Legislature(1995 - 1996)

04/03/1996 02:30 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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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                 
                                                                               
                                1                                              
                                                                               
                                                                               
            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                 
                                                                               
                                2                                              
                                                                               
                                                                               
  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.                 
                                                                               
                                3                                              
                                                                               
                                                                               
  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.                                      
                                                                               
                                                                               
                                4                                              
                                                                               
                                                                               
  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.                           
                                                                               
                                                                               
                                7                                              
                                                                               
                                                                               
  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.                 
                                                                               
                                8                                              
                                                                               
                                                                               
  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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