Wyoming energy revenue nearly flat as state braces for power plant rule

Recent forecasts of Wyoming’s mineral revenue indicate the state can expect little growth in its energy revenue, while elected leaders say the state needs to continue opposing the U.S. Environmental Protection Agency in the face of a proposed rule to reduce CO2 emissions from coal-fired power plants.

Wyoming’s energy economy faces pressure in the face of emerging CO2 policy, global energy economics and the U.S. boom in unconventional oil and gas production.

That was one message conveyed in last week’s report from Wyoming’s revenue estimating group. The report projects revenue out to 2020.

Among the three key minerals that drive Wyoming’s mineral revenue, oil is the only commodity with increasing production. Forecasters expect Wyoming coal production to continue its decline in the face of fuel switching by electric utilities. Wyoming’s natural gas supply is facing competition from new fields in states like Texas and Pennsylvania.

To add to the lackluster revenue projections, much of the new oil production in Wyoming occurs on state or private lands, which do not generate as much revenue as minerals produced on federal lands.

Put together, the projections make for modest increases in revenues over the next few years, not accounting for unprofiled investment income that could provide an unexpected boost in revenue.

For a state that is number one in the nation for total energy production, regulations that increasingly direct commodity markets are a topic of major concern.

Policy of balance

In the face of changing economics, Wyoming’s leaders believe the state should pursue a policy that embraces energy development while seeking to protect the natural qualities of the state. At an energy law conference held in Laramie, Gov. Matt Mead (R) noted that Wyoming’s mineral wealth must be considered in tandem with the quality of life offered by clean air, clean water, and abundant wildlife.

“The question ‘Do you want energy or a clean environment?’ is the same sort of question as ‘Do you want to have your lungs or your heart’,” said Gov. Matt Mead. “It’s a false question. In Wyoming we are not going to answer that question. We are going to promote good rules and good laws to promote that balance.”

Mead says he believes that effective laws and policies are the key to maintain both energy development and the natural qualities Wyomingites appreciate. He noted that the state has previously worked to promote carbon capture, sage grouse conservation, and baseline water testing. Wyoming is in the process of developing a water strategy, and creating new setback rules that would keep energy production away from people’s homes.

Mead’s support of state-level solutions for environmental policy comes with a critical eye toward policies of the EPA. During his first term he has instructed the Wyoming Attorney General to join numerous lawsuits against the agency.

“Law and policy, we have got to get it right,” Mead said. “When we don’t get it right, we have to challenge it. When the EPA doesn’t get it right, we challenge them.”

Mead compared the state’s approach to energy as being a three-legged stool, with energy and the environmental quality being the first two legs.

“For us to continue to be a leader in energy and in quality of life, we have to get the rules and regulations right,” Mead said. “That is the third leg of the stool that the other two rely on. If we get it right, Wyoming’s future is bright. If we get it wrong, the Wyoming we dream about won’t come about.”

Mead said he takes inspiration from a 1977 statement by former Gov. Milward Simpson:

“I seek great tolerance between elements which can jeopardize Wyoming’s future. And by that I mean there is a certain amount of worth in what the environmentalists and the ecologists are doing and a certain amount of merit to adequate and decent mining of our minerals. I wish these two elements, instead of warring, would get together and come to some compromise that would augur well for the future of our state.”

EPA Clean Power Plan proposed rule

The proposed rule includes four “building blocks” that states may use to reduce their emissions by 2030. First, they may maximize efficiency or energy production at power plants. Second, they may convert existing power plants to natural gas, which has a lower rate of CO2 emissions. Third, states may increase the use of electricity from renewables and nuclear. Finally, they can work on increasing efficiency of end-users. EPA set targets for each state based on its predictions of what is feasible in each of these categories.

According to Al Minier, chair of the Wyoming Public Service Commission, the targets EPA set for Wyoming are unrealistic.

“The position EPA wants to be in, where their targets are, it’s not possible to succeed,” Minier said. “We are not going to get there with the targets they’ve got. We need some relief from the targets.”

Specifically, Minier said that Wyoming’s coal-fired power plants are running at near peak efficiency already (most are 40 years old or more). Where EPA proposed a 6 percent increase in efficiency, he believes 2 percent is closer to the limit of what Wyoming plants can achieve. The state has only one small natural gas baseload power plant, which just opened this month in Cheyenne, making the scale-up of gas generation in EPA’s time schedule unfeasible.

Though Wyoming produces a significant amount of renewable energy through wind farms, the state will only get credit for increasing its renewable energy if that power is consumed within Wyoming. Most of the state’s wind farms are set up to export energy to other states that have renewable energy portfolios. As new wind energy comes online, most of it will be sold to out of state markets, making it difficult for Wyoming to boost its share.

Minier noted Wyoming doesn’t have the capacity to get credit for increasing efficiency in residential uses as other states because of its small population. Some 85 percent of Wyoming’s electricity use is industrial, with much of the power used by large scale motors on mining equipment that have a 20 year life-span.

Even so, Chuck Magraw, an environmental attorney from Montana, noted that the United States has already achieved about 30 percent of the EPA national targets for reducing CO2, mostly by switching power plants from coal to natural gas. Under the current proposed rule, the nation would have until 2030 to achieve the rest of the targets.

Wyoming’s 2012 rate of emissions was 2,331 pounds of CO2 per megawatt hour (MWh), and the EPA proposed CO2 emission target for the year 2030 is 1,714 pounds per MWh.

Just what the clean power plant rule would mean for Wyoming is uncertain. A recent article in the Wall Street Journal noted that some observers believe natural gas production across the Rocky Mountains will increase, providing some benefit to Wyoming. However, those benefits will likely be outstripped in Wyoming by losses in coal production, which are much more important to state revenue.

Historically coal revenue has been less volatile than oil and and natural gas. Severance taxes and mineral royalties from coal provide revenue to state government, public schools, and K-12 school construction, whereas severance taxes from oil and natural gas mostly support the general fund.

Minier cited a study by the Rhodium Group that estimated the Clean Power Plan rule could mean a $5 billion reduction in Wyoming coal industry revenue through 2030.

October 2014 report from the Consensus Revenue Estimating Group

— Gregory Nickerson is the government and policy reporter for WyoFile. He writes the Capitol Beat blog. Contact him at greg@wyofile.com or follow him on twitter @GregNickersonWY.

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