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May 21 and 22, 2003
Oil and Gas Conservation Commission
Casper, Wyoming
Senator Bill Hawks, Co-chair
Representative Clarene Law, Co-chair
Senators Barrasso (5/21), Decaria and Mockler
Representatives Childers, Cooper, Esquibel, Illoway, Latta, Meyer, Miller (5/21) and Walsh
Emily Birtell Gardyasz, staff attorney
Please refer to Appendix 1 to review the Committee Sign-in Sheet for a list of other individuals who attended the meeting.
Senator Hank Coe
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.
Co-Chair Bill Hawks called the meeting to order at 9:00 a.m.. Roll call was taken. Appendix 3. The following sections summarize the Committee proceedings by topic. Please refer to Appendix 2 to review the Committee Meeting Agenda. Representative Walsh moved the committee adopt interim rules; Representative Illoway seconded; motion passed. See Appendix 4 for the adopted interim rules.
Mark Doelger, chair of the Wyoming Natural Gas Pipeline Authority introduced the Authority's new interim director, Bryan Hassler. Mr. Hassler, a petroleum engineer, is a Cheyenne native with experience in marketing natural gas. He currently resides in Denver. Mr. Hassler testified that additional pipeline capacity is needed.
Mr. Doelger testified on the gas price differential and the need for additional pipeline capacity. See Appendix 5 for a chart of the daily spot market price at Henry Hub and Opal. Mr. Doelger testified to the goals and tasks, including the progress made to date, of the Authority in accord with his handout. See Appendix 6 for the Authority's work plan. Mr. Doelger testified that there is a need for greater flexibility to move gas east or west, and thereby eliminate the price difference between the Cheyenne and Opal Hubs. Mr. Doelger testified that midwest gas supplies are declining and that the Rockies can provide the long-term supply that is needed in the future. Wyoming needs to make an appeal to midwest end users. Mr. Doelger testified that gas supplies are tight nationwide and storage is not filled; gas prices are up. Mr. Doelger testified that an Alaskan pipeline is a long-term threat, perhaps ten (10) years out, as the regulatory process has not yet started. Mr. Doelger testified that Wyoming is now on the "national radar screen" as a result of the $1 billion in bonding authorized by SF 85.
Mr. Strahn, vice chair of the Authority, testified that Wyoming is in a great position with continual net growth in natural gas production. Wyoming just needs to move the gas. The state needs transportation options. Regarding financing, Mr. Strahn testified that the creditworthiness of the company will determine the salability of any given bond issue. Each project will be different and will affect the bond rating. Mr. Strahn also testified that Wyoming Attorney General Pat Crank has concern with the confidentiality provision in the recently enacted SF 85. Some legislative work may be needed.
Mr. Strahn told the Committee that the next big problem in Wyoming will be access to land holding vast reserves of natural gas. The Authority will be an advocate for access.
Marc Strahn testified that April 16th was the last meeting of the Wyoming Energy Commission. The WEC is in a state of dormancy. The state energy policy has been completed and given to the Governor. Mr. Strahn presented several remaining issues that the WEC would like to see addressed:
Steve Waddington, the Governor's energy policy advisor, told the Committee that energy is a high priority for the Governor. And, while the WEC is dormant, specific WEC initiatives will be followed up:
Steve Waddington testified in accord with a draft proposal titled, "Subregional Transmission Planning Process for Rocky Mountain States." See Appendix 7 for the draft proposal. Governor Freudenthal is working with Utah Governor Leavitt to sponsor an initiative for regional transmission planning. All interested parties-- generators, utilities, FERC and others would be included in the planning process. Mr. Waddington testified that what is important for Wyoming long term is a transmission grid operated by an independent transmission operator. Mr. Waddington encouraged the Committee to stay engaged with the efforts undertaken by the Governor's office to find solutions to transmission problems. To that end, Mr. Waddington will apprise the Committee as needed for legislative support.
Mr. Waddington testified that the Governor encourages a study of renewable energy as recommended by the Wyoming Energy Commission. Mr. Waddington testified as follows. A renewable portfolio standard is a method by which there will be a mandate, a growing mandate, over time for electric utilities that carry a native load in the state of Wyoming to rely on a certain percentage of renewables—wind, biomass, hydro—the real renewable of interest being wind. Several states have renewable portfolio standards (RPS). Ultimately, a federal standard will be in place. Wyoming has a lot of wind that could be used for electrical generation. Wyoming could be "renewable central." An RPS would be environmentally sound. Traditional generators should partner with renewables. There is no tax base in Wyoming for renewables. The Governor believes that if the state grows a renewables industry, consideration as to how and when to develop some tax structure will be needed. A tax on green power equivalent to the severance tax on coal or gas would prevent the tax base of the state from being eroded. Shawn Taylor will provide a RPS policy paper to Legislative Service Office staff for distribution to the Committee members.
Gillian Malone, Powder River Basin Resource Council testified in support of a RPS in accordance with her handout. See Appendix 8. PRB Resource Council proposes that ten percent (10%) of the electric power sold in this state be from renewables by 2010; and that twenty (20%) be from renewables by 2020.
Harold Kemp, State Land Office, offered to provide information to the Committee on the impact of wind farms and the potential income generation from wind farms as experienced by the Land Office. One wind farm is located on state land in the Arlington area. The information will be submitted to LSO staff.
Erin Taylor, PacifiCorp, testified in support of a RPS study. PacifiCorp plans to use renewables in the future generation of electricity. Any mandates should have standards that are realistic and obtainable. Mr. Waddington agreed to work with industry to determine the cost of mandates and the impact of mandates on industry and the state. Other issues to be determined include what is an obtainable mandate; how other renewables besides wind may be included in a RPS; and the physical impact of wind farms on the state's landscape.
Patrick Pitet, Wyoming Business Council, testified on various renewables projects WBC is working on across the state. Mr. Pitet testified that all the different types of renewables, "deep hot rock," biomass, hydro and others should be included in a RPS.
Brad Enzi, Black Hills Corporation, testified in opposition to a mandated RPS. Mr. Enzi testified that mandated standards will raise local rates. He spoke in favor of incentive-based use of renewables. Mr. Enzi will work with Mr. Waddington on this topic.
Michelle Barlow, Wyoming Outdoor Council testified in support of a RPS study.
Tom Swanson, Exploration Manager for Farleigh Oil, testified in favor of proration. Mr. Swanson testified that proration could be used as a "tool" to fix the gas price differential today, rather than waiting for the long-term solution of more pipeline capacity. This would prevent a loss of revenues to the state by limiting supply to increase Wyoming's gas prices. Mr. Swanson testified that the people who own the space on the pipelines are making a lot of money.
John Kennedy, independent producer from Gillette, testified in favor of proration. Mr. Kennedy testified that if the Governor could prorate all production, then producers would subscribe to pipelines. Mr. Kennedy testified that there is market demand for all of the gas produced in Wyoming; but, those that have capacity on the pipeline are getting the differential and pipeline projects are being stopped. Revenues to the state and producers are being lost. Those who receive the differential amounts are reaping huge tax-free income.
Brian Jeffries, Western Gas Resources, testified in opposition to proration in accord with his written remarks. See Appendix 9. Mr. Jeffries testified that prorating gas would discourage investment in pipelines. Mr. Jeffries testified on ownership of pipeline capacity. See Appendix 10. Mr. Jeffries also explained that there are opportunities to lose money in transportation, for example if there is excess capacity; there is no floor on price. Further, Mr. Jeffries testified that the pathway to market can be costly for Wyoming producers.
Bruce Hinchey, President of the Petroleum Association of Wyoming, testified against proration and in favor of market forces. See Appendix 11 for written remarks. Mr. Hinchey introduced Frank Douglass of Dallas, Texas to speak to the Committee. Mr. Douglass testified on how oil and gas proration works in Texas. See Appendix 12, for Texas oil and gas field statistics. Mr. Douglass testified that proration has not been that successful. Proration in Texas is based upon market demand. Mr. Douglass testified that proration is not going to solve the price differential in Wyoming.
Mr. Douglass testified that the marketers are making money by buying up capacity and selling it to the end user—that is the free market at work. The free market should encourage pipeline projects. With additional pipeline capacity, gas prices should be more stable.
Bryan Hassler testified that most producers do not want to hold capacity; they are not manipulating the market. Nevertheless, there is incentive to hold capacity when there is a big differential.
Charles Greenhawt, Questar, testified against proration. Questar produces, transports via pipelines and distributes natural gas. Mr. Greenhawt testified that Questar is not reaping huge profits on its transportation capacity. He agreed that gas prices have been depressed and that more pipeline capacity is needed. Questar's interests are aligned with Wyoming. Proration would not be good for Wyoming and would send the wrong message to pipeline companies.
Rick Robitaille, Anadarko testified against prorationing in Wyoming. Mr. Robitaille detailed the various investments his company has made in Wyoming: pipeline space, drilling wells and a natural gas processing plant. Mr. Robitaille testified that more pipeline is needed.
The Committee recessed at approximately 4:10 p.m. the first day.
Co-chair Clarene Law called the meeting to order at 8:00 a.m.. Roll call was taken. Appendix 3. The following sections summarize the Committee proceedings by topic. Please refer to Appendix 2 to review the Committee Meeting Agenda.
Don Likwartz, Oil and Gas Conservation Commission, testified regarding proration in Kansas, New Mexico and Oklahoma. Proration is not actively used in these states due to the lack of production. Mr. Likwartz testified that coal bed methane may be difficult to prorate. Mr. Likwartz testified that Wyoming was not short of pipeline last year-- sales volumes never exceeded pipeline capacity, even with the $2.50 differentials. The pipeline restrictions were outside of Wyoming.
Senator Hawks moved that the Committee not give further consideration to the proration issue. Representative Latta seconded. Motion carried.
Jim Henderson, Office of Advocacy, U.S. Small Business Administration, testified in accord with his written remarks. See Appendix 13. As a result of federal legislation, federal agencies have to consider the impact of any regulation on small business and look for alternative ways to meet the regulatory goal. Model legislation, adopted in some states, requires that state agencies do a cost-benefit analysis; and if an impact is found to look for alternatives. Mr. Henderson read a written statement submitted by Lynn Birleffi, Wyoming Lodging and Restaurant Association, regarding costs incurred by small business as a result of legislation. See Appendix 14. Mr. Henderson explained that the model legislation also requires a review of existing rules.
Tom Jones, National Federation of Independent Businesses, testified in support of the SBA concept, particularly the required cost-benefit analysis of rules on small business. Mr. Jones cited the costs of duplicative paperwork and compliance with employment taxes as problem areas for small business. Mr. Jones testified that state agencies need to coordinate with each other and allow for some flexibility.
Tom Throop, Equality State Policy Center, testified that as an alternative to the SBA model legislation, additional legislative rule review may be beneficial.
Marion Loomis, Wyoming Mining Association, testified that once a rule is adopted, years later the rule may need review. Mr. Loomis testified that there is no process whereby these existing rules may be reviewed.
Tucker Fagan, Wyoming Business Council, testified that he is not aware of any problems with state agencies promulgating onerous rules. People in Wyoming work with each other.
Senator Hawks moved that this Committee not adopt or pursue in any way the model legislation presented. Representative Latta seconded. Motion carried.
Tucker Fagan and Steve Achter, Wyoming Business Council, submitted to the Committee the proposed rules for Business Ready Community Grant and Loan Program as required by the recently enacted House Bill 264. See Appendix 15 for the proposed rules and a summary of the rules. Mr. Fagan and Mr. Achter testified in accord with the summary of the rules. LSO staff noted that the summary incorrectly included the tribes as "eligible applicants."
Representative Latta moved and Senator Hawks clarified that, pending any comments submitted by the members of the Joint Minerals Committee to LSO staff on or before June 9, 2003, the proposed rules be supported by the Joint Minerals Committee and be passed on to the prime sponsors of HB 264 for further comment. Representative Walsh seconded. Motion carried. Comments submitted to LSO staff on or before June 9th will be provided to the Wyoming Business Council.
Tucker Fagan presented an additional concern of the Wyoming Business Council. The fee for industrial development bonding is assessed by the WBC and deposited with the state treasurer for the general fund. Mr. Fagan testified that the WBC should be doing this bonding, but having the fee go to the state treasurer as opposed to the WBC is a disincentive. Co-chairs Hawks and Law agreed to look into this matter.
The Committee will meet again on Wednesday, September 3, 2003 at a place and time to be determined. Air service issues and the gender-wage gap study will be among the topics to be discussed.
There being no further business, Co-chair Law adjourned the meeting at approximately 10:50 a.m.
Respectfully submitted,
Senator Bill Hawks, Co-chair