Lawmakers Challenge State Board On Gas Policy

ABINGDON, Va. – To deduct, or not to deduct?
If that question – regarding a controversial practice of energy companies – cannot be resolved with legislation, there is always litigation, a lawyer-legislator told the Virginia Gas and Oil Board on Tuesday.
Fresh from a legislative defeat in the Virginia General Assembly, two state lawmakers pressured the board to examine its legal authority in allowing gas companies to deduct charges from the royalties they owe to the owners of gas rights. Both Delegate Bud Phillips, D-Castlewood, and Sen. Philip Puckett, D-Lebanon, opined that the board lacked such authority.
The issue in dispute is one of fairness: Energy corporations contend that they should be able to deduct from royalties the costs they incur in transporting gas to market; gas owners, many of whom have been forced to lease their rights, are angry that the corporations are chipping away at their already lean share of profits from gas production.
Phillips, an attorney, and Puckett, a banker, introduced twin bills this year that would have barred energy companies from taking such deductions from owners who have had their rights force-pooled. Both bills failed.
The board has allowed companies to take these deductions since 1993. On Tuesday, Puckett and Phillips challenged their authority to do so.
“In all due respect to the board, I believe the [1993] board order has overstepped its authority to allow post-production charges in a force-pooling situation,” Puckett told the board.
Referring to gas owners whose rights have been pooled against their will, Puckett said: “There should not be any additional charge.”
Phillips asked the board to solicit an opinion from the state attorney general on its legal authority regarding post-production cost deductions. If they do not do so promptly, he said, he would file a motion for a declaratory judgment in the Dickenson County Circuit Court.
“We need to know what the law is, and we need to know very quickly what the law is,” Phillips said.
The legislators’ speeches provoked a mixed reaction.
There was surprise in the corner of the energy industry representatives.
“It does seem strange that now this issue is being raised at this point,” Jerry Grantham, president of the Virginia Gas and Oil Association, said after the hearing, pointing to the decade-and-a-half in which the practice has been in place.
Juanita Sneeuwjagt, president of the Committee for Constitutional and Environmental Justice, who has lobbied against post-production costs, led a small group of gas owners in a standing ovation following the lawmakers’ presentations.
Down through the years, Puckett said, the board has given gas owners too few reasons to cheer.
“I think there’s a significant feeling that the board has been more partial to the company and the industry than they have to the general public,” Puckett said. “I think it’s extremely important that we restore the confidence of the general public in the impartial work of this board.”
To this, board members commended him for representing his constituency, and pledged to cooperate with him to stage town hall-style meetings to educate the public on the issue.
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