Legislature(1999 - 2000)
04/12/1999 03:12 PM Senate RES
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SENATE RESOURCES COMMITTEE
April 12, 1999
3:12 p.m.
MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Robin Taylor, Vice Chairman
Senator Pete Kelly
Senator Jerry Mackie
Senator Lyda Green
MEMBERS ABSENT
Senator Sean Parnell
Senator Georgianna Lincoln
COMMITTEE CALENDAR
SENATE BILL NO. 133
"An Act creating and providing for the Alaska Energy Conservation
Commission and transferring to it the powers and duties of the
Alaska Public Utilities Commission and the Alaska Oil and Gas
Conservation Commission; repealing the Alaska Public Utilities
Commission and the Alaska Oil and Gas Conservation Commission;
relating to regulation of waste collection and disposal; relating
to the powers of the chair of the Alaska Energy Conservation
Commission; relating to the appellate procedures of the Alaska
Energy Conservation Commission; and providing for an effective
date."
-HEARD AND HELD
SENATE BILL NO. 134
"An Act authorizing the Alaska Oil and Gas Conservation Commission
to determine the amount of and to collect a charge for operating
wells subject to the commission's jurisdiction, and to allocate
expenses of investigation and hearing, and repealing the oil and
gas conservation tax; and providing for an effective date."
-MOVED CSSB 134(RES) OUT OF COMMITTEE
PREVIOUS SENATE COMMITTEE ACTION
SB 133 - No previous action to consider.
SB 134 - No previous action to consider.
WITNESS REGISTER
Senator Drue Pearce
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Sponsor of SB 133 and SB 134.
Mr. Robert Christenson, Chairman
Alaska Oil and Gas Conservation Commission
3001 Porcupine Dr.
Anchorage, AK 99508
POSITION STATEMENT: Commented on SB 133 and SB 134.
Mr. Eric Yould, Executive Director
Alaska Rural Electric Cooperative Association
703 W Tudor #200
Anchorage, AK 99503
POSITION STATEMENT: Commented on SB 133.
Ms. Ginny Faye, Legislative Liaison
Department of Commerce and Economic Development
P.O. Box 112100
Juneau, AK 99811-2100
POSITION STATEMENT: Commented on SB 133 and SB 134.
Mr. Jim Arneson
Commercial Refuse, Inc.
750 E. International Rd.
Anchorage, AK 99518
POSITION STATEMENT: Opposed SB 133.
Mr. Jim Rowe, Director
Alaska Telephone Association
201 E. 56th #114
Anchorage, AK 99516
POSITION STATEMENT: Opposed SB 133.
Ms. Heather Grahme
Waste Management, Inc.
1031 W 4th Ave.
Anchorage, Ak 99501
POSITION STATEMENT: Commented on SB 133.
Ms. Pam Krieber
Valley Refuse
P.O. Box 879109
Wasilla, AK 99687
POSITION STATEMENT: Opposed SB 133.
ACTION NARRATIVE
TAPE 99-24, SIDE A
Number 001
SB 133-COMBINE APUC AND AOGCC
CHAIRMAN HALFORD called the Senate Resources Committee meeting to
order at 3:12 p.m. and announced SB 133 to be up for consideration.
SENATOR PEARCE, sponsor of SB 133 and SB 134, said she would give
an overview of the two together and then speak specifically to SB
134. She said she would speak more specifically to the AOGCC side,
since this was the Resources Committee.
Her goals and objectives in putting these bills together are
numerous. Last summer, she received a call from Ms. Cammy Oechsli,
one of the commissioners of AOGCC, who wanted to talk about funding
problems the AOGCC is facing. The AOGCC is loosely attached to the
Department of Administration. It serves a very important function
in terms of conservation in the oil and gas fields throughout the
State.
AOGCC has a funding mechanism in statute that depends on oil and
gas conservation taxes along with a fee for inspection services of
wells. The taxes and the inspection fees that have come in to the
general fund over past years have exceeded the amount of money the
legislature has appropriated to the AOGCC. The number of active
wells this agency is supposed to oversee is increasing, which is
good, but the number of employees the legislature has allowed for
that function has substantially decreased, which is not good.
After discussions with Ms. Oechsli, SENATOR PEARCE suggested
looking at the APUC funding mechanism, a designated program receipt
system, making the entities being overseen directly responsible for
paying for that function. AOGCC would not be a profit making
entity, but one that pays for itself. This would allow the
Commission to have the number of employees it needs. She added
that the AOGCC has not been audited since 1991.
SENATOR PEARCE said she has also heard concerns about a perception
of dysfunction at the APUC. In thinking about both entities, she
came up with the idea of putting the two regulatory agencies
together in a structure that many other states have.
SB 133 combines the AOGCC and the APUC. It repeals both commissions
and allows for a reasonable transition period. It requires that
all existing regulations and matters pending before both
commissions be carried forward. She thought this would improve the
long-term function, effectiveness, and efficiency of both
commissions in a number of ways.
The new entity will be set up as an independent, quasi-judicial
agency of the State called the Energy Conservation Commission. It
would have seven members appointed by the Governor and confirmed by
the Legislature. The Commission would nominate to the Governor one
public member of the Commission as the chairperson. The Governor
could then choose that person or choose to appoint another person
as chair. The chair would serve for a term of four years but could
not be appointed for successive terms. This feature is already
embodied in the AOGCC statutes because of concerns about a previous
chair.
The Commission would be composed of five members from the general
public, one a petroleum engineer and one a geologist. Currently,
the AOGCC has a petroleum engineer, a petroleum geologist, and one
public member. The APUC currently has two public members, an
accountant, an engineer with electrical experience, and an
attorney.
The bill addresses a number of other technical matters such as a
time management system to maintain a record of time that applies to
all staff and the administrative director and commissioners. It
adds three junior positions to the AOGCC function: a junior
reservoir engineer, a junior petroleum engineer, and a junior
petroleum geologist. All three positions would be filled by
qualified professionals capable of moving into the senior
positions. One problem is that the institutional knowledge is only
one person deep at present. The people in the senior positions
today are nearing the end of their professional careers and will
most likely retire within the next five to 10 years. There is no
one backing them up to move into those positions.
The joint entity would add one hearing officer, which should help
the ongoing time constraints for both commissions. They have added
an office manager and eliminated the executive director position of
APUC.
SENATOR PEARCE said it was not her intent to necessarily save
dollars, but she thought over the long term the Commission would be
more efficient and provide more effective services. She said she
deferred to AOGCC statutes any time there was a question, because
of the perception that it is working more efficiently at the
moment. The powers and duties of the Commission have been upgraded
in that the bill sets up a system to work like an appeal process in
a court of appeals. The chairperson would empanel three
commissioners to consider decisions before the Commission.
Under this bill, the chairperson can assign an individual
commissioner to act as a hearing officer, a procedure used by the
AOGCC. It contains an appeal process that allows a case to be
heard by a larger number of commissioners if the entities involved
want to appeal. That is also patterned after the court of appeals.
SENATOR PEARCE said she would like to add to the draft that the
entity could ask for an appeal to a larger commission and the
commission could decide whether or not to accept that. She is
having an amendment drafted that would make the appeal process only
available if the opinion of the panel directly conflicts with an
existing opinion that was made by an earlier PUC. Appeals would
not be granted under any other circumstances. Because it has been
requested in every audit of the APUC, she said the only policy
change in the bill is that it would deregulate the refuse industry.
Number 250
SB 134-WELL REGULATORY COST CHARGE/CONS TAX
SENATOR PEARCE explained that SB 134, the program receipts bill,
repeals the existing oil and gas conservation tax and institutes a
stable funding source to assure the Commission is capable of
carrying out its objective of protecting the public interest. Its
primary goal is to ensure that no hydrocarbons are wasted and that
operations are conducted in a manner that provides maximum recovery
of the resource. The original intent of the Legislature was to
have the oil and gas industry pay for this function of the
Commission through the oil and gas conservation tax. The system
was adequate in the past, but it is no longer sufficient to cover
the costs associated with the operation of the Commission. The
conservation tax is directly proportional to deduction with a
formula per barrel fee rate. The work of the Commission is not
proportional to the production of oil and gas. Production is
declining, but the work of the Commission is not.
SB 134 creates a program receipt system in which the regulatory
cost charge is directly associated with the total volume of fluids
produced or injected. This type of system more accurately reflects
the factors directly associated with the workload of the
Commission. It would only assess costs when there is production or
injection. Exploratory wells would not have that burden until they
begin production. It also contains a provision to provide for
recovery of costs associated with an investigation or hearing.
Those costs would be allocated to the parties involved, as opposed
to being allocated across all wells in production.
SB 134 creates a stable funding source that would enable the AOGCC
to provide the monitoring services necessary to protect the future
of Alaska's interests. She said she was unaware of the fact that as
of June 1 the AOGCC was going to have to close its doors because of
a budget shortfall. The Commission has not received any money for
maintenance of their building in at least 10 years and they
desperately need a new roof because they have leaks that are
causing them to cover their desks with visqueen at night. They are
concerned about losing many of the records that they are charged
with keeping by statute.
The proposed CS (N version by Mr. Chenoweth) changes language on
page 2, line 18 to "calendar year" because the industry reports are
done by calendar year. This reflects the legislature's and the
AOGCC's intent to have the flexibility to assess the regulatory
cost charge by field, pool, or well.
Also, language on page 4, lines 11-17, contains new transition
language that will allow them to continue the regulatory cost
charge until the new regulations take effect under SB 133.
CHAIRMAN HALFORD asked if the new mechanism would generate about
$2.3 million per year while the old one generates about $1.5.
SENATOR PEARCE answered that the new mechanism could generate more
than that.
Number 320
SENATOR MACKIE moved to adopt the CS (LS0259/N Chenoweth) to SB
134. There were no objections and it was so ordered.
COMMISSIONER CHRISTENSON, Chairman of the AOGCC, said their job is
to watch the subsurface estate for the State of Alaska and to
settle disputes on property, etc. The AOGCC controls all of the
drilling done in the State. It also keeps track of all records for
the wells drilled in the state since it started. It keeps track of
production, voidage and pressure of reservoirs. It sets up all of
the rules for production at Prudhoe Bay, the production limits that
provide maximum recovery from the resource. The AOGCC also
provides for the inspection of rigs from a conservation and safety
standpoint on the North Slope. It inspects on the Slope 24 hours a
day, seven days a week, checking drilling rigs to make sure they
meet safety requirements. It does surface and subsurface
inspections on safety valves and a secondary blowout prevention
system. He added that Alaska has a very good position and
excellent record regarding the amount of wells drilled and the
amount of blowouts that have happened with five gas blowouts in the
total time drilling has occurred in Alaska and no fluids on the
tundra. It believes the current systems are working.
With the current budget problems, the Commission has been forced to
give inadequate attention to things like reservoir management and
inspections for proper compliance. The budget mechanism is very
important. The current system is set up on a declining scale so
AOGCC gets less and less money as production goes down but, more
importantly, it does not represent the AOGCC's workload. The wells
in the fields last 20-25 years and the Commission conducts numerous
operations on them from the time they are spudded until they are
closed out and abandoned.
CHAIRMAN HALFORD asked him what his plan was for the month of June
if they didn't get a supplemental passed.
COMMISSIONER CHRISTENSON said the plan was to be the least
interruptive as possible to the total scheme. The inspection team
is on a three-week schedule and accumulates overtime and actually
trades it in for comp time. Because they are on that schedule, the
AOGCC will have to make sure it doesn't have an overtime cost
impact on June 1. They will change their schedules on the Slope.
On June 4, the three commissioners, the three professional
engineers, and the four inspectors will be put on leave without pay
status. One lady is on maternity leave. They will continue to
receive production reports and do the data gathering and those
kinds of things. The effect is that no new work will be going on
from June 4 until July 1.
CHAIRMAN HALFORD asked what the plan for the roof is and who is
responsible for it.
COMMISSIONER CHRISTENSON answered that they hadn't found anyone who
would take responsibility for it and the AOGCC's budget doesn't
cover any maintenance.
CHAIRMAN HALFORD asked if they had money, would they get to spend
it or would DOT take it and then give it to the Commission to
spend.
COMMISSIONER CHRISTENSON said DOT would take if first and then give
it back.
Number 420
SENATOR PEARCE commented that the building is in a part of
Anchorage that is unsafe at night according to staff and
commissioners.
CHAIRMAN HALFORD asked if the AOGCC would move its offices to
another location if it had the financial resources.
COMMISSIONER CHRISTENSON said it would and that the State needs to
make a decision about that building, because it is old and needs a
lot of work. It doesn't meet any OSHA requirements for ventilation
and the boilers were basically condemned in 1996. He thought a
downtown location would be better.
CHAIRMAN HALFORD asked in terms of AOGCC's workload, what Mr.
Christenson thought about the BP/ARCO merger.
COMMISSIONER CHRISTENSON replied there is little doubt that all
State oversight agencies on oil and gas have benefited from the
fact that the large operators have been paying very close attention
to what the others are doing. He thought the State would have to
expand its vigilance to watching these activities. He saw an
addition to the inspection force and another engineer. He said the
driving force behind the merger is to reduce the production costs
up there.
CHAIRMAN HALFORD asked if $2.3 million was enough to do that
annually.
COMMISSIONER CHRISTENSON answered there would be an additional
requirement for more inspectors and engineers. They would also
need contractual money to hire people with specific expertise.
CHAIRMAN HALFORD asked if this mechanism is flexible enough to
generate the revenue needed if they get the program receipt
authority in the budget document.
COMMISSIONER CHRISTENSON said it is.
Number 535
SENATOR MAKCIE moved to pass CSSB 134(Res) with individual
recommendations. There were no objections and it was so ordered.
SENATOR PEARCE said, at the moment, regulated pipelines are under
the PUC. The intent of SB 133 is to move the regulation of those
to the oil and gas folks in the larger commission so they could use
their expertise in the industry to do the regulations for the
pipelines. She asked Commissioner Christenson what kind of hours
he and the other commissioners work.
COMMISSIONER CHRISTENSEN answered that they basically work from 8
to 4:30.
SENATOR PEARCE asked if they work longer hours sometimes.
COMMISSIONER CHRISTENSON said they are pretty much on schedule on
an average, but they are not as timely as they should be sometimes.
CHAIRMAN HALFORD asked where he would put oil and gas pipelines if
he could put them anywhere he wanted between the PUC and the AOGCC.
COMMISSIONER CHRISTENSON answered that engineering would have a
good idea of the technical part. The tariffs and accounting sides
would have to have people with that expertise which they don't have
on staff right now.
TAPE 99-24, SIDE B
Number 590
CHAIRMAN HALFORD said he was worried about infecting the new
commission with the maladies that run amok in the various battles
on public utilities. He didn't know the answer to that. Pipeline
regulation will get much bigger as we see less competition and less
of the natural tendency to gather information from the competing
interests.
SENATOR MACKIE asked what Mr. Christenson thought about merging the
two commissions.
COMMISSIONER CHRISTENSON answered that he understood the AOGCC
would move intact. He would not change the daily operations and
they would perhaps improve as new folks came in to handle the work.
He is less sure of the impact on how the commission would work.
SENATOR MACKIE asked if he would be doing utility stuff, too.
COMMISSIONER CHRISTENSON responded that he didn't know.
SENATOR PEARCE pointed out that there are no utility people on the
Commission. It is her intent to empanel three people for any oil
and gas or pipeline measure that comes before them. Two of the
people have to be the engineer and the geologist. It is not
necessarily their intent that it is always the same third person.
SENATOR MACKIE asked if the five public members would handle any of
the utility questions.
SENATOR PEARCE answered that is right.
SENATOR MACKIE asked if the two other members of the Commission
could participate in those.
SENATOR PEARCE answered that the chairman of the Commission could
always empanel the full seven person Commission if there was a big
enough issue. She thought smaller panels in most cases could get
the work done a lot more efficiently.
SENATOR MACKIE asked why they are merging the two, if they are not
going to be two entities combined into one.
SENATOR PEARCE said the two entities will be combined into one. Her
original idea was not to specify a geologist or an engineer, but
the oil and gas industry thought that was very important. She
thought they would find the greatest efficiency within the staffing
area - two hearing officers instead of one. She thought they would
see actual decisions coming out in a more efficient manner. She
expects there is room in the present building where the APUC is for
the AOGCC to move in.
Number 513
MR. ERIC YOULD, Executive Director, ARECA, said he is also the
statewide Association Executive Director of the Electric Utility
Industry which provides about 95 percent of the electricity
throughout the state. His members recently adopted a resolution
supporting the continuation of the APUC primarily because of issues
on the horizon that relate to restructuring and deregulation. It
is the general consensus of the industry that changes could be made
to APUC to streamline the process. Their sole objective is to get
APUC to operate better so it can get dockets out more timely, their
biggest frustration. Their second biggest frustration is the
associated cost but those are basically passed through to the
customers.
SB 133 addresses many things that are in their own resolution, such
as use of limited panels of three commissioners, use of different
settlement techniques, better use of hearing officers to hear cases
and recommend decisions, and more frequent use of special masters
to expedite procedural issues. It will help make the APUC a more
responsive entity.
Their biggest question is how the two commissions will mesh
procedurally and whether they will be compatible. They are
concerned about the potential for restructuring the electric
utility industry itself.
On the positive side, he said, this is a good working document with
positive things in it. He would like to see SB 133 continue as a
working document to see how they can flesh out the best out of it.
Number 447
MS. GINNY FAYE, Department of Community and Regional Affairs
(DCRA), complimented Senator Pearce for bringing this issue
forward. DCRA is always interested in good ideas especially if they
offer consolidations and ways of saving money. DCRA's primary
concern is that the integrity of these two important agencies be
maintained because they have significant oversight of issues that
affect the State and almost everyone who lives in Alaska.
MS. FAYE said DCRA preferred a five member instead of a seven
member commission in the spirit of keeping costs down. They are
also reviewing how moving from a three panel field to a five panel
field will work. DCRA has not come to a decision about what it
would mean to deregulate the refuse industry, although she thought
the bill doesn't necessarily deregulate it, but passes it on to
local governments, some of which may be more or less capable of
doing that. DCRA is also looking at the advocacy function and how
it will work to assign staff as opposed to assigning to contract
employees. The final issue of how attorneys will be selected to
represent the Commission differs from how that is done now in these
agencies. She said it is a good bill that offers a lot of
opportunities.
SENATOR PEARCE said the way the bill is drafted, the Department of
Law should provide full-time legal counsel in the same fashion it
currently does for the AOGCC. One ongoing fight within the APUC
appears to be over how legal counsel gets assigned to it. The AOGCC
doesn't have that disagreement.
On the question of the advocacy staff, the APUC is the entity that
watches over consumer rates. Staff members who work for the APUC
are asked to act in an advocacy role to represent the public rate
payers, but they many not have that role in another case. They
have to play two different functions and there is a question about
how effective they can be.
CHAIRMAN HALFORD asked who the attorneys are for the APUC.
SENATOR PEARCE answered that Ron Zobel is one.
Number 375
MR. JIM ARNESON, Commercial Refuse, Inc., said he is concerned
about the proposed deregulation of refuse in this bill. If there
was ever a time the refuse industry needed to be regulated, it is
now. Over the last couple of years, Waste Management, Inc. came to
Alaska and "gobbled up 95% of all business up here."
MR. JIM ROWE, Director, Alaska Telephone Association (ATA), said
ATA is apprehensive about the impact of this legislation because
the Telecommunications Act of 1996 has increased the number of
issues before the APUC and some of them are new social policy. He
thought creating a new Commission would set things back by two
years and more for the issues that need to be resolved quicker. He
thought there are very good aspects of restructuring in this bill,
but it is not a simple thing to do.
MS. HEATHER GRAHME said she was available to answer questions on
refuse.
CHAIRMAN HALFORD asked if the APUC deregulates refuse, whether
municipalities will have the authority to pick up refuse regulation
under Title 29.
MS. GRAHME answered that municipalities have that power under Title
29. She said it is the view of Waste Management that refuse should
not be deregulated, but that controlled refuse collection and
disposal should be handled at the local level rather than the state
level.
Number 247
MS. PAM KRIEBER, Valley Refuse, opposed language that removes
garbage hauling from statewide regulation. Sections 2,3, and 9
propose to remove it from the jurisdiction of the new Alaska Energy
Conservation Commission. She said the committee would not hear
from other companies, because 95 percent of the companies in the
entire state were bought up by U.S.A. Waste of Alaska, a wholly
owned subsidiary of Waste Management, Inc., the largest waste
hauling conglomerate in the world. She said that statewide
oversight would ensure impartial pricing structures and fair and
equitable business practices. Placing the responsibility of
regulations on local governments would make them bear the financial
and legal responsibilities for regulation. This would equate to
higher taxes and user fees for citizens who would end up paying
more money for the same services. If local governments choose to
not regulate refuse at all, the door is left wide open for Waste
Management to charge fees that would provide them the greatest
possible profit margin.
MS. KRIEBER said that starting a garbage collection company is hard
work. It requires a large investment in equipment, working
capital, and time to develop a reliable customer base large enough
to pay the bills. This is the reason large companies buy smaller
ones; it is the most cost effective thing to do.
CHAIRMAN HALFORD thanked everyone for their comments and said they
would continue to work on this bill.
Number 247
He adjourned the meeting at 4:30 p.m.
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