West Virginia Gov. Jim Justice in an unexpected move has vetoed two bills aimed at helping smaller natural gas producers in the state.
Justice, a Republican, said late Friday he was forced to veto 15 bills that passed during the legislature’s 2019 regular session for “purely technical reasons,” including House Bills (HB) 2673 and 2661.
HB 2673 in particular had been a high priority for the industry. It was written by the West Virginia Independent Oil and Gas Association (WVIOGA). It would exempt wells that produce 5-60 Mcf/d of natural gas or 0.5-10 b/d of oil from paying a severance tax. Instead, the previously paid tax monies would go toward maintaining or plugging the marginal wells, helping provide an additional funding source for a widespread environmental issue in the state.
“I am working with the legislature to fix the technical errors and get these bills added to the special session call,” Justice said. “If this happens, and the legislature passes the bills during special session, I will have an opportunity to sign them in time to take effect on July 1.”
However, Justice’s statement differed from a veto message his administration issued last week, which indicated Justice’s dissatisfaction over the tax break for marginal wells included in HB 2673. While he agreed in the veto message that more funding should be made available for well plugging, he said those funds should come from general revenue generated by the current severance tax rate, among other sources.
“I believe it would be to the detriment of the state and to the many causes to which general revenues are put to allow for such an increase in the amount of natural gas and oil produced with an effective tax rate of 0%,” Justice wrote in his veto message. He also noted that the bill failed to address a potential conflict in how the proceeds from a tax cut can be allocated because a portion of severance tax funds go towards communities where drilling has occurred.
WVIOGA Executive Director Charlie Burd said despite the differences between the veto message and the governor’s more recent statement, he hopes lawmakers pass the bill during the special session, which Justice called last month to address public education reforms and teacher pay raises.
“At this point, the governor has a reason for stating his new opinion for why that bill might have been vetoed,” Burd told NGI’s Shale Daily. “We are just encouraged as an industry to see that indeed HB 2661 and HB 2673 both made the list” of bills with technical issues targeted for a fix during the special session. Burd said he hopes WVIOGA can meet with the administration to address the issues, “work those difficulties out,” get the bills on the special call and “get them passed.”
Responding to criticism over HB 2673’s perceived tax breaks as the bill made its way through the legislature in February, Burd said in an interview at the time the marginal wells account for a small share of the annual severance tax collections, which are primarily driven by unconventional Marcellus and Utica shale wells. Justice’s veto message also came on the same day that he signed legislation to cut the severance tax rate on thermal coal from 5% to 3% in an effort to give the ailing sector a lift.
Justice also vetoed HB 2661. It would allow utilities to offer incentives for producers to enhance production or drill new wells in areas where supplies are not readily available and then recover those costs from ratepayers. The legislation was expected to benefit the southern and central parts of the state that are removed from unconventional drilling in the north and where legacy producers have been more active.
Justice said in his veto message the bill’s title is defective, or fails to provide notice of the legislation’s content as required by state law. The governor also wrote that the bill “unnecessarily constrains the Public Service Commission in its ratemaking authority and obstructs existing statutory provisions that protect natural gas customers from paying unreasonable rates.”