Legislature(1995 - 1996)
04/03/1996 02:30 PM House FIN
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* first hearing in first committee of referral
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HOUSE FINANCE COMMITTEE
April 3, 1996
2:30 P.M.
TAPE HFC 96-103, Side 1, #000 - end.
TAPE HFC 96-103, Side 2, #000 - end.
TAPE HFC 96-104, Side 1, #000 - 529.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 2:30 P.M.
PRESENT
Co-Chair Hanley Representative Kohring
Co-Chair Foster Representative Martin
Representative Brown Representative Mulder
Representative Grussendorf Representative Therriault
Representative Kelly
Representatives Navarre and Parnell were absent from the
meeting.
ALSO PRESENT
Representative Alan Austerman; Representative Scott Ogan;
Mark Johnston, Department of Health & Social Services; Ron
King, Chief, Air Quality Improvement, Department of
Environmental Conservation; Tom Williams, Staff, Senator
Frank; Juanita Hensley, Chief Driver Services, Division of
Motor Vehicles, Department of Public Safety; Dave Gray,
Staff, Representative Mackie; Ken Rigalsky, Department of
Environmental Conservation; Steven Borell, Alaska Miners
Association; David Lappi, Lap Resources Inc.; Jim Hansen,
Department of Natural Resources; Jim Hanes, Department of
Natural Resources; Dave Johnston, Alaska Oil and Gas
Conservation Council; Tuckerman Babcock, Alaska Oil and Gas
Conservation Council; Earl Ausman, Anchorage; Meera Kohler,
General Manager, Naknek Electric Association.
SUMMARY
HB 366 An Act relating to marine safety training and
education programs.
CSHB 366 (FIN) was reported out of Committee with
a "do pass" recommendation and with a fiscal
impact note by the House Finance Committee for the
Department of Community and Regional Affairs and
with a zero fiscal note by the Department of
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Revenue.
HB 394 An Act authorizing a program of natural gas and
coal bed methane development licensing and
leasing; relating to regulation of certain natural
gas exploration facilities and coal bed methane
exploration facilities for purposes of preparation
of discharge prevention and contingency plans and
compliance with financial responsibility
requirements; amending the duties of the Alaska
Oil and Gas Conservation Commission as they relate
to natural gas exploration activities and coal bed
methane exploration activities; and amending the
exemption from obtaining a waste disposal permit
for disposal of waste produced from coal bed
methane drilling.
HB 394 was HELD in Committee for further
consideration.
SB 226 An Act relating to biennial registration of motor
vehicles; imposing biennial registration fees on
motor vehicles and authorizing a scheduled
biennial municipal tax on motor vehicles; relating
to fees for motor vehicle emissions control
programs; and providing for an effective date.
SB 226 was HELD in Committee for further
consideration.
SENATE BILL NO. 226
"An Act relating to biennial registration of motor
vehicles; imposing biennial registration fees on motor
vehicles and authorizing a scheduled biennial municipal
tax on motor vehicles; relating to fees for motor
vehicle emissions control programs; and providing for
an effective date."
TOM WILLIAMS, STAFF, SENATOR FRANK noted that Amendments 6,
7 and 8 were not been addressed during the House Finance
Committee meeting on 3/29/93.
Representative Mulder WITHDREW Amendment 6, 9-LS1452\K.8
(copy on file).
Mr. Williams noted that Senator Frank is neutral in regards
to Amendment 7, 9-LS1452\K.6 (copy on file).
JUANITA HENSLEY, CHIEF DRIVER SERVICES, DIVISION OF MOTOR
VEHICLES, DEPARTMENT OF PUBLIC SAFETY stated that the
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Department is not opposed to Amendment 7. She noted that
the amendment cites AS 28.15.081(d) but relates to vehicle
registration under AS 21.10. She maintained that the
Division has the authority to issues contracts under AS
28.15. The Division currently issues contracts under AS
28.10. There is nothing in the statutes that provides that
the Division can or cannot issue contracts under AS 28.15.
She acknowledged that contract agents' revenues have been
reduce due to the $10 dollar fee for walk-in transactions.
The city of Craig collected $5,025 dollars in $10 dollar
fees paid by persons that did not mail in their
registration. Commissioned agents also receive 50 percent
of driver's license fees and 15 percent of vehicle fees that
they collect. The Division only contracts with police
departments. In 1995, the city of Craig received $27.0
thousand dollars. This amount has increased by
approximately $2.0 thousand dollars a year.
Co-Chair Hanley questioned if the statutory reference should
be changed.
DAVE GRAY, STAFF, REPRESENTATIVE MACKIE spoke in support of
Amendment 7. He emphasized that the drafter felt there
would not be a problem with the citation to AS 28.15. He
asserted that the $10 fee was added to alleviate traffic to
urban offices of the Division of Motor Vehicles. He
stressed that contract officers provide the same services to
rural areas that are offered in urban areas. He observed
that small communities must rely on contract agents.
Co-Chair Hanley questioned if the statutory reference should
be changed. Ms. Hensley stated that the Division has been
contracting since before statehood. She did not think the
statute reference would create a problem.
Co-Chair Hanley noted that the amendment states that the $10
dollar fee for vehicle license registrations shall be waived
under AS 28.15. He pointed out that AS 28.15 does not cover
vehicle licensing. He asked if the citation would give the
Division the authority to waive fees for license plate
registration. He questioned the Division's statutory
authorization. Ms. Hensley acknowledged that there is no
specific language allowing the Division to contract for
vehicle registration under AS 28.15. She stressed that the
Division can waive fees to commissioned agents under current
regulations.
Mr. Gray noted that commissioned agents are currently
performing title work, vehicle registration and other tasks.
In response to comments by Representative Martin, Ms.
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Hensley noted that there is only enough work in the city of
Craig for a half-time position. Commissioned agents receive
50 percent of driver licensing fees.
Representative Brown summarized that the income of contract
agents was reduced. Mr. Gray agreed that the $10 dollar
walk-in fee has reduced contract agent services.
In response to a question by Co-Chair Hanley, Ms. Hensley
clarified that there is no additional fee for driver's
licenses. She noted that driver's licensing fees were
recently increased. Commissioned agents also receive 50
percent of all the commercial driver's licenses.
Representative Brown questioned the fiscal impact to the
State. Ms. Hensley stated that there would be a negative
fiscal impact to the State. She could not estimate the loss
of revenues. She observed amounts collected by commissioned
agents. Co-Chair Hanley summarized that the State would
lose 85 percent of the $31.0 thousand dollars collected by
contract agents.
Representative Brown noted that the intent of the amendment
is to encourage individuals to register their vehicles in
person.
Co-Chair Hanley noted that under current law if 5
individuals registered in person they would each pay a $10
fee for a total of $50 dollars. Fifteen percent of the fee
would go to the contract officer and the rest would go to
the State. The amendment would waive the fee. The State
would have to pay 15 percent of the amount paid to contract
agents. Ms. Hensley added that the State paid contract
agents $128.0 thousand dollars in FY 90 and $174.0 thousand
dollars in FY 95. She pointed out that the Division still
has to administer the paper work involved.
Mr. Gray emphasized that state services can only go to small
communities through similar contract arrangements. He
stressed the need to maintain these services. He
acknowledged the cost to the State.
In response to a question by Co-Chair Hanley, Ms. Hensley
noted that emissions testing centers do not charge the State
for the services they render. In addition, they perform the
paper work and data entry involved. Only 5 of the 13 paid
contract agents register vehicles.
Representative Therriault noted that emissions center
provided services in order to attract business. They
normally charge the customer a $10 fee.
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Co-Chair Hanley reiterated concerns that the Division does
not have statutory authority for contract agents.
SB 226 was HELD in Committee for further consideration.
HOUSE BILL NO. 366
"An Act relating to marine safety training and
education programs."
Co-Chair Hanley noted that the Alaska Marine Safety Training
and Education Association (AMSEA) has been federally funded.
The federal funds for this program were cut. A designated
grant in the operating budget was not allowed. He stressed
that the program should be funded through legislation.
REPRESENTATIVE ALAN AUSTERMAN, sponsor of HB 366, spoke in
support of the legislation. He noted that AMSEA was created
as a response to federal funding and pressure from the
United States Coast Guard. He observed that the
accompanying fiscal note for $150.0 thousand dollars is
needed to fund the program. The legislation would allow
application of 50 percent of the earnings of the Fishermen's
Fund. The Fishermen's Fund is a dedicated fund. The
interest earnings go directly into the General Fund. The
legislation requests that half of the earned interest,
approximately $155.0 thousand dollars a year, be
appropriated to the program. He emphasized that the program
saves lives. He noted participation of high school
students.
Representative Martin expressed concern that the Fishermen's
Fund would be eroded by the legislation. Representative
Austerman pointed out that the legislation would not affect
the Fund. The interest earnings do not go back into the
Fund.
MARK JOHNSON, CHIEF, SECTION OF COMMUNITY HEALTH AND
EMERGENCY MEDICAL SERVICES, DEPARTMENT OF HEALTH AND SOCIAL
SERVICES spoke in support of HB 366. He noted that AMSEA is
a broad based, statewide coalition that includes federal,
state, local and private agencies. Members of the Board
represent the Coast Guard, University of Alaska, emergency
medical services agencies, non-profit Native corporations
and other groups. It has been in operation for 10 years.
Mr. Johnson noted that Alaska's rate for drownings was 10
times the national average from 1988 - 1992. He noted that
commercial fishing drowning rates have been steadily
decreasing. He stressed that the statistics demonstrate
that the program has saved lives. There is no other
statewide comprehensive program addressing the problem. The
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program began in the commercial fishing industry, but has
been expanded to include all groups, including children.
Co-Chair Hanley noted that members were provided with
Amendment 1, 9-LS133\F.1 (Attachment 1). Insert "up to" and
"interest" on page 1, line 8. The amendment would clarify
that legislative appropriation would still be needed and
that the legislature can appropriate up to 50 percent of the
Fund's earnings. In response to a question by
Representative Brown, Co-Chair Hanley acknowledged that
there are no designated funds. He explained that the funds
would be earmarked as available to legislators. Funds would
only be identified. Legislative appropriation would still
be required.
(Tape Change, HFC 96-103, Side 2)
Co-Chair Hanley stressed that the money would be deposited
in the General Fund.
Co-Chair Foster MOVED to adopt Amendment 1. Representative
Austerman noted that he had no objections to the amendment.
There being NO OBJECTION, it was so ordered.
Representative Grussendorf observed that the legislation
provides statutory authorization to appropriate up to fifty
percent of the interest from the Fishermen's Fund to AMSEA.
Co-Chair Hanley clarified that a fiscal note for $150.0
thousand dollars would fund the program if adopted.
Representative Martin questioned the constitutionality of
the legislation. Co-Chair Hanley stressed that the
legislation would not alter or impair the present dedication
of certain revenues to the Fishermen's Fund. He pointed out
that the legislature cannot dedicate any funds for any
purpose. The legislation states that the legislature "may"
appropriate.
In response to comments by Representative Martin, Co-Chair
Hanley reiterated that the bill does not alter or impair the
current dedication of commercial fishing license fees to the
Fund or the use of those funds to provide benefits to
injured fishermen. He restated that the interest will still
go into the General Fund. The legislature would have to
appropriate the funds.
Co-Chair Foster MOVED to report CSHB 366 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. Representative Kohring
questioned why this item was not included in the operating
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budget. He stated that the small amount of $150.0 thousand
dollars would be well spent if one life is saved as a result
of the training.
There being NO OBJECTION, CSHB 366 (FIN) was reported out of
Committee.
CSHB 366 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal impact note by the
House Finance Committee for the Department of Community and
Regional Affairs and with a zero fiscal note by the
Department of Revenue.
HOUSE BILL NO. 394
An Act authorizing a program of natural gas and coal
bed methane development licensing and leasing; relating
to regulation of certain natural gas exploration
facilities and coal bed methane exploration facilities
for purposes of preparation of discharge prevention and
contingency plans and compliance with financial
responsibility requirements; amending the duties of the
Alaska Oil and Gas Conservation Commission as they
relate to natural gas exploration activities and coal
bed methane exploration activities; and amending the
exemption from obtaining a waste disposal permit for
disposal of waste produced from coal bed methane
drilling.
REPRESENTATIVE SCOTT OGAN, sponsor of HB 394, spoke in
support of the legislation. He noted that the legislation
creates a lease program that will enable independent energy
companies to develop natural gas reserves within 3,000 feet
of the surface. He emphasized that the legislation will
benefit rural Alaska.
Co-Chair Foster MOVED to adopt Committee Substitute, 9-
LS1463\R, dated 4/2/96 (copy on file). There being NO
OBJECTION, it was so ordered.
In response to a question by Representative Brown,
Representative Ogan noted that members were provided with an
analysis showing changes from the previous version
(Attachment 1).
There being NO OBJECTION, Committee Substitute, 9-LS1463\R,
dated 4/2/96 was adopted.
DAVID LAPPI, LAP RESOURCES INC., ANCHORAGE testified via the
teleconference network. He spoke in support of CSHB 394
(FIN). He emphasized the benefit to rural Alaska.
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STEVE BORREL, EXECUTIVE DIRECTOR, ALASKA MINERS'
ASSOCIATION, ANCHORAGE testified via the teleconference
network. He spoke in support of CSHB 394 (FIN). He stated
that the safe removal of methane gases is one of the primary
safety concerns of underground mining. Productivity in
underground mining is dependent on getting rid of methane
gas. If coal production is too high it is difficult to get
enough air through the entries to flush the gas. He noted
that the technology that was developed to accommodate the
use of methane gas was developed with safety issues in mind.
He emphasized that the legislation provides an incentive
for mining companies to utilize the gas resource.
EARL AUSMAN, ANCHORAGE testified via the teleconference
network. He spoke in support of CSHB 394 (FIN). He stated
that the legislation provides small communities with the
opportunity to become self reliant.
MEERA KOHLER, GENERAL MANAGER, NAKNEK ELECTRIC ASSOCIATION
testified via the teleconference network. She spoke in
support of CSHB 394 (FIN). Ms. Kohler's provided the
Committee with written testimony (Attachment 2). She noted
that the Naknek Electric Association uses 1.4 million
gallons of diesel fuel annually. She observed that Naknek
Electric Association has been interested in developing a
natural gas supply. She stated that the possibility of
natural gas in their area is high. She emphasized that
development costs have been high and discouraging. New
technology makes development more feasible. She stressed
the need for state support.
In response to a question by Representative Brown, Ms.
Kohler noted that the gas reserve would be economically
viable as far as 25 to 30 miles away.
Representative Brown noted that the legislation would lease
the gas at half of the normal royalty rate. She asked if
the difference in the royalty cost is enough to make a
project economic. Ms. Kohler stated that the Company's
preference would be to not pay more than the bare minimal in
royalties. She stated that the project would be
economically viable at a slightly higher rate depending on
the distance of delivery.
Representative Brown asked if the State would be asked to
subsidize construction of the transmission line. Ms. Kohler
stated that it is not the intent of the Company to request
additional subsides. She clarified that no specific reserve
has been identified.
Representative Brown noted that there are prohibitions on
gas and oil development on Bristol Bay tidelands. Ms.
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Kohler stated that they were not contemplating development
of tidelands. Representative Ogan stated that the Director
of the Division of Oil and Gas would have enough discretion
to follow existing oil and gas laws.
Representative Brown requested an analysis of the potential
cost demonstrating that the royalty reduction would allow
the project to be viable. Ms. Kohler stressed that it is
difficult to develop costs without a specific gas source.
In response to a question by Representative Brown, Ms.
Kohler explained that the goal of Naknek Electric
Association is to own the resource. Naknek Electric
Association would either form a partnership with or retain a
firm to drill and develop the project. The project would be
managed by the Naknek Electric Association.
Representative Ogan asked how much was paid to the Naknek
Electric Association for power cost equalization. Ms.
Kohler replied that they receive approximately $330.0
thousand dollars annually.
TUCKERMAN BABCOCK, ALASKA OIL AND GAS CONSERVATION COUNCIL
(AOGCC) testified via the teleconference network. In
response to a question by Representative Brown, Mr. Babcock
clarified that permits would be classified along the lines
as an exploratory, development, or service well. He stated
that the legislation would not reduce the standards for
safety that are currently applied to permits to drill.
Representative Ogan stated that with the exception of the
North Slope there are no known reserves of oil above 3,000
feet. The pressures associated with methane gas are low.
He emphasized that it is extremely unlikely that oil would
come to the surface. He maintained that gas can be vented
or flared
Mr. Babcock stated that there is a danger of drilling into a
gas pocket in any well.
JIM HANSEN, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL
RESOURCES testified via the teleconference network. He
observed that drilling could be done with slim hole rigs.
It would be a smaller operation and easier to contain. He
stated that CSHB 394 (FIN) incorporates changes suggested by
the Department. The Department's main concern is to assure
that leasing under the legislation does not interfere with
other oil and gas leasing.
Representative Therriault asked if one well would provide
enough gas or if a number of wells would radiate out from a
central area. He asked how coal mining could occur if pipes
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were generating out into the coal seam.
Mr. Lappi explained that a small village could be serviced
by one well drilled in the appropriate coal seam. Gas would
be removed before mining operations would begin. He noted
that underground coal mining is unlikely due to the cost.
Vertical wells would be drilled to intersect the coal seam.
Representative Therriault noted that there is no provision
for the Department to charge for lease processing. Mr.
Lappi emphasized that the legislation was developed to
reduce the regulatory cost. He noted that the application
fee for a large exploration license is $500.0 thousand
dollars.
(Tape Change, HFC 96-104, Side 1)
KEN RIGALSKY, DEPARTMENT OF ENVIRONMENTAL CONSERVATION
testified via the teleconference network. He stated that
the Department is neutral regarding CSHB 394 (FIN). He
stated that there is minimal risk involved. He did not
think contingency plans would be warranted.
Representative Brown asked the likelihood of finding gas
deposits not associated with coal bed methane in areas above
3,000 feet.
DAVE JOHNSTON, ALASKA OIL AND GAS CONSERVATION COUNCIL
testified via the teleconference network. He stressed that
the presence of gas hydrates on the North Slope must be
considered. Gas hydrates are found within 3,000 feet of the
surface.
Representative Brown asked if the legislation applies to the
North Slope. Mr. Hansen noted that the legislation excludes
any land included in an oil and gas leasing program.
Representative Brown pointed out that this exclusion could
be waived by the commissioner of the Department of Natural
Resources. Mr. Hansen stressed that it is not the intent to
offer shallow gas leases in areas of existing leases. He
stated that the exclusion would allow flexibility if
something changes in the future.
Representative Brown asked for an explanation of gas
hydrates. Mr. Johnston explained that gas hydrates are
pockets of gas associated with permafrost areas. The gas is
locked in an ice matrix. He observed that there is interest
in developing gas hydrates on the North Slope.
Mr. Hansen observed that little is known about the
subsurface geology of areas of the State. He noted that
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there are areas of high tectonic activity. It is possible
that shallow gas not associated with coal could be found in
any area. He stressed that drilling is the best way to
determine if the resource exists.
In response to a question by Representative Brown, Mr. Lappi
stated that wells could be drilled for under $100.0 thousand
dollars each with the aid of special equipment. The
exploratory well would become the production well.
Representative Brown noted that page 6, lines 15 and 16,
states that the applicant "may" conduct a title search.
"Shall" was changed to "may". She expressed concern that
individuals could stake over other interests. She
acknowledged that there will be public notice. Mr. Hansen
observed that the State normally does a title search, but
does not guarantee title in the lease. On the North Slope,
a title search will be done after the lease is issued. He
emphasized that the legislation would clarify that the title
search would not have to be done prior to the lease. He
maintained that existing statutes require that a title
search must be completed prior to drilling.
Representative Brown stressed the importance of assuring
that existing rights are maintained. Mr. Hansen stated that
the subsurface state is dominate. The federal transfer of
land to the State requires that the State retain the
subsurface rights and that they be made leasable according
to the wishes of the legislature. AS 38.05.125 addresses
this issue.
Representative Ogan noted that most of the methane leases
will be associated with rural areas and will be close to the
village that will be served. He emphasized that there will
be a public process.
Representative Brown reiterated concerns that the rights of
surface owners be protected. She noted the lack of staff
support in the Department of Natural Resources. Mr. Hansen
noted that there are bond provisions under AS 38.05.130.
The Director of Oil and Gas can require a bond to cover
potential damages.
In response to a question by Representative Brown, Mr.
Hansen stated that the general stipulation that no person
may engage in mineral exploration activity without a good
faith effort to resolve differences with the surface owner
would apply.
Representative Brown asked if the bill would apply to
offshore leases. Mr. Hansen stated that the legislation is
not designed for offshore leases. He acknowledged that the
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legislation does not prohibit offshore drilling.
Representative Brown asked how the Bristol Bay exclusion
under AS 38.05.140(f) would be interpreted. Mr. Hansen
reiterated that leases would not be issued in any area that
has been set aside, such as Bristol Bay or Kachemak Bay.
Representative Ogan stated that he did not anticipate any
offshore activity under the legislation. Representative
Brown noted that the major oil companies have expressed
interest in offshore leasing in the Bristol Bay area.
Representative Brown asked what would happen if a reserve
crossed the 3,000 feet mark. Mr. Hansen stated that the
Department of Natural Resources shares this concern. Mr.
Babcock observed that page 6, subsection (j) references an
onshore well.
Co-Chair Hanley pointed out that if an onshore well drilling
for natural gas penetrates a formation capable of producing
gas below 3,000 feet then the owner must notify the
Department and the Alaska Oil and Gas Conservation Council
and may not conduct further operations until the facility
complies with all applicable laws and regulations relating
to oil and gas production.
Representative Brown maintained that production cannot occur
above 3,000 feet without affecting the area below 3,000
feet. Co-Chair Hanley interpreted the legislation to state
that operations cannot occur until they have complied with
all the laws and regulations governing oil and gas.
Representative Ogan pointed out that subsection (j) states
that: "A lease does not give the lessee the right to
produce gas from sources that are not within 3,000 feet of
the surface." He emphasized that the legislation is
primarily pointed toward production of methane gas. He
added that the intent is not to exclude other shallow
sources of gas. The legislation is not intended as an
exploration tool to allow larger oil companies to find gas.
Mr. Babcock noted that the AOGCC will be appointed to
protect the rights of the owner of the resource which is
below 3,000 feet. Representative Brown stressed that it
will be difficult to protect the State's ownership below
3,000 feet. Mr. Babcock reiterated that AOGCC will protect
the State's ownership of the resource below 3,000 feet.
Representative Brown questioned the effect on Native lands.
She noted that the low state royalty would under cut
development on Native lands. There was no answer to
Representative Brown's question.
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ADJOURNMENT
The meeting adjourned at 4:30 p.m.
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