Legislature(2007 - 2008)CAPITOL 120

04/12/2007 03:00 PM OIL & GAS

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03:15:39 PM Start
03:15:54 PM Alaska Oil and Gas Conservation Commission
03:31:02 PM HJR13
04:09:06 PM HB183
04:51:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Location Change --
Moved CSHB 183(O&G) Out of Committee
Heard & Held
+ Confirmation Hearing: TELECONFERENCED
Alaska Oil & Gas Conservation Commission
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 183-OIL & GAS CONSERVATION COMMISSION                                                                                      
4:09:06 PM                                                                                                                    
CHAIR KOHRING announced that the  next of business would be HOUSE                                                               
BILL NO. 183,  "An Act relating to the  regulation and permitting                                                               
of  drilling and  other  operations  by the  Alaska  Oil and  Gas                                                               
Conservation  Commission,  to  civil penalties  assessed  by  the                                                               
commission, to  reconsideration and  appeal of decisions  and the                                                               
allocation  of costs  in investigations  and hearings  before the                                                               
commission,  and  to  information  filed with  and  fees  of  the                                                               
commission; and providing for an effective date."                                                                               
4:09:14 PM                                                                                                                    
CHERYL  SUTTON, Staff  to  Representative  Ralph Samuels,  Alaska                                                               
State  Legislature,  informed  the  committee  that  HB  183  was                                                               
introduced through  House Rules Committee  at the request  of the                                                               
Legislative Budget  and Audit  Committee and  the Alaska  Oil and                                                               
Gas Conservation  Commission (AOGCC).  She  offered the Committee                                                               
Substitute (CS) and  noted that it reflects changes  that are the                                                               
result of interactions between the  AOGCC, the Alaska Oil and Gas                                                               
Association (AOGA), and other industry members.                                                                                 
4:11:07 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  moved  to  adopt CSHB  183,  Version  25-                                                               
LS0586\O,  Bullock,  4/11/07, as  the  working  document.   There                                                               
being no objection, Version O was before the committee.                                                                         
4:11:39 PM                                                                                                                    
JOHN K. NORMAN,  Chair, Alaska Oil &  Gas Conservation Commission                                                               
(AOGCC),  Department of  Administration,  informed the  committee                                                               
that  VERSION O  addresses  updates  to the  Alaska  Oil and  Gas                                                               
Conservation Act.   The original  act was enacted as  Chapter 40,                                                               
SLA 1955,  by the territorial  legislature.  He noted  that [CSHB                                                               
183] was  proposed by the  AOGCC in  order to update  and clarify                                                               
the  statutes  governing  the  AOGCC.    The  bill  contains  the                                                               
authority for  the AOGCC to  require permits for  the underground                                                               
storage of gas, and specific  statutory authority to regulate for                                                               
the  public  safety  and health  as  recommended  by  Legislative                                                               
Budget and Audit.   Mr. Norman stated that the  AOGCC was already                                                               
active in this  field, and that even with the  change in statute,                                                               
AOGCC will  not interfere with  regulations already put  in place                                                               
by  the   Department  of  Labor   (DOL)  or  the   Department  of                                                               
Environmental  Conservation (DEC).   In  addition, CSHB  183 will                                                               
modify AOGCC authority regarding water  well testing for coal bed                                                               
methane.   Mr. Norman pointed  out that the  appellate provisions                                                               
of the original  act have been subject to  the AOGCC's consistent                                                               
interpretation, and that interpretation  was upheld by the Alaska                                                               
Supreme  Court,  cite Allen  et  al  versus  Alaska Oil  and  Gas                                                               
Conservation  Commission, Pacific  Reporter, 147  P.3d, page  664                                                               
(Alaska 2006).  He said that  the result is that appeals from the                                                               
AOGCC will be handled in the same manner as any other agency.                                                                   
4:18:53 PM                                                                                                                    
MR. NORMAN turned  to the subject of permitting fees.   This bill                                                               
will remove the  $100 permitting fee charged for  a drill permit.                                                               
Mr. Norman  said that  this fee generates  a nominal  amount that                                                               
does not cover  the cost of processing the permits  and, in fact,                                                               
creates  extra bookkeeping.   The  AOGCC recommended  eliminating                                                               
the fee  because the bulk  of the regulatory  fees are paid  in a                                                               
different  manner and  future  electronic  filing will  supersede                                                               
paper check  refunds.   Another provision of  the bill  will move                                                               
more information into  the public domain at an earlier  time.  He                                                               
noted that  information on applications  for permits to  drill is                                                               
held  confidential  for  24  months.   Using  models  from  other                                                               
states,  the  AOGCC recommended  determining  the  length of  the                                                               
confidentiality  period on  an individual  basis and  writing new                                                               
regulations regarding proprietary information.                                                                                  
4:23:04 PM                                                                                                                    
MR. NORMAN told the committee  that another provision of CSHB 183                                                               
will  specify  that information,  provided  to  the AOGCC  by  an                                                               
operator on a  voluntary basis, will not be  held confidential in                                                               
the event of  the subsequent filing for a hearing  or a petition.                                                               
Mr.  Norman said  that a  change  in the  penalty provision  will                                                               
increase  the penalty  to the  maximum of  $100,000 for  a single                                                               
violation and  up to $10,000  per day for a  continued violation.                                                               
The additional  penalty allows the  AOGCC to assess  penalties on                                                               
violations  of  a  short,  but  serious,  nature.    The  penalty                                                               
provision  also  grants  the  AOGCC the  ability  to  assess  the                                                               
penalty of  two-times the  market value for  the wasting  of gas.                                                               
Finally, the change in statute  includes the addition of criteria                                                               
that  will   be  applied  by  the   commission  when  determining                                                               
4:28:24 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked  what  violation  qualifies  for  a                                                               
$100,000 fine from the AOGCC.                                                                                                   
4:28:44 PM                                                                                                                    
MR. NORMAN  responded that an  example would be a  penalty levied                                                               
for falsification of test results or reports.                                                                                   
4:30:00 PM                                                                                                                    
REPRESENTATIVE OLSON  asked about the provisions  for the pigging                                                               
of feeder lines.                                                                                                                
4:30:18 PM                                                                                                                    
MR.  NORMAN answered  that the  pigging  of feeder  lines is  not                                                               
within the jurisdiction of the  AOGCC.  The commission's focus is                                                               
on the operations  and drilling that take place  under the earth.                                                               
As operations  move upstream, the  jurisdiction transfers  to the                                                               
Department of Environmental Conservation  or the U. S. Department                                                               
of Transportation.                                                                                                              
4:31:28 PM                                                                                                                    
REPRESENTATIVE  DOOGAN   asked  whether  there   are  substantive                                                               
changes to the bill by the committee substitute (CS).                                                                           
4:31:43 PM                                                                                                                    
MS.  SUTTON directed  the committee's  attention  to the  updated                                                               
sectional analysis for the CS.                                                                                                  
MR.  NORMAN informed  the committee  that the  industry indicated                                                               
its concern about the penalty  provision.  In response, the AOGCC                                                               
made subtle changes  to Sec. 7, the confidentiality  statute.  In                                                               
addition,  in  Sec. 8,  there  are  wording changes  intended  to                                                               
address the industry's concern that  it would retain its right to                                                               
object  to  the public  disclosure  of  information, despite  the                                                               
wording  in the  statute.   Mr.  Norman said  that Sec.  14 is  a                                                               
consolidation of several provisions in the original bill.                                                                       
4:35:41 PM                                                                                                                    
REPRESENTATIVE KAWASAKI asked  whether the bill is  the result of                                                               
an audit or recommendations by the AOGCC commissioners.                                                                         
4:36:24 PM                                                                                                                    
MR. NORMAN  replied that the  commissioners initiated all  of the                                                               
changes; however,  a legislative  auditor advised that  the AOGCC                                                               
should be concerned about environmental  and worker safety issues                                                               
and  that its  authority over  these issues  should be  stated in                                                               
statute,  or by  an  agreement  with other  state  agencies.   He                                                               
explained  that  the AOGCC  is  involved  with environmental  and                                                               
worker safety  and, in  fact, references to  safety are  found in                                                               
its statutes  and in  regulations.   However, the  AOGCC recently                                                               
concluded a large enforcement action  that emphasized the lack of                                                               
its  specific  authority for  the  regulation  of safety  issues.                                                               
This lack  of authority contributed to  the commissioner's desire                                                               
for the changes in the statute.                                                                                                 
4:38:38 PM                                                                                                                    
CHAIR KOHRING opened the hearing to public testimony.                                                                           
4:39:00 PM                                                                                                                    
JUDY BRADY,  Executive Director,  Alaska Oil and  Gas Association                                                               
(AOGA),  informed  the committee  that  her  organization has  no                                                               
major objections to the bill and supports CSHB 183.                                                                             
4:41:14 PM                                                                                                                    
MARK  WORCESTER,  Senior  Counsel,  Anchorage  Legal  Department,                                                               
ConocoPhillips Alaska,  Inc., told the committee  that Mr. Norman                                                               
and  his  staff   have  taken  a  step  forward   to  update  the                                                               
regulations,  and  are willing  to  work  with  the oil  and  gas                                                               
industry.  He said that  ConocoPhillips Alaska, Inc. supports the                                                               
bill and encourages its passage.                                                                                                
4:44:14 PM                                                                                                                    
CHAIR KOHRING closed public testimony.   He then asked Mr. Norman                                                               
whether the  changes in the  statute will loosen  restrictions or                                                               
pose additional restrictions on the coal bed methane industry.                                                                  
4:46:00 PM                                                                                                                    
MR.  NORMAN  expressed  his  belief that  the  coal  bed  methane                                                               
industry will  not be affected  by the bill.   He said  that this                                                               
provision is  a technical course  correction and  that, normally,                                                               
production   testing   poses   no    threat   to   fresh   water.                                                               
Strengthening the bill  gives the AOGCC the  authority to oversee                                                               
development and address legitimate  concerns, but does not target                                                               
non-conventional gas.                                                                                                           
4:47:07 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI  requested  further explanation  on  the                                                               
change  in Sec.  5 regarding  coal bed  methane.   He noted  that                                                               
"regular" was added and "production testing" was deleted.                                                                       
4:47:38 PM                                                                                                                    
MR.  NORMAN  explained  that "regular"  production  refers  to  a                                                               
discovery that  leads to commercial  production.  Removal  of the                                                               
requirement  of  a  water  well test  program  and  gathering  of                                                               
baseline  information   applies  to   the  early  phase   of  the                                                               
discovery, and  poses no  threat to water  supplies.   The change                                                               
clearly states that,  at the time of the  commencement of regular                                                               
production, the testing requirements will be implemented.                                                                       
4:49:45 PM                                                                                                                    
REPRESENTATIVE   KAWASAKI  questioned   whether  the   change  is                                                               
contrary to the voter approved initiative.                                                                                      
4:50:03 PM                                                                                                                    
MR. NORMAN expressed  his belief that the change  is not contrary                                                               
to any initiative of which he is familiar.                                                                                      
4:50:12 PM                                                                                                                    
REPRESENTATIVE  OLSON  moved  to  report CSHB  183,  Version  25-                                                               
LS0586\O,  Bullock, 4/11/07,  out  of  committee with  individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection  CSHB 183(O&G) was  reported from the  House Special                                                               
Committee on Oil and Gas.                                                                                                       

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