Legislature(1997 - 1998)

03/20/1998 01:48 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           HOUSE FINANCE COMMITTEE                                             
              March 20, 1998                                                   
                 1:48 P.M.                                                     
                                                                               
TAPE HFC 98 - 72, Side 1                                                       
TAPE HFC 98 - 72, Side 2                                                       
TAPE HFC 98 - 73, Side 1                                                       
                                                                               
CALL TO ORDER                                                                  
                                                                               
Co-Chair Gene Therriault called the House Finance Committee                    
meeting to order at 1:48 p.m.                                                  
                                                                               
PRESENT                                                                        
                                                                               
Co-Chair Therriault   Representative Kohring                                   
Representative Davies  Representative Martin                                   
Representative Davis   Representative Moses                                    
Representative Foster  Representative Mulder                                   
Representative Grussendorf                                                     
Representative Kelly                                                           
                                                                               
Co-Chair Hanley  was absent from the meeting.                                  
                                                                               
ALSO PRESENT                                                                   
                                                                               
Representative Mark Hodgins; Mary Gore, Staff, Senator                         
Miller; Janice Seitz, Staff, Representative Rokeberg; Rick                     
Harris, Senior Vice President, Sealaska Corporation, Juneau;                   
James Eason, Forcenergy.                                                       
                                                                               
The following testified via the teleconference network: Ken                    
Freeman, Executive Director, Resource Development Council,                     
Anchorage; Janice Adair, Director, Division of Environmental                   
Health, Department of Environmental Conservation; Ken Boyd,                    
Director, Division of Oil and Gas; Steve Borell, Executive                     
Director, Alaska Miner's Association;                                          
                                                                               
SUMMARY                                                                        
                                                                               
HB 144 "An Act authorizing the Department of                                   
Environmental Conservation to charge certain fees                              
relating to registration of pesticides and                                     
broadcast chemicals; and providing for an                                      
effective date."                                                               
                                                                               
 HB 144 was HELD in Committee for further                                      
consideration.                                                                 
                                                                               
HB 380 "An Act relating to a temporary reduction of                            
royalty on oil and gas produced for sale from                                  
fields within the Cook Inlet sedimentary basin                                 
where production is commenced in fields that have                              
been discovered and undeveloped or that have been                              
shut in."                                                                      
                                                                               
HB 380 was HELD in Committee for further                                       
consideration.                                                                 
                                                                               
SB 261 "An Act relating to the Special Olympics World                          
Winter Games to be held in Anchorage in the year                               
2001; establishing a reserve fund for the games;                               
providing certain duties and authority for the                                 
Alaska Industrial Development and Export Authority                             
regarding financing for those games; and providing                             
for an effective date."                                                        
                                                                               
 HCS CSSB 261 (FIN) was REPORTED out of Committee                              
with a "do pass" recommendation and with a zero                                
fiscal note by the Department of Commerce and                                  
Economic Development, 2/6/98.                                                  
                                                                               
HCR 9 Proposing amendments to the Uniform Rules of the                         
Alaska State Legislature relating to committee                                 
meetings; and providing for an effective date.                                 
                                                                               
 CSHCR 9 (FIN) was REPORTED out of Committee with                              
"no recommendation" and with a zero fiscal note by                             
the Legislative Affairs Agency.                                                
HOUSE BILL NO. 144                                                             
                                                                               
"An Act authorizing the Department of Environmental                            
Conservation to charge certain fees relating to                                
registration of pesticides and broadcast chemicals; and                        
providing for an effective date."                                              
                                                                               
Co-Chair Therriault provided members with a proposed                           
committee substitute, work draft 0-LS0573\L, dated 3/18/98                     
(copy on file).                                                                
                                                                               
MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT observed that                   
the legislation is not intended to be a solution for                           
everyone.  It attempts to address some of the serious                          
concerns about how statutes, under AS 44.46, can be                            
interpreted.  An attempt was made to include interested                        
parties in the discussions.  Concerns by the Department of                     
Environmental Conservation and industry were considered and                    
incorporated into the proposed committee substitute where                      
possible.  Changes incorporated by the proposed committee                      
substitute do not modify the intent.  The legislation allows                   
the Department of Environmental Conservation enough                            
authority to ensure that users of the system pay for the                       
actual direct costs of services being provided. The                            
legislation has built in safeguards to prevent abuses and                      
ensure that general governmental functions, which benefit                      
the State, are paid for by the state. Inquiries for                            
information and training of DEC staff are two examples where                   
the State benefits and should therefore carry the cost.                        
                                                                               
Mr. Tibbles reviewed the proposed committee substitute:                        
                                                                               
* Section 1 still requires that the Department establish                       
fixed fees for direct costs.  A technical change has                           
been made to make this section permissive and relocate                         
all references to restrictions and limitations to                              
another section of the bill.                                                   
                                                                               
* Section 1(a)(1) gives DEC the authority to charge for                        
other services relating to agriculture, animals, food,                         
drugs, cosmetics, and public accommodations and                                
facilities.                                                                    
                                                                               
Mr. Tibbles noted that Ms. Adair previously testified that                     
the language "other services" was originally attached to                       
these types of functions.  By removing this language, the                      
Department of Environmental Conservation's authority to                        
charge for many legitimate direct costs was inadvertently                      
removed.  This amendment was added to correct that                             
situation.                                                                     
                                                                               
* Section 1(a)(3) adds authority for the Department of                         
Environmental Conservation to charge for "sanitary                             
surveys, determinations, classifications, and                                  
monitoring waivers".                                                           
                                                                               
* Section 2 (e) contains new language for the negotiated                       
agreements.  It requires the Department of                                     
Environmental Conservation, at the request of an                               
applicant, to negotiate a fee for service that is based                        
upon the actual hourly wage rate of the employees                              
performing the service.  In addition, it may include                           
travel and third party inquiries.                                              
                                                                               
Mr. Tibbles observed that this subsection is a result of                       
the realization that there are complex situations where a                      
fixed fee is not appropriate.  It is intended to provide                       
the Department with the flexibility to deal with those                         
complex situations while placing restrictions to limit the                     
charge to an appropriate level.                                                
                                                                               
* Subsection (f) increases the restricted use pesticide                        
fee from $25 to $30.                                                           
                                                                               
Mr. Tibbles noted that this change is in response to Ms.                       
Adair's concern that there may not be enough receipts to                       
cover the required state match for the pesticide program.                      
                                                                               
* Subsection (g) adds a new subsection clarifying that                         
the Department of Environmental Conservation may not                           
charge for conferring with or providing information to                         
third parties.                                                                 
                                                                               
? Subsection (h) permits the Department of Environmental                       
Conservation to charge an hourly rate for the solid                            
waste program and is set out to be repealed in the year                        
2000 by section 3 of the bill.                                                 
                                                                               
Mr. Tibbles explained that since the Department is currently                   
charging an hourly fee for the industrial solid waste                          
program, this change would authorize them to continue to do                    
so under the direct cost restrictions.  It also gives them                     
time to establish by regulation reasonable fixed fees and to                   
offer negotiated fee arrangements.                                             
                                                                               
* Subsection (i) adds a definition of "actual direct                           
costs" to the bill.  This subsection is intended to                            
place restrictions on what can and cannot be included                          
as part of the fixed fee.                                                      
                                                                               
In response to a question by Representative Kelly, Co-Chair                    
Therriault explained that subsection (g) clarifies that if                     
the Department spends time answering questions about an                        
application for a third person, the applicant will not be                      
automatically billed for the Department's time.  The                           
Department would be serving the public's interest.                             
                                                                               
Representative Davies asked if third party would exclude                       
consultants, engineers, hydrologists, or attorneys that are                    
representing the permittee.  Mr. Tibbles recounted that                        
conversations with the Alaska Legal Services indicated that                    
persons acting as an agent or a legal representative of a                      
permittee would be included as consideration of that                           
permittee or applicant; however, the language could be                         
changed to clarify the intent.                                                 
                                                                               
STEVE BORELL, EXECUTIVE DIRECTOR, ALASKA MINER'S ASSOCIATION                   
suggested that the proposed committee substitute be amended                    
to included a new section under AS 44.46.025(a)(7).                            
                                                                               
(7) Certification of federal permits or authorizations                         
under 33 U.S.C. 1341 (sec. 401 Clean Water Act)                                
provided there will be only one paid inspection per                            
year for items covered by this subsection;                                     
                                                                               
Mr. Borell noted that several miners have expressed concern                    
that if the Department of Environmental Conservation were to                   
charge per inspection, that this could be used by third                        
parties for harassment.  The Department of Environmental                       
Conservation follows-up on complaints regarding discharge                      
violations.  Without a limitation on the numbers of                            
inspections that could be charged against a miner, opponents                   
of mining could make spurious complaints.                                      
                                                                               
Representative Davies acknowledged the intent of proposed                      
subsection (7).  He questioned if complaints resulting in                      
violations should result in a charge.  Mr. Borell observed                     
that operators do all they can to correct violations.                          
Mr. Borell observed that meetings with the Department of                       
Environmental Conservation indicated that there was a $450                     
thousand dollar shortfall in the Division of Water's budget                    
that needed to be covered by fees.  Industry worked with the                   
Department on the concept of fees.  At the last meeting it                     
became clear that the Department was attempting to raise                       
$1.5 million dollars through fees.  At that time industry                      
brought the issue to the Legislature to define the                             
relationship between general fund and fees.                                    
                                                                               
Mr. Borell referred to language deleted on page 1, line 10,                    
"and other services provided by the department."  He                           
maintained that this would have allowed the agency to charge                   
for anything, anytime.                                                         
                                                                               
JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH,                      
DEPARTMENT OF ENVIRONMENTAL CONSERVATION commended the work                    
by Mike Tibbles, staff, Representative Therriault.                             
                                                                               
Ms. Adair reviewed remaining areas of concern.                                 
                                                                               
1. Training is limited to permittees and applicants.                           
                                                                               
Ms. Adair observed that most of the training is not for                        
permittees or applicants.  Most of the training is for waste                   
water and water system operators or installers.  In                            
addition, training of food service employees, pool spa                         
operators and sanitary surveyors would not be covered.                         
                                                                               
2. Fees are limited to activities surrounding (a)(2), (6)                      
and (7):                                                                       
                                                                               
- certifications;                                                              
- inspections;                                                                 
- training;                                                                    
- permit preparations and administration; and                                  
- plan review and approval.                                                    
                                                                               
Ms. Adair pointed out that registering pesticides allowed                      
under (a)(8) does not involve any of the above activities.                     
                                                                               
3. (g) Does not allow the Department to charge a fee for                       
conferring with 3rd parties.                                                   
                                                                               
Ms. Adair did not interpret the language in subsection (g)                     
in the same manner as Mr. Tibbles.  She asked for further                      
clarification that agents of the applicant are not included                    
under (g).  She pointed out that statutes require that                         
certain permits be publicly noticed.  She observed that                        
these notices have been charged to the applicants.                             
                                                                               
4. Actual Direct Cost                                                          
                                                                               
Ms. Adair observed that "actual direct cost" refers to the                     
actual hourly rate of employees directly engaged in                            
providing the service.  The Department currently establishes                   
a flat fee for most of their programs.  Annual costs of the                    
employees involved in the activity are added.  This is                         
divided by the number of works each employee provides per                      
year to determine an hourly rate for each employee.  She                       
stated that it would be difficult to determine the actual                      
cost of the employees involved.  Employees in the same job                     
class are paid different amounts due to longevity.  She                        
observed that the newest employee would be the cheapest.                       
She expressed concern with the exclusion of support staff.                     
She stressed that clerical staff is involved in permit                         
preparations.  Flat fees include a factor for clerical                         
services.  She observed that seafood inspections include 15                    
minutes of clerical staff for every hour of technical staff.                   
There is approximately 30 minutes of clerical support for                      
every hour of technical staff for the solid waste program.                     
                                                                               
Ms. Adair noted that some employees included in the flat                       
rate are responsible for supervising other employees.  She                     
observed that her involvement is not charged.                                  
                                                                               
Ms. Adair maintained that actual direct cost would affect                      
local governmental involvement.  She stressed that local                       
governments are waiting for fees to cover the cost of                          
programs.  If fees do not cover costs it will be difficult                     
to get local governments to take on certain programs that                      
they could better administer.                                                  
                                                                               
Ms. Adair noted that federal and state laws require sanitary                   
surveys.  There are areas that where private surveys are not                   
available.                                                                     
                                                                               
5. Employee Training                                                           
                                                                               
Ms. Adair emphasized that a well-trained employee saves                        
private companies money.  Untrained state employees are at a                   
disadvantage when negotiating with well-trained industry                       
representatives.  She maintained that the public interest is                   
not served when state employees are not well trained.                          
                                                                               
6. Ban on Hourly fees                                                          
                                                                               
Ms. Adair acknowledged that the ban does not apply to the                      
Air Program.  She observed that the Solid Waste Program has                    
an hourly fee structure.  Other flat rate programs have                        
hourly fees.  After hour inspections are offered to meat                       
processing plants for an hourly fee.  Hourly inspections are                   
only done at the request of the processor.  Applications,                      
which are withdrawn during the review process, are charged                     
an hourly rate for work completed.                                             
                                                                               
7. Low Pesticide Levels                                                        
                                                                               
Ms. Adair maintained that pesticide levels are too low.  She                   
observed that 2,000 to 3,000 pesticides are sold in the                        
state of Alaska.  The Department of Environmental                              
Conservation estimated that 95 percent are unrestricted use                    
pesticides.  Based on this amount the Department estimates                     
that it will be $15.5 thousand dollars short of what is                        
needed to run the program.  She spoke in support of                            
retaining the Department's ability to set registration fees                    
by regulations.                                                                
                                                                               
Representative Davies questioned if users could initiate                       
hourly fees.  Ms. Adair noted that after hour inspections                      
are currently at the request of processors.  The Department                    
also initiates hourly fees when applications are withdrawn                     
during the review process.  She suggested that hourly fees                     
be excluded for water permits only.                                            
                                                                               
In response to a question by Representative Kohring, Ms.                       
Adair explained that the Environmental Protection Agency                       
registers pesticides based on the chemical makeup of the                       
pesticide product.  The Department of Environmental                            
Conservation registers pesticides used in the State.  The                      
primary reason pesticides are registered is for the issuance                   
of monitoring waivers for drinking water systems.  If a                        
pesticide has not been used in the State, public water                         
systems can be issued monitoring water waivers for that                        
pesticide.                                                                     
                                                                               
KEN FREEMAN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT                          
COUNCIL, (RDC) ANCHORAGE spoke in support of HB 28. He                         
thanked the sponsor and staff for their work on HB 28.   He                    
observed that RDC supports fixed costs and cooperative                         
funding agreements.  He spoke in support of fixed fees.  He                    
maintained that standardized fees should be established for                    
the most common permits.  He proposed an aggressive general                    
permits program.  Mr. Freeman also provided the Committee                      
with further written remarks (Copy on file.)                                   
                                                                               
RICK HARRIS, SENIOR VICE PRESIDENT, SEALASKA CORPORATION,                      
JUNEAU expressed frustration with various aspects of the                       
permitting system.  He expressed concern that the goal of                      
the permitting system is to raise money, not to serve the                      
public.  He observed that the permitting agency has a                          
monopoly.  He asserted that built in protections should                        
exist.  He spoke in support of a general permit for routine                    
classes of activities.  He maintained that permittees should                   
be charged for actual direct costs.  He stressed that                          
permittees should not be burdened with a lot of indirect or                    
agency overhead costs.                                                         
                                                                               
Mr. Harris observed that the legislation limits fees to the                    
actual direct costs and allows flexibility.  He acknowledged                   
the need for fees, but emphasized the need for protections                     
to keep the system in control.                                                 
                                                                               
Representative Davies suggested that the clearest way to                       
charge actual direct costs would be through hourly fees.                       
                                                                               
In response to a question by Representative Davies, Mr.                        
Harris emphasized that agencies perform public services.  He                   
stressed that agencies should help pay for overhead costs.                     
He proposed that actual employee time spent on a project                       
should be charged to the applicant.  Lights, power and other                   
overhead and administrative costs should be paid by the                        
agency.  The cost of employees directly engaged in providing                   
the service should be charged.  He felt that clerical staff                    
working directly on permits should be included.  General                       
support staff in the Department, such as the commissioner's                    
administrative assistant, should not be included.  He                          
maintained that broader overall costs are the role of the                      
government.                                                                    
                                                                               
HB 144 was HELD in Committee for further consideration.                        
                                                                               
(Tape Change, HFC 98 -72, Side 2)                                              
HOUSE BILL NO. 380                                                             
                                                                               
"An Act relating to a temporary reduction of royalty on                        
oil and gas produced for sale from fields within the                           
Cook Inlet sedimentary basin where production is                               
commenced in fields that have been discovered and                              
undeveloped or that have been shut in."                                        
                                                                               
REPRESENTATIVE MARK HODGINS, SPONSOR, spoke in support of HB
380.  He explained that HB 380 would offer royalty                             
reductions on six oil and gas fields, in Cook Inlet region,                    
that have been shut in for more than twenty years.   The                       
fields have been worked on and proven to be uneconomic.  He                    
observed that the House Special Committee on Oil and Gas put                   
limits of 35 million barrels of oil or 35 billion cubic feet                   
of gas produced.  Tyonek Deep would not be included.  He                       
observed that the oil industry in Cook Inlet is declining.                     
There are several oil field service companies that are no                      
longer in operation.  Royalty would be reduced from 12.5                       
percent to 5 percent.  He observed that there is no royalty                    
if the oil is not removed.                                                     
                                                                               
In response to a question by Co-Chair Therriault,                              
Representative Hodgins clarified that the legislation                          
pertains to delineated fields.  Pools underlying the fields                    
would not be included.                                                         
                                                                               
Representative Hodgins noted that Falls Creek, Nicolai                         
Creek, North Fork, Point Starichkof, Redoubt Shoal, and West                   
Foreland fields were specifically identified.  Royalty                         
reductions would be included on any "sweet spots" found on                     
the above named fields.  He observed that seismic studies do                   
not indicate the existence of sweet spots.                                     
                                                                               
KEN BOYD, DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF                     
NATURAL RESOURCES spoke against the legislation.  He                           
disagreed that the fields are delineated.  He maintained                       
that the Point Starichkof field is not delineated.  He                         
observed that the fields are recently leased.  He maintained                   
that old fields are being developed using new technology.                      
He noted that discovery royalty legislation was confined to                    
the pool of discovery.  House Bill 380 would apply to the                      
whole field.  He stressed that oil and gas activity will                       
increase due to 3D seismic, other new technologies and                         
recent legislation.  He observed that there is more oil and                    
gas activity in Cook Inlet now then during the previous five                   
years.   He asserted that the relief is not based on any                       
economic evaluation of need and does not protect the State's                   
upside interest if economic conditions change.  Both of                        
these conditions were included in HB 207.  He stressed the                     
need for more information.  Fields have proven, probable and                   
high side potential.  He observed that the potential of the                    
fields is unknown.                                                             
                                                                               
Representative Kohring spoke in support of the legislation.                    
He maintained that every advantage should be taken to reduce                   
taxes on the industry.                                                         
                                                                               
Co-Chair Therriault observed that revenues to the state of                     
Alaska from resources and the amount that industry must pay                    
must be balanced.                                                              
                                                                               
Representative Hodgins clarified that no royalties have been                   
received from the six fields.  Mr. Boyd agreed that the                        
fields have not been developed, but emphasized that they                       
have recently been leased.  He noted new technology might                      
bring them on line.                                                            
                                                                               
Representative Davies questioned how the state of Alaska's                     
upside could be protected.  Mr. Boyd observed that the                         
actual shape of the field is unknown.  He suggested that                       
volume and price structure overtime should be determined.                      
He maintained that once the company recoups its cost to                        
develop the field the State should be able to recapture the                    
money provided at the front end.  A combination of value and                   
price is needed.                                                               
                                                                               
JAMES EASON, FORCENERGY testified in support of the                            
legislation.  He referred to a letter to Senator Halford,                      
dated 3/11/98.  The letter contained an estimate of                            
reserves.  He observed that the fields are not delineated.                     
House Bill 207 requires a set of standards that an applicant                   
must make.  The commissioner makes a definitive set of                         
findings based on a standard of delineation, which the                         
fields in HB 380 do not have.  Royalty relief is not                           
available to these fields under HB 207, since they are not                     
delineated.                                                                    
                                                                               
Mr. Eason observed that royalty relief would be exchanged                      
for guaranteed development before January 1, 2004.  Royalty                    
would only be reduced if development occurs prior to January                   
1, 2004.  He emphasized that the fields have not been                          
developed in 30 years.  The state of Alaska would receive 5%                   
instead of 12.5% under the lease.  Infrastructure would                        
occur as a result of development.  There is no                                 
infrastructure in the fields to encourage development.                         
Pipelines and platforms would have to be built.  The bill is                   
narrowly crafted to affect defined fields that meet the                        
criteria and are brought under production by 2004.  He noted                   
that the primary focus of previous hearings has been the                       
value of the legislation to the leasee and the cost and                        
value to the State.                                                            
                                                                               
Mr. Eason observed that the accompanying fiscal note assumes                   
that there will be large impacts from the legislation.  He                     
pointed out that the fiscal note is based on estimations.                      
He stressed that revenue would be generated on fields that                     
would not otherwise be developed.  He questioned why the                       
fiscal note on HB 380 is so different from HB 207.                             
                                                                               
Representative Grussendorf observed that marginal fields are                   
being shut in due to low oil prices.                                           
                                                                               
Representative Davies noted that reserves at Redoubt Shoals                    
were estimated at 8.9 million barrels.  Mr. Eason clarified                    
that the estimate should be adjusted to 11.0 million barrels                   
of oil.  He did not think that there was an oil price based                    
upon the known proven reserves that would make development                     
economic.  He did not think that there was an oil price that                   
would justify the development of the field, given the                          
expected cost, based on the reserves that are known to                         
exist, under the current royalty structure, at Redoubt                         
Shoals.  Representative Hodgins pointed out that Redoubt                       
Shoals is an offshore field and would need additional                          
infrastructure.                                                                
                                                                               
Representative Martin stated that the royalty structure                        
should be left alone and the severance tax should be                           
adjusted.  Mr. Boyd responded that he supports changing                        
royalty to encourage production when it is supported by                        
analysis.                                                                      
                                                                               
Representative Davies observed that Article VIII, Section 2,                   
Alaska State Constitution requires that the State provide                      
for the utilization and development of all natural resources                   
for the maximum benefit of its people.  He asked if the bill                   
provides for the maximum benefit of the people.  Mr. Boyd                      
did not think that the bill provides for the maximum benefit                   
of the people.                                                                 
                                                                               
Representative Grussendorf observed that 50% of all                            
royalties on new fields go into the Permanent Fund.                            
Representative Hodgins observed that current royalties on                      
the fields are zero.                                                           
                                                                               
Representative Kelly questioned if there are other ways of                     
finding out the extent of the reserves, short of                               
development.                                                                   
                                                                               
Representative Hodgins emphasized that the fields are                          
isolated and require infrastructure to be developed.                           
Redoubt Shoals would require an offshore platform and                          
pipeline.  A pipeline would also be needed for development                     
of North Fork.  It would be uneconomical for a pipeline to                     
go north.  The best utilization of North Fork gas would be                     
for use in Homer.                                                              
                                                                               
In response to a question by Representative Kelly,                             
Representative Hodgins noted that the federal government                       
goes to five percent when they give royalty reductions.                        
                                                                               
Mr. Eason observed that Redoubt Shoals has had 6 wells                         
drilled.  He reviewed the drilling history of Redoubt Shoals                   
as contained in his letter to Senator Halford, dated                           
3/11/98.  He pointed out that it is the only field in the                      
State's history where the State told the owners that they                      
had to go into production or lose their leases.  The lease                     
was returned to the State and the unit was disbanded.  When                    
Forcenergy assumed the interest in those leases it committed                   
to the State, as part of the unit agreement, to conduct a 3D                   
seismic survey and to evaluate all the options available to                    
drill further delineation wells to determine if there are                      
enough reserves to develop the field.  Forcenergy agreed to                    
release the lease if they did not proceed.  Forcenergy has                     
done the 3D seismic survey and commissioned an independent                     
assessment of options for building a platform.  It is                          
impossible to develop a field offshore in conditions at                        
Redoubt Shoals for the amount of reserves.  More reserves                      
will have to be identified or the field will not be                            
developed regardless of the passage of HB 380.                                 
                                                                               
Representative Hodgins pointed out that the state of Alaska                    
would receive 9 mils in tax platforms or a pipeline built at                   
Redoubt Shoal.  He emphasized that jobs would be created in                    
the area.  He observed that the legislation would open up                      
possibilities to smaller operators.  A two-person operation                    
is interested in developing the North Fork field.  He                          
emphasized that the essence of the legislation is to try to                    
put people to work.                                                            
                                                                               
Representative Davies questioned what is the sensitivity of                    
the development of these fields to price and volume                            
estimates.  He asked if the generic form of Mr. Boyd's                         
calculations is the correct exercise for the state of Alaska                   
to go through.                                                                 
                                                                               
Mr. Eason acknowledged that it would be the correct exercise                   
to go through in circumstances where there is a reasonable                     
amount of information to make a legitimate calculation.  He                    
stated that he has no objections to the process of HB 207,                     
but emphasized that it is a high standard.   He stressed                       
that there are obvious indicators for royalty relief for                       
fields that have been discovered but remain undeveloped                        
after 30 years.  He pointed out that there are prospects                       
that are not profitable regardless of price.  He observed                      
that Cook Inlet production is declining.  He estimated that                    
Cook Inlet is 90 percent depleted of oil.  He maintained                       
that the ability to deliver the resource would be absent                       
major new discoveries or development.  He noted that it has                    
been almost 30 years since there has been a major oil or gas                   
discovery in Cook Inlet.  A point will be reached when the                     
infrastructure cannot be maintained, due to rising cost, to                    
complete the existing reserves efficiently.                                    
                                                                               
(Tape Change, HFC 98 -73, Side 1)                                              
                                                                               
Mr. Eason stated that the time is right for legislation to                     
see if these fields can be produced for the benefits                           
described.  He asserted that a time would come when the                        
opportunity will be lost.                                                      
                                                                               
Representative Davies stated that there has to be a change                     
in dollar value of the resource that goes beyond the value.                    
Why would the State not want to structure the legislation in                   
the event that the price goes above the threshold value that                   
makes development sensible or the volume estimates go beyond                   
the threshold estimates.  The state would then participate                     
in the upside potential.                                                       
                                                                               
Mr. Eason observed that companies look at expectations. Oil                    
prices, development costs, costs for wells that are not                        
drilled due to mechanical problems, frequency and magnitude                    
of work over wells that are required to replace defective                      
and deteriorating equipment and a host of other factors                        
including needed permits for platforms are included in                         
estimates before making investments.  Oil prices, royalties                    
and taxes are all important factors.  He cautioned against                     
over engineering one factor as the cut off point.  He noted                    
that a decision to produce based on the assumption that the                    
legislation is in place and royalties are 5 percent could                      
influence the assumption or risks about other things in                        
order to proceed.  He observed that price spikes could                         
affect more of the business then the price itself.                             
                                                                               
Representative Davies stressed that uncertainties will exist                   
in any calculation.  He maintained that sensitivity to                         
royalty reduction is usually small compared to oil price and                   
production volume.  He suggested that the royalty reduction                    
could be different for each field.  He asserted that more                      
information could be obtained in a confidential manner.                        
                                                                               
Representative Mulder observed that the Division has implied                   
that the legislation is premature and not necessary.  He                       
asked if Forcenergy worked with the Division to justify the                    
need for the legislation.  Mr. Eason observed that                             
Forcenergy has not approached the Department to talk about                     
royalty relief under HB 207 because the fields are not                         
delineated.  He discussed the terms of the legislation with                    
the Department.  He explained that the commissioner makes a                    
determination, on undeveloped fields that have not produced,                   
based on upon a showing of delineation that have not.  The                     
only recourse is to ask the legislature for relief.                            
                                                                               
HB 380 was HELD in Committee for further consideration.                        
SENATE BILL NO. 261                                                            
                                                                               
"An Act relating to the Special Olympics World Winter                          
Games to be held in Anchorage in the year 2001;                                
establishing a reserve fund for the games; providing                           
certain duties and authority for the Alaska Industrial                         
Development and Export Authority regarding financing                           
for those games; and providing for an effective date."                         
                                                                               
Co-Chair Therriault noted that the Committee adopted a                         
conceptual amendment on 3/19/98 that was incorporated into                     
work draft 0-LS1354\F, dated 3/19/98.  The amendment was                       
incorporated on page 3, lines 8 - 10 and page 4, lines 1 -                     
3, and 5 - 6.  The amendment clarifies that the State's                        
obligation is on an accumulative total of $4 million dollars                   
of the cost limitation of $8 million dollars as referenced                     
in the Special Olympics International Charter.                                 
                                                                               
Representative Mulder MOVED to ADOPT work draft 0-LS1354\F,                    
dated 3/19/98.  There being NO OBJECTION, it was so ordered.                   
                                                                               
Co-Chair Therriault stated that he would have been more                        
comfortable if specific language could have been added to                      
guarantee the first $4 million dollars of hard dollars                         
raised and extended. Representative Martin noted that the                      
intent is well expressed.                                                      
                                                                               
Representative Mulder disclosed that he is on the Board of                     
Governor's of the Special Olympics.                                            
                                                                               
Representative Kohring asked what is being done to raise                       
money in the private sector.                                                   
                                                                               
MARY GORE, STAFF, SENATOR MILLER discussed fund raising                        
events.   She observed that the fund raising position does                     
not begin until July 1, 1998.  She explained that Special                      
Olympics International required the guarantee.  She stated                     
that she is confident that the money can be raised by the                      
private sector.  Representative Kohring stated that he                         
supports the event, but expressed concern regarding                            
governmental involvement.                                                      
                                                                               
Ms. Gore noted that the legislature would only have a moral                    
obligation because future legislatures cannot be committed.                    
The money would have to be requested and appropriated in the                   
year 2001.  She noted that the state of Connecticut                            
guaranteed funding for the games through an agency similar                     
to AIDEA.  The Province of Ontario guaranteed the Toronto                      
games.                                                                         
                                                                               
Representative Foster MOVED to report CSHB 261 (FIN) out of                    
Committee with the accompanying fiscal note.  There being NO                   
OBJECTION, it was so ordered.                                                  
                                                                               
HCS CSSB 261 (FIN) was REPORTED out of Committee with a "do                    
pass" recommendation and with a zero fiscal note by the                        
Department of Commerce and Economic Development, 2/6/98.                       
HOUSE CONCURRENT RESOLUTION NO. 9                                              
                                                                               
Proposing amendments to the Uniform Rules of the Alaska                        
State Legislature relating to committee meetings; and                          
providing for an effective date.                                               
                                                                               
Co-Chair Therriault provided members with a proposed                           
committee substitute for HCR 9, work draft 0-LS0579\B, dated                   
3/18/98 (copy on file).                                                        
                                                                               
JANICE SEITZ, STAFF, ROKEBERG spoke in support of the                          
proposed committee substitute.  She explained that the                         
proposed committee substitute would allow a member who is                      
not physically present at a committee meeting to participate                   
and vote via teleconference.  The chair of the committee                       
would sign for the person participating via teleconference.                    
                                                                               
Co-Chair Therriault recounted that he participated in a                        
teleconferenced committee meeting from Fairbanks.  He was                      
able to vote on amendments but could not sign the committee                    
report.                                                                        
                                                                               
In response to a question by Representative Mulder, Co-Chair                   
Therriault expressed concern with interim committee                            
meetings.  He noted that a number of legislators have jobs                     
that monopolize a portion of their time.  He stressed that                     
legislation could move through the process when legislators                    
are not present to participate.                                                
                                                                               
Representative Grussendorf observed that it would be more                      
difficult for the public to be involved in interim meetings.                   
                                                                               
Representative Davies agreed with comments regarding the                       
ability of legislators and the public to participate during                    
interim meetings.                                                              
                                                                               
Representative Mulder maintained that concern for public                       
input and participation could be addressed by moving the                       
legislative session to Anchorage.                                              
                                                                               
Representative Foster MOVED to ADOPT work draft 0-LS0579\B,                    
dated 3/18/98.  There being NO OBJECTION, it was so ordered.                   
                                                                               
Representative Foster MOVED to report CSHCR 9 (FIN) out of                     
Committee with the accompanying fiscal note.  There being NO                   
OBJECTION, it was so ordered.                                                  
                                                                               
CSHCR 9 (FIN) was REPORTED out of Committee with "no                           
recommendation" and with a zero fiscal note by the                             
Legislative Affairs Agency.                                                    
ADJOURNMENT                                                                    
                                                                               
The meeting adjourned at 3:50 p.m.                                             
House Finance Committee 8 3/20/98 p.m.                                         

Document Name Date/Time Subjects