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2006 Budget Session
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HB 43 represented the latest in a series of bills that have attempted to change the way the taxable value of producer-processed natural gas is determined.
Producer-processed gas is natural gas that is produced and then processed to remove impurities (such as hydrogen sulfide) by the same company before the gas is sold. This situation presents two valuation problems.
First, Wyoming statutes require setting a value on minerals at the point of production, but because sour gas (containing impurities) must be processed before its value can be realized, the valuation method has to work back from the point of sale to the point of production.
Second, when the same company produces and then processes the gas, there is no third-party sale between production and processing that could be used to set a fair market value on the gas.
The Wyoming Department of Revenue (DoR) determines the fair market value of natural gas using one of several different methods, including comparable sales, comparable value, or proportionate profits, but under current statute is prohibited from using the netback method for producer-processed natural gas. The netback method allows the producer to net back, or deduct, certain production costs from the sales price of the gas to arrive at the value at the wellhead. (For more details, view the ESPC's report, Wyoming's Wealth for Wyoming's People, Part II.)
The proportionate profits method has the effect of containing value - it overvalues gas when prices are low, and undervalues gas when prices are high. Because of concerns about reaching the fair market value of producer-processed gas (and also because of continuing litigation brought by industry throughout the 1990s over application of the proportionate profits method), the DoR has been seeking to value producer-processed gas using a different method.
Beginning with production year 2000, the DoR began using the comparable value method to value some producer-processed gas. The DoR's use of this method was immediately contested by industry, but the Wyoming Supreme Court upheld the DoR's right to use comparable value.
Earlier versions of HB 43 sought to replace the proportionate profits method with the netback method of valuation, and to eliminate possible use of comparable sales or comparable value. Governor Freudenthal successfully vetoed the last bill on the grounds that the DoR should not be restricted to one method of valuation. HB 43, therefore, would have added a new netback method to the other methods the DoR could use to value producer-processed gas.
This complex issue has been difficult for the various legislative committees that have attempted to deal with it. Instead of seeking to learn about different valuation methods and the associated advantages and disadvantages of each, legislative committees have preferred to tell the DoR and industry representatives to come up with something that both sides can live with.
The fragile compromise crafted over HB 43 during the interim began to disintegrate early in the legislative session; some producer-processors favored the bill, at least one opposed it, and others sought to amend it to limit the use of comparable value. Other interested parties, such as the ESPC and county officials' organizations, wanted to see the end of litigation over proportionate profits, but not at the expense of the DoR's authority to use both comparable value and netback.
The House defeated HB 43 on third reading, 29-31. The initial vote on the bill was 31-29, but Representatives Larry Meuli (R-H8, Cheyenne) and Doug Osborn (R-H40, Buffalo) switched their votes from YES to NO before the voting period closed, leading to the defeat of the bill.
The votes listed below are the House third reading votes. A YES vote means the representative wanted to allow the Department of Revenue to use new netback method in addition to the other methods they already can use to value producer-processed gas for taxation purposes. A NO vote means the representative did not want to allow the Department of Revenue to use the netback method.
| Bighorn Basin Legislators | House 3rd 2/28/06 |
|
| S 18 | Hank Coe (R) | |
| H 24 | Colin Simpson (R) | No |
| H 50 | Pat Childers (R) | No |
| S 19 | Ray Peterson (R) | |
| H 25 | Alan Jones (R) | No |
| H 26 | Elaine Harvey (R) | No |
| S 20 | Gerald E. Geis (R) | |
| H 27 | Debbie Hammons (D) | Yes |
| H 28 | Lorraine Quarberg (R) | No |
| Casper-Area Legislators | House 3rd 2/28/06 |
|
| S 27 | John Barrasso (R) | |
| H 35 | Roy Cohee (R) | No |
| H 36 | Gerald Gay (R) | No |
| S 28 | Kit Jennings (R) | |
| H 56 | Tom Walsh (R) | No |
| H 57 | Thomas A. Lockhart (R) | No |
| S 29 | Bill Hawks (R) | |
| H 37 | Steve Harshman (R) | Yes |
| H 59 | Mary Gilmore (D) | Yes |
| S 30 | Charles K. Scott (R) | |
| H 38 | Bob Brechtel (R) | No |
| H 58 | Ann Robinson (D) | Yes |
| Cheyenne-Area Legislators | House 3rd 2/28/06 |
|
| S 4 | Tony Ross (R) | |
| H 7 | Doug Samuelson (R) | No |
| H 41 | Becket Hinckley (R) | No |
| S 5 | John Hanes (R) | |
| H 8 | Larry Meuli (R) | No |
| H 42 | Pete Illoway (R) | No |
| S 6 | Wayne H. Johnson (R) | |
| H 9 | Bryan Pedersen (R) | No |
| H 10 | Rodney "Pete" Anderson (R) | Yes |
| S 7 | Kathryn Sessions (D) | |
| H 11 | Wayne Reese (D) | Yes |
| H 43 | Dan Zwonitzer (R) | No |
| S 8 | E. Jayne Mockler (D) | |
| H 12 | Layton Morgan (D) | Yes |
| H 44 | Floyd Esquibel (D) | Yes |
| Gillette-Area Legislators | House 3rd 2/28/06 |
|
| S 23 | John Hines (R) | |
| H 31 | Thomas E. Lubnau II (R) | No |
| H 52 | Burke Jackson (R) | Yes |
| S 24 | Michael Von Flatern (R) | |
| H 32 | Jeff Wasserburger (R) | No |
| H 53 | Erin Mercer (R) | No |
| Lander/Riverton-Area Legislators | House 3rd 2/28/06 |
|
| S 25 | Cale Case (R) | |
| H 33 | W. Patrick Goggles (D) | Yes |
| H 54 | Del McOmie (R) | Yes |
| S 26 | Robert A. Peck (R) | |
| H 34 | Frank Philp (R) | Yes |
| H 55 | David Miller (R) | No |
| Northeast/East Central WY Legislators | House 3rd 2/28/06 |
|
| S 1 | C.L. Townsend (R) | |
| H 1 | Mark Semlek (R) | No |
| H 2 | Ross Diercks (D) | Yes |
| S 2 | Jim Anderson (R) | |
| H 5 | James C. Hageman (R) | Yes |
| H 6 | Dave Edwards (R) | Yes |
| S 3 | Curt Meier (R) | |
| H 3 | Deborah Alden (R) | No |
| H 4 | Edward A. Buchanan (R) | No |
| Sheridan-Area Legislators | House 3rd 2/28/06 |
|
| S 21 | Bruce Burns (R) | |
| H 29 | Jerry Iekel (R) | No |
| H 51 | Rosie Berger (R) | Yes |
| S 22 | John Schiffer (R) | |
| H 30 | Jack Landon (R) | No |
| H 40 | Doug Osborn (R) | No |
| South Central WY Legislators | House 3rd 2/28/06 |
|
| S 9 | Mike Massie (D) | |
| H 13 | Jane Warren (D) | Yes |
| H 45 | Kevin A. White (R) | No |
| S 10 | Phil Nicholas (R) | |
| H 14 | Kermit C. Brown (R) | No |
| H 46 | James Slater (R) | No |
| S 11 | Bill Vasey (D) | |
| H 15 | George Bagby (D) | Yes |
| H 47 | Kurt Bucholz (R) | Yes |
| Southwest WY Legislators | House 3rd 2/28/06 |
|
| S 12 | Rae Lynn Job (D) | |
| H 48 | Marty Martin (D) | No |
| H 16 | Pete Jorgensen (D) | Yes |
| S 13 | Tex Boggs (D) | |
| H 17 | Stephen Watt (R) | No |
| H 60 | Bill Thompson (D) | Yes |
| S 14 | Stan Cooper (R) | |
| H 18 | Mick Powers (R) | Yes |
| H 39 | John Hastert (D) | Yes |
| S 15 | Ken Decaria (D) | |
| H 19 | Owen Petersen (R) | Yes |
| H 49 | Bruce Barnard (R) | Yes |
| West Central WY Legislators | House 3rd 2/28/06 |
|
| S 16 | Pat Aullman (R) | |
| H 20 | Kathy Davison (R) | Yes |
| H 21 | Randall Luthi (R) | Yes |
| S 17 | Grant Larson (R) | |
| H 22 | Monte Olsen (R) | Yes |
| H 23 | Keith Gingery (R) | Yes |
See Southwest Region for H 16 and S 12 | ||