Legal Updates

Which way is the legislative wind blowing for Wyoming energy taxes?

Two interesting bills are making their way through the Wyoming Legislature this session, both concerning the State’s main source of tax revenue – the energy industry.  The Legislature’s taxation treatment of oil and gas and wind energy may tell us how elected officials will address Wyoming’s significant revenue shortfall—sales and use taxes down 67% from December 2019. House Bill 11 seeks to cut the severance tax for the production of oil and gas in half for a 12-month period once certain price thresholds are met, while House Bill 28 would remove the existing tax credit for wind turbines that has been in place for three years.

The proposed oil and gas production tax cut (HB0011) is limited in both time and scope.  First, the severance tax reduction for the production of sweet crude oil would only occur if the West Texas Intermediate (WTI) spot price reaches a 30-day average of $45.00 or more per barrel.  Sour crude sour crude must reach a 30-day average Western Canadian Select (WCS) spot price of $38.00 per barrel before the exemption period would kick in. The price of natural gas must reach a 30-day average Henry Hub spot price of $3.00 or more per thousand cubic feet.  Once a threshold is met, the 12-month exemption period begins immediately and automatically.  Second, this bill only applies to wells that are drilled on or after January 1, 2021 or to wells that were shut-in and that are reactivated on or after January 1, 2021.  Finally, producers may only utilize the exemption for one six-month period once the 12-month exemption period goes into effect.  Elected officials hope this targeted tax relief will keep oil and gas development in Wyoming.

As for Wyoming’s wind energy developers, HB0028, will repeal the tax credit for all turbines that have yet to produce electricity prior to the effective date of the bill.  The tax credit for those turbines already in the ground and producing energy prior to the bill’s effective date will continue.  This is good news for those wind farms already in existence, but may serve as a deterrent to projects that are still in the development or permitting process.  The growing demand from larger states for renewable sources of energy should mean that Wyoming’s “world class wind” could help meet that demand.   Once a leader in wind energy, Wyoming fell behind neighboring states due, in part, to its imposition of a $1.00 mw production tax in 2012. With this new proposal, the Legislature may be shutting the door on future wind projects that could generate much-needed additional revenue for the State.

Any bills that cut or increase tax rates directly affect the State’s revenue forecast.  According to the Fiscal Note attached to each bill, the oil and gas tax relief bill would result in a net revenue decrease in $4,500,000 to the General Fund and $9,000,000 to the Budget Reserve Account in 2021. The termination of the wind energy tax credit would result in an additional $640,000 to the general fund and $960,000 to the Budge Reserve Fund over 2023 and 2024. Wyoming is facing a substantial revenue shortfall from COVID, the demand collapse in oil and gas demand and the continuing decline to the state’s backbone revenue source, the coal industry. The Governor submitted an austerity budget in October that still leaves a gap that the legislature will have to fill with more cuts and revenue increases.  Time will tell how the revenue impact of the tax cut for oil and gas producers will affect Wyoming’s overall fiscal forecast.

The Legislature just opened last week, and there is no telling where each of these bills will end up.  However, they will be bills to watch for both traditional and wind energy companies.

Tags:  Wyoming legislature; HB0011; HB0028; oil and gas taxation; wind tax credit; energy taxes; revenue; renewable energy; alternative energy