Legislature(2007 - 2008)BUTROVICH 205

04/13/2007 03:30 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Time Limit May Be Set> --
Moved CSSB 109(RES) Out of Committee
-- Testimony <Time Limit May Be Set> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 13, 2007                                                                                         
                           3:36 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Charlie Huggins, Chair                                                                                                  
Senator Bert Stedman, Vice Chair                                                                                                
Senator Lyda Green                                                                                                              
Senator Gary Stevens                                                                                                            
Senator Bill Wielechowski                                                                                                       
Senator Thomas Wagoner, via teleconference                                                                                      
MEMBERS ABSENT                                                                                                                
Senator Lesil McGuire                                                                                                           
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 109                                                                                                             
"An Act  relating to  the regulation  and permitting  of drilling                                                               
and  other operations  by  the Alaska  Oil  and Gas  Conservation                                                               
Commission,  to civil  penalties assessed  by the  commission, to                                                               
reconsideration  and appeal  of decisions  and the  allocation of                                                               
costs in  investigations and hearings before  the commission, and                                                               
to  information  filed  with  and fees  of  the  commission;  and                                                               
providing for an effective date."                                                                                               
     MOVED CSSB 109(RES) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 96                                                                                                              
"An Act establishing  a renewable energy fund  and describing its                                                               
uses and purposes."                                                                                                             
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 109                                                                                                                  
SHORT TITLE: OIL & GAS CONSERVATION COMMISSION                                                                                  
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST                                                                   
03/07/07       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/07/07       (S)       RES                                                                                                    
03/12/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/12/07       (S)       Scheduled But Not Heard                                                                                
04/13/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
BILL: SB  96                                                                                                                  
SHORT TITLE: ESTABLISHING A RENEWABLE ENERGY FUND                                                                               
SPONSOR(s): SENATOR(s) ELLIS                                                                                                    
02/26/07       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/07       (S)       RES, FIN                                                                                               
04/13/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
CHERYL SUTTON                                                                                                                   
Staff to the Legislative Budget & Audit Committee                                                                               
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Presented SB 109.                                                                                         
JOHN NORMAN, Chair                                                                                                              
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported CSSB 109(RES).                                                                                  
KARA MORIARTY, External Affairs Manager                                                                                         
Alaska Oil and Gas Association (AOGA)                                                                                           
POSITION STATEMENT: Supported CSSB 109(RES).                                                                                  
ALAN BIRNBAUM, Assistant Attorney General                                                                                       
Oil and Gas Section                                                                                                             
Department of Law                                                                                                               
Anchorage AK                                                                                                                    
POSITION STATEMENT: Commented on SB 109.                                                                                      
MARK WORCESTER, Senior Counsel                                                                                                  
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported SB 109.                                                                                         
SENATOR ELLIS                                                                                                                   
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Sponsor of SB 96.                                                                                         
PETER CRIMP, Program Manager                                                                                                    
Alternative Energy and Energy Efficiency                                                                                        
Alaska Energy Authority                                                                                                         
POSITION STATEMENT: Supported SB 96.                                                                                          
SARAH FISHER-GOAD, Deputy Director                                                                                              
Alaska Energy Authority (AEA)                                                                                                   
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported SB 96.                                                                                          
MITCH ERICKSON, Executive Director                                                                                              
Nome Chamber of Commerce                                                                                                        
POSITION STATEMENT: Supported SB 96.                                                                                          
NELS ANDERSON, Jr., Chair                                                                                                       
Southwest Municipal Conference Energy Committee                                                                                 
Dillingham AK                                                                                                                   
POSITION STATEMENT: Supported SB 96.                                                                                          
MERRA KOHLER, President and CEO                                                                                                 
Alaska Village Electric Cooperative (AVEC)                                                                                      
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported SB 96.                                                                                          
ACTION NARRATIVE                                                                                                              
CHAIR  CHARLIE  HUGGINS  called  the  Senate  Resources  Standing                                                             
Committee meeting to order at 3:36:04  PM. Present at the call to                                                             
order  were Senators  Green, Wielechowski,  Stevens and  Huggins.                                                               
Senator Wagoner attended via teleconference.                                                                                    
3:36:41 PM                                                                                                                    
            SB 109-OIL & GAS CONSERVATION COMMISSION                                                                        
3:37:14 PM                                                                                                                    
CHAIR HUGGINS announced SB 109 to be up for consideration.                                                                      
CHERYL SUTTON, Staff to the  Legislative Budget & Audit Committee                                                               
(LB&A), testified  that SB 109  was introduced through  the Rules                                                               
Committee  by  request  of  LB&A  and  the  Alaska  Oil  and  Gas                                                               
Conservation  Commission  (AOGCC).  She  said  the  House  has  a                                                               
companion bill  that is exactly  like the  CS before them  and it                                                               
was moved from the House  Oil and Gas Committee yesterday without                                                               
objection. The  CS reflects  changes resulting  from interactions                                                               
between  the Alaska  Oil  and Gas  Association  (AOGA) and  other                                                               
industry members.                                                                                                               
3:38:24 PM                                                                                                                    
MS.  SUTTON  went through  the  changes  in  the CS  saying  that                                                               
sections 1, 2,  3, 5, 6, 9, 10 and  13 remain unchanged. Sections                                                               
4, 7, 8 and 11 are  reworded for clarity, but have no substantive                                                               
changes.  Section  12  is  reworded  for  clarity  and  adds  "an                                                               
underground interjection well for the  purpose of gas storage" to                                                               
the Commission's  list for permitted  wells. Section  14 combines                                                               
the  material contained  in sections  14 -  17 from  the original                                                               
bill and clarifies the language.                                                                                                
MS. SUTTON  said the substantive change  in the CS is  on page 8,                                                               
lines 18 - 19 and it  deals with the civil penalty the Commission                                                               
may  impose and  says "not  more  than $100,000  for the  initial                                                               
violation and  not more than  $10,000 for each day  thereafter on                                                               
which  the violation  continues."  The remainder  of the  section                                                               
consolidates the language from the  original bill's sections 14 -                                                               
17. She  said the  remaining sections  remain unchanged,  but are                                                               
renumbered to reflect the consolidation.                                                                                        
3:40:31 PM                                                                                                                    
CHAIR  HUGGINS asked  Commissioner Norman  to address  section 14                                                               
and asked if that was the most substantive piece.                                                                               
JOHN NORMAN,  Chair, Alaska Oil  and Gas  Conservation Commission                                                               
(AOGCC), said that section 14  is the updated penalty section and                                                               
it is one  of the substantive changes. The civil  penalty had not                                                               
been updated for almost 20 years.  It proposes an amendment to AS                                                               
31.05.150(a)  that  would  establish  a  $100,000  penalty  as  a                                                               
maximum that  could be  assessed by the  Commission for  a single                                                               
violation. Should  that violation continue unabated  for a number                                                               
of days,  it could  asses an  additional accumulating  penalty of                                                               
$10,000 a  day. The reason for  this change is because  there are                                                               
situations where the worst part  of an offense could occur within                                                               
a  24-hour  period and  the  offender  escapes a  proper  penalty                                                               
simply by  the violation's short duration.  Secondly, the $10,000                                                               
per day brings Alaska into line  with penalties other oil and gas                                                               
producing states use.                                                                                                           
CHAIR  HUGGINS   asked  if  anyone  vehemently   contested  those                                                               
MR.  NORMAN replied  that he  hasn't heard  anything, but  others                                                               
should speak on that.                                                                                                           
3:43:46 PM                                                                                                                    
SENATOR  STEVENS  asked for  the  reasoning  behind the  $100,000                                                               
MR. NORMAN  clarified that  the current penalty  is up  to $5,000                                                               
per day. If  a violation continued for five  days, the Commission                                                               
would  have the  ability to  assess  a maximum  of $25,000.  This                                                               
change would allow  the state to capture  serious violations that                                                               
might otherwise escape the continuing  penalty because they occur                                                               
in a  short time period.  For the most egregious  violations, the                                                               
Commission  could  assess  up  to   a  $100,000  penalty.  If  it                                                               
continued after that, the Commission  could assess as a maximum a                                                               
$10,000-per-day penalty.                                                                                                        
3:45:36 PM                                                                                                                    
MR.  NORMAN continued  saying that  existing  statutes also  have                                                               
criminal  penalties  that  are  levied by  the  court  under  the                                                               
Criminal Justice  system and those  would not be assessed  by the                                                               
Commission. However,  the old penalty  amount was a  lower amount                                                               
and it made  no sense not to  bring it up to $10,000  at the same                                                               
time they are doing this housekeeping amendment.                                                                                
He explained  that subsection 15(d),  which is  on page 8  of the                                                               
CS, increases the  penalty for the waste of  valuable natural gas                                                               
in  Alaska.  Currently, if  the  Commission  finds waste,  either                                                               
intentional or from operator negligence,  it can assess a penalty                                                               
against  that  operator  equal  to  the value  of  the  gas.  The                                                               
Commission believes that an adequate  penalty for wasting the gas                                                               
should not  be just the  value of the  gas, so that  they suggest                                                               
doubling that value.                                                                                                            
Subsection (g) is another important  subsection under section 14,                                                               
which  sets forth  a number  of specific  criteria that  give the                                                               
Commission guidelines  when assessing  a penalty and  is intended                                                               
to put  sideboards on the  assessments so the  Commission doesn't                                                               
use "unbridled discretion." Both parties  can refer to this check                                                               
3:47:49 PM                                                                                                                    
SENATOR WAGONER  asked how easy it  is to determine how  much gas                                                               
has been illegally flared under subsection (d).                                                                                 
MR.  NORMAN  replied that  operators  file  a disposition  report                                                               
every month  through an  engineer that  has to  be signed  off by                                                               
Commissioner Foerster. Every disposition  has to be reported, but                                                               
it  is fairly  easy to  do. Falsifying  a report  is at  the very                                                               
highest end  of the spectrum of  violations, so it is  not a good                                                               
idea to do that.                                                                                                                
3:50:00 PM                                                                                                                    
SENATOR  STEVENS asked  why language  in the  waste section  says                                                               
"may" instead of "shall".                                                                                                       
MR.  NORMAN  replied that  "may"  addresses  situations where  it                                                               
could  be a  very  close call  - for  instance,  once a  pipeline                                                               
experienced  harmonic  vibration  and  broke,  but  the  operator                                                               
notified the  Commission immediately.  If that  incident happened                                                               
again  to  the same  operator,  it  might  be a  different  call.                                                               
Sometimes  there  is  a  fine   line  between  acts  of  God  and                                                               
3:51:56 PM                                                                                                                    
MR. NORMAN  hit the rest  of the high spots  in the CS.  There is                                                               
reference to  granting the Commission the  statutory authority to                                                               
regulate  the underground  storage of  natural gas.  He said  the                                                               
Railbelt  and the  Cook Inlet  Basin are  no longer  stranded gas                                                               
provinces  and operators  no longer  have the  ability guaranteed                                                               
during peak periods  of demand to be able to  open the valves and                                                               
deliver all the gas that's  needed. They are taking the necessary                                                               
steps to  try to identify  spent-out reservoirs that can  be used                                                               
for  storage so  that during  the summer,  for example,  they can                                                               
continue to produce and put gas  into storage and then in periods                                                               
of peak  demand they can draw  not only upon the  reservoirs, but                                                               
upon  the storage.  This is  a common  practice elsewhere  in the                                                               
United States,  but while  the Commission  presumes to  have this                                                               
authority and  already exercises it,  it has not been  granted in                                                               
black-letter law.  They want to have  it in law to  eliminate any                                                               
future arguments.                                                                                                               
3:53:46 PM                                                                                                                    
SENATOR WAGONER asked  if he was talking about  the Swanson River                                                               
and Kenai gas fields.                                                                                                           
MR. NORMAN  replied yes;  and they  may see more  of that  in the                                                               
SENATOR WAGONER asked if Pretty  Creek (Kenai gas field) supplies                                                               
MR. NORMAN  replied that  he would  have to  get that  answer for                                                               
him. He  said another change in  the statute is to  include among                                                               
the recitals of authority and  responsibility of the Commission a                                                               
responsibility  to oversee  not just  conservation, waste,  fresh                                                               
water  et  cetera,  but  "safety  and  public  health".  This  is                                                               
consistent  with  the 2004  version  of  the  Model Oil  and  Gas                                                               
Conservation  Act  promulgated  by  the Interstate  Oil  and  Gas                                                               
Compact Commission.  It is being  proposed to keep Alaska  in the                                                               
forefront of  having one  of the  best regulatory  structures for                                                               
oil and gas in the United States.                                                                                               
3:56:08 PM                                                                                                                    
SENATOR STEDMAN joined the committee.                                                                                           
Another  change he  described as  a slight  course correction  in                                                               
Section  5.  He said  currently  the  AOGCC  has oversight  of  a                                                               
program that  requires well testing  and development  of baseline                                                               
information  for  the  exploration  and  development  of  coalbed                                                               
methane wells. This  change fine-tunes the wording  that now says                                                               
"when a well  is drilled for production or  production testing of                                                               
coalbed  methane" that  would trigger  the  requirement for  this                                                               
program  by making  "or production  testing" at  the Commission's                                                               
discretion.  Production  testing  presents minimal  risk  to  any                                                               
fresh  water   supplies  because   risk  occurs   almost  without                                                               
exception in  the exploration phase.  If, however, the  well then                                                               
progresses to where it goes on  to what is defined in regulations                                                               
as "regular production" then that requirement would be there.                                                                   
3:58:13 PM                                                                                                                    
SENATOR   WIELECHOWSKI  asked   if  they   are  eliminating   the                                                               
Commission's ability  to require  design and implementation  of a                                                               
well testing program if they are doing production testing.                                                                      
MR. NORMAN replied that he would say:                                                                                           
     We  don't really  have  the ability  to  require it.  I                                                                    
     believe the  statue mandates  that this  be done  and a                                                                    
     triggering  event  is  the  drilling  and  then  if  an                                                                    
     operator  wishes to  test  and see  if  they've made  a                                                                    
     discovery,   that  triggers   this  program   which  is                                                                    
     expensive.  And it  isn't because  of the  expense that                                                                    
     we're  recommending it.  But  if it  is  very low,  low                                                                    
     yield -  next to  nothing -  there's no  risk at  all -                                                                    
     that I would  represent to you - to any  fresh water as                                                                    
     a  result  of  production  testing.  If,  however,  the                                                                    
     operator moves into regular  production from that well,                                                                    
     then all  of the  protections that  are now  in statute                                                                    
     would remain. So, it's just this one small change.                                                                         
3:59:27 PM                                                                                                                    
SENATOR WIELECHOWSKI  said it is  a very controversial  issue. He                                                               
asked  Mr.  Norman  if  there  was absolutely  no  risk  of  well                                                               
contamination in production testing for coalbed methane.                                                                        
3:59:47 PM                                                                                                                    
MR. NORMAN  replied that it's not  often that he would  say there                                                               
is absolutely  no risk and he  didn't know if he  should now, but                                                               
all of life  is a matter of cost benefit  analysis. In the things                                                               
the  Commission regulates  and of  the things  that can  go wrong                                                               
every day  in the drilling  that's going  on right now,  there is                                                               
"minimal, minimal,  minimal risk from  just testing a  well." The                                                               
well has  already been drilled;  the operator just wants  to test                                                               
it. Once it goes to  regular production, careful monitoring would                                                               
be instituted.                                                                                                                  
CHAIR  HUGGINS  asked if  the  change  didn't prevent  them  from                                                               
testing a well once it is in production.                                                                                        
SENATOR WIELECHOWSKI said if there was  no risk, he didn't have a                                                               
problem with not  requiring well testing, but if  there was risk,                                                               
he didn't want to delete that requirement.                                                                                      
MR. NORMAN replied among all  the things the Commission regulates                                                               
this is way  down at the total bottom of  the scale of presenting                                                               
any  threat to  fresh water.  The risk  is involved  once a  well                                                               
begins to produce and the  pressure changes between the water and                                                               
4:03:36 PM                                                                                                                    
CHAIR  HUGGINS  said  this  doesn't  eliminate  the  Commission's                                                               
ability to  do testing  at a  time when  production and  the real                                                               
risk potentially might come to fruition.                                                                                        
MR.  NORMAN agreed  emphatically  and added  that the  Commission                                                               
still  has the  ability  to impose  conditions  before issuing  a                                                               
drilling permit  if it sees the  need. This just mandates  it for                                                               
coalbed methane.                                                                                                                
CHAIR HUGGINS asked if this change was lobbied for by industry.                                                                 
4:06:07 PM                                                                                                                    
MR. NORMAN replied,  "No, sir. This change was  brought about and                                                               
identified by  the Commission." It  became apparent to  them that                                                               
this requirement didn't serve a useful purpose.                                                                                 
He said  the AOGCC is  one of  the oldest regulatory  agencies in                                                               
Alaska. It was  enacted pursuant to Chapter 4, SLA  1955. This is                                                               
remarkable  because   that  is  before  oil   was  discovered  in                                                               
commercial quantities here and  predates statehood. The framework                                                               
has  served  them  remarkable  well over  these  many  years  and                                                               
demonstrates   remarkable  foresight   on  the   part  of   those                                                               
He said  this act contains  its own provisions about  appeals for                                                               
decisions  of the  AOGCC  in Section  10 that  seem  to grant  an                                                               
automatic trial de  novo. These provisions are  outmoded and were                                                               
superseded by general rules that  were applicable to appeals from                                                               
all  administrative  agencies.  This has  been  the  Commission's                                                               
position.  Occasionally people  have contested  this and  in each                                                               
case the Commission has prevailed  and most recently in a Supreme                                                               
Court decision, Allen  v AOGCC 147 Pacific 3   664. This language                                                               
cleans up that issue and brings alignment to statute.                                                                           
4:11:04 PM                                                                                                                    
MR.  NORMAN went  to Section  12 that  proposes to  eliminate the                                                               
statutory  fee  of   $100  for  a  permit  to   drill.  This  fee                                                               
contributes a  total of $25,000  per year toward the  agency's $4                                                               
million-year-plus budget.  It has not  been changed for  at least                                                               
37 years and started out in 1955 at $50 going to $100 in 1970.                                                                  
The  Commission  considered  a  range  of  options  for  the  fee                                                               
including increasing it - some  states charge a fairly hefty fee;                                                               
others don't charge  at all. They considered the  effect upon new                                                               
companies  coming in  to Alaska  as well  as consulting  with the                                                               
current  regulatory   industry  that  pays  the   regulated  well                                                               
regulatory cost charge  that funds the operations  of the agency.                                                               
And now  the Commission recommends deleting  the $100-penalty. It                                                               
doesn't  serve much  of  a  purpose simply  because  many of  the                                                               
companies  that  pay the  regulatory  cost  charge also  wind  up                                                               
paying this $100 fee which is  then deducted from what they would                                                               
otherwise pay. But  it causes a fair amount of  accounting at the                                                               
end  of  the year  with  a  true up  and  an  adjusted bill.  The                                                               
administration supports this bill.                                                                                              
SENATOR  WIELECHOWSKI  asked  if  it  costs  $25,000  to  do  the                                                               
accounting for the fee.                                                                                                         
MR. NORMAN replied no, but it  comes out as a deduction and there                                                               
is no net gain to the state in keeping it.                                                                                      
4:14:45 PM                                                                                                                    
MR. NORMAN  went to  Section 7,  which makes  more well  data and                                                               
applications  to   drill  information   public  and   makes  that                                                               
information  public sooner  than is  the  case now  in two  ways.                                                               
First,  it  narrows  the  field   of  wells  that  would  receive                                                               
protection   of   confidentiality    only   to   exploratory   or                                                               
strategraphic  wells, because  the  Commission believes  industry                                                               
has  a  legitimate  reason  to want  to  retain  its  proprietary                                                               
information. It cost them a lot  of money to drill the wells. But                                                               
most  of the  wells are  development wells  and the  greater good                                                               
will be  served by getting  the information  on those out  to the                                                               
public. So  the bill proposes  to eliminate  what is now  the 24-                                                               
month  period  of confidentiality  for  those  wells making  that                                                               
information public immediately upon delivery to the AOGCC.                                                                      
A  second  part  addresses  applications for  permits  to  drill.                                                               
Historically  an  application for  a  permit  to drill  has  been                                                               
treated  as  confidential  and  except  for  certain  information                                                               
listed in the  statute, can not be released for  2 months. Again,                                                               
that cloak of confidentiality is  limited to only exploratory and                                                               
strategraphic  test  well  information   and  then  only  to  the                                                               
information   the  Commission   determines  is   proprietary  and                                                               
deserving of protection. The main thrust  of this again is to get                                                               
more  information out  to the  public  and to  avoid putting  the                                                               
Commission in  the position of saying  no to a citizen  who wants                                                               
to see an application. They want  to strike a balance between the                                                               
legitimate needs of the industry for proprietary protection.                                                                    
CHAIR  HUGGINS summarized  that this  enhances public  knowledge,                                                               
rather than reducing it.                                                                                                        
MR. NORMAN replied that is correct.                                                                                             
4:17:32 PM                                                                                                                    
MR. NORMAN  continued on  saying another  provision in  Section 8                                                               
provides that information voluntarily  provided to the Commission                                                               
makes it clear that by receiving  it in that fashion they are not                                                               
guaranteeing that protection will carry  over in a future hearing                                                               
or  to another  application.  Currently  and for  a  long time  a                                                               
company has been able to  provide information voluntarily but can                                                               
ask  to have  it remain  confidential. That  proceeding will  now                                                               
have  to  stand  on  its  own  legs.  They  are  eliminating  any                                                               
potential  that  a  company  might   argue  that  it  voluntarily                                                               
provided  information  to  the  Commission  in  2007  and  it  is                                                               
confidential; so now in 2010  when they are filing this petition,                                                               
this  information  is  already confidential.  The  Commission  is                                                               
saying that  it won't work that  way because it has  to develop a                                                               
public  record that  will support  its decisions.  This does  not                                                               
reduce public  awareness and he  said that all  the commissioners                                                               
recommend  this  legislation   for  favorable  consideration  and                                                               
4:20:52 PM                                                                                                                    
SENATOR  STEVENS asked  on page  9  subsection (e)  if a  knowing                                                               
violation penalty is used very often.                                                                                           
MR.  NORMAN replied  that  subsection (e)  is  not something  the                                                               
Commission  would  use;  it  is about  something  that  would  be                                                               
prosecuted  criminally.   The  Commission  can   introduce  civil                                                               
penalties and those are addressed  in subsection (a) that says if                                                               
an action is so willful that it  rises to the level of a criminal                                                               
violation, that  it can also  be prosecuted criminally  and would                                                               
constitute a misdemeanor.                                                                                                       
SENATOR STEVENS asked if that penalty is being left at $10,000.                                                                 
MR.  NORMAN   replied  yes   because  he   thinks  it   would  be                                                               
presumptuous of the  Commission to begin to delve too  far into a                                                               
criminal  issue.  It's  up  to   the  Criminal  Division  of  the                                                               
Department of Law to decide if that number should be increased.                                                                 
4:23:20 PM                                                                                                                    
KARA  MORIARTY,  External Affairs  Manager,  Alaska  Oil and  Gas                                                               
Association (AOGA),  supported SB  96 and Mr.  Norman's suggested                                                               
changes  and  supported the  changes  in  the  CS. She  hoped  to                                                               
continue working with them on clarifying questions.                                                                             
ALAN BIRNBAUM,  Assistant Attorney  General, Oil, Gas  and Mining                                                               
Section, Alaska  Department of Law,  said he is  representing the                                                               
AOGCC and  that Mr.  Norman did an  excellent job  of summarizing                                                               
the CS. He  wanted to clarify that the last  reference to Section                                                               
14(e) on the  top of page 9  changes the penalty from  what it is                                                               
in statute today at $5,000 a day to $10,000 a day.                                                                              
4:27:34 PM                                                                                                                    
MARK WORCESTER,  Senior Council,  ConocoPhillips, said it  is the                                                               
largest  producer in  Alaska  and the  most  active explorer.  He                                                               
supported Mr.  Norman's explanation  of the CS  and congratulated                                                               
him on  being so diligent  in updating its statutes,  making sure                                                               
that  ConocoPhillips understands  what  he is  trying  to do  and                                                               
listening  to their  concerns. His  responses are  thoughtful and                                                               
thorough. He  said ConocoPhillips  supported this bill  and urged                                                               
its passage.                                                                                                                    
SENATOR STEDMAN  moved to adopt  CSSB 109(RES), version  M. There                                                               
were no objections and it was so ordered.                                                                                       
4:29:59 PM                                                                                                                    
SENATOR STEVENS asked if the  Commission was celebrating its 50th                                                               
MR. NORMAN replied  that they are preparing a  history right now,                                                               
which is  somewhat of  a history  of all of  Alaska for  the 50th                                                               
anniversary. He  anticipated being  able to widely  distribute it                                                               
showing the  evolution of  the industry that  is so  important to                                                               
the State of Alaska.                                                                                                            
SENATOR STEDMAN moved  to pass CSSB 109(RES)  from committee with                                                               
individual recommendations  and zero  fiscal note. There  were no                                                               
objections and it was so ordered.                                                                                               
4:32:57 PM at ease 4:36:21 PM                                                                                               
          SB  96-ESTABLISHING A RENEWABLE ENERGY FUND                                                                       
4:36:34 PM                                                                                                                    
CHAIR HUGGINS announced SB 96 to be up for consideration.                                                                       
SENATOR ELLIS, sponsor of SB 96,  said renewable energy is a very                                                               
mainstream issue  and Alaska can  be a  leader in the  country by                                                               
moving  forward on  it now.  All our  congressional leaders  have                                                               
mentioned it  as a priority  and there is recognition  across the                                                               
political  spectrum  about the  value  and  wisdom of  developing                                                               
renewable  energy resources  in  the  State of  Alaska  so it  is                                                               
timely.  There is  money to  be  saved and  money to  be made  by                                                               
selling  the  power  and the  technology.  Alaska  has  excellent                                                               
sources for renewable  energy - such as  wind, geothermal, solar,                                                               
biomass and  hydropower to name a  few - and the  intelligence to                                                               
develop them.                                                                                                                   
He  said SB  96 would  establish a  renewable energy  fund to  be                                                               
administered  by the  Alaska Energy  Authority  (AEA) that  would                                                               
offer both grants  and loans to communities  to develop renewable                                                               
and cost-effective sources of energy  around the state. AEA would                                                               
take advice from an advisory  committee with members appointed by                                                               
the governor from various stakeholder groups.                                                                                   
SENATOR  ELLIS  said  SB  96  is  a  logical  progression  toward                                                               
developing Alaska's  inexhaustible energy resources and  it means                                                               
looking ahead  to the next  100 years.  He said there  is amazing                                                               
support for  this building  across the state  and the  list grows                                                               
daily.  To  name  a  few   -  Mat-Su  Borough,  Southeast  Alaska                                                               
Municipal Conference, Alaska  Municipal League, Chugach Electric,                                                               
Golden Valley Electric Association,  Alaska State Chamber, Alaska                                                               
Federation of Natives and Municipal Light and Power.                                                                            
4:40:30 PM                                                                                                                    
PETER  CRIMP,  Program  Manager, Alternative  Energy  and  Energy                                                               
Efficiency, Alaska  Energy Authority, said AEA  supported efforts                                                               
to  further develop  the state's  renewable energy  resources. He                                                               
said the  market for  renewable energy is  increasing due  to the                                                               
increase in oil and gas  prices. Hydropower has been providing 25                                                               
percent of the state's energy for  a long time and there are many                                                               
potential  hydro  projects  throughout  Southeast,  Railbelt  and                                                               
rural Alaska  that look promising.   They range in size  from 200                                                               
kilo watt  project in Chignik Lagoon  to a 430 mega  watt project                                                               
in the  Chakachamna project. He  said wind energy has  been shown                                                               
to  be cost  effective in  30 to  45 locations  in rural  Alaska.                                                               
Kodiak is developing an 8  mega watt wind facility, Golden Valley                                                               
has been working toward developing  a large wind farm near Healy,                                                               
and CIRI  with a number  of Railbelt utilities is  moving forward                                                               
on Fire Island.                                                                                                                 
As for geothermal, Chena Hot  Springs in Fairbanks has shown that                                                               
it  is  looking pretty  good.  That  project is  displacing  over                                                               
100,000 gallons  of diesel per year.  The Valley is looking  at a                                                               
potential project at Mt. Spur of 25 to 100 mega watts.                                                                          
4:42:53 PM                                                                                                                    
MR. CRIMP said that wood  is abundant throughout the Interior and                                                               
areas where  there isn't wind  and is being used  for small-scale                                                               
thermal   applications  like   heating   schools  and   community                                                               
facilities.   Small-scale   modular  bio-power   technology   and                                                               
innovative  harvesting techniques  are being  looking at  also as                                                               
well  as cellulosic  ethanol development  in Southeast  Alaska by                                                               
Sealaska. The economics  of that are still  questionable, but the                                                               
technology is under development.                                                                                                
He said that AEA and its  utility partners are continuing to work                                                               
in other  areas such  as fish oil  bio-diesel and  tidal industry                                                               
using the  flow of the  rivers in  the Interior and  elsewhere to                                                               
generate power.                                                                                                                 
4:47:35 PM                                                                                                                    
CHAIR  HUGGINS  asked  if  there  was a  market  for  birch  bark                                                               
MR. CRIMP  replied that AEA  and AIDEA have  considered financing                                                               
pellet  manufacturing  facilities  both  as  an  industrial-grade                                                               
pellet  that could  be used  to produce  power in  a conventional                                                               
power  plant as  well as  a  feeding a  residential market.  Just                                                               
about all  pellets from all  species burn quite cleanly  and have                                                               
been widely used throughout the Lower 48.                                                                                       
CHAIR HUGGINS asked why he  thought the Chakachamna project would                                                               
be any different than the Susitna hydro project.                                                                                
MR. CRIMP replied both projects  are large with potential impacts                                                               
that  would need  to  be  studied before  they  move forward.  He                                                               
didn't want  to portray the Chakachamna  project as a go.  It has                                                               
many  hurdles  in terms  of  power  market, fish  migration,  and                                                               
economics  that would  have  to  be leapt  over  and the  Susitna                                                               
project has many of the same hurdles.                                                                                           
4:48:34 PM                                                                                                                    
CHAIR HUGGINS asked how he got into this business.                                                                              
MR. CRIMP said  he had worked with  the AEA for 14  years and has                                                               
moved up  through the ranks.  He is a  forester and a  planner by                                                               
background and  got hired  to manage  the state's  biomass energy                                                               
program.  His duties  have expanded  onto  the economic  analysis                                                               
side and overall project planning.                                                                                              
4:49:22 PM                                                                                                                    
SARAH  FISHER-GOAD,  Deputy  Director, Alaska  Energy  Authority,                                                               
said that  Mr. Crimp did a  good job on an  overview of renewable                                                               
energy projects.  She said the companion  bill is HB 152  and she                                                               
pointed out that based on  AEA's recommendation the House changed                                                               
the bill from being a combination  grants and loan fund to just a                                                               
grant fund.  This is  because the loan  provision was  actually a                                                               
duplication of an existing program in the Power Projects Fund.                                                                  
4:51:21 PM                                                                                                                    
SENATOR STEVENS asked her to explain  language on page 4 of SB 96                                                               
where it  says "must link  a renewable energy project  or natural                                                               
gas project to the electric grid."                                                                                              
MS.  FISHER  replied  that  language had  changed  in  the  House                                                               
version  to  "transmission  or distribution  infrastructure"  and                                                               
doesn't refer to the electric grid at all.                                                                                      
4:52:47 PM                                                                                                                    
MITCH  ERICKSON, Executive  Director, Nome  Chamber of  Commerce,                                                               
supported SB 96.  He said the Nome Chamber held  a two-day energy                                                               
summit  to look  for  alternatives to  diesel  in both  community                                                               
power  generation and  home heating.  It  was spurred  by the  20                                                               
percent  annual increases  in diesel  fuel prices  over the  past                                                               
several years. Very  few people receive pay raises  to match this                                                               
cost  of living  and some  locals  see their  winter heating  and                                                               
utility bill  is higher than  their mortgage payment.  Their goal                                                               
is to  wean their community  from diesel  as a primary  source of                                                               
energy. Experts addressed wind,  hydrogen, solar, geothermal, and                                                               
nuclear as well  as the funding and financing  available. He said                                                               
members of  AEA participated  and that  the City  of Nome  is now                                                               
conducting an  energy study along  with the Department  of Energy                                                               
and the  AEA to  see what  individuals and  businesses can  do to                                                               
lower  their  energy costs.  It  included  better insulation  and                                                               
using wind and  solar as a secondary source of  energy. One point                                                               
that came out of  the energy summit was the need  for a fund such                                                               
as SB 96.                                                                                                                       
He said the Chamber  has not been able to find  an expert to work                                                               
with  them  on  these  issues  and it  is  trying  to  develop  a                                                               
relationship with  the University  of Minnesota solar  energy lab                                                               
for its technical expertise.                                                                                                    
4:55:52 PM                                                                                                                    
NELS ANDERSON, Jr., Chair,  Southwest Municipal Conference Energy                                                               
Committee, Dillingham,  said he is  also a member of  the Bristol                                                               
Bay  Alternative Energy  Task  Force.  He said  SB  96 is  needed                                                               
because  their villages  are almost  totally dependent  on diesel                                                               
for their  electricity. Many  pay 50  to 75  cents per  kilo watt                                                               
hour for their electricity; most  individuals spend any available                                                               
money on lighting  and heating their homes. He said  "SB 96 needs                                                               
to pass as soon  as possible" and they believe the  AEA can do an                                                               
excellent job  in implementing the  renewable energy fund.  SB 96                                                               
is  the key  to unlocking  all of  Alaska's remarkable  renewable                                                               
energy resources.                                                                                                               
MERRA  KOHLER,   President  and  CEO,  Alaska   Village  Electric                                                               
Cooperative  (AVEC), supported  SB 96.  She said  AVEC is  a non-                                                               
profit  electric utility  that  serves 52  villages primarily  in                                                               
northwest and  western Alaska.  Their 21,000  residents represent                                                               
almost  half  of Alaska's  village  population.  They operate  47                                                               
power plants,  almost all of  them are exclusively  diesel. Since                                                               
2000 they have  made tentative efforts to add a  few renewables -                                                               
all  wind. They  now have  supplemental wind  generation in  four                                                               
villages  and the  benefits of  those  four flow  to another  two                                                               
communities through interties. One  more intertie is being built.                                                               
Two  more wind  projects  are  being planned  for  this year  and                                                               
another two for next year.                                                                                                      
She said these projects have  been almost exclusively funded with                                                               
federal and  local dollars; very  little or no state  dollars are                                                               
involved in any  of those projects. Utility  generation in Alaska                                                               
is  very expensive.  They can  only use  small wind  turbines and                                                               
their construction  costs are  staggering due  to the  arctic and                                                               
sub-arctic  conditions  and  that  is why  development  of  these                                                               
projects  is   very  slow.  Other  technologies   are  only  just                                                               
emerging. Alaska  needs a  renewable energy  bill to  support the                                                               
development of  renewable power sources in  its communities. AVEC                                                               
supported both versions of this bill.                                                                                           
5:00:26 PM                                                                                                                    
SENATOR  WAGONER  asked if  she  could  relate any  reduction  in                                                               
diesel electric generation because of using wind generation.                                                                    
MS.  KOHLER answered  that their  two most  recent projects  that                                                               
became functional last year in  Kasigluk and Toksook Bay are both                                                               
excellent  wind  regimes  and  expectations  have  been  exceeded                                                               
during the high wind months of  this last winter. In January they                                                               
displaced  more than  30 percent  of  their diesel  fuel in  both                                                               
communities.  The cost  of  fuel in  those  communities is  about                                                               
CHAIR  HUGGINS said  members  had other  meetings  to attend  and                                                               
adjourned the meeting at 5:02:48 PM.                                                                                          

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