affiliate sales. Kennecott has worked out valuation issues with the Department. Mr. Mockensturm urged the Committee not to change the existing statutory language for valuation of non-arms length sales.
Sarah Gorin, Equality State Policy Center, testified that the method used to value non-arms length sales should not be dependent upon the price of coal, but rather fairness.
Senator Schiffer moved to adopt the draft as a Committee-sponsored bill. Representative Anderson seconded. Passed 8-5. This will be a House bill.
Mr. Bolles explained that when the Board of Equalization separated from the Department, no statutory authority was given to the Department to choose an alternate method. Mr. Loomis testified that this draft will negate all of the existing tax valuation statutes. He offered an amendment prepared by Mr. Larry Wolfe, Holland and Hart. See Appendix 9.
Mr. Loomis testified that the existing statutory process whereby the taxpayer petitions the Department to use an alternate method works for the industry.
Mr. Wolfe testified that the draft bill makes an unconstitutional delegation of legislative authority to the Department. LSO staff noted that sufficient statutory standards are in place to allow the Department to choose an alternate method of valuation in the event of unique or unusual circumstances.
Senator Schiffer moved to adopt the draft as a Committee-sponsored bill. Representative Esquibel seconded. Failed.
Patrick Pitet, staff for the Wyoming Energy Commission (WEC) and Marc Strahn, co-chair for the WEC and a member of the Wyoming Pipeline Authority (WPA), testified before the Committee.
Mr. Strahn testified that the WEC is working toward completion of the state energy policy. There are several areas for possible legislation.
v Remediate community impacts by providing interest-free loans to communities impacted by mining. The communities would have early access to future ad valorem taxes to address immediate needs.
v Streamline permitting processes for energy development by integration of electronic filing for all applicable state agencies to provide consistency of procedure and eliminate duplicative filings.
v Fund the Wyoming Pipeline Authority to reactivate this Authority which has been dormant for several years by providing administrative staff and increasing bonding authority. Further, expand the WPA's statutory authority to encompass all transmissions. A state department of energy is also a possibility. There are thirty different state agencies, boards, etc. that touch, regulate or govern energy development—some consolidation is needed.
Mr. Pitet testified that the Wyoming Energy Commission cannot fund the WPA. Mr. Pitet explained that while the Governor supports the WPA, the plans that were submitted at the September WEC meeting expanded the WPA's statutory authority. As a result, the $47,000 request was denied to the WPA.
Mark Doelger, member of the WPA, testified as to the urgency of the natural gas price deferential and its ripple effect on the state. The Committee discussed the price deferential and the need for pipeline capacity. Don Likwartz, Oil and Gas Conservation Commission, testified that the state needs an over abundance of pipeline capacity; the WPA could help develop the pipelines.
Senator Hawks moved that a written request be presented to the Governor for temporary funding of the Wyoming Pipeline Authority—to get the organization operating again. Representative Illoway seconded. Passed.
Representative Lockhart moved to amend the motion to authorize the co-chairs to contact the Governor, on behalf of the Minerals Committee, to share the urgency of the natural gas price deferential and the need for additional pipeline capacity and the pipeline authority; with a letter to follow. Senator Youngbauer seconded. Amendment passed.
Mr. Strahn testified that an initial report on the PACE study will be available before Thanksgiving and the final report is to be completed by January 1st.
Mr. Pitet told the Committee that the Wyoming Energy Commission is projected to need additional funding and will be asking the Legislature for additional monies. See Appendix 10, WEC Expenditure Timeline.
Mr. Likwartz presented the speech he gave at the Wyoming Natural Gas Fair. See Appendix 11, Speech, September 26, 2002. He provided a map that shows all of Wyoming's major natural gas pipelines. See Appendix 12. Mr. Likwartz testified that the state needs additional pipeline capacity out of southeast Wyoming, as well as lines to the Chicago market and Louisiana and Texas markets.
Tucker Fagan explained that this draft bill eliminates various "benchmarks" used to measure the effectiveness of the economic development act in its annual report. Senator Youngbauer moved the Committee sponsor the bill. Representative Illoway seconded. Passed 13-0. This will be a Senate file. See Appendix 14
Rick Miller, University of Wyoming Vice President for Governmental Affairs, explained the draft to the Committee. After brief discussion, Representative Illoway moved the Committee sponsor the bill. Representative Meyer seconded. Passed 13-0. This will be a Senate file. Appendix 16. (See also, Appendix 17, Business Plan 2002)
There being no further business, Co-Chairman Law adjourned the meeting at approximately 3:30 p.m.
Respectfully submitted,
Senator Bill Hawks, Co-Chairman