Legislature(2007 - 2008)BELTZ 211
02/13/2008 01:30 PM Senate JUDICIARY
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| Status of Point Thomson | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
February 13, 2008
1:35 p.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Lesil McGuire
Senator Bill Wielechowski
Senator Gene Therriault
MEMBERS ABSENT
Senator Charlie Huggins, Vice Chair
COMMITTEE CALENDAR
Status of Point Thomson by the Department of Law
HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
RICHARD TODD, Senior Assistant Attorney General
Civil Division
Division of Oil Gas & Mining
Department of Law
Anchorage, AK
POSITION STATEMENT: Discussed status of Point Thomson.
CRAIG TILLERY, Deputy Attorney General
Civil Division
Department of Law
Anchorage, AK
POSITION STATEMENT: Discussed status of Point Thomson.
ACTION NARRATIVE
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 1:35:42 PM. Present at the call to
order were Senators French, Wielechowski, McGuire and
Therriault.
^STATUS OF POINT THOMSON
1:36:05 PM
CHAIR FRENCH announced the committee will get a briefing from
the Department of Law (DOL) on the ExxonMobil v. State of Alaska
case, which is about the Department of Natural Resources (DNR)
nd
rejection of Exxon's 22 Plan of Development (POD) filing and
the termination of the Point Thomson unit. He asked DOL to give
the committee the history of the case, what happened in court in
December 2007, and what may happen in the future. Because this
is ongoing litigation he's given the department carte blanche to
turn aside any questions that may impinge on future planning and
strategies. "Error on the side of caution in answering
questions" but it is a large issue that has impact on the future
of the gas line so that's the reason for the hearing. He thanked
the Department of Law for the work it has done on the case.
1:37:42 PM
RICHARD TODD, Senior Assistant Attorney General, Civil Division,
Division of Oil Gas & Mining, Department of Law, said he is lead
counsel for the Point Thomson litigation. He will brief the
committee on the December 26, 2007 superior court decision on
the appeals of the Point Thomson unit termination. Before
discussing the decision he will provide background information
on oil and gas leasing as well as facts about the Point Thomson
unit.
MR. TODD said the litigation is about the Point Thomson unit. An
oil and gas unit is an agreement to develop two or more leases
together. The purpose of unitization is make production
efficient by realizing economies of scale etcetera. A unit is
formed when the Department of Natural Resources (DNR) approves
the lessees agreement about which leases will operate together
to make up a unit. If the unit is approved and the lessees drill
a well that is capable of producing and paying quantities, the
unit can continue indefinitely as long as it is operating under
a DNR approved plan.
MR. TODD explained that an oil and gas lease is typically issued
for a fixed term - usually 10 years. The lease expires at the
end of the fixed term unless the lessee has met one of the
conditions for extension of the term. One condition that allows
extension of the term is production. If it's in production at
the end of the primary term, it won't automatically terminate.
Generally the lease will continue as long as there is
production.
MR. TODD said that another condition that will extend the term
of a lease is unitization. If a lease is committed to a unit it
doesn't expire at the end of the primary term. The lease will
continue as long as the unit is in good standing.
MR. TODD explained that the Point Thomson unit was formed in
1977. It is comprised of about 45 state oil and gas leases and
consists of more than 100,000 acres. All but two of the leases
in the unit are beyond the primary term. Some of the leases were
issued in 1965 and have never been put into commercial
production. In the 1970s oil was discovered in the Point Thomson
unit. By the early 1980s gas and additional oil deposits were
discovered. There are at lease 200 million barrels of oil in the
Point Thomson Brookian formation. The Point Thomson sand
reservoir contains 8 trillion cubic feet of gas and hundreds of
millions of barrels of gas condensate and oil. It is one of the
largest known natural gas fields in North America yet it has
never been put into production. It has never produced
hydrocarbons. The Alaska Oil and Gas Conservation Commission
(AOGCC) and DNR agree on the point that the unit has never been
adequately explored or delineated. More exploration wells are
needed.
1:41:57 PM
MR. TODD said that on October 27, 2005 the DNR director of oil
nd
and gas rejected the lessees' 22 proposed plan of development
(POD). It failed to meet the requirements of the unit agreement
and the regulations. Also, the lessees had failed to commit to
put the unit in production. DNR gave the lessees about one year
to cure the problem by submitting a plan that met the
requirements of the unit agreement and the regulations and by
committing to develop the unit. DNR also asked for more
exploration wells and adequate delineation of the known
reservoirs. In that decision the DNR director stated that the
unit was subject to termination if the lessees failed to submit
an acceptable POD. The lessees had previously refused DNR's
repeated requests to drill additional exploration wells and
delineation wells and to put the unit into production.
1:43:37 PM
CHAIR FRENCH said when he read the briefs he found the lessee's
position that they couldn't develop the field until there was a
gas pipeline a bit unusual since we've heard many times that a
supply of gas is needed to fill the gas pipeline. He noted that
when oil is produced the gas typically is recycled to maintain
reservoir pressure. But the lessees said they needed to do a
blow down to relieve gas pressure by flowing gas to a gas
pipeline. He understands it was the AOGCC position that that
would lead to waste. Tens of millions of barrels of gas and gas
condensate could be left unrecoverable in a blow down scenario.
He asked if that's essentially the legal argument.
MR. TODD replied he'd leave much of the response to DNR but he
would say that many of the points he made are supported by the
record. By 1982 the unit had been in existence for 5 years. A
number of exploration wells had been drilled and major
hydrocarbon deposits had been discovered. The lessees submitted
a POD that basically said they wanted to go into a 5-year study
program of potential development. They did not want to drill
more wells or do on-the-ground work. DNR was concerned and
issued documents saying that was deficient. DNR wanted better
delineation of reservoirs so they could be put into production.
They wanted the lessees to make a commitment to put the unit
into production and start producing hydrocarbons.
MR. TODD said that at that point in 1982 the lessee said it was
not going to put the unit into production until there was a
gasline. It would be a waste of time. The fallacy to that
argument is that a gas pipeline isn't necessary to produce oil
and this unit has hundreds of millions of barrels of oil. Noting
that the unit is about 30 miles from the Badami pipeline, he
said it would seem that there's a way to produce the oil without
having a gasline. The unit has significant quantities of gas
condensates. The engineering is complicated but as opposed to
the gas blow down you could produce liquids and gas together,
strip the liquids, ship the liquids down a line, and reinject
dry gas into the reservoir to maintain pressure.
1:47:27 PM
MR. TODD referred to waste in a blow down project and explained
that this reservoir is under extremely high pressure - generally
between 10,000 psi and 13,000 psi. And if you were to simply put
a hole in the reservoir and start producing everything, the
reservoir pressure would drop and a significant amount of the
liquids would become unrecoverable. If you cycle first and
recover the optimum amount of liquids then you can switch to a
gas blow down. "But you don't start with a gas blow down
necessarily." This is dependent on unknowns because there aren't
sufficient exploration and delineation wells, he said. The AOGCC
and DNR do agree on that point. "All the agencies involved in
this want more wells so that we have better data and better
decisions can be made." There is risk with a gas blow down
project of loss of liquids. He understands that oil could be
produced without incurring that risk at least from the Brookian
reservoir. It's really a more appropriate question for DNR, he
added.
SENATOR McGUIRE asked how the state explains why ExxonMobil is
sitting on such economic prospects with respect to oil and gas
and yet it is not making good faith efforts to develop them.
1:49:20 PM
CRAIG TILLERY, Deputy Attorney General, Civil Division,
Department of Law acknowledged he's wondered about that himself
but it's really a question for the producers. "You need to ask
them what their motivations are." It would be inappropriate for
DOL to answer because it would be speculative.
SENATOR McGUIRE surmised that the state has gathered evidence of
other business prospects that the company has. "Have you looked
around to see what the company has done in other places?"
MR. TODD said his concern is not on those issues. DOL is
addressing the situation where the agency believes the lessees
are not complying with the applicable agreements, regulations
and other laws. If the agency is taking action it is to effect
production by the lessees. His role is the laws, the statutes,
and the facts that relate to this unit. "It's not really germane
to what I do to go and look into the type of things you're
inquiring about."
1:51:10 PM
CHAIR FRENCH said it's worth pointing out that the Badami
pipeline is about 30 miles from the boundaries of the Point
Thomson unit.
MR. TODD agreed that it is.
SENATOR THERRIAULT added that it's sitting empty.
1:51:43 PM
MR. TODD continued his summary and explained that when the DNR
nd
director rejected the 22 POD, the lessees were given about one
year to submit a plan that met the requirements of the
regulations.
CHAIR FRENCH asked if the unit termination decision was made at
the same time that the 22nd POD was rejected.
MR. TODD said no but the last finding in the director's decision
said that if the lessees failed to submit an acceptable POD the
unit was subject to termination. "Throughout that decision the
director alludes to such things as the state's remedy." The
general message is that the state's remedy for a lessee that
will not develop and produce is to take the property back and
make it available to other potential bidders.
CHAIR FRENCH asked if the initial decisions were at the director
level rather than at the commissioner level.
1:53:07 PM
MR. TODD said that's correct. Then director Mark Meyers made the
initial decision. Subsequently he left DNR along with a number
of other people. His replacement issued the second decision.
MR. TODD said the lessees were given a year to submit a POD that
met the requirements of the regulations and the director
included an example of an acceptable POD. On November 3, 2006
thousands of pages were filed with DNR including a modified 22nd
POD. The commissioner found it suffered from the same defects as
the initial POD but it was worse because it proposed a 5 year
POD. The commissioner rejected the modified 22nd POD and he
nd
affirmed the director's rejection of the initial 22 POD. He
decided that the appropriate course of action was to terminate
the unit. He did so and several of the lessees filed a motion
for consideration. By the time it was ripe for decision
Commissioner Menge had left and Acting Commissioner Rutherford
affirmed the former commissioner's decision. The lessees
appealed to superior court. Generally the arguments to the court
were that the state could only terminate the unit through court
proceedings so the decision had to be set aside since the
termination came administratively. The lessees took the position
that DNR was without power to require them to do anything unless
DNR could show that a hypothetically reasonable operator would
do what DNR asked. The lessees asserted that the decision
violated the covenant of good faith and fair dealing. They also
argued that the unit continued in perpetuity once they
discovered a reservoir that was capable of producing paying
quantities. The argument was based on the unit language.
CHAIR FRENCH asked if the argument was that the simple discovery
of a commercial quantity of oil would preserve the unit forever.
MR. TODD said yes.
1:56:10 PM
SENATOR McGUIRE asked if he could cite the specific language in
the agreement that allegedly allowed the lease to continue in
perpetuity.
MR. TODD explained that in most unit agreement leases there's a
Habendum Clause that defines the estate granted and declares the
extent of the interest conveyed - a quit claim, warranty deed,
easement or whatever it is. He paraphrased from Section 20,
which reads as follows:
20. EFFECTIVE DATE AND TERM. This agreement shall
become effective upon approval by the Commissioner or
his duly authorized representative as of the date of
approval by the Commissioner and shall terminate five
(5) years from said effective date unless:
(c) a valuable discovery of unitized substances
has been made or accepted on unitized land during said
initial term or any extension thereof, in which event
the agreement shall remain in effect for such term and
so long as unitized substances can be produced in
quantities sufficient to pay for the cost of producing
same from wells on unitized land and, should
production cease, so long thereafter as diligent
operations are in progress for the restoration of
production or discovery of new production and so long
thereafter as the unitized substances so discovered
can be produced as aforesaid, or
1:59:15 PM
MR. TODD said the argument is that they discovered huge
reservoirs that are capable of producing at a commercial level.
The argument continues. "Since we've discovered this and we can
produce it, we've created this valuable property right by
discovering this reservoir and you can't take it away from us
unless you can show it can't be produced."
MR. TODD recapped the key arguments that were raised in court:
termination by court not administrative; reasonably prudent
operator standard; violation of the covenant of good faith and
fair dealing; unit continues in perpetuity.
2:00:16 PM
MR. TODD said the key arguments that the DOL raised on behalf of
the DNR were that DNR has the constitutional and statutory
responsibility to manage state resources in the public interest;
the purpose of unitization is to effect efficient production;
and the continued existence of the unit is contingent upon a POD
that meets the requirements of the unit agreement, the
regulations, and is approved by DNR. DOL also argued that DNR
does not have to meet the reasonably prudent operator standard
before rejecting a POD that does not otherwise meet the
requirements of the law and the unit agreement.
2:01:38 PM
MR. TODD said that on December 26, 2007 the court issued a
decision on the appeal. The judge affirmed DNR's rejection of
nd
the 22 POD; she affirmed DNR's authority to evaluate the
acceptability of a POD; she rejected the lessees' argument that
the reasonably prudent operator standard was the standard to
apply in evaluating a POD; she rejected the lessees' allegation
that DNR had acted in bad faith in its decisions; she implicitly
rejected the lessees' contention that the unit continues in
perpetuity once a commercial reservoir is discovered; she
rejected the lessees' argument that termination of a unit must
be made by judicial proceedings where the termination is based
on the failure to submit an acceptable POD; she agreed with the
proposition that the lessees had not received sufficient notice
that the unit was subject to termination if they failed to
submit an acceptable POD. The judge remanded the case to DNR to
give the lessees an opportunity to tell DNR what they think the
appropriate remedy is for failing to submit an acceptable POD.
"And I believe implicitly also to tell DNR why they think unit
termination is not the appropriate remedy." The proceedings are
pending before DNR currently. There have been some extensions
but the briefing on the issue of appropriate remedy is due
February 19 and the hearing on the appropriate remedy is March
3.
CHAIR FRENCH asked if the proceeding is before the commissioner.
MR. TODD replied it's an administrative proceeding before the
commissioner.
2:03:34 PM
SENATOR WIELECHOWSKI asked if the judge remanded the case
because she found the lessees were not aware that their lease
could be terminated.
MR. TODD said it could be characterized a number of ways. His
explanation is that, "When it comes to due process, the court is
king. If the court says 'insufficient notice of unit
termination' the most appropriate course of action is to give
the notice and listen to the argument." Essentially, the judge
found that the lessees had received insufficient notice that the
unit was subject to termination. He cautioned that he is
speculating about what the judge wanted. She might have been
asking for more process. Perhaps she wanted more than just the
statement in the director's decision. "I do think it is within
the realm of reasonable speculation though, to say that what she
was saying is she wanted more process - she wanted a hearing,
she wanted briefing on remedy."
SENATOR WIELECHOWSKI observed that it's an odd ruling since
people in Alaska have been talking about terminating that lease
for years. "To say that they weren't aware that that was a
possibility of happening, I just find very odd."
CHAIR FRENCH said the judge's rationale is on pages 41-42 of the
DECISION ON APPEAL that's in the packet. The judge said:
And while this court has concluded that the PTUA and
then-existing regulations did not preclude DNR from
pursuing termination at the administrative level, the
Appellants were constitutionally entitled to a clear
written notice that DNR was considering this remedy
when it rejected the POD…
2:05:48 PM
SENATOR THERRIAULT asked if he has an opinion about whether the
judge was trying to make sure that the Alaska Supreme Court
would be satisfied that due process was met. He's heard
criticism that the court bends over backward to ensure that
everyone gets adequate notice and that everyone absolutely knows
what is going to happen. For example, that court has gone to
great length to make sure that a renter who has not paid rent
for some considerable time gets adequate notice.
MR. TODD replied Judge Gleeson was applying the law as she sees
it and the DOL is complying with that decision.
CHAIR FRENCH remarked that the state won on four large issues
and got hung up on a procedural question of whether there had
been perfect written notice.
2:07:48 PM
MR. TODD characterized it as a fabulous victory. "We won every
major point except this procedural issue on due process." It was
an indication that DNR was on the right course and that then
Commissioner Menge was trying to do the right thing.
SENATOR McGUIRE commented it could be read both ways but
whichever branch is speaking it's important to be clear.
Clarifying exactly what rejecting a POD could mean is an
important point to make. "We want the folks who are considering
developing here in Alaska to understand those things very
clearly." She said she isn't troubled by the rejection on that
point because it will make Alaska laws and the process better.
She looks forward to the result.
MR. TILLERY agreed it was an unqualified success but the legal
work is only as good as the agency work it is defending. "We
would be remiss if we didn't point out what a tremendous job DNR
has done in this matter," he said.
CHAIR FRENCH acknowledged that over the years he was an
aggressive critic of the former administration's handling of oil
and gas matters. But when he read through the briefing he noted
that then Commissioner Menge found that the decision did not
turn on Exxon's economics. His statement from page 25 of the
BRIEF OF APPELLEE reads as follows:
Lessees' economics, adequate returns, and risk might
be appropriate considerations in some situations. But
they play no role here where the unit has been in
existence since 1977, massive hydrocarbon deposits
were discovered in the early 1980s, the unit has never
been put into production, and the Lessees say it may
never be put into production until a gas pipeline is
constructed and the state compromises its taxes and
royalties. Against this backdrop, the state oil and
gas leasing system is not intended to require DNR to
engage in a murky subjective contest about a Lessees'
internal economics, development risk, or view of the
difficulty of developing the unit. One of the state's
primary interests is production. If production is not
in the plan, the state's remedy is to terminate the
unit and find another means to develop the unit.
CHAIR FRENCH described the commissioner's language as good and
strong. He's doing his job.
2:11:47 PM
MR. TODD said that Judge Gleeson remanded the case for
additional proceedings on remedies. She has asked DNR to render
a decision by June 15, 2008. Again he said there is a briefing
scheduled for February 19 and a hearing is scheduled for March
3. At this point the commissioner will decide the appropriate
remedy after hearing from the lessees. DOL believes it will be
back in court by June 2008, the judge will make a decision no
later than the end of the year, and the proceeding will be
through the Alaska Supreme Court by the end of 2010 or 2011.
CHAIR FRENCH asked if going back before the judge presupposes a
decision on the merits by the commissioner of DNR.
MR. TODD said yes.
CHAIR FRENCH asked what the time line is for the commissioner to
make the decision.
MR. TODD replied he can't really say, but the hearing is March 3
so that gives him a couple of months before he has to be back in
court.
CHAIR FRENCH asked if he expects to be back before the judge by
June 2008.
MR. TODD said yes.
2:13:45 PM
SENATOR McGUIRE said she'd like to hear the remedies that are
being discussed. Can you? she asked.
MR. TILLERY declined.
CHAIR FRENCH noted that there was extensive discussion of
Section 10 of the PTUA of Section 20 (c) but page 42 of the
court decision says, "On remand, the agency should also consider
the import of Section 21 of the PTUA, as amended in 1985, in
determining the appropriate remedy." He asked for a synopsis of
what's in Section 21 to give an idea of what the agency will be
thinking.
MR. TODD said the issue is currently in litigation so he can't
say a great deal. Generally speaking, when the unit was formed
the statute said the commissioner could include a provision in a
unit agreement or lease giving him the authority to change the
rate of production etcetera. "Article 21 is a provision which
provides for procedures for changing the rate of prospecting or
production."
2:15:31 PM
CHAIR FRENCH asked if you'd see the unit terminated and the
leases reoffered at public auction just like any other lease
should DNR and DOL prevail.
MR. TODD replied that's true with some leases but not
necessarily all the leases. "There's a lot of ins and outs here.
Once you get to the leases it's more of a case-by-case
analysis". Generally speaking, the answer is yes, he said.
MR. TILLERY highlighted that termination is a decision that is
currently in front of DNR. He understands the premise of the
question, but at this point DNR is not currently in a position
of trying to prevail. It is in an adjudicatory position.
CHAIR FRENCH rephrased his question and stated that, "Assuming
they make that decision and assuming that decision is upheld
then you'd have a place where 8 trillion cubic feet of gas and
several hundred million barrels of oil might come back on the
market."
2:17:01 PM
MR. TODD said DOL doesn't know what the remedy will be. There is
a possibility that the lessees will come to DNR with a proposal
that allows the case to be resolved. There's a possibility that
the lessees will pitch for a remedy on remand that the
commissioner finds acceptable and allows them to continue the
leases. There's a chance that Judge Gleason will issue a
decision after the next court proceeding that both parties find
acceptable. "I don't know what the commissioner is going to do.
We don't know that termination is going to be pursued."
CHAIR FRENCH expressed the view that the resolution should come
with a big stern message that says, "This gas must be sold into
an Alaska gas pipeline."
SENATOR THERRIAULT referred to looking at each lease on a case-
by-case basis and asked how much hinges on whether there is a
well that could be determined to have been capable of
production.
MR. TODD said that is an issue in the pending administrative
proceedings for decision. It is a factor and an issue along with
other issues some of which aren't as weighty. Some of the leases
were expansion leases that came in with the 2001 unit expansion.
The termination of those isn't contingent upon the other
proceedings. They're something of a stand-alone group of 15
leases.
SENATOR THERRIAULT remarked he's always looked at it as the core
acreage, and the expansion. He asked if all the expansion
acreage has come back under state control so it's really an
issue about core acreage.
MR. TODD replied all the leases that were in existence at the
time of the termination decision are on appeal to the
commissioner. That includes the expansion acreage.
SENATOR THERRIAULT said he thought the companies didn't appeal
the decision on some of the lease acreage.
MR. TODD replied the companies don't all act in the same way.
Some drop issues, some continue issues, some lis pendens have
been filed, some lis pendens have been withdrawn by some
companies on the expansion, on the acreage, and on claims
regarding the expansion acreage. "It's too uncertain right now
to say definitively that we've got them back."
2:20:26 PM
SENATOR WIELECHOWSKI asked if he would suggest legislative
action to spur development or to tighten the lease language so
the state isn't stuck in the ongoing process of endless
litigation.
MR. TODD said as a general proposition the answer is yes, but he
hasn't thought about it, he isn't authorized to work on it and
he isn't authorized to talk to the legislature about it. "In
time, if my administration wants me to work on it, I certainly
could respond to that."
2:21:29 PM
SENATOR WIELECHOWSKI said this is of critical importance and
perhaps it should be a priority. You know this topic much better
than any of us and any insight you have would be most helpful to
the state, he said.
SENATOR McGUIRE, directing her comment to Mr. Tillery, said it
would be nice to see the DOL work with the DNR after this is
resolved. Her concern is that new legislation or even
discussions should not weaken current leases. She recalled a
memo from Spencer Hosie that gave examples of other
jurisdictions that use lease language that is quite absolute and
clear. "I would like to see, at whatever point is appropriate, a
proposal or some thought given by the DOL with the DNR about
what a lease should look like that wouldn't end in litigation."
MR. TILLERY said he agrees, not only about the potential
legislation but that there should be ongoing review of leases to
make sure that within existing legislation they are as clear and
tight as possible so as to limit litigation.
SENATOR THERRIAULT said he's never considered it to be endless
litigation. He's thankful that the Murkowski administration
started the process. Likewise he's never considered seizing the
acreage to be an effort to spur production. The state can reach
a settlement with the lessees at any time and that's more likely
than the state taking the acreage back and re-leasing it. He
recalled that this committee passed a resolution that made
supportive statements for this action that is playing out
between the executive branch and the judicial branch. He asked
Mr. Tillery if he sees any benefit in the legislature making a
similar positive statement about the executive asserting its
rights under the lease. It won't sway the court, nor should it,
he added.
MR. TILLERY said it is certainly appreciated when the
legislature indicates support for positions of the executive. He
agrees that the court wouldn't take cognizance of that action.
It's always good for the people to know that the government is
united in its views.
SENATOR WIELECHOWSKI observed that even if the state litigation
ends in 2010, that doesn't' prohibit the lessees from filing in
federal district court. They could take this all the way up to
the US Supreme Court. He asked if it's fair to say that there is
the potential for this to go on for years and years.
2:26:53 PM
MR. TODD replied he can't predict the future but he can't say
there's no chance of that happening. "I think it's very unlikely
but we don't actually know what the court will do." They could
get the federal court to look at it but state courts are
competent to decide questions of federal constitutional law.
CHAIR FRENCH asked how many lawyers are working on the case.
MR. TODD replied six lawyers have been working on the case since
February 2007. He and Mark Ashburn of Ashburn & Mason are co-
counseling. The rest of the team includes Dani Crosby and Matt
Findley with Ashburn & Mason and Jon Katchen and Jeff Landry
with the DOL. A number of others, including Tina Kobayashi, are
involved in a number of matters.
CHAIR FRENCH asked if the DOL has adequate resources to
vindicate the state's interests.
MR. TODD said yes.
SENATOR WIELECHOWSKI asked what kind of legal fees the state has
expended and if it will get any back through Rule 82 or other
sources.
MR. TODD replied, "The fees incurred on this case have been
spectacularly reasonable."
SENATOR WIELECHOWSKI said he knows these cases are very
expensive. "I'm sure it's probably in the millions."
MR. TODD replied we've gotten fabulous work at incredibly
reasonable rates. He estimated that costs are under $400,000.
From past experience he would expect it to be in the millions.
Keep in mind that we're following a new model. He said. The DOL
has retained control of the case and is working with outside
counsel. The result is more efficient work at a much lower cost.
MR. TILLERY added that a similar process was used in the late
1980s working on corporate income tax. DOL had a team of 6 or 7
attorneys working with an equivalent number of private
attorneys. It was a fairly reasonable approach. In the
intervening years, budgets have declined and issues have
multiplied. In recent years there's been more willingness to pay
for outside counsel than inside counsel. "The problem we have
budget-wise is it takes $4 for outside counsel for what $1 for
our in-house counsel could do." He agreed with Mr. Todd that
this is a very efficient model monetarily.
2:33:46 PM
SENATOR WIELECHOWSKI responded whatever is spent it's an
investment that needs to be made, but he's just trying to grasp
the amount of state resources that are being expended to fight
what in his opinion is an endless discussion. He asked how many
state attorney hours have gone into this case.
MR. TODD replied it varies with what's going on but overall
probably 40 percent of his time is spent on the case.
MR. TILLERY offered to supply the exact hours.
SENATOR WIELECHOWSKI said he'd be curious.
SENATOR McGUIRE asked if other states have provided guidance in
developing the leases. She asked if the lease isn't primarily a
matter of contract law.
MR. TODD said yes.
SENATOR McGUIRE asked if other states use that common
methodology.
MR. TODD said yes but to his knowledge the team hasn't actually
looked at leases from other jurisdictions. "This case isn't
really about trying to improve the lease. It's sort of dealing
with what you have and trying to get DNR's decision sustained."
To the extent that other litigation is about issues in this
case, the answer is yes, DOL has looked at other jurisdictions.
CHAIR FRENCH thanked Mr. Tillery and Mr. Todd for taking time
out of their schedules to come give the committee this briefing.
"I hope you've felt some measure of the appreciation we have for
the work you're doing. I know a lot of what you do kind of falls
under the category of unsung heroes," he stated.
There being no further business to come before the committee,
Chair French adjourned the meeting at 2:37:38 PM.
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