Legislature(2021 - 2022)ADAMS 519
04/22/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB28 | |
| HB81 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 81 | TELECONFERENCED | |
| + | HB 28 | TELECONFERENCED | |
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 22, 2021
9:03 a.m.
9:03:45 AM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 9:03 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Representative Geran Tarr, Chair of the House Fisheries
Committee, Sponsor; Thatcher Brouwer, Staff, Representative
Geran Tarr.
PRESENT VIA TELECONFERENCE
Jeffrey Schmitz, Director, Division of Motor Vehicles,
Department of Administration; Dale Kelley, Commissioner,
Commercial Fisheries Entry Commission; Frances Leach,
Executive Director, United Fishermen of Alaska; Leslie
Isaacs, Administrative Service Director, Department of
Administration, Office of Management and Budget, Office of
the Governor; Ryan Fitzpatrick, Commercial Analyst,
Division of Oil and Gas, Department of Natural Resources.
SUMMARY
HB 28 REGISTRATION OF BOATS: EXEMPTION
HB 28 was HEARD and HELD in committee for further
consideration.
HB 81 OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE
HB 81 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the meeting agenda.
HOUSE BILL NO. 28
"An Act relating to the registration of commercial
vessels; and providing for an effective date."
9:04:27 AM
REPRESENTATIVE GERAN TARR, CHAIR OF THE HOUSE FISHERIES
COMMITTEE, SPONSOR, introduced the legislation. She
identified HB 28 as a House Fisheries Committee bill. She
detailed that Representative Louise Stutes had carried the
bill in the last legislature, but it had not made it
through the committee process due to the onset of COVID-19.
There had been agreement by all House Fisheries Committee
members to sponsor the bill during the current session.
Representative Tarr explained that the bill addressed a
problem shared by all coastal communities and statewide due
to the number of vessels in Alaska. She highlighted that
several years back, the legislature had passed a derelict
vessel bill [SB 92] with the intention of creating a fund
to provide funding for the removal and associated cleanup
of derelict vessels around the state. She reported that the
passage of the legislation had created an inadvertent
problem and redundant registration requirement. She
elaborated that HB 28 sought to fix the error. She asked
her staff to explain the bill and provide a sectional
analysis.
THATCHER BROUWER, STAFF, REPRESENTATIVE GERAN TARR,
introduced himself. reviewed the legislation with a
prepared statement:
This bill exempts active commercial fishing vessels
from a duplicated registration requirement that was
created with the passage of the derelict vessel bill
in 2018. Since the passage of the derelict vessel
bill, commercial fishermen who already register with
the Commercial Fisheries Entry Commission, now also
have to register with the Division of Motor Vehicles.
Prior to the passage of the derelict vessel bill,
documented commercial fishing vessels only had to
register with the Commercial Fisheries Entry
Commission every year.
The rationale behind the derelict vessel bill was to
provide the state and local municipalities with a
state maintained database on who owned and operated
vessels in Alaska's waters, as well as how to contact
those individuals. As you all know in this committee,
derelict vessels are a big problem coastwide in
Alaska. At times, an owner can abandon a vessel
because they can no longer afford to maintain it or
properly dispose of it and an abandoned vessel such as
the Lumberman that sat in the Gastineau Channel for
years, can cost millions of dollars to properly
dispose of. If the owner of the vessel cannot be
contacted or held liable, the cost is often passed on
to the city where the vessel is moored or anchored, or
sometimes to state and federal governments.
Commercial fishermen understand the problem with
derelict vessels and often pay the price if a vessel
sinks and pollutes important fish habitat.
Mr. Brouwer relayed that while HB 28 was a fix to the
derelict vessel bill, it maintained the registration
requirement. He stated that commercial fishermen understood
the need to address derelict vessels.
9:08:17 AM
Mr. Brouwer communicated that with the passage of the
derelict vessel bill, commercial fishermen were required to
register with the Division of Motor Vehicles (DMV). He
explained that registration with the DMV was unnecessary
because the Commercial Fisheries Entry Commission (CFEC)
already maintained a public online database containing
information on all commercial fishing vessel owners and
their vessels. He elaborated that commercial fishing
vessels were required to renew their license annually with
CFEC and were mandated to display their five digit
registration number on both sides of the vessel in 12 inch
numbers. Additionally, owners were required to display a
new placard annually on the port side of the vessel. He
explained that the display of the license number and the
decal provided enforcement officers with the tools needed
to ensure commercial fishing vessels were registered.
Mr. Brouwer explained that the legislation exempted
undocumented fishing vessels, a smaller subset of vessels,
from registering with the DMV. He elaborated that the
legislation would require undocumented fishing vessels to
register with CFEC only. He reported that the bill
instituted an annual $8 fee for all CFEC registered
vessels, which was in addition to fees already paid by
commercial fishing vessel owners for vessel renewal and
permits. The $8 annual fee was in lieu of the current
three-year $24 fee charged by DMV. He expounded that the
bill would be cost-neutral as commercial fishing vessel
registration was transferred back to CFEC. He detailed that
the $8 annual fee helped support programs including the
Kids Don't Float and the Alaska Marine Safety Association
boating safety programs. Additionally, a small portion of
the fees would go to the derelict vessel fund.
Mr. Brouwer highlighted that commercial fishing vessels
were the backbone of the state's most vital industry and
the legislation would streamline the registration
requirements for the vessels, while still providing the
necessary contact information created under the past
derelict vessel bill.
Co-Chair Merrick asked to hear the sectional analysis.
9:11:12 AM
Mr. Brouwer provided a sectional analysis (copy on file):
Section One
Amends AS 05.25.055(i) to exempt commercial vessels
with a valid license issued by the Commercial
Fisheries Entry Commission, under AS 16.05.490 or AS
16.05.530, from the provision that requires owners to
register their vessel with the Division of Motor
Vehicles and display the registration number issued by
the Division.
Section Two
Amends AS 05.25.056(a), the existing Division of Motor
Vehicles titling statute, to clarify that undocumented
registered Commercial Fishing Entry Commission
licensed vessels, will still be required to title
through the Division of Motor Vehicles.
Mr. Brouwer noted that the derelict vessel legislation
[passed several years back] had included a title
requirement for undocumented vessels. He continued
reviewing the sectional analysis:
Section Three
Adds a new section to AS 16.05.475, that assesses an
annual $8 registration fee for vessels licensed with
the Commercial Fisheries Entry Commission, beginning
January 1, 2022. This is in lieu of the current 3-year
$24 fee collected by the Division of Motor Vehicles at
the time of registration or registration renewal.
The fee will be accounted for separately for as
provided in AS 05.25.096(b), to be made available for
use by the Departments of Administration, Natural
Resources and Commerce, Community and Economic
Development.
Section Four
Adds a new section to the uncodified law of the State
of Alaska which requires the Commercial Fisheries
Entry Commission waive the $8 dollar registration fees
for calendar year 2022 for vessel owners that already
paid the registration fee to the Division of Motor
Vehicles for 2020.
Mr. Brouwer elaborated that if a vessel owner had paid the
three-year fee in 2020 to the DMV, the owner would not be
charged again by CFEC as the state transitioned back to
registering vessels with CFEC only. He continued reviewing
the sectional analysis:
Additionally, the commission will waive the $8
registration fee for both calendar year 2022 and 2023
if a vessel owner has paid their registration fee to
the Division of Motor Vehicles in 2021.
This section ensures that as vessel owners' transition
to paying an extra $8 to register with the Commercial
Fisheries Entry Commission, that do not pay the
Commission for the years they have already registered
for with the Division of Motor Vehicles.
Section Five
Adds a new section to the uncodified law of Alaska to
make section one of this act retroactive to January 1,
2021.
Mr. Brouwer expounded that if the legislation passed,
vessels that did not register with the DMV in 2021 would be
fine. He concluded his review of the sectional analysis
with Section 6:
Section Six
Establishes an immediate effective date for the
remainder of the bill.
9:14:14 AM
Representative Edgmon recalled that when Senator Peter
Micciche's bill SB 92 had passed three years back, the
Department of Public Safety (DPS) had essentially stood
down. He clarified he was speaking in the context of the
Bristol Bay region and explained that he had been contacted
numerous times. He detailed that he had recently been
contacted by a fisherman in Bristol Bay who was concerned
the department would enforce the rule under SB 92 if the
current legislation did not pass. He asked whether
Representative Tarr had heard the department would stand
down for another year in terms of enforcing the provision.
Alternatively, he asked if fishermen would be required to
comply with the duplicative registration requirement if HB
28 did not pass.
Mr. Brouwer replied that he did not have the answer. He
notified the committee that the DMV director was available
online for questions. He added that he had not personally
reached out to DPS to ask whether the department planned to
stand down another year. He reported that information
provided by DMV showed there were commercial fishing vessel
owners registering with the DMV in case the provision was
enforced. He would follow up with the information.
Representative Edgmon highlighted a problem in Bristol Bay
where thousands of people congregated in small areas where
there were minimal DMV services. He explained the situation
created a bottleneck. He noted that as innocuous as the
bill may appear, it was important to many fishermen.
JEFFREY SCHMITZ, DIRECTOR, DIVISION OF MOTOR VEHICLES,
DEPARTMENT OF ADMINISTRATION (via teleconference), replied
that in regard to Representative Edgmon's question, he did
not have information about what law enforcement would do.
9:16:50 AM
DALE KELLEY, COMMISSIONER, COMMERCIAL FISHERIES ENTRY
COMMISSION (via teleconference), introduced herself as one
of the two CFEC commissioners. She provided a PowerPoint
presentation titled "Commercial Fishing Vessel Licensing in
Alaska," dated March 2021 (copy on file). She read from
prepared remarks beginning on slide 2:
Owners and operators of commercial vessels used by the
seafood industry are subject to many state, federal,
and international requirements. Each state and country
handles licensing according to their unique needs.
CFEC has licensed Alaska's commercial fishing fleet
for decades and has amassed a significant amount of
information on these vessels and their owners. It's
our hope that CFEC experienced, extensive database
will be of assistance in helping the state achieve the
goals and objectives of the derelict vessel prevention
program.
9:18:46 AM
Ms. Kelley turned to slide 3 and addressed 2021 commercial
fishing vessel licensing rules:
Generally, all commercial fishing vessels, tenders,
processors, and transporters, must be licensed by CFEC
every year. However, some vessels are exempt like
those used solely at salmon setnet sites or in some
westward Alaska waters. Fees for commercial fishing
vessels are based on the overall length of the vessel,
as defined by the U.S. Coast Guard. A commercial
vessel license consists of a triangular metal ADF&G
numbered plate issued when the vessel is first
licensed with CFEC an then a color-coded sticker and
receipt are issued each year. If the vessel owner is
licensed for salmon net fishing, the license will also
include an area tab specific to the fishing permit.
Ms. Kelley advanced to slide 4 and continued reading from
prepared remarks:
CFEC is the licensing agency for commercial vessels
operating in Alaska, but we require specific
information from DMV and U.S. Coast Guard as part of
that process. Either U.S. Coast Guard documentation or
state registration is required for all motorized
vessels used in commercial fishing activities. The
U.S. Coast Guard registers and titles documented
vessels, the DMV registers and titles undocumented
vessels that require registration. Each year, CFEC
licenses roughly 5,000 documented and 4,000
undocumented vessels. The U.S. Coast Guard requires
documentation for any U.S. vessel over 5 net tons that
engages in commerce between two U.S. ports. Documented
vessels are usually 32 feet or longer. Owners must
prove that U.S. citizens own a 75 percent interest in
the vessel and that the vessel meets all U.S. build
requirements. U.S. Coast Guard documentation includes
an Abstract of Title, which tracks the full history of
the vessel.
Undocumented vessels are generally under 5 net tons
and 32 feet or less in length. These vessels must be
registered and titled by the Department of Motor
Vehicles. In order to be eligible for an annual vessel
license, vessel owners must first provide CFEC with
either U.S. Coast Guard documentation or a DMV title
and registration.
Vessel licenses must be renewed annually, and fees are
based on Coast Guard definition of length with few
exceptions, all permitted commercial fishing
activities in state waters must be associated with a
CFEC licensed vessel. Due to COVID-19, fewer vessels
were licensed in 2020 than normal. So, 2019 provides a
more typical snapshot of recent year vessel numbers.
That year, CFEC licensed 8,806 vessels and took in
over $629,000 in fees.
Ms. Kelley showed a screenshot of the CFEC website on slide
5:
Slide 5 should be a screenshot of CFEC's webpage,
where commercial fishermen and commercial vessel
owners can access all CFEC licensing forms. Vessel
owners have two options, they can download and submit
CFEC license application forms or apply through CFEC's
online licensing portal, which we refer to as Leon.
9:21:13 AM
Ms. Kelley turned to slides 6 through 8 and continued
reading from prepared remarks:
There are multiple forms available to assist vessel
owners with their licensing needs from change of
information to securing a duplicate license in the
event the original is lost.
Slide 7 is the vessel license application. I have
highlighted various information CFEC gathers in order
to verify vessel ownership. Whether the owner or an
agent secures the vessel license, they are required to
provide all of the requested information about
ownership. Both paper and online applications are
signed by the applicant under penalty of perjury.
Vessel information is also required on the commercial
fishing permit application. The name of the vessel is
embossed on the fishing permit card, which is not
printed until the permit is associated with a vessel
for the fishing season. Note that it isn't unusual for
one person in a fishing operation to own the permit
and the other to own or lease the vessel.
9:22:18 AM
Ms. Kelley addressed slide 9 with prepared remarks:
Finally, the Leon online renewal system requires the
applicant to state whether or not they are the owner
or the agent of the vessel owner before even advancing
to the licensing document.
Ms. Kelley advanced to slide 10 showing various documents
commercial fishermen and vessel owners may receive from
CFEC during the annual licensing process. She read from
prepared remarks:
All permit cards and associated paperwork are color-
coded by year for ease of enforcement. The permit card
in the lower left includes essential information about
the permit holder and vessel and is used when making
fishery landings. Note that a fisherman will not
receive that card until a fishing permit has been
linked to a properly licensed vessel for the fishing
year in question. A triangular shape and numbered
ADF&G vessel plate must be prominently posted on the
side of the vessel. A licensing sticker is affixed to
it as visible proof of current year licensing, similar
to DMV's vehicle license and registration stickers.
The vessel license receipt includes key information
about the vessel and its owner. If the vessel is used
in a salmon net fishery, there will be a letter
designating the permitted fishing area. If the license
holder has a salmon net license for more than one
region and wishes to change areas during a season,
they must contact CFEC and often ADF&G to get
permission to trade out the area tab.
9:24:06 AM
Ms. Kelley showed a sampling of color coded fishing cards
issued annually on slide 11. She reviewed slides 12 through
14 with prepared remarks:
CFEC has developed and maintained a sophisticated
online public permit and vessel lookup system. Using a
few key pieces of information, we can find out a great
deal about both documented and undocumented vessels.
Note the tabs along the top, which will help guide you
to select search options. Just this week a change was
made to this page. The status column now shows the
dates the vessel license is valid. In this case, we
used quite a bit of information to search for the
documented fishing vessel Ida Lee, who was owned by a
person some of you might remember. Note that the first
search attempt will provide the information seen in
the white rows that begin with the year. Clicking on
the plus sign in a white row will reveal a dropdown
box with additional information as seen in the blue
area with the green circle. Data here includes vessel
weight, engine type, whether the vessel has
refrigeration, and other details.
This slide shows the search of an undocumented vessel
[slide 13] using only the owner's name, in this case a
well-known set netter. As you can see, a more
streamlined search will lead you to a similar array of
information.
Those folks who would like even more information on
vessels and owners can use the yearly downloads tab to
obtain spreadsheets that can be sorted to create
spreadsheets that can be sorted to meet specific data
needs.
9:25:45 AM
Ms. Kelley provided a summary on slide 15:
With few exceptions, all commercial fishing vessels,
tenders, floating processors, and transporters must be
licensed by CFEC every year. USCG provides
registration and title for documented vessels. DMV
titles and registers undocumented vessels. CFEC
requires both title and registration documents before
issuing an ADF&G plate and annual vessel license. CFEC
licensing materials require accurate information on
the vessel and its ownership; applications are signed
under penalty of perjury. CFEC maintains an extensive
database on each commercially licensed vessel, which
is both searchable and downloadable from our public
website.
9:26:48 AM
Representative Carpenter was curious how an owner of a
documented or undocumented boat would remove their
registration from the database if they sold their boat or
were otherwise no longer responsible for a boat.
Ms. Kelley believed Representative Carpenter was asking
whether a prior owner's name would be removed from the
database. She explained that the CFEC database showed a
boat's entire ownership history. She did not know if there
was a process for removing a name upon request.
Representative Carpenter made a comparison to vehicle
registration where there was a way to show the vehicle had
been sold. He was curious whether there was a similar
process for boats. He thought it sounded like there was not
a similar process. He stated his understanding that it
sounded like the next owner registration would prove the
boat was owned by a new person. He wondered what would
happen if a new owner failed to register the boat.
Ms. Kelley answered that by law, fishermen were required to
notify CFEC if a vessel was sold. She referenced slides 12
and 13 showing the CFEC online database and listing. She
explained that if someone did not register a vessel in
their own name, it would not be licensed for the current
year. She elaborated that the placard displaying the DFG
number remained with a vessel for its entire lifespan. She
confirmed that if someone did not license their vessel, the
database would not reflect the new owner.
Representative Carpenter observed that if a person sold
their boat, the individual should either keep proof of the
sale or sell to a responsible party.
9:29:39 AM
Representative Wool asked what distinguished a documented
vessel from an undocumented vessel. He referenced Ms.
Kelley's testimony that DMV titled and registered
undocumented vessels.
Ms. Kelley answered in the affirmative. She explained that
documented vessels had papers showing the U.S. Coast Guard
titled and documented a vessel.
Representative Wool observed that according to the CFEC
chart [on slide 4] an undocumented vessel was less than 5
tons and less than 32 feet. He asked for verification that
if a vessel fit the aforementioned dimensions, it was
considered undocumented and required the owner to go to the
DMV.
Ms. Kelley replied in the affirmative. She confirmed that
undocumented vessels would still go through the DMV if the
bill passed. She elaborated that it was documented vessels
that had run into a problem under the derelict vessel bill,
where suddenly the requirements had changed. She explained
that approximately 5,000 people who had not previously been
required to go through the DMV were required to go through
the DMV [as a result of the passage of the derelict vessel
bill]. She stated it was her understanding that HB 28 was
intended to correct the problem.
Representative Wool referenced the $8 registration fee with
CFEC. He pointed to the table on slide 4 and noted that the
CFEC fee for the smallest vessel was $24. He asked where
the $8 fee came in, which he believed seemed very low.
Mr. Brouwer clarified that the fees shown on slide 4 were
already being charged by CFEC for the purpose of
registering commercial fishing vessels. He explained that
the $8 fee would be in addition to existing fees. He added
that the $8 fee was in lieu of the current three-year fee
of $24 with DMV. He elaborated that if documented vessels
no longer had to register with DMV and only registered with
CFEC, owners would pay an additional $8 annually.
Representative LeBon recalled his past work financing
vessels and bank loans. He shared that the bank had used
the DMV method to report a lien as a public record. He
asked how a bank would show it had a lien or a security
interest against a vessel.
Mr. Brouwer believed there were two different ways to show
the information. He detailed that one method was through
the U.S. Coast Guard documentation process. He believed
members' packets included a document describing the U.S.
Coast Guard documentation process ["Documentation and
Tonnage of Smaller Commercial Vessels" (copy on file)]. He
explained that when an owner went through the process, a
certificate was received from the Coast Guard. He reported
that the certificate could be used to secure the lien with
a bank. Additionally, undocumented vessels would still be
required to title with the DMV. He relayed that he would
double check, but he believed it could be used for the
lien.
Representative LeBon asked for assurance there would not be
a loophole that would exclude banks from publicly showing
their lien interest. He was very familiar with the Coast
Guard preferred marine mortgage process that showed the
bank's interest.
Mr. Brouwer answered that it was not the intent of the bill
and he did not believe there were any loopholes. He would
verify and follow up.
9:34:22 AM
FRANCES LEACH, EXECUTIVE DIRECTOR, UNITED FISHERMEN OF
ALASKA (via teleconference), spoke in support of the
legislation. She provided prepared remarks:
We represent 37 commercial fishing groups across the
state, ranging from commercial crabbers in the Bering
Sea down to commercial divers in southern Southeast
Alaska. UFA fully supports House Bill 28, which will
allow vessels registered with the Commercial Fisheries
Entry Commission [to be] exempt from needing to
register with the DMV. When the derelict vessel bill
was first introduced, UFA was supportive of the bill.
Fishermen know all too well the problem with derelict
vessels as they are known for causing navigational
hazards and environmental issues. We support the
registration of vessels so that owners may be linked
back to vessels in case of abandonment; however, at
the inception of this bill, UFA asked the bill sponsor
that vessels registered with CFEC be exempt from
having to take that extra step to register with the
DMV. However, as you know, this didn't happen, so here
we are today trying to fix that oversight.
The purpose of this bill [SB 92] was to have a state
managed database to track vessel owners. This is
already what the CFEC does. Commercial fishermen
register their boats annually with CFEC. Their
information such as owner name, boat size, fuel
carrying capacity, and many other details are all
housed in a state managed database operated by the
CFEC. As previously mentioned, vessels are also
required to display their registration sticker on the
port side of their fishing vessel, making them easy to
identify. Requiring commercial fishermen to register
with the CFEC and DMV is reinventing the wheel. Not to
mention, making fishermen have to jump through more
hurdles and pay more money.
In closing, we thank everyone who has been involved in
correcting this issue so that boat owners may be held
liable for abandonment while not having to duplicate
what they already do as responsible boat owners.
9:37:01 AM
Representative Carpenter asked about responsible boat
owners selling their boats. He asked if there was currently
a way for prior owners to notify the state about the sale
of a vessel, which would then be reflected in the database.
Ms. Leach answered that new owners were required to
register with CFEC as a vessel permit holder. She
elaborated that a person was required to register with CFEC
if they planned to use a vessel for fishing. She hoped that
within the process, a transfer of ownership would be shown.
Representative Carpenter explained he was trying to gauge
whether there had ever had a problem with the issue.
Representative LeBon shared that he had just been told that
CFEC was the vehicle for recording a lien on a vessel. He
asked whether individuals looking to confirm that a vessel
was free of any bank liens could easily find the
information through CFEC. He was looking for assurance that
the information was not complicated to access.
Mr. Brouwer answered that the publicly accessible database
showed current registered vessels and vessel owners
including address and contact information. He deferred to
Ms. Kelley for additional detail.
Ms. Kelley clarified that CFEC was not a titling agency,
which was the reason it needed U.S. Coast Guard
documentation or DMV registration and title. She did not
believe CFEC was the appropriate entity to talk to about
liens. She suggested that DMV may be able to provide more
clarity on the question.
Representative LeBon shared that in the past when he had
been approached to finance the purchase of an aircraft, he
had called the Federal Aviation Administration (FAA) with
the aircraft N-Number and had received an immediate
response. He explained that the aircraft N-Number was the
only information required to initiate a search. He asked if
it was possible to use the vessel information number to
determine whether a boat of any size had an outstanding
lien. He asked if the system was transparent and easy to
use.
9:40:19 AM
Ms. Kelley replied that the DFG number assigned to a vessel
remained with the vessel for its lifespan and was included
in the CFEC database; however, lien information was not
available on the database. She explained that she was not
the best qualified to answer because CFEC was not a title
agency. She suspected it would be necessary to look for
lien information through a title agency.
Co-Chair Merrick asked Mr. Schmitz to weigh in on the
question posed by Representative LeBon.
Mr. Schmitz asked for verification that the question was
about whether DMV recorded liens on boats.
Representative LeBon stated that it depended on what a
lender was financing. He provided tracking methods for
other assets including the N-Number used to track
aircrafts, the legal description used for a piece of real
property, and the license plate or serial number used for
automobiles. He detailed there was an easy process to
determine whether there was a lien on any of the
aforementioned asset types. He elaborated that the process
gave purchasers assurance they were purchasing something
that was free of any liens. He guaranteed that if a bank
discovered a vessel with a lien was sold, it would move
against the vessel immediately.
Representative Rasmussen asked whether proof of sale would
remove liability from a prior vessel owner if the purchaser
was a bad actor and chose not to register the vessel. She
wanted to protect the individual acting in good faith and
wanted to ensure responsibility fell where it should.
Mr. Brouwer replied that he would have to look into the
lien information because he was unfamiliar with the
specific topic. He relayed that to the best of his
knowledge the bill did not make any changes involving liens
and it was not the intent of the bill to make any changes
related to liens. He would follow up on the questions.
Representative Rasmussen believed a lien would only apply
if a loan were taken out. She referenced testimony by Ms.
Leach and wanted to make sure that part of the goal was to
identify the responsible party if a vessel was found
abandoned. She thought that because there was not currently
a mechanism when a boat was sold, it could force someone
into a cash sale. She believed a notarized purchase
contract could be taken to the court to receive a ruling
clarifying that the prior owner had sold the vessel in
question and was not liable.
Representative Tarr remarked that "we're" operating under
the assumption that people would follow the legal
requirement to register after a sale. She considered what
would happen in the case of a bad actor and believed it was
prudent to seek out information from Legislative Legal
Services. She would follow up.
9:45:13 AM
Representative Edgmon sympathized with the bill sponsor
because the bill intended to correct an oversight from an
omnibus bill that passed the legislature three years back.
He remarked that questions from committee members were
delving into the omnibus bill that had been very broad and
contentious. He shared that he had been in the building
when one of the first abandoned vessel bills had passed. He
remarked that many issues attached to registering vessels
were outside the scope of the bill. He clarified that HB 28
was intended to correct an oversight [in past legislation].
9:46:13 AM
Co-Chair Merrick requested a review of the fiscal notes
beginning with a note from the Division of Motor Vehicles.
LESLIE ISAACS, ADMINISTRATIVE SERVICE DIRECTOR, DEPARTMENT
OF ADMINISTRATION, OFFICE OF MANAGEMENT AND BUDGET, OFFICE
OF THE GOVERNOR (via teleconference), reviewed the fiscal
note from the Department of Administration, OMB Component
Number 2348. The fiscal note showed the three-year
registration fee at the $24 level and the average
collections from 2019 and 2020 projected out for the
outlying years. He was available for any questions.
Representative Rasmussen noted that there were two fiscal
notes included in members' bill packets. She highlighted
that the DMV note showed [annual change in revenues of]
slightly over $79,000. She pointed out that the CFEC fiscal
note showed $17,000, $35,000, $52,000 [from FY 22 to FY
24], and 70,000 [from FY 25 to FY 27]. She wondered where
the disparity between the two notes came from. She thought
the numbers should align.
Mr. Isaacs replied that the issue between the two fiscal
notes related to timing. He explained that the Department
of Administration, DMV fiscal note reflected the average of
two known fiscal years. He pointed out that the note
included a $24 per registration fee on a three-year renewal
basis. Additionally, there was the issue of a calendar year
versus the fiscal year delineation. When looking at the two
notes, they aligned over a period of time. He explained
that the timing was slightly off. He explained that the DMV
revenue forecast was $79,200 in the same time period,
whereas CFEC forecast revenue of $70,500. The $9,000
difference had to do with timing. He elaborated that when
current registrations expired, they would have to be
renewed on an annual basis. The numbers began to align over
time more closely.
9:49:48 AM
Mr. Brouwer added the bill contained a provision that
exempted commercial fishing vessel owners who had already
paid their three-year registration fee with the DMV for
2020 and 2021 from also paying the fee with CFEC. He noted
it was a large part of the reason there were smaller
numbers in FY 22 through FY 24 [in the DMV fiscal note].
Co-Chair Merrick asked Ms. Kelley to review the CFEC fiscal
note.
Ms. Kelley agreed with previous testimony regarding the
fiscal notes. She reviewed the CFEC fiscal note, OMB
Component Number 471. She explained there had been an
effort to align numbers, some of which were not yet known.
She detailed that the number of boats registering was not
static and varied year-to-year. She explained that the
number was always a projection. She elaborated that the $24
referenced was a three-year payment of the $8 fee. She
reported that CFEC did not know the number of people who
had paid the registration fee in advance. She added that
part of the issue was about timing in terms of the money
coming in and CFEC's ability to forecast. Additionally, the
alignment of the numbers between the two fiscal notes also
involved the timing of the notes and working on alignment
with DMV while working to submit the note on time.
Representative LeBon supported the bill. He notified the
sponsor that it was unnecessary to circle back with him
regarding his question on protecting banks' interests. He
explained that banks used the state's Uniform Commercial
Code financing statement filing system to make any liens
they were uncertain about a public record. He explained
that the system could be used for vessels, equipment, or
anything that banks had any uncertainty about. He thanked
the bill sponsor.
Representative Rasmussen echoed the sentiments by
Representative LeBon. She clarified that she had not
intended to make it appear that the sponsor and her staff
were unprepared. She believed the bill was important and
cleared up some [past] oversights. She appreciated the
dialogue associated with identifying things that may
possibly be overlooked in order to make any corrections
before something went into effect and took a longer process
to revise. She supported the bill.
Representative Tarr answered that her office would look
into the issues discussed during the meeting.
HB 28 was HEARD and HELD in committee for further
consideration.
9:53:59 AM
AT EASE
9:55:35 AM
RECONVENED
HOUSE BILL NO. 81
"An Act authorizing the commissioner of natural
resources to modify a net profit share lease."
9:55:43 AM
RYAN FITZPATRICK, COMMERCIAL ANALYST, DIVISION OF OIL AND
GAS, DEPARTMENT OF NATURAL RESOURCES (via teleconference),
notified the committee that the department was currently
working on prior questions from the committee and would
provide answers in writing.
Co-Chair Merrick alerted Mr. Fitzpatrick the meeting would
end at 10:15 a.m. due to floor session.
Mr. Fitzpatrick continued with a presentation from a prior
meeting titled "HB 81 - Net Profit Share and Royalty
Modifications on Oil and Gas Leases," dated April 15, 2021
(copy on file). He began on slide 19 and addressed the
primary objectives of the bill. The bill would give the
Department of Natural Resources (DNR) the authority to
modify net profit share lease (NPSL) rates. He relayed that
the bill created an additional qualifying scenario for the
modification of NPSLs.
Mr. Fitzpatrick noted he had described [in the previous
hearing on HB 81] three scenarios in which modification of
royalties were currently allowed. The bill would add a
fourth scenario for end of field life where additional
capital investments were required to increase production in
order to keep the field in production. He elaborated that
it was similar to the second scenario he had described the
previous week, but instead of declining production
resulting in an increased per barrel cost, the fourth
scenario would require additional investment to increase
production that would result in the field maintaining its
status as economically producing oil and gas for an
additional number of years. Currently, the additional
scenario was limited to the modification of net profit
share and did not include royalty.
Mr. Fitzpatrick addressed the last objective of the bill
that would resolve an existing statutory ambiguity related
to production [on slide 19] for the first scenario
(production from a new oil or gas field). He explained that
currently the modification scenario was only allowed if the
field had not produced previously; however, during the
exploration phase there may be test production during
exploration. He clarified that the objective resolved that
the test production would not disqualify the field or pool
from modification; it was only referring to commercial
production after the field had been developed. He added
that it was the department's current interpretation and was
not intended as a change in policy.
9:59:09 AM
Mr. Fitzpatrick advanced to slide 20 titled "What Type of
Modification is Warranted?" The slide included information
about how the current modification process worked for
royalty modification and how it may change under the
legislation related to NPSL modifications. He explained
that currently there was a minimum royalty percentage,
which meant if a royalty modification were granted, DNR
could not reduce royalties below 5 percent for a new field
or pool or 3 percent for fields or pools at the end of
their lifespan. He elaborated that the bill proposed a
minimum net profit share of 10 percent. He detailed that
even if a modification were granted, DNR would not have the
authority to reduce the net profit share below 10 percent.
He noted that the provision mimicked the minimum royalty
rate currently in the modification statute.
Mr. Fitzpatrick drew attention to an error on slide 20,
item C. He remarked that the item should read "the
modification must be based on a sliding scale mechanism"
instead of "may be based." Currently in statute, a royalty
modification was required to be based on the sliding scale
based on the price of oil and may also be based on other
factors such as production or expenses. The bill allowed
for the modification of net profit share royalties and
added a fixed royalty component to one of the options DNR
may consider. However, the package of modifications (such
as fixed royalty, sliding scale royalty, or net profit
share) was required to take the price of oil into account
and apply the sliding scale mechanism built into at least
one of the aspects. Additionally, production or per barrel
cost could also be considered, similar to current statute.
He noted that the modification could not only be to a fixed
royalty and fixed net profit share rate. He explained that
there had to be some element of a sliding scale included
that recaptured foregone revenue if the price of oil
increased, production increased, or costs were reduced.
Mr. Fitzpatrick addressed the last bullet point on slide
20. He relayed that current statute allowed the
modification of royalty to be below or above the current
royalty rate. The bill would allow net profit share rates
to go below or above the current net profit share rate. He
explained that in certain circumstances it may be in the
state's interest to craft recapture mechanisms. He detailed
that if there was foregone revenue because of a royalty
modification earlier in a field's life or at low oil
prices, under certain circumstances (especially if there
was a significant increase in oil price), a modification
could be crafted so the royalty rate or net profit share
rate increased above the original rate to allow the state
to recapture foregone revenue. He expounded that similar to
the way DNR may employ the mechanism with a royalty
modification, the statute would allow DNR to do the same
with the net profit share modification.
10:02:57 AM
Representative Josephson was sensing the proposal was more
nuanced and had more caveats than contingencies. He
observed that the proposal included language that contained
more words. He thought the language described circumstances
where the state instead of being "generous" would be a bit
more self-serving when merited based on price increases or
other similar situations.
Mr. Fitzpatrick did not believe the bill language was
intended to change the thresholds for granting relief or to
change the authority of the department to craft recapture
mechanisms. He explained that the current statutory
language allowed recapture mechanisms for royalties. He
reported that if the department was allowed to modify net
profit share rates, the recapture mechanisms could also be
crafted through a modification of the net profit share rate
(i.e., increasing the net profit share rate above the
current rate); however, it was only intended to mimic the
current system for royalty modifications.
Representative Josephson remarked that there was a give on
the side of the state until such time as the profitability
was apparent and then there was the takeback. He asked if
it was the scenario Mr. Fitzpatrick was suggesting may
happen in the reform of the NPSL.
Mr. Fitzpatrick replied it was the intent of the statutory
language to allow the mechanism under the proper
circumstances. He explained that the language did not
require the recapture mechanism. He thought back to the
different modification scenarios currently in statute and
explained that the recapture mechanism would make a lot of
sense for a new field or pool given the production time
horizon of 20 to 40 years. He elaborated that during the
course of production, the price of oil would vary fairly
dramatically over the time period. He noted the dramatic
change in oil prices over the past several years. He
elaborated that if DNR granted a modification and the price
of oil was in the lower price band, it may justify a
modification. He provided a scenario where the price of oil
increased significantly two or three years following the
modification. He explained that DNR wanted to craft the
modification to phase out if the field was economic without
the royalty modification or net profit share modification.
Additionally, if a field or pool got to a point where the
production was so economic that it could bear the
additional royalty burden, it made sense for the state to
increase the royalty rate or net profit share rate above
the existing level to recapture some of foregone revenue
that may have taken place earlier.
Mr. Fitzpatrick considered another scenario towards the end
of field life. He explained that the recapture mechanism
may not make sense if the anticipation was that a
modification was being granted to keep a field in
production for an additional year or two. He detailed that
there would be a phase out mechanism for higher oil prices
at that point in the life of a field, but perhaps not a
recapture mechanism.
10:07:40 AM
Representative Wool understood why a producer may want to
negotiate a lower royalty rate or net profit share rate
because it was uneconomic without the lower rate and the
state wanted to be able to negotiate to get some
production. He considered a scenario where the rates were
lowered, and production increased. He could not imagine
producers would ask the state to raise rates when they were
making a substantial amount of money. He reasoned the state
would have to step in under the scenario. He asked for
verification the state would only be able to raise rates
that had already been lowered.
Mr. Fitzpatrick answered in the affirmative. He relayed
that the only time the state could raise the rates above
the initial rate, was when the state was granting the
relief in the first instance. He elaborated that the
royalty modification decision would grant a reduction in
the royalty rate or net profit share rate. The decision
would also include a schedule specifying when the
modification would phase out with oil prices, increased
production, reduced costs, and other. He explained that if
the state elected to add a recapture mechanism in
appropriate circumstances, the recapture mechanism would
have to be included in the initial decision. He detailed
that the state and producer would have notice from the
initial publication of the decision specifying when the
recapture mechanism would go into effect.
Representative Wool thought the state would want to specify
at the onset when the recapture mechanism would kick in. He
reasoned that if the mechanism were based on price, the
state would likely know upfront when something was
profitable and when it was not. He asked if the mechanism
would turn on and off as price fluctuated. Alternatively,
he wondered whether a producer would get the reduction, the
state would dial in the recapture if appropriate, and once
the increase kicked back in, the process would conclude. He
asked for verification that the reduction would not go back
and forth depending on the price of oil. He thought the
scenario would not be very efficient.
10:10:08 AM
Mr. Fitzpatrick replied that the situation could vary
depending on the modification. He reported that current
statute allowed for significant flexibility in crafting the
modifications and the sliding scale reversion to the
original rates or recapture mechanisms. He believed one of
the modifications DNR had previously granted was based on
the price of oil, where the modification phased in and out
as oil prices increased or decreased. He reported that the
mechanism had worked well from the administrative side for
the particular field. He remarked that there could be
scenarios where a modification was granted that only
allowed modification for a certain term of years until a
certain level of costs were recouped. He stated that
whether or not a modification phased in and out with the
price of oil or other factors, could be individually
tailored to a particular field or pool.
Representative Wool thought the state would want to include
a recapture in all of the reduction arrangements if certain
parameters were hit. He thought it would be the prudent
thing to do.
Mr. Fitzpatrick answered affirmatively. He explained that
the phase out of the modification was statutorily required.
He detailed that for scenarios where a recapture mechanism
was warranted, DNR currently preferred including the
recapture mechanism whenever it would be justified in one
of the modifications.
Co-Chair Merrick apologized for running out of time. She
noted that the presentation would continue during a future
meeting. She thanked Mr. Fitzpatrick for his testimony.
Mr. Fitzpatrick thanked the committee.
HB 81 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the schedule for the afternoon.
ADJOURNMENT
10:13:03 AM
The meeting was adjourned at 10:13 a.m.