Legislature(2013 - 2014)HOUSE FINANCE 519

04/07/2013 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 4:00 p.m. Today --
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
+= HB 129 OIL & GAS EXPLORATION/DEVELOPMENT AREAS TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
+ HB 76 UNEMPLOYMENT; ELEC. FILING OF LABOR INFO TELECONFERENCED
Heard & Held
+ HB 193 MUNICIPAL TAXATION OF TOBACCO PRODUCTS TELECONFERENCED
Moved CSHB 193(FIN) Out of Committee
+= SB 18 BUDGET: CAPITAL TELECONFERENCED
Scheduled But Not Heard
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 129                                                                                                            
                                                                                                                                
     "An Act relating to approval for oil and gas or gas                                                                        
     only exploration and development in a geographical                                                                         
     area; and providing for an effective date."                                                                                
                                                                                                                                
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute for  HB  129,  Work Draft  28-GH1970\U                                                                    
(Bullock,  4/5/13).  There being  NO  OBJECTION,  it was  so                                                                    
ordered.                                                                                                                        
                                                                                                                                
5:47:12 PM                                                                                                                    
                                                                                                                                
JOE  BALASH,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES (DNR),  relayed that the department  had worked on                                                                    
changes to  the substantive portion  of the bill  in Section                                                                    
2.  He  noted that  Section  1  included  a lengthy  set  of                                                                    
findings and  determinations in response to  a recent Alaska                                                                    
Supreme Court decision  [Sullivan v. Resisting Environmental                                                                    
Destruction on Indigenous Lands];  the language directed DNR                                                                    
to   follow   the   existing  statutory   guidance   in   AS                                                                    
38.05.180(a) in order to adopt  regulations to implement the                                                                    
court's finding  in terms of  the state's  interests (public                                                                    
and  otherwise)  for  the  advancement  of  exploration  and                                                                    
development.                                                                                                                    
                                                                                                                                
Mr.   Balash  pointed   to  Section   2  and   relayed  that                                                                    
Legislative  Legal  Services  had recommended  a  couple  of                                                                    
clarifying changes. The department  had no concerns with the                                                                    
changes.                                                                                                                        
                                                                                                                                
Co-Chair Stoltze  noted that the  bill was  heard previously                                                                    
and that public testimony had been closed.                                                                                      
                                                                                                                                
Mr. Balash  added that  DNR staff  was available  online for                                                                    
technical questions.                                                                                                            
                                                                                                                                
5:49:12 PM                                                                                                                    
                                                                                                                                
Representative Costello pointed to  the findings section and                                                                    
wondered  if it  was common  for the  legislative branch  to                                                                    
mention a decision made by another branch of government.                                                                        
                                                                                                                                
Mr.  Balash  believed  the   language  was  appropriate.  He                                                                    
communicated that  the agency was  addressing a  decision by                                                                    
the  Supreme  Court,  which  determined   that  it  was  the                                                                    
legislature's   prerogative  related   to   how  DNR   would                                                                    
implement the aspect  of the case requiring that  DNR take a                                                                    
continuing hard look at decisions  beyond the leasing phase.                                                                    
The language was  modeled on language that  had been adopted                                                                    
by the legislature approximately 12 years earlier.                                                                              
                                                                                                                                
Co-Chair Stoltze  agreed that the  language was  not unique.                                                                    
He recalled  fighting a past  effort by the  Alaska Railroad                                                                    
to overturn  an Alaska Supreme  Court decision related  to a                                                                    
Native village in his district.                                                                                                 
                                                                                                                                
5:51:41 PM                                                                                                                    
                                                                                                                                
Representative  Gara wanted  to ensure  that the  bill would                                                                    
not extend the amount of time  a company with an oil and gas                                                                    
lease  would  have  to  develop the  land.  He  stated  that                                                                    
currently companies were provided  a specific amount of time                                                                    
under a  lease to develop; if  the lease was not  acted upon                                                                    
the state had the right to lease the area to another party.                                                                     
                                                                                                                                
Mr. Balash  replied a lease  could be  held no more  than 10                                                                    
years unless the terms specified  a shorter period. The only                                                                    
way for  a party to continue  to hold the lease  was through                                                                    
production,   a   certified   well,  or   unitization.   The                                                                    
legislation would not impact  the existing requirements; the                                                                    
language related to the decisions  made by DNR when granting                                                                    
permission to explore or develop the lease.                                                                                     
                                                                                                                                
Representative Gara asked for  verification that current law                                                                    
provided three  public comment periods (when  the lease came                                                                    
out,  when the  development plan  was released,  and in  one                                                                    
other circumstance), but the  legislation reduced the number                                                                    
down to one.                                                                                                                    
                                                                                                                                
Mr. Balash replied that after  the leasing phase there would                                                                    
be  an  opportunity  for  public   notice  and  comment  for                                                                    
exploration and another opportunity  for comment on the area                                                                    
in question  for development. He  stated that  under current                                                                    
practice there  may be multiple public  notices/comments for                                                                    
each one  of the  phases; the change  to one  public comment                                                                    
period   per  phase   would  provide   more  efficiency   in                                                                    
considering decisions. He furthered  that DNR wanted to hold                                                                    
public  comment on  the frontend  in  order to  have a  more                                                                    
meaningful decision making process.                                                                                             
                                                                                                                                
Representative  Gara asked  for verification  that the  bill                                                                    
would  maintain the  two  levels of  public  comment, but  a                                                                    
broader  combination of  leases would  be combined  into one                                                                    
public comment period.                                                                                                          
                                                                                                                                
Mr. Balash  responded in the affirmative.  He explained that                                                                    
the intent  was to  enable a given  decision to  affect more                                                                    
than   one   lease,   rather  than   having   lease-by-lease                                                                    
decisions. He  detailed that the  number of  leases included                                                                    
in a decision would be  dependent on the circumstances; some                                                                    
leasing areas  lent themselves to larger  geographic scopes.                                                                    
For example, DNR would be  more discerning related to public                                                                    
comment  on the  east side  of  Cook Inlet,  which was  more                                                                    
populated than the west side.                                                                                                   
                                                                                                                                
5:56:21 PM                                                                                                                    
                                                                                                                                
Representative Gara  noted that he  tended to want  to speed                                                                    
up development  on most  of the  leases rather  than letting                                                                    
them lag.  He understood that residents  in some communities                                                                    
wanted  to proceed  with caution.  He stated  that when  the                                                                    
system  was lease  by lease  the development  plan would  be                                                                    
known; however,  if many  leases were  combined it  would be                                                                    
harder  to meaningfully  comment on  leases that  may be  at                                                                    
different stages. He wondered  how the department would deal                                                                    
with the potential issue.                                                                                                       
                                                                                                                                
Mr. Balash pointed to a  distinction between exploration and                                                                    
development. He explained that  the exploration activity was                                                                    
likely  to  be  on  a broader  scope  than  the  development                                                                    
decision;  exploration and  development would  have separate                                                                    
decisions associated with various  phases of development. He                                                                    
shared that  currently leases were sold  to companies coming                                                                    
to the state for exploration.  Under the bill there would be                                                                    
a  public notice  and  decision  document affecting  leases;                                                                    
once  a  resource was  located  there  would be  a  separate                                                                    
decision that would likely narrow  the scope from the larger                                                                    
body of  leases to those  under which the resource  had been                                                                    
found. He  furthered that the details  on the implementation                                                                    
of decisions would be determined under DNR regulations.                                                                         
                                                                                                                                
5:59:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze handed the gavel to Co-Chair Austerman.                                                                        
                                                                                                                                
Co-Chair  Austerman  pointed   to  legislative  findings  in                                                                    
Section 3 and  asked if the direction  to continue analyzing                                                                    
the  cumulative impact  of a  project was  already addressed                                                                    
within current DNR regulations.                                                                                                 
                                                                                                                                
Mr. Balash replied that the  examination of multiple factors                                                                    
beyond  the   cumulative  impacts  was  undertaken   in  the                                                                    
department's  10-year best  interest  finding conducted  for                                                                    
the  leasing   phase.  He  expounded  that   each  year  DNR                                                                    
conducted a  call for additional information,  which allowed                                                                    
the   public  and   communities  to   bring  items   to  the                                                                    
department's   attention;   other   departments   frequently                                                                    
brought  new  reports, studies,  and  findings  to DNR.  The                                                                    
items  were all  taken  into account  before the  department                                                                    
moved forward with  annual lease sales. He  relayed that the                                                                    
Supreme  Court decision  mandated  that DNR  could not  stop                                                                    
considering the impacts.                                                                                                        
                                                                                                                                
Co-Chair Austerman  asked whether the cumulative  effect was                                                                    
included. Mr. Balash replied in the affirmative.                                                                                
                                                                                                                                
Co-Chair Austerman  asked whether the cumulative  effect was                                                                    
included  in new  regulation. Mr.  Balash  replied that  DNR                                                                    
considered cumulative  effects as part of  the best interest                                                                    
finding in  the leasing  stage; the department  continued to                                                                    
look at  the information  as time  went by  as the  face and                                                                    
speed of development  changed in a given  area. He furthered                                                                    
that  DNR was  considering  the items,  but the  regulations                                                                    
would direct it  to specify when or  where the consideration                                                                    
took place.                                                                                                                     
                                                                                                                                
Representative  Kawasaki asked  for  the impact  of each  of                                                                    
court's  legislative  findings  under the  legislation.  Mr.                                                                    
Balash asked for a specific example.                                                                                            
                                                                                                                                
Representative  Kawasaki pointed  to  Section  5 related  to                                                                    
consideration  and analysis  by  the  department, Section  7                                                                    
related the  department's continued look at  new information                                                                    
and  changing  circumstances,  and   Section  8  related  to                                                                    
meaningful public notice by the  department. He believed the                                                                    
items were subjective and asked for comment.                                                                                    
                                                                                                                                
Mr.  Balash replied  that Sections  5 and  7 fell  under the                                                                    
prior   topic   discussed   with  Co-Chair   Austerman.   He                                                                    
elaborated that the best interest  finding was done on a 10-                                                                    
year   cycle  for   each  sale   area;   the  document   was                                                                    
comprehensive and considered a  multitude of items specified                                                                    
in statute. He stated that 10  years was a long time between                                                                    
findings;  therefore, DNR  did a  call for  information each                                                                    
year in  order to make  sure findings remained  relevant. He                                                                    
elaborated that  the call was publicly  noticed and provided                                                                    
an  opportunity  for  other   agencies  and  the  public  to                                                                    
comment. He explained  that Section 7 related  to the annual                                                                    
call  and  Section  5  acknowledged  that  the  department's                                                                    
current  process  made  the  creation  of  an  entirely  new                                                                    
finding for decisions unnecessary.                                                                                              
                                                                                                                                
6:04:51 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki asked  for  an  explanation of  the                                                                    
changes  included in  Section 2  and about  their necessity.                                                                    
Mr. Balash answered  that the changes made had  not been due                                                                    
to  the Supreme  Court  case. He  relayed  that the  changes                                                                    
helped  bring  clarity to  the  meaning  of the  substantive                                                                    
section.  He  pointed to  a  write  up of  specific  changes                                                                    
included  in   member's  packets   (copy  on   file),  which                                                                    
referenced  the  page and  line  numbers  from the  original                                                                    
bill.  He  detailed  that  the   words  "without  regard  to                                                                    
individual lease  boundaries" had  been deleted  because the                                                                    
topic was  related to  area-wide decisions.  He communicated                                                                    
that DNR had  no problem with the change.  He furthered that                                                                    
per  a  recommendation  by Legislative  Legal  Services  the                                                                    
sentence had  been revised to  read "an approval  applies to                                                                    
an  exploration or  development commencing  during a  period                                                                    
for up to 10 years. The  language created an upper limit and                                                                    
pertained to decisions  that were made in  an exploration or                                                                    
development context;  the decision  would define  the length                                                                    
of time.                                                                                                                        
                                                                                                                                
Mr. Balash  continued to explain  the changes in  Section 2.                                                                    
He  addressed   a  clarifying   change  from   the  language                                                                    
"specified  period"   to  "a  period  specified   under  the                                                                    
approval." The length of time  would not automatically be 10                                                                    
years  and would  be  determined in  the  decision made.  He                                                                    
relayed that the  department had no problem with  any of the                                                                    
changes. The fourth  change added the language  "or group of                                                                    
leases" to  follow the word  "leases" in the bill.  He noted                                                                    
that  the  word  "area"  was  mistakenly  used  twice  in  a                                                                    
sentence and subsequently had been deleted.                                                                                     
                                                                                                                                
Vice-Chair  Neuman  discussed  a  gas  well  that  had  been                                                                    
drilled  in Big  Lake.  He explained  that  the company  had                                                                    
drilled some  monitoring wells in  response to  concern from                                                                    
locals; the  lease had  subsequently transferred  to another                                                                    
company. He  noted that commitments  had been made  to check                                                                    
for contaminates over time. He  wondered who was responsible                                                                    
for transfers and  whether it was associated  with the lease                                                                    
contract.                                                                                                                       
                                                                                                                                
6:09:09 PM                                                                                                                    
                                                                                                                                
Mr. Balash  replied that each  case was  different; however,                                                                    
the obligations  of the  lease or  any permits  would change                                                                    
hands from  lessee to lessee.  He relayed that  transfers of                                                                    
interest in  a lease had to  be approved by the  Division of                                                                    
Oil  and  Gas. The  department  looked  to see  whether  the                                                                    
company  taking over  a  lease would  take  on the  existing                                                                    
obligations  (e.g.  obligations  on  older  properties  with                                                                    
abandonment liabilities).                                                                                                       
                                                                                                                                
Vice-Chair  Neuman   cited  language   on  page  3   of  the                                                                    
legislation:  "the  director  may  approve  exploration  for                                                                    
development for all  or part of an  area previously approved                                                                    
for oil and  gas leasing." He further  discussed the drilled                                                                    
area at Big  Lake and relayed that the cleanup  had not been                                                                    
ideal. He  pointed to  the 10-year  lease maximum  under the                                                                    
legislation and wondered if a  similar scenario could happen                                                                    
again; if so, he doubted it would be approved by DNR.                                                                           
                                                                                                                                
6:09:46 PM                                                                                                                    
                                                                                                                                
Mr. Balash  answered that the bill's  language addressed the                                                                    
different  phases regarding  a  previously approved  leasing                                                                    
area. He discussed circumstances  when DNR had determined it                                                                    
was  in the  state's best  interest to  dispose of  property                                                                    
interest on a  piece of land; the division  would still need                                                                    
to make  a decision for exploration  and development phases,                                                                    
but  in  order  for  property  to be  disposed  of  DNR  was                                                                    
required to do a best interest finding.                                                                                         
                                                                                                                                
Vice-Chair Neuman  continued to  speak to  the issue  in Big                                                                    
Lake. He shared  that the drilling had been  approved by DNR                                                                    
on  private  property  and  the   property  owner  had  been                                                                    
concerned about the situation.                                                                                                  
                                                                                                                                
Mr. Balash  answered that  Alaska had  a split  estate where                                                                    
the  mineral interest  was reserved  for the  state and  the                                                                    
surface area  could be sold  to private individuals  in some                                                                    
cases.  The state  had the  ability to  make decisions  that                                                                    
affected  private  owners,  but   DNR  had  regulations  and                                                                    
processes   that  governed   under  the   circumstances.  He                                                                    
furthered  that  DNR would  be  required  to provide  public                                                                    
notice that  a lease  was in  question if  the lease  was on                                                                    
private  land. He  relayed  that  the department's  decision                                                                    
would  be   subject  to  appeal  and/or   litigation  if  an                                                                    
individual was concerned about the area in question.                                                                            
                                                                                                                                
6:14:46 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman surmised that the  Big Lake land owner had                                                                    
not wanted to go to the expense of suing the state.                                                                             
                                                                                                                                
Representative Munoz commented that  the purpose was to look                                                                    
holistically  at  a  geographical   area  to  determine  the                                                                    
parameters  of  development  that   would  be  allowed.  She                                                                    
believed the  goal was to  provide the public with  a better                                                                    
understanding of  what types of activity  would occur within                                                                    
a certain area.                                                                                                                 
                                                                                                                                
Mr. Balash replied in the  affirmative. He communicated that                                                                    
DNR wanted its  process to be more meaningful  and to engage                                                                    
the  public in  a way  that  would allow  the department  to                                                                    
guide its decisions on the  front-end as opposed to a piece-                                                                    
meal process.  He pointed out  that the North  Slope Borough                                                                    
had provided  a letter of  support for the  legislation. The                                                                    
department  believed  that  engaging the  borough  would  be                                                                    
holistic  and  would  help everyone  involved  to  reach  an                                                                    
affirmative decision in a better way.                                                                                           
                                                                                                                                
Representative  Costello discussed  the  fiscal impact  note                                                                    
from Department of Natural  Resources that included $134,000                                                                    
in FY 14 for one non-permanent position.                                                                                        
                                                                                                                                
Representative Costello cited language  from the fiscal note                                                                    
analysis  section:  "without   regard  to  individual  lease                                                                    
boundaries."  She believed  the  language  had been  removed                                                                    
from  the bill  and wondered  about the  impact. Mr.  Balash                                                                    
replied that there would not be a fiscal impact.                                                                                
                                                                                                                                
Representative  Gara stated  that the  bill would  result in                                                                    
fewer public  hearings. He surmised that  subsequently there                                                                    
would  be  less employees  required.  He  remarked that  the                                                                    
state was facing fiscal challenges  and he was not convinced                                                                    
the fiscal note made sense.                                                                                                     
                                                                                                                                
Mr. Balash  answered that  the department  was asking  for a                                                                    
non-permanent employee to maintain  current work done and to                                                                    
help compile  regulations that would guide  the new program.                                                                    
Once the  transition was made,  the division expected  to be                                                                    
able  to perform  its  job more  efficiently.  He could  not                                                                    
quantify the change, but the  goal was for the department to                                                                    
make preparations to do more with less.                                                                                         
                                                                                                                                
6:19:58 PM                                                                                                                    
                                                                                                                                
Representative  Gara noted  that the  division had  existing                                                                    
staff  to   handle  multiple   hearings.  He   believed  the                                                                    
development of  regulations could  be done with  its current                                                                    
staff and with  the help of the Department of  Law (DOL). He                                                                    
did not believe a new position was necessary.                                                                                   
                                                                                                                                
Mr. Balash  answered that  DNR would  have to  reimburse DOL                                                                    
for work done.  He clarified that public  notice and comment                                                                    
periods were  held, but there  were not a  tremendous number                                                                    
of public hearings held on  the decisions. He furthered that                                                                    
the  department  would  continue  to review  plans  once  an                                                                    
exploration decision  had been  made. He explained  that the                                                                    
public comment period would be truncated.                                                                                       
                                                                                                                                
Representative Gara  OBJECTED to  the fiscal note.  He MOVED                                                                    
to AMEND the fiscal note to  zero. He stated that there were                                                                    
DOL  attorneys who  worked specifically  on regulations.  He                                                                    
believed  the work  could be  done  with existing  employees                                                                    
with some potential overtime work.                                                                                              
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED: Munoz, Holmes,  Neuman, Wilson, Costello, Thompson,                                                                    
Stoltze, Austerman                                                                                                              
                                                                                                                                
The MOTION FAILED (2/8).                                                                                                        
                                                                                                                                
Representative Costello  MOVED to  REPORT CSHB  129(FIN) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB  129(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass"  recommendation and  with one  new fiscal  impact note                                                                    
from the Department of Natural Resources.                                                                                       
                                                                                                                                

Document Name Date/Time Subjects
CSHB 76 UI Tax chart.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 Letters of Support.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 NEW FN CS(L&C)-DOLWD-CO-3-20-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 NEW FN CS(L&C)-DOLWD-UI-3-20-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 Transmittal Letter 1-17-2013.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76-CSHB 76L&C Changes.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 AkHLA Letter of Suppport .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 Historical UI Tax Rates .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 -Treasury Offset Program .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 -UI STEP TVEP flow chart .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
Sectional Analysis CSHB 76 (HLC) 3 20 13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 193 Daniel Moore Testimony.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Letter of Support - Municipality of Anchorage.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Sectional Analysis.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Sponsor Statement.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
UI Bill FAQ 3-19.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 193 CS WORKDRAFT FIN U.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Summary of Changes.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 129 CS WORKDRAFT FIN 28-GH1970_U.pdf HFIN 4/7/2013 1:30:00 PM
HB 129
NEW FN HB 193 DOR-Tax Division-4-7-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
SB 21 DOR Handout 2013_Analyst_Meeting_transcript (2).pdf HFIN 4/7/2013 1:30:00 PM
SB 21
SB 21 DOR 13.04.06 HFIN follow ups.pdf HFIN 4/7/2013 1:30:00 PM
SB 21
SB 21 DOR 13.04.06 SB21 Comparison Chart.pdf HFIN 4/7/2013 1:30:00 PM
SB 21