Legislature(1995 - 1996)
04/22/1995 01:17 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
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SENATE RESOURCES COMMITTEE
April 22, 1995
1:17 p.m.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Drue Pearce, Vice Chairman
Senator Steve Frank
Senator Rick Halford
Senator Robin Taylor
Senator Lyman Hoffman
MEMBERS ABSENT
Senator Georgianna Lincoln
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 140(FSH)
"An Act relating to surety bonds required of certain fish
processors."
CS FOR HOUSE BILL NO. 141(FSH)
"An Act relating to the appointment of members of the Board of
Fisheries."
CS FOR HOUSE BILL NO. 107(FSH)
"An Act relating to restrictions attached to certain commercial
fisheries limited entry permits."
HOUSE BILL NO. 102
"An Act extending the termination date of the Big Game Commercial
Services Board."
CS FOR HOUSE BILL NO. 207(O&G)
"An Act relating to adjustments to royalty reserved to the state to
encourage otherwise uneconomic production of oil and gas; and
providing for an effective date."
WITNESS REGISTER
Representative Al Austerman
Alaska State Capitol
Juneau, Alaska 99811-1182
POSITION STATEMENT: Sponsor of HB 140 and HB 141
Katherine Buchanan
Legislative Aide
Alaska State Capitol
Juneau, Alaska 99811-1182
POSITION STATEMENT: Testified on HB 107
Bruce Twomley, Chairman
Commercial Fisheries Entry Commission
8800 Glacier Hwy., Ste 109
Juneau, AK 99801-8709
POSITION STATEMENT: Supports HB 107
Representative Scott Ogan
Alaska State Capitol
Juneau, Alaska 99811-1182
POSITION STATEMENT: Sponsor of HB 102
Eddie Grasser
Alaska Outdoor Council
P.O. Box 22394
Juneau, Alaska 99802
POSITION STATEMENT: Supports HB 102
Joe Klutsch
Alaska Professional Hunters Assn.
Box 313
King Salmon, Alaska
POSITION STATEMENT: Supports HB 102
John Shively
Commissioner Designee
Department of Natural Resources (DNR)
400 Willoughby Ave.
Juneau, Ak 99801-1796
POSITION STATEMENT: Supports HB 207
Paul Wessells
BP Exploration
900 E. Benson Blvd.
Anchorage, AK
POSITION STATEMENT: Supports HB 207
ACTION NARRATIVE
TAPE 95-47, SIDE A
Chairman Leman called the Senate Resources Committee to order at
1:17 p.m. The first order of business was HB 140, sponsored by
Rep. Austerman.
HB 140 SMALL FISH PROCESSOR SURETY BONDS
REPRESENTATIVE AUSTERMAN gave the following testimony. He
introduced HB 140 at the request of the Southwest Municipal
Conference of the Alaska Municipal League. HB 140 reduces the
surety bonds on small processors, as an incentive to get small
processing businesses going throughout the state. It lowers the
surety bond to $2,000 on fish processing of 30,000 pounds or less,
and increases the amount of the surety bond upon reapplication, if
wages are not paid.
Number 043
SENATOR TAYLOR moved that HB 140 be moved from committee with
individual recommendations. SENATOR LEMAN asked what position the
Department of Revenue took on the measure in previous committee
hearings.
REPRESENTATIVE AUSTERMAN acknowledged the Department testified in
support of the measure and questioned the need for a surety bond in
any amount. He explained the surety bond has come into play in the
past in cases where large processors did not pay employees.
There being no objection to Senator Taylor's motion, HB 140 moved
from committee with individual recommendations.
HB 141 TERM OF FISH BOARD MEMBERS
The next order of business before the committee was HB 141,
introduced by the House Special Committee on Fisheries.
Number 084
REPRESENTATIVE AUSTERMAN explained HB 141 moves the appointment
date of the Board of Fish appointees to a date after confirmation
by the Legislature. The appointees would not actually sit on the
board until June 30. This would prevent appointees from making
board decisions prior to confirmation.
SENATOR HALFORD asked Rep. Austerman if the House Special Committee
on Fisheries considered applying the same provisions to game board
members. REP. AUSTERMAN stated the committee did, and was told by
several Board of Game members that the number of problems
experienced by the game board were not nearly as severe as those
experienced by the Board of Fish. Because of controversy
surrounding the Board of Game, the Fisheries Committee chose to
keep the measure specific to the Board of Fisheries.
Number 116
SENATOR HOFFMAN asked if members would remain on the board during
the interim, until replaced. REP. AUSTERMAN stated they would.
SENATOR HOFFMAN believed that additional problems would occur once
the new Governor has taken office, especially if the Legislature
does not want to confirm an appointee.
SENATOR LEMAN questioned the current procedure for appointees that
are not confirmed. SENATOR HALFORD remarked the appointee remains
on the board until the last day of the legislative session in which
he/she was presented. After that time that appointee cannot serve,
and another person can be appointed to serve until the next
legislative session.
SENATOR HOFFMAN believed that process to be better, otherwise a
board member could remain on the board for several legislative
sessions if the Legislature did not confirm any new appointees.
Number 154
SENATOR HALFORD stated the bill would change the confirmation
question from determining whether a specific person should be
appointed to a specific position, to whether a specific person
should replace an existing board member. That would give the
Legislature the power to retain a board member.
REP. AUSTERMAN commented under HB 141, the Governor makes the
appointment, but the appointee is not seated until confirmed.
SENATOR HALFORD noted if the Governor does not make an appointment,
the existing board member would remain in that seat. SENATOR
TAYLOR made the correlation to the situation with the current
attorney general.
The committee discussed alternatives. SENATOR HOFFMAN stated the
problem is an appointee will sit on a board but be unable to vote
until confirmed. SENATOR HALFORD suggested making term changes, so
that terms become vacant during the legislative session, and delete
the provision that says, "and until a successor is appointed and
the successor's term begins."
Number 210
SENATOR PEARCE felt there was a lot of merit to the concept of
having a person on the board not serve until confirmation, but if
there is a vacancy in April and the Governor does not appoint a
person before the end of the legislative session, the seat would be
vacant for a whole year.
SENATOR TAYLOR moved HB 141 from committee with individual
recommendations. SENATORS HOFFMAN and HALFORD objected to the
motion. SENATOR LEMAN announced the bill would be held in
committee for further work.
HB 107 RESTRICTED LIMITED ENTRY PERMITS
Number 235
The next agenda item was HB 107. KATHERINE BUCHANAN, legislative
aide to Representative Grussendorf, discussed HB 107. The measure
contains another management tool for the Commercial Fisheries Entry
Commission (CFEC) to preserve the dungeness crab resource. It does
not mandate the CFEC use any particular system. When first
introduced, HB 107 was identical to SB 42. The only change to the
original bill was deletion of a sentence saying the fishing
capacity allowed under an entry permit may not be changed after the
permit is issued, on page 2, lines 22-23. The Department of Law
suggested that amendment because it clarifies that nothing in the
bill should limit the powers of the Board of Fisheries. The
moratorium on the crab fishery expires January 2, 1996, therefore
if no action is taken now, the Southeast dungeness crab fishery
will be open to all entrants. The crab fisheries in British
Columbia, Washington State, and California are closed to entry,
therefore Alaska would be the only nearby crab fishery opening
which CFEC believes would put a lot of pressure on the resource.
Number 270
BRUCE TWOMLEY, Chairman of the CFEC, verified the moratorium will
expire by statute in early January, 1996. Without HB 107, the
fishery will be open, and CFEC anticipates a gear rush, with much
pressure emanating from outside Alaska.
SENATOR HALFORD asked if HB 107 essentially establishes a new set
of permits. MR. TWOMLEY responded it is a variation on existing
permits. For fisheries that could be limited in the future, HB 107
provides a means to contain a growth in effort. The existing law
was designed in 1973 for salmon; HB 107 allows the CFEC to address
fisheries that are quite a bit different.
Number 290
SENATOR HALFORD stated HB 107 is the exact format that would be
used for other restrictions, such as restrictions on transfer of
existing or new permits, or of any permits after a current transfer
or transferred after a certain date. MR. TWOMLEY replied he
understands HB 107 to only authorize the CFEC to limit the capacity
of permit holders to the fishing capacity exercised by the permit
holder prior to limited entry. SENATOR HALFORD indicated he was
referring to the sections amended in the title and the germaneness
question as it applies to other limits on permits.
SENATOR HALFORD noted he does not have any objections to the bill,
but would like to hold it in committee for further review of other
options. SENATOR LEMAN commented the same bill was heard by the
committee two months ago, and Senator Halford made the same request
at that time. He agreed to hold the bill until the following
Wednesday.
SENATOR LEMAN discussed an amendment in committee members' packets,
which neither CFEC nor the bill sponsor object to. SENATOR TAYLOR
moved the adoption of the amendment.
SENATOR TAYLOR explained the amendment provides more flexibility
for fishermen involved in this limited entry fishery so that they
can enter and exit the fishery by allowing for the purchase or the
sale of smaller increments of gear than the 100-200-300 pot license
under which they operate. They could not fish more than the
maximum allowed.
SENATOR TAYLOR noted the bill has a Finance Committee referral.
MR. TWOMLEY stated the CFEC concurs with the amendment.
There being no objection to the adoption of the amendment, the
motion carried.
SENATOR HALFORD withdrew his request to hold the bill in committee,
and moved SCS HB 107(RES) out of committee, with the accompanying
fiscal note, with individual recommendations. There being no
objection, the motion carried.
Number 350
HB 102 EXTEND BIG GAME COMMERCIAL SERVICES BOARD
REPRESENTATIVE SCOTT OGAN, sponsor of the measure, gave the
following overview. He served as a member of the Big Game
Commercial Services Board for two years. If this board is not
extended, guides will be unregulated. Several years ago, a
contentious issue was settled by the Supreme Court, called the
OWSICHEK decision. That decision eliminated exclusive use areas
for guides, which in the past were bought and sold as commodities.
That practice was found to be in violation of the common use clause
of the Alaska Constitution. Currently, anyone can be assigned to
a guide-use area, with a maximum of three guide-use areas for a
minimum of five years per area. This allows for some control, and
for the Division of Fish and Wildlife Protection to monitor guiding
activities.
Number 390
JOE KLUTSCH, representing the Alaska Professional Hunters
Association, reviewed the background of the Big Game Commercial
Services Board. In 1988 the Alaska Supreme Court ruled that the
former guide area system, as implemented, was unconstitutional, and
violated provisions of Article VIII. As a result, the Governor
appointed a task force to restructure and design a new regulatory
apparatus for the guiding industry. In 1988-89 a bill, which
defined who could conduct what activities in a commercial capacity,
passed the Legislature. By 1991, the task force had completed its
work and made recommendations to the Legislature and the Big Game
Commercial Service Board, on the structuring of a new regulatory
package. The key tenet of the package was the area registration
system. At the onset it was somewhat controversial. The guiding
industry had anticipated a fairly complicated system for ranking,
evaluating and selecting individuals who were able to conduct
guiding activities within areas. Because of legal complications
and public pressure, that component of the regulatory package was
dropped. The task force then adopted a simple and generic area
registration system. The justifications were resource based; the
idea being to provide a spatial distribution of effort. Guides
would be spread out over a wide area, rather than high
concentrations of effort in small areas, to reduce the potential
for over-harvest of game populations. The idea behind the five
year limit for area registrations was to provide a stewardship
incentive, and prevent individuals from roving from one area to
another, harvesting available game past its sustained yield level
and then moving on. The system enhanced enforcement efforts and
created a level of accountability. This system allowed for equal
access, since new guides were on the same footing as established
guides. The registration concept was found to be consistent with
Article VIII.
MR. KLUTSCH continued. The key question before the committee is
what will happen if the board is sunsetted. Eight years of work,
since the OWSICHEK ruling, would be lost. Land and resource
managers, members of the public, the Legislature, and the guiding
profession have put thousands of hours into structuring this
system. If the Big Game commercial Services Board is sunsetted,
many key game populations will be hunted at, or beyond, maximum
sustained yield levels, which will force the Board of Game, after
the fact, to close these seasons to non-resident hunting. Non-
resident hunting is what the guiding industry depends on. The area
system has reduced conflicts with other user groups. The advantage
of the registration system is the ability to measure the level of
effort before game populations have been harvested at maximum
sustained yield level.
Number 477
SENATOR HOFFMAN referred to a report by the Legislative Budget and
Audit Division, which recommends the Big Game Commercial Services
Board be extended to 1997. The Department of Commerce and Economic
Development recommended the Board be extended to 1998. He asked
why the two agencies recommended different time lengths.
SENATOR LEMAN assumed the Legislative Budget and Audit Division's
report was issued in November of 1993. Normally it is on a four
year cycle; last year it was on a one year cycle to keep it in its
sunset stage.
Number 490
EDDIE GRASSER, representing the Alaska Outdoor Council (AOC),
testified in support of HB 102. He expressed concern that at some
point in time, the AOC would like the Legislature to address the
Big Game Commercial Services Board's inability to address the
increasing numbers of transporters and air taxis delivering
clients. Other residents of the state are being restricted by the
huge increase in drop-off hunters by air taxis. The air taxi
industry is not being regulated by the Board, other than the fact
that carriers must obtain a transporter's license and file reports.
SENATOR TAYLOR asked if Mr. Grasser knew of any opposition to HB
102. MR. GRASSER replied he did not; he was hoping the Legislature
could improve regulation of the industries. SENATOR TAYLOR felt
the title was too restrictive to accommodate that request.
Number 513
SENATOR TAYLOR moved HB 102 from committee with individual
recommendations. There being no objection, the motion carried.
The committee recessed to a call of the Chair at 1:57 p.m.
HB 207 ADJUSTMENTS TO OIL AND GAS ROYALTIES
JOHN SHIVELY, Commissioner-designee of the Department of Natural
Resources, testified on HB 207. There are a variety of ideas about
how to provide the oil industry with the incentive to develop
marginal oil fields. HB 207 was a compromise effort that can be
implemented this year, as opposed to other ideas that may be
studied by the Governor's Oil and Gas Policy Commission. Royalty
reduction legislation has been on the books since 1959, therefore
the ability to change the amount of royalty is not a new idea. HB
207 specifically adds marginal fields and clarifies language in the
existing law related to fields that might be shut in, or abandoned,
to make the assessment process easier. Essentially, HB 207
requires the oil companies to have a delineated field or pool
before proposing a royalty reduction. DNR would then look at the
economics, based on the capital and operating costs, the price of
oil, and the volume of oil. DNR would either internally review the
proposal or hire experts to review it if the internal capacity was
unavailable. If outside consultants were hired, the industry would
pay for that service. If clear and convincing evidence is found
that a royalty reduction is justified short and long term, the
Commissioner would have to make a best interest finding that the
royalty reduction would be in the best interest of the state. A
public hearing process would then take place. In an amendment
adopted on the House floor, the DNR Commissioner would give a
presentation to the Legislative Budget and Audit Committee.
Number 560
SENATOR LEMAN discussed changes made to the bill in the House. The
original bill had a hold harmless provision for the permanent fund
that was removed; a provision for legislative awareness was added;
and the floor for reduction amounts was changed. He asked Mr.
Shively if those changes were acceptable to the administration.
MR. SHIVELY replied the House changed the language which held the
Permanent Fund harmless to providing floors. The reduction can be
75 percent for new marginal fields, and no more than 90 percent for
fields that are about to be shut in, or fields that have been
abandoned. Current law allows a zero percent royalty for the
latter fields, but the administration believes the floor should be
no more than 75 percent of the existing royalty. That royalty
would be split between the general and permanent funds. Regarding
the oversight provision, added on the House floor, DNR would give
a presentation anyway if Legislative Budget and Audit requested
one. Confidential information would be protected by provisions
under executive sessions.
SENATOR LEMAN cited a newspaper article by Stan Jones and asked
whether DNR would consider royalty reductions seriously if HB 207
passed. MR. SHIVELY answered that he hoped the situation referred
to was a particular agreement between BP and OXY. He anticipated
the industry to make serious proposals since they would be paying
for the economic review.
TAPE 95-47, Side B
SENATOR LEMAN indicated he saw the need to include in the bill
clear language describing the application process to avoid future
litigation.
MR. SHIVELY noted he believes the bill contains language that would
prevent the industry from litigating the decision by the
Commissioner. The administration does not believe the royalty
reduction is a right, but rather a privilege. It can only be
granted if justified, and in the state's best interest. He stated
he would support language to further clarify the process.
PAUL WESSELLS, representing BP Exploration-Alaska, read the
following for the record.
BP supports HB 207 and encourages this Legislature to enact
the bill this year. This bill represents a very positive step
along the road to development of the state's marginal new oil
fields and marginal projects within existing fields. It is
our belief that initiatives such as HB 207 signal a new spirit
of cooperation between the oil industry and state government.
It is this joint effort that will be required for the state to
fully realize the value of its oil and gas resources. In what
manner does HB 207 promote full development of the state's
resources? First, it clarifies the existing statute, by
specifying that new developments, that is properties that have
never produced oil and gas, may qualify for royalty reduction.
Second, the bill provides that relief may be granted for
individual leases, rather than solely as part of a unit
application, and allows for adjustments with respect to
individual pools of oil and gas within lease releases. The
bill takes additional steps to protect the public interest by
assuring that the Commissioner of Natural Resources will
receive the financial and technical information necessary to
allow a reasoned judgment on the merits of an application, and
by requiring that the costs of third party professional
assistance to the Commissioner in analyzing applications be
borne by the applicant. In addition, the public interest is
served by the provision in the bill that the state must
condition a reduction in royalty, on a readjustment at a later
time, if the circumstances which supported the grant of the
reduction change. It is this last aspect of the bill that
makes it clear that it is not just about reducing the
royalty obligations of producers in the absolute sense.
Indeed it is entirely possible that a royalty adjustment
program, negotiated by the state and a lease holder, will lead
to greater royalty payments over the full life of the
property. BP also believes the bill should allow the
Commissioner of Natural Resources to modify state net profit
share interests in the same way that it allows the
Commissioner to adjust state royalties. Net profit payments
and royalty payments are similar forms of economic rent, that
the state receives from leasing its lands for oil and gas
exploration and development. We think that giving the
Commissioner flexibility to address the full economic picture
when reviewing an application for adjustment, is a good idea,
so it does not seem appropriate to us to give the Commissioner
that flexibility with respect to just one form of economic
rent and not the other. Just as the state may gain by
modifications of the royalty obligations under a sliding scale
royalty mechanism, so it should gain in similar circumstances
by allowing appropriate modifications of a net profit
interest. We in BP believe that HB 207 will make it possible
for the state and the oil industry to devise, through open
sharing of information, in good faith negotiations, methods
for sharing the risk of developing marginal properties. It is
imperative that we capture the potential of these properties
to ensure a strong and stable industry and a strong and stable
Alaskan economy. Thank you for the opportunity to testify.
Number 532
SENATOR LEMAN asked Mr. Wessells if he believed the situation
described in the newspaper article he referred to earlier was a
unique circumstance because of the arrangement of the ownership.
MR. WESSELS remarked BP's position is that the application referred
to is a serious application. If one were to take the array of
applications the company might make on existing properties, the
one at Milne Point would be at the bottom of the spectrum, in terms
of the expectation of receiving relief. He did not feel it would
be appropriate to characterize the application as frivolous.
There being no further testimony on HB 207, SENATOR LEMAN announced
the next meeting would be held on Monday, and HB 208, HB 225, HJR
23, and HB 197 would be heard. He adjourned the meeting at 3:25
p.m.
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