Legislature(2017 - 2018)GRUENBERG 120
02/21/2018 01:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation(s) | |
| HB330 | |
| Confirmation | |
| HB330 | |
| HB307 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 259 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 307 | TELECONFERENCED | |
| += | HB 330 | TELECONFERENCED | |
HB 330-DNR: DISCLOSURE OF CONFIDENTIAL INFO
2:04:45 PM
CHAIR CLAMAN announced that the next order of business would be
HOUSE BILL NO. 330, "An Act authorizing the commissioner of
natural resources to disclose confidential information in an
investigation or proceeding, including a lease royalty audit,
appeal, or request for reconsideration and issue a protective
order limiting the persons who have access to the confidential
information."
CHAIR CLAMAN advised that this is the second hearing of the bill
by the House Judiciary Standing Committee wherein the committee
had heard a presentation from Ed King, Legislative Liaison to
the Commissioner of the Department of Natural Resources (DNR).
The committee had asked questions related to confidential
processes within Department of Revenue (DOR), and Ken Alper and
Jenny Rogers are available to testify, together with a
representative from the oil industry, Michael Hurley,
ConocoPhillips Alaska. He added that this committee received a
2/16/18 letter of opposition from Lorali Simon, Vice President
of External Affairs, Usibelli Coal Mine.
2:05:55 PM
KEN ALPER, Director, Tax Division, Department of Revenue,
advised that, generally, HB 330 is for the Department of Natural
Resources (DNR) as it relates to its treatment of a private
company's information in the context of a royalty audit. The
manner in which DNR values royalties is based on the highest
transaction of a given quantity of oil, he explained, and if one
company is partners with a second company and the second company
receives a higher price for its oil, the first company is
charged a royalty based on what the second company received,
"the highest of." Therein lays the problem, he remarked, DNR
does not have the ability to tell that first company about the
information DNR received from the second company due to taxpayer
confidentiality, which this bill would remedy. The Department
of Revenue Tax Division holds similar rights within its oil and
gas production tax, wherein there are multiple partners,
multiple working interest owners, and for various reasons, the
Tax Division might use value or price information from one
company to impact how it might be calculating tax in an audit on
another company. He offered his understanding that his
testimony today was simply to convey to the committee that this
bill represents a similar authority currently existing within
the Department of Revenue. He further offered that DNR requests
this legislation for its internal housekeeping and auditing
purposes.
2:07:48 PM
REPRESENTATIVE REINBOLD asked whether he was aware of any
opposition to HB 330.
MR. ALPER answered that he was not aware of any opposition. He
advised that he did read the letter from Usibelli Coal Mine and,
he pointed out, he did not understand the letter in the context
of DNR's purpose and intent regarding this bill. He stressed
the importance of recognizing that DNR and DOR are not looking
to divulge confidential information to the general public, it is
simply about sharing one taxpayer's information with another
related taxpayer, within a fairly narrow constrained purpose.
2:08:50 PM
REPRESENTATIVE REINBOLD noted that if tremendous investments had
taken place on certain pieces of property, there could be
concerns about the private sector's investments. She said she
"is amazed" that Mr. Alper is not aware of any other opposition
at all, with the exception of the Usibelli Coal Mine.
CHAIR CLAMAN injected that Mr. King is the better person to
answer that question because it is a DNR bill; therefore, the
objections would go to DNR and not to the Mr. Alper.
MR. ALPER answered that Mr. Hurley, ConocoPhillips Alaska, may
also be able to provide some insight. From the Department of
Revenue's (DOR) perspective, the key piece is that DOR already
has this authority and, to his knowledge, it is not a
controversial authority. He advised that Jenny Rogers,
Department of Revenue (DOR) is available, and has been with
DOR's production tax group for over 20-years and she may be able
to provide historical reasons why it may have been done in the
past. He described it as "a lightly used authority," and that
it has not been used more than a handful of times for a specific
need.
REPRESENTATIVE REINBOLD said that Mr. Alper did not answer the
question because she had asked ...
CHAIR CLAMAN reiterated that the better person to ask is Mr.
King.
2:10:24 PM
REPRESENTATIVE LEDOUX asked that if the department already has
authority, why is the bill necessary.
MR. ALPER replied that this is a Department of Natural Resources
(DNR) bill that is seeking a similar authority for royalty
audits that the Department of Revenue (DOR) currently holds for
its tax audits.
2:11:06 PM
REPRESENTATIVE LEDOUX surmised that this authority allows DOR to
share one taxpayer's information with another taxpayer.
MR. ALPER explained that DOR's authorities are not changed by
this bill, DNR's authority is being changed wherein DNR would
hold the authority to share confidential information within the
narrow context of an audit or an investigation, specifically
where one taxpayer's information is being used to change the
royalties paid by another taxpayer. For example, the companies
may be affiliated in some manner, and the sharing taxpayer
received a higher price for its oil than the other taxpayer, and
that price is being used to set the royalties owed by the second
taxpayer.
CHAIR CLAMAN suggested that some of the questions should be
directed to Mr. King.
2:12:22 PM
REPRESENTATIVE KOPP surmised that the weighted average of the
three highest prices in any one field comes into play when a
producer contests a royalty owed. Under the audit rules, DNR
establishes the going price point that sets the dollar amount
owed, which is the average of the three highest field prices.
He explained that that is the reason everyone must be able to
see what the highest three prices were because that is the
process in determining the amount actually owed.
MR. ALPER opined that he believed that was correct and deferred
to Mr. King.
CHAIR CLAMAN noted that when this process occurs, it occurs
within the context of a protective order and it is not publicly
available, this process is only within the narrow confines of
the audit proceeding.
2:13:50 PM
REPRESENTATIVE EASTMAN asked whether questions about protective
orders would more appropriate for "this speaker or the next
one."
CHAIR CLAMAN advised that questions about the context of a
protective order should be directed to the Department of Law,
and a representative is available.
MR. ALPER offered that there is a similar protective order
structure within DNR's authorities under AS 43.55.040 as to what
is contemplated here in this change in DNR statutes.
HB 330-DNR: DISCLOSURE OF CONFIDENTIAL INFO
2:19:09 PM
CHAIR CLAMAN returned the committee to HB 330, and asked Michael
Hurley, ConocoPhillips Alaska, to come forward and testify.
2:19:49 PM
MICHAEL HURLEY, Director of Government Relations, ConocoPhillips
Alaska, Inc., advised he was available to testify.
CHAIR CLAMAN noted that Mr. Hurley will answers questions as to
how ConocoPhillips Alaska participates in the protective order
process and its perspective on the protective orders. He
stressed that Mr. Hurley is not here to offer an official
position of ConocoPhillips Alaska, as to this bill.
2:20:18 PM
REPRESENTATIVE EASTMAN asked whether ConocoPhillips Alaska did
not have a position on this bill because it had analyzed all of
the information and decided to not take a position, or because
the company is still analyzing the bill and has not had enough
time to calculate a position.
MR. HURLEY responded that the bill has some good aspects to it
with some mildly concerning aspects for the company, and it
decided to "let it take its course."
2:21:03 PM
REPRESENTATIVE LEDOUX requested an explanation of the good
aspects to the bill, and the aspects that gives the company
pause.
MR. HURLEY responded that this authority, given to the
Department of Natural Resources (DNR) to provide these
protective orders themselves, is helpful because ConocoPhillips
Alaska's goal is to try and pay its royalties when they become
due. He related that the authority is important to
ConocoPhillips Alaska because, although the legislature made
changes last year in terms of the interest rate charged in
taxes, DNR still has an 11 percent interest rate that accrues on
unpaid royalties. Therefore, he explained, if DNR goes six-
years before auditing the royalty, or ten-years before "some of
that stuff is resolved," there is a consequential situation of
11 percent interest over ten-years. That situation could triple
the amount owed, yet the company's goal is to try and pay its
royalties as close to the correct amount as possible as soon as
they are due. This legislation is another tool for the
department to share confidential information with other
producers to determine that average price, thereby allowing
ConocoPhillips Alaska to pay its royalties as accurately as
possible when they are due.
2:23:13 PM
MR. HURLEY offered concern with the section of the bill
regarding the protective orders because "other things could be
included in that kind of proprietary bucket of things," such as
the geological and geophysical information. He explained that
the geological and geophysical information, within a competitive
industry business such as ConocoPhillips Alaska, is "very
confidential" for the companies. Mr. Hurley pointed out that,
as Mr. King had previously testified, DNR uses that authority
solely in obscure situations, and he is not aware of any of
those situations (audio difficulties). On the whole, he opined,
the legislation is positive due to the benefits it brings
forward with the existing protective orders and, "it should be
okay."
2:24:54 PM
REPRESENTATIVE LEDOUX noted that the purpose of the bill, as has
been explained, is for royalty audits. She referred to HB 330,
[AS 38.05.020(b)(15), page 3, lines 25-30] and noted that it
appears to be broader than simply royalty audits and suggested
limiting the language to simply read "royalty." She asked
whether that narrowed language would allay some of the concerns
he had voiced.
MR. HURLEY answered in the affirmative.
2:25:51 PM
[CHAIR CLAMAN and Representative Reinbold discussed the
appropriateness of certain questions.}
2:27:09 PM
REPRESENTATIVE REINBOLD asked whether Mr. Hurley was aware of
any pushback, other than Usibelli Coal Mine, on this bill.
MR. HURLEY answered, "No."
2:27:25 PM
REPRESENTATIVE EASTMAN asked whether the protective order
process could be misused where confidential information was
somehow leaked to the public. He further asked whether that was
a concern to Mr. Hurley and whether instances in that manner had
taken place in the past.
MR. HURLEY responded that he is unaware of any instances of that
nature. Especially, he offered, with the type of data being
discussed in computing the royalty amounts wherein the average
of the three highest prices determine the amount owed for
royalty. He related that he does not have any particular
concern about the other pieces of it, and as Representative
LeDoux suggested, if it were limited solely to royalties, he
would be happier but "it's okay."
2:28:51 PM
REPRESENTATIVE KOPP surmised that currently, if there is an
appeal based on a tax audit and ConocoPhillips Alaska disagrees,
the information is necessary to be disclosed in order to come to
the correct valuation in the law. He asked whether that means
(audio difficulties) now.
MR. HURLEY answered yes, and he explained that currently, there
have been situations where ConocoPhillips Alaska received some
of the information through a court protective order. This bill
allows a simpler process of going through the commissioner's
office rather than going to court with an actual dispute before
"you get there." He reiterated that the company's goal is to
make sure it can pay its royalties in a timely manner at the
correct amount and not incur those interest charges. He pointed
out that having the protective order process go through the
commissioner's office, ConocoPhillips Alaska is hoping that
process will allow DNR to make those averages calculations on a
timelier basis so the company can pay the correct amount as it
becomes due.
2:31:10 PM
PETER CALTAGIRONE, Assistant Attorney General, Natural Resources
Section, Department of Law (DOL), was available for questions.
2:31:19 PM
REPRESENTATIVE EASTMAN asked the severity of the penalties if a
protective order, in this context, is violated.
MR. CALTAGIRONE asked, "The penalties to whom?"
REPRESENTATIVE EASTMAN responded that to whomever violated the
structure of a protective order.
MR. CALTAGIRONE asked whether Representative Eastman was asking
about a producer misusing otherwise confidential information
that was contrary to the terms set forth in the protective
order, and what happens next.
REPRESENTATIVE EASTMAN answered yes, and he asked what happens
when the confidential information is misused or is disclosed to
an unauthorized party."
MR. CALTAGIRONE advised that a protective order should be set up
in the same manner as the confidentiality agreements are
currently set up. This, he offered, would provide specific
rules for handling the information as to who, within the
receiving party can handle the information, what purpose the
information can be used for, and is extremely limiting in both
of those respects. There is also language that protects the
state from liability if that information is misused by the
receiving party. In theory, he said, for the company whose
information is being disclosed, the remedy is that it would have
to pursue against the receiving party if the receiving party
misused that information somehow.
CHAIR CLAMAN explained that all royalty and other proceedings
are confidential proceedings, at least until such time as
someone starts appealing it up through the court system. The
administrative proceedings within DNR are all confidential for
all parties, he reiterated.
2:33:59 PM
REPRESENTATIVE EASTMAN noted a concern raised by at least one
company, that through this bill, the confidential information
under a protective order could become available to an
adversarial party. He asked Mr. Caltagirone whether that
concern was unfounded.
MR. CALTAGIRONE surmised that Representative Eastman's question
was whether there was a possibility that that could happen. He
responded that it certainly could happen, except that DNR, in
issuing its protective order, lays out specific and narrowing
circumstances under which the information could be used. In the
event DNR had reason to believe the terms of its protective
order had been violated, it could go to the superior court and
seek the appropriate sanctions (audio difficulties).
2:35:05 PM
REPRESENTATIVE EASTMAN surmised that the discussion is about
civil sanctions and a lawsuit setting, except, he said that he
envisioned a situation where an anti-mining group might have
access to this information, misuse it in some manner, declare
bankruptcy relatively quickly and have no funds. Therefore,
that party would not have much in the way of a penalty in the
type of civil suit setting being discussed. He asked to what
extent that anti-coal mining group receiving the information in
the first place could happen through HB 330, and whether Mr.
Caltagirone had considered that possibility.
CHAIR CLAMAN asked whether Mr. Caltagirone had read the 2/14/18
letter from Usibelli Coal Mine that Representative Eastman is
referencing.
MR. CALTAGIRONE advised that he has seen that letter and asked
Representative Eastman to repeat his compound question.
2:36:37 PM
REPRESENTATIVE EASTMAN asked whether there is a mechanism under
HB 330 for that anti-mining group to obtain access to this
information and a lawsuit would be the remedy. He asked whether
there was a manner in which "they could get access to the
information," and if not, his question is moot.
MR. CALTAGIRONE answered that he is not fully versed in mining
law as it is not his area of practice. However, he said, he did
speak with a mining attorney prior to this hearing and his
understanding is that in Representative Eastman's scenario, this
is information the group may be able to obtain anyway, outside
of HB 330. Although, he said that he may be incorrect, and he
would like the opportunity to file a written response after
researching the question because he did not want to speak out of
school.
2:38:43 PM
REPRESENTATIVE LEDOUX asked Mr. Caltagirone that if the
committee limited the new section [AS 38.05.020(b)(15)] to
"royalty," whether that would take care of the situation
presented by Ms. Simon, Usibelli Coal Mine.
MR. CALTAGIRONE opined that amendments were recently submitted
regarding page 3, line 25, clarifying that this bill is related
to oil and gas, which would alleviate any concerns presented by
Osibelli Coal Mine.
2:40:27 PM
ED KING, Special Assistant, Commissioners Office, Department of
Natural Resources, advised that after receiving the 2/16/18
letter from Usibelli Coal Mine, DNR contemplated an amendment to
rectify its concerns and he offered to share that amendment with
the committee.
CHAIR CLAMAN advised Mr. King that there are deadlines for
amendments so the committee members would have an opportunity to
review the amendments in advance. He pointed out that Mr. King
is coming to the committee now, in the midst of the hearing,
with a potential amendment that the committee may want to
review. He advised Mr. King that offering amendments in this
manner is not consistent with the manner in which the committee
operates, and because every member of the committee would like
to review the amendment, it would not be taken up today.
2:41:59 PM
REPRESENTATIVE LEDOUX asked whether members would have a chance
to offer amendments.
CHAIR CLAMAN answered, "Absolutely."
[HB 330 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| Board of Governors of the Alaska Bar Appointment-William Gordon Application 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM |
|
| Violent Crimes Compensation Board Appointment-Jeffrey Stubblefield Application and Resume 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM |
|
| HB330 ver A 2.16.18.pdf |
HJUD 2/16/2018 1:00:00 PM HJUD 2/21/2018 1:00:00 PM HJUD 2/23/2018 1:30:00 PM HJUD 2/26/2018 1:00:00 PM HRES 3/9/2018 1:00:00 PM HRES 3/12/2018 1:00:00 PM HRES 3/14/2018 1:00:00 PM |
HB 330 |
| HB330 Transmittal Letter 2.16.18.pdf |
HJUD 2/16/2018 1:00:00 PM HJUD 2/21/2018 1:00:00 PM HRES 3/9/2018 1:00:00 PM HRES 3/12/2018 1:00:00 PM HRES 3/14/2018 1:00:00 PM |
HB 330 |
| HB330 Opposing Document-UCM Letter 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM HRES 3/9/2018 1:00:00 PM HRES 3/12/2018 1:00:00 PM HRES 3/14/2018 1:00:00 PM |
HB 330 |
| HB330 Fiscal Note DNR-DOG 2.16.18.pdf |
HJUD 2/16/2018 1:00:00 PM HJUD 2/21/2018 1:00:00 PM HRES 3/9/2018 1:00:00 PM HRES 3/12/2018 1:00:00 PM HRES 3/14/2018 1:00:00 PM |
HB 330 |
| HB307 ver D 2.19.18.PDF |
HJUD 2/19/2018 1:30:00 PM HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Sponsor Statement 2.19.18.pdf |
HJUD 2/19/2018 1:30:00 PM HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Sectional Analysis ver D 2.19.18.pdf |
HJUD 2/19/2018 1:30:00 PM HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Amendment #1 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Additional Document-Leg Legal Memo on Amendment #1 (D.1) 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Amendment #1 HJUD Final Vote 2.21.18.pdf |
HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Fiscal Note MVA-COM 2.19.18.pdf |
HJUD 2/19/2018 1:30:00 PM HJUD 2/21/2018 1:00:00 PM |
HB 307 |
| HB307 Fiscal Note DPS-SWITS 2.19.18.pdf |
HJUD 2/19/2018 1:30:00 PM HJUD 2/21/2018 1:00:00 PM |
HB 307 |