Legislature(2015 - 2016)BARNES 124
03/06/2015 01:00 PM RESOURCES
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HB 109-OIL AND GAS LITIGATION SETTLEMENTS 2:31:41 PM CO-CHAIR NAGEAK announced that the next order of business is HOUSE BILL NO. 109, "An Act relating to the duties and powers of the attorney general with respect to certain settlements directly related to oil and gas leases; providing exceptions for certain tax and regulatory matters; and providing for an effective date." 2:31:52 PM MARY HUNTER GRAMLING, Assistant Attorney General, Oil, Gas & Mining Section, Civil Division (Juneau), Department of Law (DOL), on behalf of the administration, sponsor, thanked the committee for hearing HB 109. SUSAN POLLARD, Chief Assistant Attorney General, Legislation & Regulations Section, Civil Division (Juneau), Department of Law (DOL), said the governor submitted HB 109 for the legislature's consideration due to his concerns over development of oil and gas leases. The bill relates to the authorities and the powers and duties of the attorney general (AG) with regard to civil litigation related to oil and gas leases under the Alaska National Interest Lands Conservation Act (ANILCA). In the instances where a development oil and gas lease gets to civil litigation, the bill would place in statute requirements that the attorney general make determinations that any settlement is necessary to the issues at litigation. This excludes unrelated matters and does not alter other procedures required by the law. 2:33:55 PM MS. HUNTER GRAMLING noted the bill has a zero fiscal note. She provided a sectional analysis, explaining Section 1 of the bill amends AS 43.05.070, related to the compromise of a tax or penalty. She explained that AS 43.05.070 is found within the Department of Revenue (DOR) statutes for the administration of tax. This statute generally provides that before the Department of Revenue may compromise a tax or penalty, the approval of the attorney general is required. Section 1 adds a new subsection (c) to clarify that the requirements set forth later in the bill in AS 44.23.020(i) would not apply to the attorney general's approval of a compromise of a tax or penalty. This provision is necessary to clarify that the existing ability of the attorney general on approval of a compromise of a tax or penalty is unchanged. Section 2 of the bill amends AS 44.23.020(d). This is the section of statute relating to the Department of Law and the general powers and duties of the attorney general. Section 2 provides conforming language to indicate that the attorney general has the existing broad settlement powers except as otherwise provided in the new subsection (i), which is in Section 3 of the bill. Section 3 amends AS 44.23.020 by adding new subsections (i), (j), and (k). New subsection (i) would require the attorney general before finalizing a settlement directly related to an oil and gas lease under ANILCA to make three determinations: 1) that the settlement before the attorney general is limited to matters necessary to settle the action; 2) excludes matters unrelated to the action; and 3) does not alter constitutional, statutory, or regulatory procedures required by law. New subsection (j) clarifies that the requirement for a determination in new subsection (i) would not apply to the attorney general in matters related to the function of the Department of Law and the attorney general as a party before the Regulatory Commission of Alaska (RCA). Subsection (j) also clarifies that the requirements in new subsection (i) would not apply to the attorney general in matters related to an oil and gas pipeline or products pipeline under the Regulatory Commission of Alaska or another regulatory agency. She noted that "the Regulatory Commission of Alaska or another regulatory agency" is a term of art here because that language is found in the production tax statutes as well; "another regulatory agency" is generally interpreted to mean the Federal Energy Regulatory Commission (FERC). Subsection (j) clarifies that the authority of the attorney general to settle matters before the Regulatory Commission of Alaska and the Federal Energy Regulatory Commission would be unchanged by HB 109. New subsection (k) adds a definition for oil and gas lease and references the definition found in the production tax statutes at AS 43.55.900. This definition was chosen so it is clear that when HB 109 in Section 3 references oil and gas leases it means an oil and gas lease and potentially a gas-only lease. Section 4 adds an applicability section that would be in uncodified law. Section 4 clarifies that the determinations in new subsection (i) would apply prospectively and would not have any retroactive effect. Section 5 provides for an immediate effective date of the bill. She pointed out that Section 3, subsection (i), is the meat of the bill. The other sections primarily give additional clarity of what the bill does not do. It does not relate any criminal matters arising out of an oil and gas lease. It does not relate to any tariff litigation or tax issues. It is a narrowly targeted bill to address primarily the governor's concerns about oil and gas lease development cases. 2:39:30 PM REPRESENTATIVE JOSEPHSON asked why the demarcation of concern with oil and gas lease cases and not all sorts of cases. MS. POLLARD replied it is limited to oil and gas leases in recognition of the vital importance of oil and gas leasing to the state and the reality that the state is a leaseholder with the lessees. Because it is a long-term relationship the state will be having lease discussions 40 years from now. Some issues, particularly the oil and gas development issue, are capable of continuing because the state will be in the process of managing the development. The Department of Natural Resources will need to continue to assure that leases are developed in accord with the lease terms. Due to the great public importance of this, and that much of the leasing is a fairly well-known public process within that competitive bid and findings for leases, the administration thinks it is wise to limit it to just oil and gas leases because the potential issue here is that the administration wants to recognize the importance of that issue to the state. The administration also recognizes that this is, for the Department of Law, somewhat of a limitation on the attorney general's authority. It is saying in statute for the attorney general in a settlement negotiation, and a settlement with typically very, very broad authority, to take a pause and to really consider when entering these settlements the three issues brought up in the bill. 2:41:26 PM REPRESENTATIVE JOSEPHSON concluded that in effect the governor is asking to surrender some power here to other policy makers and to the people. MS. POLLARD responded she is not sure she would put it quite in those [words], but that might be a conclusion that folks would make. The way the administration has described it internally is that it is just a pause, "just a recognition that in the oil and gas world, ... particularly at the time this bill applies, because ... the provisions of this bill don't come into effect unless you are already in litigation, you are already in a civil action by just trying to settle this and ... settlements themselves are difficult anyway." The administration feels that while this pause and consideration is being put in the statute to emphasize the importance of oil and gas development, it does so in a way that is not overly limiting or that would delay projects in any way. 2:42:35 PM REPRESENTATIVE HAWKER agreed the entire substance of the bill is really involved in Section 3 which basically imposes three findings. The word in in this section is "determine" that it is limited to certain issues, does not include anything unrelated, and does not alter constitutional, statutory, or regulatory procedures required by law. He inquired whether these are the only criteria that are relevant. He said he doesn't see anything that says the attorney ought to determine that the settlement is in the best interest of the state, and inquired whether that is irrelevant. MS. HUNTER GRAMLING replied it isn't an irrelevant consideration but said that that general provision is probably found elsewhere in AS 44.23.020. The attorney general is already to defend the state constitution and the constitution of the U.S. The general legal requirements for the attorney general to follow are laid out in statute, this is just additional instruction particular for oil and gas lease litigation. 2:44:11 PM REPRESENTATIVE HAWKER opined that these are extremely broad and are things already in statute. He asked whether this bill really does anything that isn't already provided for as part of the attorney general's responsibilities in reviewing state settlements. He said he would be surprised to find that the attorney general would not take into consideration whether something alters constitutional, statutory, or regulatory procedures, or looking to see that the settlement related to the issues necessary to settle it, and didn't already make sure that the settlement didn't go to things that had no nexus to the settlement. He further asked whether he is missing something. MS. POLLARD responded she doesn't believe Representative Hawker is missing anything. She said the question is typical of the few questions the administration has been getting about this bill. In regard to Representative Hawker's earlier statement about the best interest of the state, she said that the topic sentence of what the chief legal officer of the state does is always in the best interest of the state. The bill would then bring it down to this subset of items that are not currently in statute. The administration's desire is to have something that is within the statute to make clear that in these particular kinds of settlements in such an important area, that the attorney make a determination. It doesn't say "written determination," it's "determination" - a pause, a consideration, a checking off of the boxes that all of these conditions are considered in entering that settlement. 2:46:18 PM REPRESENTATIVE HAWKER maintained that this legislation was inspired by the administration's concern that the Point Thomsen settlement had been entered into illegally, that it did not meet all the necessary requirements for a proper settlement. Until starting discussion on this bill, it had been the position of the Department of Law that the Point Thomson settlement did not violate the constitution or any state law. He asked whether the Department of Law has changed any of its previous positions on the legality of the Point Thomson settlement, given it is now presenting this bill. MS. POLLARD answered the department sees this bill as a going forward bill for how potential settlements will be handled. Regarding the aforementioned 2012 settlement, there is currently no issue related to that settlement and the Department of Law typically wouldn't comment on something like that if there were litigation. She said the Department of Law did defend the settlement and the Department of Law would defend settlements entered in by the attorney general on behalf of state agencies. 2:48:09 PM REPRESENTATIVE HAWKER stated there is no longer any challenge or litigation related to that settlement so it seems to him there would be the freedom to discuss it. He noted that Ms. Pollard said the department defended the settlement, but didn't say the department still held the position talking about going forward. He again asked whether the Department of Law still believes that the Point Thomson settlement was legitimate. He further asked whether there is concern at the Department of Law that there has been a practice of the attorney general entering into settlements that violate the law and so this bill is needed. MS. POLLARD replied yes, the administration believes there is a need for this bill and it has been crafted in a way that provides the protections and the indications in the statutes that will help in future settlements assure that everything is considered, and, in particular, when talking about these long- term types of settlements or issues with oil and gas leases. REPRESENTATIVE HAWKER said, "We are talking circles here because if you do believe that there was no problem with the Point Thomson settlement and there has been no practice in the past of the AG entering into settlements that violate state law, I fail to see a need for the bill." However, he added, the legislature often does things that it doesn't see a need for. He said the House Judiciary Standing Committee will be able to sort this out much better than he can. 2:50:08 PM REPRESENTATIVE JOHNSON said he sees circular logic in what the administration is saying here. The administration is saying it wants everything to be considered, but certain things are being taken off the table to not be considered. The administration is saying everything should be considered but then saying that this is to limit the powers of the attorney general to some extent. When talking in his office it was said that a settlement does not set any type of precedent and so [the state] is not locked into doing the same thing again in the future for any other settlements. Settlements are agreements between two parties and are not like a court case where there is a ruling. He asked whether this is accurate. MS. POLLARD responded that in describing the bill it is hard to describe exactly because a balance is trying to be found between recognizing the need for great care in entering into settlements related to oil and gas matters. She said she realized as the words came out of her mouth that limiting the attorney general was incorrect; it isn't really limiting and she was trying to find the best word for this. The administration is attempting to strengthen the statutes in this oil and gas litigation area so that future settlements related to oil and gas development on state land don't bypass any legal obligation. MS. HUNTER GRAMLING added that HB 109 recognizes there are different approaches to settlement negotiation and that generally the attorney general does have broad powers to settle and, if needed, enter into more global-type settlement agreements. However, HB 109 reflects policy decision that some more sideboards are needed for civil litigation of oil and gas lease issues. There is potential that it could speed up negotiation when it is known ahead of time what the limits of authority are. 2:53:05 PM REPRESENTATIVE JOHNSON remarked that when dealing with the producers the state is dealing with the most "lawyered-up companies on the planet" and he therefore doesn't understand why the state would want to take anything off the table or put on sideboards when negotiating. He said he would think the state would want to be able to approach that with the full force of law, the full power of the attorney general using every tool in the state's toolbox, as opposed to putting sideboards on it. He said the sideboards might have the opposite effect of slowing down the process knowing there is only a narrow window for a settlement as opposed to the state having all of its power to be brought forward. He said he doesn't think there has been any real justification for doing this, but he won't hold up the bill because the House Judiciary Standing Committee is the best place to handle the bill. 2:54:33 PM REPRESENTATIVE OLSON returned to Representative Josephson's first comments, and said he can see situations where this could apply to the telecommunications industry, the mineral industry, fishery issues, and utilities. He inquired as to why not make this applicable across the board. MS. HUNTER GRAMLING answered the administration submitted this bill to address a particular policy concern that it had. She said she thinks the Department of Law would generally be opposed to expanding it to apply to other areas, not that those other areas aren't important but there may be unintended consequences. REPRESENTATIVE OLSON said another situation that comes to mind is the Trans-Alaska Pipeline System balancing. He said he doesn't feel comfortable with the bill in its current form. He noted that some time ago the committee requested that one of the attorney generals who had handled the state's defense come give the committee a wrap-up, but a different person came who didn't address the issues that the committee was looking for. 2:55:57 PM REPRESENTATIVE JOSEPHSON stated that relative to Point Thomson, constitutionality, and the governor's opinion, he understood that the governor as a civilian opposed the settlement while the previous administration found it acceptable. He surmised this is well known. MS. POLLARD replied that if Representative Josephson is saying the governor did not support the settlement, she cannot speak about the litigation. MS. HUNTER GRAMLING stated she thinks it fair to say that attorneys can have good faith differing interpretations. This bill isn't to address that, it is to look at going forward. It may be that going forward, if this bill were to pass, different attorneys general would take different interpretations of when a determination is required, but this is the particular policy choice at this time. REPRESENTATIVE JOSEPHSON said he is reminded of Rule of Evidence 408 which talks about what is shared in settlement. He surmised Rule 408 would apply relative to the question about whether a current administration thinks something was proper or improper. The nature of the settlement is immaterial at this point, the settlement is over and any lawsuit has been withdrawn, and DOL is looking to a new day. MS. HUNTER GRAMLING believed Rule of Evidence 408 is more targeted towards admitting settlement negotiations as evidence in litigation, so HB 109 doesn't impact that court rule at all. REPRESENTATIVE JOSEPHSON said the spirit of the rule is that discussions in settlement are for the settling parties and, in that sense, answering the merits or demerits of that settlement is beyond the scope of this bill. MS. POLLARD responded she would agree with that as a general matter. As a specific matter, she noted that Ms. Gramling was not with the Department of Law at the time of the settlement. 2:58:45 PM REPRESENTATIVE SEATON said that as a legislator he appreciates HB 109 because he doesn't think that the attorney general, when faced with a case, should reach out and change other statutes because the settling party wanted to come in and change something else. If the state does that in a settlement, that is overriding the legislature's authority to create statutes. The same applies to regulatory processes that weren't part of the settlement, because then it would be having the attorney general override legislative authority as well as the authorities of regulatory bodies. However, he continued, he is more concerned with broadening this out, given "the Ketchikan lawsuit," a current civil suit. Unless the attorney general is constrained to the portions of the lawsuit, the attorney general might get in and determine to change the funding formula to make this settlement work with this settling party. He said he wants to ensure that this is more like a limited conference where it can be settled between the two parties' positions and cannot reach out beyond and pull in new things, which is what he thinks this accomplishes for oil and gas. He offered his hope that the House Judiciary Standing Committee will broaden this so that the attorney general in settlements of lawsuits can only function within the parameters of the state's position and the litigant's position and cannot be leveraged or encouraged to change other factors. While he thinks that should be the attorney general's constraint right now, it isn't because a law doesn't have to be violated in a settlement to change another law because the law isn't being violated, it is just making the exception to that law for that lawsuit. Therefore, these are extremely valuable determinations for the legislature to ensure that this applies to all settlements because otherwise the attorney general and the administration could be preempting legislative authority. He said he thinks the context of HB 109 is right in looking at going forward and not looking back at past settlements. He again urged that the House Judiciary Standing Committee broaden this authority to look at other civil litigations and ensure settlements do not go beyond the boundaries or sideboards of the settlement. He said he does not look at the bill as constraining the state's ability to settle but as a sideboard to settle within the bounds of the lawsuit and not reach out and change other statutes or regulatory processes. He inquired whether there is anything in his aforementioned statements that the Department of Law would like to dispute. MS. POLLARD answered that often litigation is because people have a disagreement over a statutory interpretation. So, care must be taken about any kind of broadening because oftentimes the parties are going to do the best they can within the settlement so that everybody can go forward. The judgement in there is that that's less of a risk than continuing on with the settlement. She reiterated that the Department of Law doesn't think this would be as manageable in other areas as is being done here with the limiting to oil and gas lease issues that the Department of Natural Resources is handling. This is in part because going forward it is more predictable types of issues happening for future settlements, where in other areas it is very difficult to actually tell what is going to end up being within litigation. 3:04:22 PM REPRESENTATIVE SEATON appreciated Ms. Pollard's answer, but said in looking at the Ketchikan school lawsuit, if it would be easier to settle by going over and changing things in the foundation formula, that should be the legislature's prerogative to create and change that and he would not like to see the state get into the situation where those kinds of expansions are allowed. He added he is not saying that the current attorney general would do that, but it is a going forward thing that is important and he is glad it is being brought forward. REPRESENTATIVE JOHNSON disagreed with Representative Seaton, saying this is the appropriate committee to introduce the amendment given that many of the leases are regarding land and water. If the House Judiciary Standing Committee disagrees with the amendment, he continued, it can take the amendment out. He said he has a problem with singling out a single industry. If the legislature is going to treat regulations and settlements, the legislature should be consistent. He agreed with Representative Seaton that the legislature doesn't want the attorney general circumventing the statute or the constitution. He urged the committee to make the amendment today or bring it before the committee on another day. 3:06:47 PM CO-CHAIR NAGEAK opened public testimony on HB 109, then closed it after ascertaining no one wished to testify. 3:08:13 PM REPRESENTATIVE HAWKER moved to adopt Amendment 1, labeled 29- GH1126\A.1, Nauman, 3/5/15, which read: Page 1, line 2: Delete "directly related to oil and gas leases" Page 1, lines 13 - 14: Delete "directly related to an oil and gas lease under AS 38.05.005 - 38.05.990 (Alaska Land Act)" Page 2, line 7: Delete "related to an oil and gas pipeline or products pipeline" Page 2, lines 9 - 10: Delete all material. REPRESENTATIVE SEATON objected for purposes of discussion. 3:08:55 PM REPRESENTATIVE HAWKER explained Amendment 1, saying he thinks all of the committee members have the concern that the state needs to treat all of its resource settlements similarly. He said he is not comfortable with the sponsor's characterization that the bill was being limited to oil and gas because of the importance of the oil and gas industry and that the oil and gas industry involves long-term relationships. He said long-term relationships occur in the geothermal, mining, and timber industries. Mining is an industry that has the potential for a lot of settlements that could be very material to the State of Alaska, the Pebble Mine being an example. The spirit of Amendment 1 is that it leaves the same requirement that the attorney general make findings. The amendment leaves Section 3 intact except it makes this legislation applicable to all settlements that come under the purview of the attorney general. He said this committee is making decisions based on resource concerns and the House Judiciary Standing Committee is the proper place for the discussion of the legal details. 3:11:30 PM REPRESENTATIVE SEATON drew attention to lines 8-9 of Amendment 1 relating to page 2, line 7, of the bill. He pointed out that this subsection of the bill is an exception that it does not apply to certain things, and said he is therefore unsure that is a deletion the committee really wants to make. The committee took a brief at-ease. 3:12:49 PM REPRESENTATIVE SEATON moved to adopt Amendment 1 to Amendment 1 to delete lines 8-9. There being no objection, Amendment 1 to Amendment 1 was adopted. 3:13:27 PM REPRESENTATIVE SEATON requested an explanation of lines 11-12 of Amendment 1, which propose to delete all material on page 2, lines 9-10, of the bill. REPRESENTATIVE HAWKER replied that this is a new section of statute and these lines in the bill state, "For the purpose of this section, 'oil and gas lease' has the meaning given in AS 43.55.900." He explained that since the term "oil and gas lease" is being eliminated from the bill it doesn't need to be defined. 3:14:08 PM CO-CHAIR NAGEAK inquired whether there is any further discussion. There being no further discussion, Co-Chair Nageak stated that Amendment 1 has been amended. 3:14:25 PM REPRESENTATIVE JOSEPHSON noted that the Department of Law earlier stated its position in this regard, but requested that DOL be invited to comment on the amendment and again explain its position. MS. POLLARD stated DOL does not support Amendment 1 and believes it is premature. When DOL drafted this bill it was done in conjunction with discussions with the Department of Natural Resources; it was felt that the bill was limited and spoken about with the agency that it would affect. She suggested this amendment could have unintended consequences and said it has not been discussed in a general matter with anybody else in the Department of Law. 3:16:25 PM REPRESENTATIVE HAWKER said he understands the concern of the sponsor, but said the amendment is offered as a House Resources Standing Committee jurisdictional item, one that is a matter of policy statement. In supporting this amendment he said he wants to make the policy statement that all resource settlements are of equal concern and magnitude and deserve equal consideration by the attorney general. For example, a mining settlement related to Pebble Mine should not be less important than an oil and gas settlement. He further noted that this should also be looked at by the House Judiciary Standing Committee. MS. POLLARD understood what Representative Hawker is saying, but stated she has not been able to vet these potential changes and therefore it is premature for her to say that this amendment would be acceptable to the Department of Law. 3:18:18 PM REPRESENTATIVE SEATON drew attention to language in the bill on page 1, lines 1-2, which states, "with respect to certain settlements". He inquired whether the word "certain" should be deleted now that "directly related to oil and gas leases" has been removed. REPRESENTATIVE HAWKER replied he is comfortable with leaving that sort of detail to Representative Gruenberg [of the House Judiciary Standing Committee]. 3:19:04 PM REPRESENTATIVE SEATON understood, then, that as the bill is being looked at now the specification to "certain" is not still restrictive to oil and gas. REPRESENTATIVE HAWKER responded that this is for settlements that the attorney general is settling; certain settlements as opposed to the universe of all settlements in the world. The word "certain" here is not overly restrictive nor overly permissive. He added that the bill would still retain the concern that it does not involve settlements under the jurisdiction of the Regulatory Commission of Alaska, so "certain" is a limitation indicating that it is not the entire universe of all possible settlements that exist in the world. 3:20:19 PM CO-CHAIR NAGEAK announced the committee has dispensed with the amendment. [Amendment 1, as amended, was treated as adopted.] 3:20:31 PM REPRESENTATIVE HAWKER moved to report HB 109, as amended, out of committee with individual recommendations and the accompanying zero fiscal note. REPRESENTATIVE JOSEPHSON objected, recalling that when the governor came before the committee the governor said he was going to file this bill. Although there is litigation on all sorts of subjects, the Point Thomson matter lasted years, he pointed out. There were 23 years when requests to develop the field were made and ignored. Many Alaskans believed that what was achieved was no different than what should have been achieved decades before. Incorporated in that settlement was tax and other issues that were arguably extraneous to developing the field. He said he thinks this could be a step too far to enable the attorney general the job he or she is allowed to do, particularly in a strong governor model like Alaska's. For all he knows, the state could need another 20 attorneys general if HB 109 is passed. Therefore, given his uncertainty, he must object. 3:22:58 PM REPRESENTATIVE SEATON said the meat of the bill on page 2 states that a settlement: is to be limited to issues necessary to settle the action, does not include matters unrelated to the action, and does not alter constitutional, statutory, or regulatory procedures required by law. He opined that all three of those things need to be there for every settlement. If a settlement is going to do any of those three, then it should be a settlement that is proposed to the legislature and should get legislative approval if it is altering statute or altering constitutional or regulatory procedures. He said he doesn't think it limits the authority of the attorney general to propose a settlement, but if it is going beyond the confines of what the action is, then it should have to come back to the legislature. That is why, he continued, he will be supporting this. 3:25:06 PM REPRESENTATIVE JOSEPHSON stated that if all of the settlements were reviewed by a court of law he wouldn't be particularly concerned because no court can adjust the rules of court up to a point or the statutes or constitution. A court will come as close as it can but it will not cross the line. He said he thinks this will also impede the DNR commissioner's authority because the DNR commissioner plays a pivotal role as essentially an adjudicator of some of these disputes, and the committee has not vetted what that means to the job of the attorney general and to the DNR commissioner. He maintained his objection. CO-CHAIR TALERICO agreed with Representative Seaton and said rather than seeing more attorneys general he fears the legislature would be doing legislation eventually for each and every industry in the state to level this playing field and make this consistent. This will provide a level of consistency that would stretch throughout all of the industries in the state. He said he therefore supports this amendment. 3:27:15 PM REPRESENTATIVE JOHNSON said this conversation raises flags to him because he is wondering what settlements have been contrary to statute, constitution, or regulation given he didn't know that could even be an option. He said this goes back to his original statement that he is unsure this law is needed, but he thinks this amendment is needed if this law is to go forward. He offered his strong support for the amendment and the legislation. REPRESENTATIVE JOSEPHSON maintained his objection. 3:27:46 PM CO-CHAIR NAGEAK requested a roll call vote on reporting HB 109, as amended. A roll call vote was taken. Representatives Hawker, Johnson, Olson, Seaton, Talerico, and Nageak voted in favor of reporting HB 109, as amended. Representative Josephson voted against it. Therefore, CSHB 109(RES) was reported out of the House Resources Standing Committee by a vote of 6-1.