MPA’s ‘best session’

Dave Galt discusses key industry bills passed in Montana’s 64th Legislature

Mike Ellerd

Petroleum News Bakken

As far as the oil and gas industry’s concerned, I think we came out of this thing in good shape.” That’s how Montana Petroleum Association Executive Director Dave Galt summed up Montana’s 64th Legislature which adjourned on April 28. “We didn’t lose anything and we made some positive strides.”

The session was one of the most positive Galt has seen over six sessions in which he has represented and lobbied on behalf of MPA. “If I look back over my tenure at MPA, we’ve managed to stop adverse legislation pretty successfully,” he said. “What’s been harder is passing legislation and getting legislation signed that helps the industry, and I thought this session was the most positive in that regard of passing proactive legislation for the industry. This session was the best.”

Galt took a look back over the session with Petroleum News Bakken and discussed six key bills that MPA backed, all of which passed with bipartisan support in a Republican-dominated legislature, and all of which have now been signed into law by Democratic Gov. Steve Bullock.

Sage Grouse

The governor’s sage grouse management plan, modeled after a similar program in Wyoming, passed the session in the form of Senate Bill 261 with $10 million in funding approved in House Bill 2, the general budget bill. Throughout the session, the program and funding had broad bipartisan support and both passed essentially intact giving Montana the lead in sage grouse conservation in the state with the goal of preventing a threatened or endangered listing by the U.S. Fish and Wildlife Service.

“It had all the industry people, all the agriculture people, all the conservation groups, all the land trust groups,” Galt said. “There’s a lot of people interested in conservation across the country and there’s a lot of them who are impacted by an endangered species, and it brought both groups together.”

The legislation, he said, allows the state to take a proactive position to implement a plan that the governor’s councils and advisors had put together. “It gives us an opportunity to do it ourselves and be in control, and I think that’s really important, especially if you want to develop a project,” he continued. “If you want to do a project and do something to try to preserve the bird, then this is huge.”

Pollution control equipment

Industry unsuccessfully backed legislation in the 2013 session that would have eliminated property taxes on pollution control equipment. But that changed in the 2015 session with the passage of HB 156 which eliminates such taxes for a 10-year period.

While the primary beneficiary of the legislation is the downstream sector, Galt said there are benefits to midstream and upstream, including tax benefits for carbon dioxide capture and sequestration equipment as well as pipelines used to carry CO2 for enhanced oil recovery. “So if somebody’s going to invest in equipment to capture carbon, that investment is significant and they’re allowed a significant tax reduction.”

Waste fees

SB 136 put a $25,000 cap on the total waste generator fee that the Department of Environmental Quality can impose on wastes removed at remediation sites. Previously there was no limit on the generator fee, which Galt said was a disincentive for anyone wanting to voluntarily cleanup waste sites. The bill also defines what materials are considered “remediation wastes.”

“A lot of our folks have waste that needs to be cleaned up, and there was an uncapped fee, so there was a significant risk potential to opening up an old site with remediation waste.” He said in the past there were situations where generator fees reached into the hundreds of thousands of dollars, and when someone was looking at cleaning up a waste site and added in fees potentially in that range, the cleanup quickly became uneconomic. “What 136 did was just cap that. It still allows DEQ to run that program.” The bill had the support of DEQ and DEQ assisted in drafting the bill.

Nutrient discharge permits

HB 270 provides for variance standards and a compliance schedule provided by DEQ for nutrient discharge permits issued by the Environmental Protection Agency. The bill states that if EPA objects or vetoes a discharge permit and determines no variance may be granted, DEQ can modify the permit according to base numeric nutrient standards with a predetermined compliance schedule. In essence, even though EPA retains primacy over the permit, if EPA rejects a permit, HB 270 allows DEQ to implement a variance to the required nutrient levels and puts the permit holder on a 20-year compliance schedule.

“At the end of the day, EPA has to approve the permit, but EPA has a lot of flexibility in that, including looking at strong statutes,” Galt said. “When you look at a numeric standard, the tendency is to say ‘you have to be at the number.’ But we all recognize that on nitrogen and phosphorus - particularly nitrogen - the numbers that are put in the statute and the rules are unachievable today. They’re achievable maybe 20 years from now, but we’ll have 20 years to work on that. So 270 provides a little more protection for the permit holder in the event an EPA interpretation is more strict ― because there’s latitude there.” In essence, the bill doesn’t necessarily make it easier for EPA to issue a permit, but instead makes it harder for the agency to reject a permit.

Carbon sequestration

Another bill addressing carbon dioxide was HB 393 which provides for a carbon sequestration certification process. Under the law, upon request by an operator or producer of an enhanced oil recovery project utilizing CO2, the Board of Oil and Gas Conservation can certify that the amount of CO2 incidentally remaining in the ground after the project is “stored” carbon dioxide.

“It was just a carbon issue,” Galt said. “Let’s say company A is buying CO2 from company B and using it in an enhanced oil recovery operation, some of that CO2 is staying in the ground. Those companies would be able to certify that they’re sequestering carbon.”

Stripper well tax reduction

HB 411 provides additional tax incentives for operators of stripper wells by raising the crude oil price at which tax incentives take effect for stripper wells. Previously the incentives kicked in when the price of West Texas Intermediate averaged less than $38 per barrel for a calendar quarter, but under HB 411, that trigger price is now $54.

“Obviously right now the price of West Texas is in the $58 or $59 or $60 range, this doesn’t affect a tax change,” Galt said, “but in the volatile market, it offers some protection for marginal well owners.”

Adverse bills killed

While MPA had a good session in terms of the bills it supported which passed, the session was also good in terms of the bills it opposed which didn’t pass. A number of bills were introduced that would have had adverse effects on the industry, especially exploration and production, including legislation that would have, in one form or another, increased production taxes and legislation that would have imposed new and/or more burdensome regulations. However, none of those bills made it through the session.

Galt said MPA was “pleased that after listening to testimony from members across the state, many legislators recognized that the current rules of the Montana Board of Oil and Gas Conservation adequately protect surface property and mineral rights, and rejected additional regulation.”

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MT again fails to provide Bakken funding

In the 2013 session, lawmakers passed a $35 million infrastructure funding bill for oil-impacted communities, but Gov. Steve Bullock vetoed it because the bill would have left an ending fund balance or ‟rainy day fund” with less than the approximately $300 million he wanted. Then in the 2015 session, lawmakers could not agree on a funding mechanism and no short-term infrastructure funding legislation was passed.

Short-term infrastructure funding, i.e., for the biennium, eventually boiled down to two bills in the last days of the session. Senate Bill 416 was a $150 million infrastructure funding bill that would have provided approximately $45 million to oil-impacted counties through a combination of cash and bonding. House Bill 402 would have provided up to $55 million in grants to oil-impacted communities.

On March 31, the Senate passed SB 416 on a 47-3 vote and sent it to the House. While there was also bipartisan support for the bill in the House, 34 Republican Representatives objected to the bonding provision, which requires a two-thirds supermajority in each house, and the bill failed by one vote on April 27. Motions to reconsider the bill also failed.

On April 28, the Senate then passed HB 402 with amendments and sent it back to the House, but the House had already adjourned. At that point, the session was over.

While there was bipartisan support for many oil and gas-related bills in the session (see story on page 1), in the end there was not enough bipartisan support to pass legislation providing infrastructure funding for the biennium.

Plenty of blame to go around

In addition to the bills that would have used bonding and/or cash to fund infrastructure, there were two bills that would have used coal severance tax money to fund long-term statewide infrastructure construction well beyond the current biennium. SB 353 would have diverted a portion of money going into the state’s permanent coal trust fund and put that money in a trust for infrastructure spending. But because the coal trust fund is a part of Montana’s constitution, the measure required a referendum, which also required a supermajority of legislators, which it didn’t get ― Democrats have long opposed taking any money from the coal severance trust.

That bill was then followed by SB 354 which was a legislative referendum to set up a trust within the coal severance trust specifically earmarked for long-term infrastructure funding growing over time. Under the bill, no existing funds in the coal trust would have been affected ― the intent of the bill was to put some of the future coal tax funds into a ‟different bucket” as Hegreberg put it. And because the trust was within the larger coal severance trust, the bill did not require a supermajority and passed both houses of the Legislature with simple majorities, only to be vetoed by the governor on May 8.

‟There’s plenty of blame to go around,” Hegreberg said. ‟Conservative Republicans refused to bond and the governor and Democrats refused to consider coal tax revenues and in the end nothing got through.” He said the 64th Legislature was the ‟least productive for the contracting industry in recent years,” and was plagued with ‟cynicism and skepticism.” Hegreberg said many legislators take an approach of ‟when in doubt, just say no.”

Hegreberg noted that North Dakota’s Legislature ‟puts money where it’s needed,” but in Montana that has not been the case. ‟Eastern Montana is an economic engine for Montana and for us to turn our back on them is unconscionable.”

—Mike Ellerd