Tax battle at Exxon's Shute Creek facilities

House Revenue Committee clarifies valuation of ExxonMobil's sour gas


The House Revenue Committee Wednesday narrowly approved a bill to clarify the valuation of natural gas produced at ExxonMobil’s LaBarge-Shute Creek operation.

The history of tax disputes with ExxonMobil is long. Back in the late 1980s, Exxon declined to pay taxes on its gas production at Shute Creek, declaring that the gas was worthless – even as the company continued to produce and sell the gas. Exxon held that after it deducted all its expenses, including a large deduction for return on investment, there was no value left to the gas.

Exxon’s action triggered a legislative overhaul of the state’s mineral taxation statutes during the early 1990s.

Taxation of processed natural gas — the “sour” gas produced in western Wyoming that requires processing to remove toxic compounds — continued to be an issue throughout the decade and well into the current century. The 2008 Legislature at long last enacted a bill that appears to have addressed most of the problems.

The measure considered Wednesday, HB 78 Natural gas-taxation, is sponsored by Rep. Tom Lubnau II (R-H31, Gillette — pictured above) and co-sponsored by a bipartisan group of legislators including the Revenue Committee chairman, Rep. Rodney “Pete” Anderson (R-H10, Pine Bluffs), Rep. Jim Roscoe (D-H22, Wilson) and Sen. John Schiffer (R-S22, Kaycee).

The measure addresses another situation peculiar to the ExxonMobil LaBarge-Shute Creek operation: whether a facility located between the wellfield and the Shute Creek plant is a dehydrator or a processing facility. The difference is more than semantic, as it determines the “point of valuation” for the gas and therefore how much ExxonMobil owes in taxes.

In late 2009, the Wyoming Supreme Court held that Wyoming’s tax statutes on this point were ambiguous and that ambiguity must be resolved in favor of the taxpayer, ExxonMobil. HB 78 seeks to remove the ambiguity by adding definitions, thereby restoring the state’s position on the point of valuation.

The change will increase state severance and advalorem tax revenues on ExxonMobil's extraction by about $1.1 million in 2011 and an estimated $2.2 million in 2012 and 2013, according to the fiscal note attached to the bill.

Wyoming Attorney General Bruce Salzburg led off Wednesday morning’s testimony in concert with a lawyer for Sublette County, followed by a lawyer for ExxonMobil. It was a quick education (of sorts, since the third lawyer did not agree with the first two) for several of the committee members who were not involved in the years of legislative work leading up to the 2008 processed gas valuation bill.

Committee members voting for HB 78 were Reps. Amy Edmonds (R-H12, Cheyenne), Ken Esquibel (D-H41, Cheyenne), Patrick Goggles (D-H33, Ethete), Mike Madden (R-H40, Buffalo) and Owen Petersen (R-H19, Mountain View).

Those voting against it included one of the co-sponsors, Chairman Rodney “Pete” Anderson (R-H10, Pine Bluffs) and Reps. David Miller (R-H55, Riverton), Mark Semlek (R-H1, Moorcroft) and Sue Wallis (R-H52, Recluse).

The ESPC supports the bill and has long advocated that the state hire an expert to help with the valuation of the LaBarge-Shute Creek operation, which undeniably is unique, and to boost its investment in the technical and legal teams needed to counteract ExxonMobil’s aggressively litigious approach to tax issues.

House panel softens wind tax

Revenue Committee cuts tax rate

The House Revenue Committee Monday morning backed a bill that will impose a tax on power generated by wind turbines, but not before softening its impact by amending it to delay implementation and to reduce the tax rate substantially.

House Bill 101 Electricity generated from wind-taxation would levy an excise tax "upon the privilege of producing electricity from wind resources" in Wyoming. Gov. Dave Freudenthal called for legislators to support the tax in his State of the State speech last week.

The ESPC supports the idea, and told the committee that the state must tax renewable energy sources in order to sustain its tax base now and into the future.

Advocates for county governments said the tax is needed to produce the revenues necessary to maintain the roads and other basic services the wind-energy companies need. Still, Joe Evans of the Wyoming County Commissioners Association said, "We don't know what the correct rate of taxation should be."

Natrona County Commission Chairman Rob Hendry said Natrona County needs revenues to maintain roads, then quickly announced that as a contractor, he hopes to do business with the companies building wind farms.

Industry advocates lobbed rocks at the idea. A representative of Wasatch Wind, a wind power developer with offices in Canada and Utah, described the proposed rate of taxation of $3 per megawatt hour as "onerous."

Matt Grant, Rocky Mountain Power's lobbyist, said that the taxes will be passed on to customers. Since minerals producers are the company's largest customers in Wyoming, he said, "This tax will be paid by the minerals industry."

House Revenue Committee Chairman Rodney Pete Anderson, R-HD10, (pictured above) proposed an amendment to delay the implementation to 2012, rather than 2011 as the bill originally required. He also proposed reducing the rate of taxation to $1 per megawatt hour. Both those amendments passed.

The bill's fiscal note indicated the tax would generate about $14.8 million in both fiscal 2012 and 2013. But that estimate was based on the $3 rate. It's unclear how much the $1 rate will generate. Anderson said his amendment will postpone imposing the tax for the first three years a generator is in service.

An amendment to send all the revenues from the tax to the counties where wind power is generated was defeated. The bill proposes splitting the revenues, with 60% going to the state and 40% going to the counties where the power is produced.

Grant and other industry lobbyists like Dan Sullivan and Larry Wolfe argued for more thorough study. Wolfe opposed the tax. Sullivan suggested that state probably will develop a power generation tax “of some kind.” Wolfe said the tax would be the first power generation tax in the West, a point later disputed by Chairman Anderson.

Wolfe also said one of his wind-power clients, Duke Energy, has signed such tight contracts with Rocky Mountain Power to buy its electricity that it will not be able to pass-through tax increases as Rocky Mountain can.

When the committee considered the amendment to cut the tax rate from $3 per megawatt hour to $1, Rep Sue Wallis, R-HD52, Recluse, proposed cutting the rate to just 5 cents per megawatt hour. Her amendment failed, garnering support only from Rep. Mark Semlek, R-HD1, Moorcroft, and Rep. Amy Edmonds, R-HD12, Cheyenne.

The bill ultimately won approval from the committee on a 6-3 vote with Edmonds, Semlek and Wallis voting no.

Here's the committee vote as listed by the LSO:

Ayes: Representative(s) Anderson, R., Esquibel, K., Goggles, Madden, Miller and Petersen

Nayes: Representative(s) Edmonds, Semlek and Wallis

2/15/2010 H Placed on General File

An eye on Blue Sky

Discussion of the wind generation tax ranged fairly widely, with the committee focusing attention on Rocky Mountain Power’s Blue Sky Renewable Energy Program.

Rep. David Miller, R-HD55, Riverton, asked if any of the company’s wind-generated power is sole in Wyoming or if Wyoming customers are charged for it.

“No we are not,” RMP lobbyist Grant answered. He noted that once electricity enters the grid it is impossible to tell where or how any of the electrons were generated. The company simply gives customers the privilege to buy green power.

“How much of your green power is sold that way?” Chairman Anderson asked. “All of it or more than all of it?”

The company website notes that its customers can participate in the Blue Sky program “and help bring new renewable energy facilities on-line.” Once customers enroll in the program, RMP says it buys renewable energy credits from newly developed renewable energy facilities.

“Buying one 100-kwh block of Blue Sky each month for a year is as good for the environment as planting nearly 63 trees or not driving a car for 1,482 miles!”

The RMP web site lists this explanation of the calculation of environmental benefits:

"Rocky Mountain Power purchases the exclusive right to claim all of the environmental benefits from the generation of electricity produced by renewable energy power plants in the exact amount of Blue Sky purchases. The environmental benefits figures are based on the average non-base load generation emissions from the Western Energy Coordinating Council (WECC) region, as updated December 2008, and on data and calculations provided by the U .S. Environmental Protection Agency."

Taxes, taxes and tax relief

Homestead exemption advances

Property tax relief is high on the agenda for the governor and many legislators this session. Ideas for providing it have been proliferating like mice.

The House Revenue Committee approved a homestead exemption bill on Wednesday, Jan. 21. But the committee killed other bills proposing property tax cuts on Friday (Jan. 23).

The Equality State Policy Center and the Wyoming Taxpayers Association – usually not allies – both opposed the property tax bills before the Revenue Committee on Friday.

The homestead exemption has several good points. Governor Dave Freudenthal proposed House Bill 68 – Property tax-homestead exemption. It was taken as a committee bill by the Revenue Committee at its last interim meeting in December 2008.

How a homestead exemption works

Let’s say the fair market value of a home, as determined by the county assessor, is $100,000. The assessment ratio for residential property is 9.5%. So, the assessor multiplies $100,000 by 9.5% to arrive at an assessed valuation of $9500.

In HB 68, the homestead exemption is $4,400 of assessed value. That means $4,400 will be subtracted from the assessed valuation of $9,500, leaving $5,100 in assessed valuation.

The assessor then multiplies the assessed valuation of $5,100 by the mill levy of about .071 mills to reach the actual tax of approximately $362, instead of the $675 it would have been if the assessed value was $9,500.

This approach to cutting property taxes benefits lower-value homeowners, because the lower the value, the bigger a chunk the $4,400 is.

However, the tax revenue losses still are significant – the HB 68’s fiscal note shows a loss of about $33.4 million to local governments, and nearly $7 million to the school foundation fund.

Current Wyoming law states that the homestead exemption cannot be implemented unless the Legislature funds it – so HB 68 has an appropriation of $40.2 million to make up the revenue losses affecting local governments – “holding them harmless” in the vernacular. The school foundation fund would not be held harmless and would simply lose revenue.

If the Legislature chooses to reduce property taxes, the ESPC favors the homestead exemption because the revenue to fund it has to be available up front and more of the benefit goes to lower-value homes. The Casper Star-Tribune ran a story about the Jan. 21 Revenue committee meeting.

Last Wednesday, the ESPC also supported passage of HB 138, which broadens eligibility for the property tax refund program. The Revenue Committee passed HB 138 unanimously and, like HB 68, it is waiting to be heard on the House floor.


Variations on an assessment theme

Friday’s bills – all killed -- included three variations on lowering the assessment ratio and one bill modeled on California’s Proposition 13, which limits increases in assessed valuation. The revenue losses for each of the bills would have been significant.

House Bill 189, sponsored by Rep. Lisa Shepperson (R-H58, Casper) and co-sponsored by Sen. Don Dockstader (R-S16, Afton) was a Proposition13-like bill to limit increases in assessed valuation to 2% per year, with no make-up revenues.

Under HB 189, revenue losses to local governments were projected at $15 million for fiscal year 2010, nearly $25 million for fiscal year 2011, and $35 million for fiscal year 2012, going up in future years. Losses to the School Foundation Program were projected at approximately $3 million, $5 million, and $8 million for those three fiscal years, respectively.

Lower assessment ratios

House Bill 87 was sponsored by House Speaker Colin Simpson (R-H24, Cody), and co-sponsored by Reps. Ed Buchanan (R-H4, Torrington), Keith Gingery (R-H23, Jackson), David Miller (R-H55, Riverton) and Sens. Eli Bebout (R-S26, Riverton), Hank Coe (R-S18, Cody) and Grant Larson (R-S17, Jackson).

House Bill 87 permanently lowered the assessment ratio for residential property but included make-up revenues for local governments only for the year 2010. After that, revenue losses would start hitting the School Foundation Program (nearly $10 million in fiscal year 2011) and local governments (about $46 million in fiscal year 2012 and going up thereafter).

House Bill 175, sponsored by Rep. David Miller (R-H55, Riverton) and co-sponsored by Rep. Frank Philp (R-H34, Shoshoni) lowered the assessment ratio for both industrial and residential properties for the years 2010-2011, with make-ups revenue for local governments only.

House Bill 214, sponsored by Rep. Lisa Shepperson (R-H58, Casper) and co-sponsored by Rep. Bob Brechtel (R-H38, Casper) and Sens. Eli Bebout (R-S26, Riverton) and Charles Scott (R-S30, Casper), permanently lowered the assessment ratios for industrial and residential properties with no make-up revenues.

Under HB 214, revenue losses for local governments begin at $83 million in 2011 and $87 million in 2012, going up thereafter. Revenue losses to the School Foundation Program were projected at $18 million for fiscal year 2011 and $19 million for fiscal year 2012, increasing in future years.

Revenue Committee member votes had not been listed on the LSO website as of Saturday evening. On Friday, five committee members opposed all four bills that would have adjusted assessed valuations or assessment ratios, including Chairman Rodney "Pete" Anderson, (R-H10, Pine Bluffs), Amy Edmonds (R-H12, Cheyenne),Mike Madden (R-H40, Buffalo), Owen Petersen (R-H19, Mountain View) and Mark Semlek (R-H1, Moorcroft).

Rep. Ken Esquibel (D-H41, Cheyenne) supported only HB 87. Rep. Patrick Goggles (D-H33, Ethete) supported HB 87 and HB 175. Rep. David Miller (R-H55, Riverton) voted for HB 189, HB 175, and HB 124, but opposed HB 87.

Rep. Sue Wallis (R-H52, Recluse) voted in favor of all four bills.

(Equality State Watch thanks Sarah Gorin, the ESPC's tax expert, for reporting on the House Revenue Committee's actions on Jan. 21 and 23.)

House kills Throne campaign finance bill

House Bill 117 - Campaign finance, which would have limited state Political Action Committee contributions to campaignsd was defeated 35-18 in Committee of the Whole Friday. (The seven members who did not vote were excused for a meeting of the Appropriations Committee.)

Confusion over the pre-election receipts reporting apparently troubled the representatives, who were tired from a week of working bills.