Hearings and Business Meetings

Jun 01 2006

09:30 AM

Full Committee Hearing- Oil Shale

250 North Street Grand Junction, CO Grand Junction City Hall Auditorium 09:30 AM

Mr. Kim Cook

Chairman of the County Commission, Rio Blanco County

Mr. Chairman and Members of the Committee:

My name is Kim Cook, County Commissioner of Rio Blanco County, Colorado. I am here today to present testimony on behalf of Rio Blanco County and two organizations that Rio Blanco County is a member of; Club 20, a community based organization representing cities, counties, businesses and citizens throughout Western Colorado; and the Associated Governments of Northwest Colorado (AGNC), which represents the cities and counties in the five-county region of Mesa, Garfield, Rio Blanco, Moffat and Routt.

I would like to begin my remarks by referring back to comments made by AGNC before this committee in April 2005, when we gave the overall impression that local governments were pleased with the course that the Federal government was taking during this time of oil shale development. We further commented on the need for supporting local governments’ ability to mitigate socioeconomic and environmental impacts.

In fact, not much has changed in the minds of AGNC members.  We still believe oil shale presents an opportunity to provide a secure domestic fuel source. And, we still believe that since more than 80% of the oil shale resource is located on federally-owned public land and recognizing that the future development is driven by national interests, the federal government must play a lead role in addressing the socioeconomic and environmental impacts and costs.  We do not want to see local governments (and local taxpayers) stuck with the costs of new infrastructure and the mitigation of environmental impacts.   

As an example, you must travel on Rio Blanco County roads to reach all of Colorado’s oil shale RD&D leases.  These roads have no base, or at best a shale base, and were never designed for the heavy energy traffic we are currently experiencing due to gas drilling, and expect to receive from oil shale development

To reconstruct one mile of paved road so that it is designed to carry heavy loads currently costs approximately $1 million.  With 65 miles of paved roads in the Piceance Basin at present and the possible need for more asphalt roads in the future, that is a cost that that cannot be born by Rio Blanco’s 6500 citizens.

Rio Blanco County has concerns related to the initial DOE report to Congress on “Development of America’s Strategic Unconventional Fuels Resources.”  Efforts to develop “A fiscal regime that improves attractiveness of capital investment through tax and royalty terms in the early years” need to provide adequate compensation to state and local funds which would normally use these revenue streams to mitigate development impacts.  Proposed incentives to industry relating to royalties, severance tax, and property tax are likely to be detrimental to current sources of local revenue available to mitigate impacts and develop local infrastructure.  Allowing capital costs for unconventional fuels to be expensed or depreciated on an accelerated schedule could also have a negative effect on local taxes derived from real and personal property.  Likewise, production tax credits could negatively affect severance tax revenues which contribute to the Energy and Mineral Impact Assistance fund--our major source of grants for impact mitigation.

Funding for socioeconomic impact assessment and community infrastructure planning and development is very important.  This needs to be followed up with funding for implementation of these plans and for the operation and maintenance of the expanded infrastructure as well.   Much of this region lies within the public domain and has low population density, both of which limit the ability of local governments to study and finance large scale improvements.  Therefore, establishing a federal impact fund and/or a local/regional trust fund for the mitigation of impacts is critical to local government efforts to mitigate impacts and create new infrastructure.

Rather than cutting corners in “streamlining” regulatory processes or gutting existing processes and procedures, the integrated program plan should allocate funds to provide levels of staffing to these agencies (BLM, FERC, EPA, etc.) which are adequate to produce the needed throughput in the desired timeframes.  Cooperation between intra-agency regions (ie: BLM White River Field Office and Vernal Field Office) as well as between agencies should not only be streamlined but required.  Be careful in granting regulatory agencies quasi-judicial powers; placing such power in federal agencies risks the loss of local participation in the decision making process.  The Colorado joint review process is a model to be encouraged for interagency cooperation.

The Colorado-Wyoming-Utah transportation network needs study and funding to develop efficient and time-effective routes between development sites, communities, and markets.  Interstate traffic, even in the current natural gas development boom, follows inadequate and circuitous routes throughout this region.  State funding for maintenance of existing roads, much less the development of new roads, is not sufficient for the task.  Significant interstate traffic is occurring on county roads which were never designed for such impacts and stretch limited county resources to maintain.  Such a regional study in conjunction with the development of unconventional resources should involve state, federal, and local governments in planning, development, and funding.

The future needs of the electrical power infrastructure in the Piceance Basin, considering the current conventional natural gas development and the potential oil shale need for in-situ heating, may be very significant and beyond the current capacity.  The demand for electrical power might be best addressed in conjunction with other unconventional resources such as a coal gasification process to generate electricity.   Rio Blanco and Moffat Counties have significant coal resources, current CO2 injection in the Rangely Weber Sand oil field, along with the need for additional electrical power in the Piceance Basin. 

Rio Blanco County hopes that research park development and community college training programs would be housed within the immediate locale being affected by the resource development, as these types facilities help grow and diversify the local economy and provide for the tax base of the local governments.  Any community college unconventional resource programs should include Colorado Northwestern Community College.

Finally, a small number of corporations within the industry have already invested significant private funds in oil shale research and development.  Any new federal incentives and initiatives to accelerate the research and development process need to respect this investment and avoid inclusion of those corporations or companies operating in a more speculative and opportunistic fashion.

One final AGNC concern has to do with the funds being accumulated in the U.S. Treasury through the oil and gas lease payments that are occurring on the Naval Oil Shale Reserve lands

Last year we reported to you that in a letter from the Department of Interior, some $44 million may be accumulated by March 2007 in a U.S. Treasury account from the current natural gas leases on their NOSR lands.  These NOSR lands were transferred by Congress from DOE to the Department of Interior with a Congressional priority established for natural gas leasing.

Some of these funds, estimated at $6 million, are earmarked for environmental cleanup of the Anvil Points spent shale pile.  Otherwise, we believe Congress has the opportunity for the remainder of these funds to be made available to address the socioeconomic and environmental aspects of oil shale development in Northwest Colorado.

In the future, more revenue should be available from this source.  According to industry estimates, additional leasing of the NOSR lands could produce leasing bonuses of up to $360 million (to be shared 50% federal and 50% state), plus ongoing production leases of an estimated $32 million annually for at least 20 years.  That would be another $640 million total also to be split 50/50, federal and state.  Congress should establish a priority to address oil shale and other energy development impacts in Northwest Colorado from these leasing revenues.

However, on December 15, 2005, Colorado State BLM Director Sally Wisely informed AGNC that, as of November 29, 2005, the Treasury had accumulated $37 million.
This leaves only $7.25 million left to be collected. With recent increased gas prices, royalties are averaging $1.25 million per month over the past 11 months. At this rate, the remaining funds should be recouped by June 2006, nearly a year ahead of schedule.

The Transfer Act states that the Secretaries of Interior and Energy must jointly certify to Congress that the monies have been recouped prior to making revenue available for distribution to the State of Colorado.  As these funds should be recouped by June, DOI and DOE should currently be coordinating the certification process to Congress.

We respectfully request that the Committee monitor the activities of these Departments in the coming months and push for the earliest possible release of these funds to the states upon certification, per section 7439 (f) (2) of the Transfer Act. 

We believe this type of funding is necessary to make sure the DOE research and demonstration projects can proceed without interruptions from fluctuations in the price of oil.

Attached to my testimony is an Oil Shale Policy Resolution from Club 20, which is the coalition of individuals, businesses, and local governments representing Western Colorado since 1953.

As indicated in the resolution, Club 20 supports the current R & D leasing program underway to test various oil shale technologies.  Three of the leasing applicants are located in Rio Blanco County—Shell, Chevron and EGL.  Club 20 supports the conversion of these to commercial scale if the technology proves out.

Club 20 also supports a prudently paced commercial scale leasing program including the Environmental Impact process now being initiated by BLM.  We believe the carrying capacity provisions being considered in the EIS will help protect our Western Colorado air quality, water resources, wildlife, and socioeconomic values.  Club 20 also supports the establishment of a commercial scale royalty credit, proposed by AGNC, to encourage companies to contribute to the mitigation of socioeconomic and environmental impacts.  These mitigation efforts are very important to Rio Blanco County, where most of the development of federal oil shale resources will occur.

Club 20 also appreciates the involvement and participation of local governments in both the DOI Oil Shale leasing program (with affected local governments designated cooperating agency status) and the DOE Strategic Fuels Program (with a local government representative as a member of the Task Force on Strategic Unconventional Fuels).

I would like to thank the Committee for coming holding this field hearing here in Northwest Colorado.  I would be happy to answer any questions you may have.

Kim Cook
Rio Blanco County Commissioner

Club 20 Oil Shale Policy