Legislature(2013 - 2014)HOUSE FINANCE 519
04/07/2013 01:30 PM FINANCE
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* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.