Legislature(2007 - 2008)BARNES 124
05/04/2007 01:00 PM RESOURCES
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* first hearing in first committee of referral
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HB 128-OIL & GAS PRODUCTION TAX: EXPENDITURES 1:11:53 PM CO-CHAIR GATTO announced that the first order of business would be HOUSE BILL NO. 128, "An Act relating to allowable lease expenditures for the purpose of determining the production tax value of oil and gas for the purposes of the oil and gas production tax; and providing for an effective date." [Before the committee is CSHB 128(O&G), as amended at previous hearings.] 1:12:12 PM REPRESENTATIVE SEATON referred to an amendment labeled 25- LS0561\K.4, Bullock, 5/3/07, which read: Page 4, line 1, following "equipment": Insert "; (20) costs related to the maintenance of oil and gas facilities, equipment, and infrastructure that are incurred as a result of a violation of a regulation adopted by the person in the Department of Natural Resources who is the lead person for exercising oversight over the maintenance of oil and gas facilities, equipment, and infrastructure in the state" Page 4, lines 4 - 5: Delete all material and insert: "APPLICABILITY. (a) AS 43.55.165(e)(19), as enacted in sec. 1 of this Act, applies to oil and gas produced after March 31, 2006. (b) AS 43.55.165(e)(20), as enacted in sec. 1 of this Act, applies to oil and gas produced after the effective date of the regulations described in sec. 5 of this Act." Page 4, line 20: Delete "Section 1 of this Act" Insert "AS 43.55.165(e)(19), as enacted in sec. 1 of this Act," Page 4, line 21: Delete all material and insert: "* Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to read: CONDITIONAL EFFECT; NOTICE. (a) AS 43.55.165(e)(20), as enacted in sec. 1 of this Act, takes effect only if the person in the Department of Natural Resources who is the lead person for exercising oversight over the maintenance of oil and gas facilities, equipment, and infrastructure in the state adopts regulations related to the maintenance of oil and gas facilities, equipment, and infrastructure in the state. (b) The commissioner of natural resources shall notify the revisor of statutes of the effective date of the regulations described in (a) of this section. * Sec. 6. If AS 43.55.165(e)(20), as enacted in sec. 1 of this Act, takes effect, it takes effect on the effective date of the regulations described in sec. 5 of this Act. * Sec. 7. Except as provided in sec. 6 of this Act, this Act takes effect immediately under AS 01.10.070(c)." REPRESENTATIVE SEATON explained that the aforementioned amendment is Don Bullock's [version of] Conceptual Amendment 4, which was adopted unanimously [at the May 2, 2007 hearing]. Therefore, K.4 has already been incorporated into the legislation. He explained that Conceptual Amendment 4 added a new subsection, which read: costs incurred as a result of an action or inaction in violation of regulation or procedures adopted by the pipeline safety integrity organization (PSIO) or other appropriate agency. REPRESENTATIVE SEATON pointed out that the PSIO isn't included because it is to be under the Department of Natural Resources (DNR). "So, they identified the agency or any subsidiary agency such as PSIO that would be adopting these regulations," he said. 1:14:03 PM CO-CHAIR GATTO then turned attention to page 3, paragraph (19), which he said is the only issue keeping CSHB 128(O&G) from being forwarded to the next committee of referral. He related his understanding that if paragraph (19) is maintained, then the next committee of referral is the House Judiciary Standing Committee. However, if paragraph (19) is deleted, no referral to House Judiciary Standing Committee is necessary and it could be forwarded to the House Finance Committee. He acknowledged that the administration says paragraph (19) needs to be included in the legislation. 1:15:13 PM CO-CHAIR JOHNSON noted his agreement that with the inclusion of paragraph (19) a House Judiciary Standing Committee referral is necessary. 1:15:44 PM REPRESENTATIVE SEATON related that in conversations with the administration he has come to understand that it's uncomfortable with the language of paragraph (19). Therefore, he expressed the need for some better definitions if the will of the committee is to "do something retroactively." 1:16:24 PM REPRESENTATIVE GUTTENBERG pointed out that HB 128 originally included paragraph (19) and didn't receive a House Judiciary Standing Committee referral. He opined that if the House Finance Committee, the next committee of referral, believes a House Judiciary Standing Committee referral is appropriate, then it can be referred to that committee at that point. He related his desire to leave the legislation on its current path. 1:17:08 PM REPRESENTATIVE KAWASAKI clarified that paragraph (19) was changed a lot in the House Special Committee on Oil and Gas. Therefore, he opined that a referral to the House Judiciary Standing Committee is probably appropriate if paragraph (19) remains. 1:17:32 PM REPRESENTATIVE SEATON moved that the committee delete paragraph (19) on page 3, lines 19-23. CO-CHAIR JOHNSON objected. REPRESENTATIVE GUTTENBERG stated a point of order. He then related his understanding that in order to take action on HB 128, the committee would need to vote to bring the legislation back before it. 1:18:16 PM CO-CHAIR GATTO related his understanding that when the motion to report legislation from committee fails, the legislation remains with the chair. 1:18:37 PM CO-CHAIR GATTO moved to bring HB 128 back before the committee. There being no objection, HB 128 was before the committee. [Representative Seaton's earlier motion to delete paragraph (19) was treated as withdrawn.] 1:19:10 PM REPRESENTATIVE SEATON moved that the committee adopt Amendment 6, as follows: Page 3, lines 19-23 through page 4, line 2: Delete all material CO-CHAIR JOHNSON objected. He then asked if there is a representative from the administration who could shed some light as to why the administration has some problems with the language of paragraph (19). 1:20:25 PM REPRESENTATIVE SEATON related his understanding that the commissioner of the Department of Revenue agrees with the language in the amendment [labeled 25-LS0561\K.4, Bullock, 5/3/07] regarding going forward with regulations. If the legislature wants to go back and try to put in standards, the [department] needs something for standards if the desire is to go back to 2006 and have a standard other than the standards included in the legislation. He said that paragraph (20) in the amendment [labeled 25-LS0561\K.4, Bullock, 5/3/07] doesn't cover retroactively a standard lower than gross negligence, other than the other partners in the oil field rejecting the bill. 1:21:40 PM CO-CHAIR GATTO furthered that the [commissioner of DOR] said that he couldn't write regulations without the authority in statute to write the regulations that allow the refusal of the deduction that's submitted. 1:22:07 PM CO-CHAIR JOHNSON inquired as to the problems the [department] had with the language. 1:22:22 PM REPRESENTATIVE SEATON clarified that the amendment the committee adopted was the statutory portion necessary for [creating] regulations. He further clarified that the regulations wouldn't be writing retroactive regulations, but rather [the regulations] would provide a standard to sue against. [The department] did have problems, he related, with regard to the effect this might have throughout the current language on the incentives in the petroleum production profits tax (PPT). 1:23:17 PM CO-CHAIR GATTO reminded the committee that the amendment labeled 25-LS0561\K.4, Bullock, 5/3/07, has been adopted and will be in the forthcoming committee substitute (CS). 1:23:56 PM REPRESENTATIVE GUTTENBERG related his understanding that the retroactivity remains, although it looks different than in previous legislation. REPRESENTATIVE SEATON related his agreement. He the pointed out that two applicability subsections were necessary because the regulation section would begin at the effective date of the regulations, which is different than the March 31, 2006, effective date in paragraph (19). 1:25:06 PM CO-CHAIR GATTO, referring to paragraph (19), related his understanding that there was a reduction in corrosion inhibitor as a way to save money. Although it saved money in 2006, it cost money in 2007. The aforementioned is the reason for allowing the commissioner to go back and say that the state doesn't want to pay for expenses related to negligence. 1:26:02 PM REPRESENTATIVE ROSES, referring to paragraph (20) in the amendment labeled 25-LS0561\K.4, Bullock, 5/3/07], asked if regulations that govern how the producers are supposed to maintain oil and gas facilities, equipment, and infrastructure are currently in place. 1:27:22 PM KEVIN BANKS, Acting Director, Central Office, Division of Oil & Gas, Department of Natural Resources (DNR), related his belief that there are regulations that govern how DEC reviews the facilities. The intention was to have a gap analysis over the next several months in order to determine whether new regulations need to be added. There could also be regulations from the Department of Transportation & Public Facilities (DOT&PF) and other agencies. 1:27:49 PM CO-CHAIR GATTO questioned then if the legislation is necessary to go back and deny maintenance costs, if their regulations exist. MR. BANKS explained that the regulations DNR would be reviewing aren't focused on whether it relates to an exception for the Trans-Alaska Pipeline System (TAPS). The intent of this language seems to address a situation in which a regulation in place that addresses maintenance or proper care of the facilities is violated, then costs related to that are subject to a disapproved allowance. Mr. Banks opined that the amendment is trying to disallow those costs incurred as a consequence of violating some regulation related to maintenance. 1:29:34 PM REPRESENTATIVE ROSES surmised that paragraph (20) captures most of what is specified in paragraph (19), and therefore he questioned whether paragraph (20) is redundant. He then asked if the deletion of paragraph (19) would eliminate the redundancy. MR. BANKS said that when paragraph (19) was first proposed, he read it as creating a setting in which DOR begins to question whether a cost is related to improper maintenance and could then turn to DNR for advice as to whether that was true or not. Then language was developed to guide that kind of advice. Therefore, it seems that by including [paragraph (20)], a circumstance in which a regulatory violation constitutes an improper cost is being selected. Paragraph (20), he opined, seems to be slightly more specific than paragraph (19). 1:31:59 PM CO-CHAIR GATTO related his understanding from the commissioner that paragraph (19) allows [the retroactivity]. 1:32:13 PM CO-CHAIR JOHNSON asked if yet to be written regulations can be applied retroactively. REPRESENTATIVE ROSES remarked that was his question. 1:32:42 PM REPRESENTATIVE WILSON asked if DNR has regulations that would cover [what is referred to in paragraph (20)]. MR. BANKS said that he doesn't believe that DNR, at the moment, has articulated maintenance and requirements in regulation. The department relies on the lease contract and the general scope of the lease stipulations to govern whether activities conducted on the lease are appropriate. [This legislation] seems to expand those concepts into a more regulatory framework. 1:34:11 PM REPRESENTATIVE SEATON related his understanding from conversations with the administration that going forward the amendment is vital. Although the [department] can go back now, it would have to do so for one of the existing standards: gross negligence, wilful misconduct, or because the partners rejected the bill because it wasn't performed as a prudent operator would do. He related his further understanding that the lease agreements at Prudhoe Bay include clauses regarding items for which they don't pay. As of today, the other partners have not been billed for the BP spill, shutdown, and pipe replacement. The purpose of paragraph (19) is to have a different standard that's lower than gross negligence and will only apply if the other partners accept the bills. He noted that improper maintenance is not necessarily the negligence standard, and in fact it may be lower than that in some cases. "If you want them to go back and look at a standard that's lower than those that are incorporated in here ... then [paragraph] (19) is needed," Representative Seaton opined. 1:36:44 PM JONATHAN IVERSEN, Director, Anchorage Office, Tax Division, Department of Revenue, characterized Representative Seaton's comments as an accurate summary. He then said that he didn't know whether BP has billed the aforementioned costs to the other working interest owners in the unit or if any requests for payment have been approved or denied. Paragraph (19) fills the gap between where gross negligence stops and the costs denied between the working interest owners, he opined. 1:37:45 PM REPRESENTATIVE ROSES asked if the state has the ability to exempt those costs under the gross negligence definition. If the answer is no and the desire is to reduce the standard to simple negligence, then it's probably important to understand the difference between gross negligence and simple negligence. Black's Law Dictionary specifies that "gross negligence is a lack of slight diligence or care; a conscience voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party who may typically recover exemplary damages." Representative Roses opined that the gross negligence standard isn't going to be that difficult to prove. 1:39:09 PM CO-CHAIR GATTO inquired as to the definition of the term "legal duty." He further inquired as to whether the injection of a corrosion inhibitor is smart or a legal duty. 1:39:25 PM REPRESENTATIVE WILSON opined that Alaska statutes include definitions for gross negligence and negligence, which she surmised would be followed over what is specified in a dictionary. 1:39:48 PM CO-CHAIR GATTO suggested that since Representative Roses was reading from Black's Law Dictionary that would be the [definition] to which to refer. 1:40:03 PM CO-CHAIR JOHNSON remarked that the aforementioned discussion exemplifies why HB 128 should receive a referral to the House Judiciary Standing Committee. He said that although he agrees that [paragraph (19)] should be included, it needs to be appropriate language and language with which the administration can "live with." 1:41:12 PM CO-CHAIR JOHNSON maintained his objection. 1:42:43 PM A roll call vote was taken. Representatives Wilson, Roses, and Seaton voted in favor of the adoption of Amendment 6. Representatives Edgmon, Kawasaki, Guttenberg, Johnson, and Gatto voted against it. Therefore, Amendment 6 failed to be adopted by a vote of 3-5. 1:43:52 PM CO-CHAIR GATTO informed the committee that the next committee of referral for HB 128 is the House Finance Committee. He reminded the committee that on a previous motion to report this legislation from committee, it failed on a 4-4 vote. Unless someone is willing to change from that previous vote, the result is unlikely to change. Therefore, he said, "So what I'm going to do is say, 'Let it go to Judiciary; I hope that will change one vote.'" 1:44:21 PM CO-CHAIR JOHNSON interjected that he believes HB 128 is good legislation that needs to pass [out of this committee] and go to the House Judiciary Standing Committee. 1:44:29 PM CO-CHAIR JOHNSON moved to report CSHB 128(O&G), as amended, out of committee with individual recommendations and the accompanying fiscal notes as well as a recommendation that the legislation receive a referral to the House Judiciary Standing Committee. 1:45:12 PM REPRESENTATIVE GUTTENBERG suggested dividing the motion such that there is a motion to report CSHB 128(O&G) from committee and a second motion to refer the legislation to the House Judiciary Standing Committee. 1:45:43 PM CO-CHAIR JOHNSON moved to rescind his prior motion. 1:45:53 PM REPRESENTATIVE SEATON opined that if the question is divided as stated, then whether there's a House Judiciary Standing Committee referral will influence whether the legislation is reported from committee. Therefore, he suggested first taking a vote as to whether the committee wants to recommend a referral to the House Judiciary Standing Committee. 1:46:32 PM REPRESENTATIVE GUTTENBERG noted that although everyone has the ability to go to the speaker and offer recommendations regarding referrals, the speaker isn't required to follow the recommendations. CO-CHAIR GATTO related that he would take the message from the committee to the speaker. 1:47:17 PM CO-CHAIR JOHNSON moved that the committee take a sense of the body as to whether the committee would recommend that HB 128 receive a House Judiciary Standing Committee. CO-CHAIR GATTO objected. 1:47:57 PM A roll call vote was taken. Representatives Seaton, Roses, Edgmon, Kawasaki, Wilson, Gatto, and Johnson voted in favor of recommending that HB 128 be referred to the House Judiciary Standing Committee. Representative Guttenberg voted against it. Therefore, the sense of the committee regarding whether to recommend that HB 128 receive a House Judiciary Standing Committee passed by a vote of 7-1. 1:48:51 PM CO-CHAIR JOHNSON moved to report CSHB 128(O&G), as amended, out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE SEATON objected. He then clarified that he isn't opposed to having a standard, but he expressed concern that the standard in paragraph (19) inserts uncertainty and risk into the PPT and could result in not sanctioning projects in Alaska by the oil companies. He then removed his objection. 1:50:10 PM There being no further objection, CSHB 128(RES) was reported from the House Resources Standing Committee.