Legislature(1995 - 1996)
04/22/1995 01:17 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.