Lawmakers advance fossil-fuel royalty relief, CO2 liability

A "boneyard" at the Eagle Butte coal mine north of Gillette, photographed in December 2019, is filled with old mining equipment. Eagle Butte was one of several coal mines to temporarily close in 2019 due to Blackjewel's bankruptcy. (Dustin Bleizeffer/WyoFile)

By Dustin Bleizeffer, WyoFile

Lawmakers have relegated few energy bills to the cutting room floor so far this budget session as they continue to prioritize measures they hope will help prolong coal-fired power, initiate commercial-scale carbon capture and provide relief to fossil fuel producers facing increases in federal royalty rates.

Fossil-fuel royalty relief

The Biden administration has signaled it will raise royalty rates for oil, natural gas and coal based on longstanding concerns that the rates are outdated and do not provide a fair rate of return for the right to produce and sell federal minerals.

The higher rates would generate more revenue for Wyoming because federal royalties are split 50-50 between the Federal Treasury and the state of origin. But fossil fuel producers and some lawmakers worry the increased rates would put Wyoming at a disadvantage for its disproportionately larger share of federal minerals compared to other producing states.

Two bills would provide financial relief for producers. They take slightly different approaches for the coal and petroleum producers.

House Bill 105 – Severance tax reduction-coal would reduce the state severance tax rate for coal from 7% to 6.5%, which would result in an estimated $10 million reduction in annual revenue to the state, according to bill sponsor Rep. Tim Hallinan (R-Gillette).

Rep. Tim Hallinan (R-Gillette) in the State Capitol, February 2022. (Mike Vanata/WyoFile)

“It will help coal companies to reinvest in their infrastructure, purchase needed equipment and supplies, implement reclamation management and maintain a full workforce,” Hallinan told the House Revenue Committee Tuesday. “It should be noted that operation costs have risen across the board under the current inflation.”

A break on state severance taxes could help both the coal industry and the communities that rely on it, Campbell County Commissioner Rusty Bell told the committee. “I think it would certainly benefit Wyoming and Campbell County, and all of us, if they’re putting those dollars back into that infrastructure or back into things that maybe will increase the use of coal,” Bell said.

However, one major coal producer — Arch Resources — confirmed this month that it is using the current windfall in demand and pricing for Wyoming coal to carry out its plan to close its two remaining mines in the state. Opponents to a coal severance tax rate reduction say it exemplifies that market conditions, not taxes, drive coal production and mining jobs in Wyoming. That argument has defeated several past attempts to ease the tax burden on the industry.

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“The reason for that is really very simple,” Powder River Basin Resource Council attorney Shannon Anderson told committee members. “The severance tax rate does not dictate how much coal comes out of the ground.”

Rather, production and jobs mostly rely on pricing and demand for coal to power electric generation, Anderson added. Although Wyoming coal production is on a decline that’s forecast to accelerate over the next decade, it’s even more important, she said, that Wyoming taxpayers get a fair rate of return while the industry is still benefiting from the resources.

Coal severance tax revenue “goes to the [state] general fund, it funds agencies across the state and it is very valuable money for the state of Wyoming,” Anderson said.

The House Revenue Committee advanced HB 105 Tuesday 7-2, with Rep. Jim Roscoe (I-Wilson) and Rep. Mike Yin (D-Jackson) voting against.

Campbell County Commissioner Rusty Bell is pictured at the future location of the proposed Pronghorn Industrial Park Sept. 2021. (Dustin Bleizeffer/WyoFile)

Senate File 84 – Mineral royalties-proportional severance tax relief takes a slightly different tack for oil and gas. Rather than reduce the state’s severance tax rate to help counter an anticipated increase in the federal mineral royalty rate, it would refund a portion of state severance tax payments to producers to offset royalty rate increases.

The bill passed the Senate Minerals, Business and Economic Development Committee Monday on a vote of 4-1, with Sen. Chris Rothfuss (D-Laramie) voting against. The bill was scheduled for discussion on the Senate floor Wednesday.

Carbon capture and coal power

One of three bills that aim to encourage carbon capture, utilization and sequestration is still in play. Senate File 47 – Carbon capture and sequestration-liability passed second reading on the Senate Floor Wednesday.

The measure, sponsored by the Joint Minerals, Business and Economic Development Committee, provides a method to transfer ownership and liability for CO2 stored underground from an operator to the state. An operator could apply for a certificate of transfer after a monitoring period of 20 years to ensure geologic stabilization.

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Proponents say the measure is needed to allay concerns among potential financial backers, and help encourage a commercial CCUS market that could help keep coal-fired power in line with policies that curb the industry’s contribution to climate change.

Two other CCUS measures have fallen by the wayside.

House Bill 61 – Carbon dioxide in public works-feasibility study would have required the University of Wyoming to analyze the cost-benefit of requiring that CO2 captured from coal-fired and natural gas power plants be used in concrete for state-funded public works projects. The bill, sponsored by Rep. Clark Stith (R-Rock Springs) was not considered for introduction.

Senate File 64 – Carbon capture and sequestration was withdrawn by sponsor Sen. Charlie Scott (R-Casper). That bill would have required utilities to either retrofit coal-fired power plants with CCUS or sell the facility to a new owner that would install the technology. The original owner would then be required to purchase power from the retrofitted power plant.

Coal power litigation

Meantime, House Bill 141 – Coal-fired facility closures litigation funding-amendments would expand the scope of a $1.2 million fund set aside in 2021 for the governor to sue states that impede the development and marketing of Wyoming coal. In addition to suing states, the governor could direct the attorney general’s office to bring suit against the federal government.

Last year’s bill was narrowly focused, Gov. Mark Gordon’s Chief Energy Advisor Randall Luthi told the House Minerals, Business and Economic Development Committee Wednesday. Proponents had hoped Wyoming would bring suit against Colorado and/or electrical cooperative Tri-State Generation and Transmission Association for backing away from coal-fired power generation.

Tri-State’s coal power providers include the Laramie River Station power plant outside Wheatland. But Colorado’s Public Service Commission denied Wyoming’s bid to intervene, Luthi said.

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“So the question still remains, how do we make this more viable?” Luthi said. “One [way] is to let us sue the federal government. And then there are sometimes third parties that also generate certain areas of litigation that, if we could intervene in, it could be very useful.”

Opponents say the Wyoming attorney general already has the authority to engage in such lawsuits, and the $1.2 million appropriation could be better spent. The committee advanced the bill Wednesday morning.

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