Legislature(1999 - 2000)
04/23/1999 08:07 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 134
"An Act authorizing the Alaska Oil and Gas
Conservation Commission to determine the amount of and
to collect a charge for operating wells subject to the
commission's jurisdiction, and to allocate expenses of
investigation and hearing, and repealing the oil and
gas conservation tax; and providing for an effective
date."
CS FOR SENATE BILL NO. 134(RES)
"An Act authorizing the Alaska Oil and Gas
Conservation Commission to determine the amount of and
to collect a charge for operating wells subject to the
commission's jurisdiction, and to allocate expenses of
investigation and hearing; repealing the oil and gas
conservation tax; and providing for an effective
date."
PAT CARTER, Staff, Senator Drue Pearce, explained that the
Alaska Oil and Gas Conservation (AOGCG) had been created to
protect the public interest through enforcement of the
Alaska Oil and Gas Conservation Act. The goal of the
Commission is to ensure that no hydrocarbons are wasted and
that operations are conducted in a manner that provides
maximum recovery of the resources. SB 134 repeals the
existing Oil and Gas Conservation Tax and institutes a
stable funding source to assure that the Commission is
capable of carrying out their objectives.
Mr. Carter continued, the original intent of the legislation
was to have the oil and gas industry pay for the function of
the Commission through the Oil and Gas Conservation Tax.
While this system may have been adequate in the past, it no
longer is sufficient to cover the costs associated with the
operation of that Commission. The conservation tax is
directly proportional to production with a four mils per
barrel fee rate. The work of the Commission, however, is
not proportional to the production of oil and gas.
Production is declining but the work of the Commission is
not.
Mr. Carter pointed out that SB 134 would create a program
receipt system in which the regulatory cost charge is
directly associated with the total volume of fluids produced
or injected. This type of system more accurately reflects
with the factors directly associated with the workload of
the Commission. He advised that the Commission had
experienced budget difficulties in the past, even when the
tax proceeds exceeded annual appropriations. He testified
that AOGCC is currently encountering budget difficulties
that are directly related to the decline in oil production.
SB 134 would create a stable funding source that will enable
the AOGCC to provide the monitoring services necessary to
protect the future of Alaskan interests.
Senator Adams inquired if the oil industry supported the
bill. Mr. Carter responded that the oil industry had not
yet spoken with Senator Pearce's office.
Senator Adams requested clarification of changes made in the
Senate Resources Committee. Mr. Carter stated that changes
had been made to the cost allocations. He added that there
had been concerns regarding the past unitization agreements,
which are unforeseen costs that occur throughout the
budgetary year.
Co-Chair Torgerson questioned if any municipal government
would be exempted through Section #5. Mr. Carter did not
know of any exemptions other than those directly related to
SB 134.
Co-Chair Torgerson referenced Page #1, Lines 11-12, which
refers to regulatory charges, paid by the permittee. He
questioned the inclusion of that language: "The ability to
pay". Mr. Carter commented that he did not know why that
language had been included, which had been brought forward
from the AOGCC document. Co-Chair Torgerson asked if the
sponsor would object to removing that language. Mr. Carter
replied that there would be no objection.
Senator Donley MOVED a conceptual Amendment #1, to delete
the above mentioned language on Page #1, Line 12, "ability
to pay".
Mr. Carter noted that there was a committee substitute
available containing the technical corrections made by the
legal department at AOGCC, the "Z" version of the proposed
legislation. Co-Chair Torgerson requested that version be
copied for Committee members.
Senator Donley MOVED to WITHDRAW Amendment #1. There being
NO OBJECTION, Amendment #1 was withdrawn.
JUDY BRADY, Executive Director, Alaska Oil and Gas
Commission, Anchorage, (Testified via Teleconference),
stated that the Commission has reviewed SB 134 and that
comments and concerns were voiced. She emphasized that the
Commission does not support SB 134 because they believe that
the bill would weaken oversight and control over State
taxation and spending. She added that it is critical that
AOGCC maintains its ability to issue permits and decisions
that are required for on-going oil field operations. To
that end, AOGCC recommends that they remain appropriately
funded so to be a fully functional and independent entity.
Ms. Brady informed members that there are concerns with the
funding source and the funding mechanism embodied in SB 134.
All these concerns were conveyed to both the Administration
and the Legislature.
Ms. Brady continued, AOGCC members have concerns with moving
funding from AOGCC general fund appropriation to a non-
general fund category since it would lessen legislative
oversight of the Commission's budget. This legislation
would create a virtually unfunded taxing mechanism. It is
the combination of how the tax would be established to a
regulatory process plus moving to the non-general fund
combination which will be of great concern to the
Commission. She noting that AOGCC was willing and committed
to work with the Legislature during the interim to develop
an appropriate and accountable way to fund AOGCC in the
future.
Senator Phillips viewed the above testimony as inconsistent
with previous recommendations of that Commission. Ms. Brady
replied that there has been a struggle in the State in how
to address non-general funds. She emphasized that moving a
budget would require a different accounting system. The
concern for AOGCC is how the bill proposes to tax so that
the regulatory group can establish the taxes. She pointed
out that AOGCC already pays tax and regulation fees. The
Legislature did not always appropriate the money as it was
competing with other needs. The amount of funds that were
paid to that tax now has declined as the needs have risen.
SENATOR PEARCE explained the change in the funding
mechanism. She noted that there were no complaints from the
industry when that was added; they did not want to pay for
other utilities. The mechanism does charge a portion of the
fees to re-inject the liquids, which definitely differs from
other oil producing states. She indicated that the re-
injection process is a portion of the AOGCC's
responsibility.
Mr. Carter explained the changes made to the Senate
Resources version of the legislation.
TAPE SFC-99 #108 Side B
Senator Leman pointed out that language on Page 2, Lines 15-
22, was very confusing. Mr. Carter replied that the total
volume of liquid would be approximately 3.3 billion. He
further explained the mathematical procedure involved in
determining that number. Senator Leman recognized that it
was intended to be the volumetric procedure of the volume
and he recommended that language be rewritten.
Senator Pearce agreed that section needed further work.
Senator Leman voiced concerns for future litigation with the
current proposed language.
Senator Donley MOVED to adopt work draft version 1-LS0259\V,
Chenoweth, 4/20/99, as the version before the Committee.
There being NO OBJECTION, it was adopted.
Senator Donley MOVED a change to Page 1, Lines 11 and 12,
delete "ability to pay". There being NO OBJECTION, the
change was made to Amendment #1.
Senator Phillips requested that the Department of Revenue
address the proposed fiscal note. Co-Chair Torgerson asked
if Senator Pearce understood the positions for requesting
funds listed in the fiscal note. Senator Pearce stated that
she did not endorse the use of designated receipts. She
emphasized that the bill before the Committee does not
address the supplemental request currently being made.
Senator Pearce added that SB 133 and SB 134 had been
introduced together and that SB 133 would add new funding to
AOGCC. She stated that the bill before the Committee would
staff AOGCC as they currently are.
Senator Phillips voiced his concern regarding the proposed
funding for computer enhancement. Senator Pearce explained
that AOGCC currently resides in an unsafe office in
Anchorage. The employees are concerned about the darkness
that surrounds the building because it is located in an
unsafe neighborhood. If SB 133 passes, the office will be
moving to a different facility. If SB 133 does not pass,
that fiscal note will "fall out" as will the moving costs
associated with the above-mentioned concerns.
Co-Chair Torgerson asked if the capital costs would be added
into the regulatory costs. Senator Pearce believed they
would.
Senator Wilken MOVED to adopt the amended CSSB 134 (FIN).
Senator Adams OBJECTED.
Senator Adams noted that he would not vote for any tax
unless he was presented with a long-range plan.
Co-Chair Torgerson pointed out that the bill would repeal
the tax. Senator Adams stated that was not his
interpretation of the way the bill was written. Co-Chair
Torgerson pointed out the repealler section, AS 43.57 &
10(a) are the tax.
Senator Adams WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered and the bill was moved
from Committee.
CSSB 134(FIN) was reported out of Committee with a "do
pass" recommendation and with fiscal notes by the
Department of Revenue dated 4/14/99 and the Department of
Administration dated 4/12/99.
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