Legislature(2003 - 2004)
04/11/2003 03:33 PM Senate RES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 11, 2003
3:33 p.m.
MEMBERS PRESENT
Senator Scott Ogan, Chair
Senator Thomas Wagoner, Vice Chair
Senator Fred Dyson
Senator Ben Stevens
Senator Kim Elton
MEMBERS ABSENT
Senator Ralph Seekins
Senator Georgianna Lincoln
COMMITTEE CALENDAR
SENATE BILL NO. 142
"An Act designating the Department of Natural Resources as lead
agency for resource development projects; making conforming
amendments; and providing for an effective date."
MOVED CSSB 142(RES) OUT OF COMMITTEE
SENATE BILL NO. 50
"An Act amending the manner of determining the royalty received
by the state on gas production as it relates to the manufacture
of certain value-added products."
HEARD AND HELD
PREVIOUS ACTION
SB 142 - See Resources minutes dated 4/9/03.
SB 50 - See Resources minutes dated 3/26/03.
WITNESS REGISTER
Ms. Janet Burleson-Baxter
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Answered questions about permitting
procedures related to SB 142 and stated support for the concept
of a lead agency
Ms. Mary Siroky
Department of Environmental Conservation
410 Willoughby
Juneau, AK 99801-1795
POSITION STATEMENT: Answered questions related to SB 142
Mr. Dick LeFebvre
Acting Deputy Commissioner
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Answered questions about SB 142
Ms. Mary Jackson
Staff to Senator Wagoner
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the changes made in Version I of
SB 50
Mr. Mark Myers
Director, Division of Oil and Gas
Department of Natural Resources
550 W 7th Ave.
Anchorage, AK 99501-3560
POSITION STATEMENT: The Administration has taken no position on
SB 50 but he supports Senator Wagoner's proposed amendment
ACTION NARRATIVE
TAPE 03-27, SIDE A
Number 0001
CHAIR SCOTT OGAN called the Senate Resources Standing Committee
meeting to order at 3:33 p.m. Senators Stevens, Wagoner, Elton,
Dyson and Chair Ogan were present. Chair Ogan announced the
committee would take up SB 142 first.
SB 142-DNR LEAD RESOURCE DEVELOPMENT PROJECTS
CHAIR OGAN said that most of the questions he raised about SB
142 at the April 9 hearing have been answered. At that hearing,
Senator Lincoln suggested putting a sunset date in the
legislation. He supports that suggestion and would like to see
the program reviewed by the legislature in the second year of
the next administration. He asked Ms. Burleson-Baxter if she
would like to testify.
MS. JANET BURLESON-BAXTER, Department of Natural Resources
(DNR), told members that she, Dick Lefebvre, Bob Loeffler and
Cam Leonard were available to answer questions.
SENATOR ELTON thanked the representatives from DNR and DEC for
bringing him up to speed on this legislation, as he was absent
from the last hearing. He then said he had several questions to
ask on behalf of Senator Lincoln, who was excused. The first
question was about the appeal process under the new system. He
noted Senator Lincoln was concerned that the new permitting
office would be in charge of issuing permits while the
individual agencies would hear the appeals.
MS. BURLESON-BAXTER said none of the agencies would lose their
authority over appeals of their respective permits. An appeal
could be brought to the DNR project office but if the issue
surrounded an individual permit, the adjudicatory process would
be dealt with through the existing appeal procedure of the
particular agency.
MS. MARY SIROKY, Department of Environmental Conservation (DEC),
affirmed Ms. Burleson-Baxter's explanation.
SENATOR ELTON then asked, on behalf of Senator Lincoln, if the
cost of the new office would be minimal because the cost will be
transferred to the permittee. He questioned whether the cost
will be difficult to estimate until DNR knows how many major
permit applications it will have.
MS. BURLESON-BAXTER nodded affirmatively.
CHAIR OGAN pointed out the fiscal notes are zero but the funds
for this legislation are included in the Governor's operating
budget request. He commented that approach keeps the number of
committee referrals down but questioned what will happen if no
new positions are funded in the budget. He said putting the
actual cost of the positions on the fiscal note would be
clearer.
MR. DICK LEFEBVRE, Acting Deputy Commissioner, DNR, said DNR has
a number of large projects in the queue already. DNR anticipates
that the reimbursable services lined up for this year will
continue into next year. The component in the budget recognizes
some of those funds. Whether SB 142 passes or not, DNR will need
authorization to receive and expend those funds, which is why
DNR used the budget as the main vehicle to carry the funding
request.
CHAIR OGAN asked if DNR could be the lead agency if the funding
request in the operating budget is not met.
MR. LEFEBVRE said it could.
SENATOR ELTON commented that when the legislature directs
departments to make an unallocated budget reduction, the
legislature does not know where that reduction will take place.
He agreed the bill should have a fiscal note that reflects the
source of the funds and how those funds will be spent.
SENATOR STEVENS said his interpretation of the section being
repealed on page 3, AS 46.35.070, is that a state agency still
has the responsibility to issue the permit but the coordinator
is being changed, which is the reason for the zero fiscal note.
MR. LEFEBVRE said that is correct.
SENATOR ELTON offered a conceptual amendment to include a sunset
date that takes effect two years into the next administration.
SENATOR STEVENS objected for the purpose of discussion. He then
asked the department to comment on the sunset provision and how
the three-phase team concept would be implemented with a sunset
provision. He also asked what program the state would revert to
if the sunset took place, and whether it would be the program in
existing Section 4.
CHAIR OGAN pointed out that Section 4 is not being used at this
time.
SENATOR STEVENS asked DNR staff to comment on the sunset
concept.
MS. BURLESON-BAXTER said DNR likes the concept of the bill. She
pointed out the concept of the lead agency began during the
Hickel Administration and was continued through the Knowles
Administration to this one. She said if a sunset provision is
included, she believes DNR would try to carry on with the team
concept as best as it could because it has been successful for
DNR in the past.
SENATOR STEVENS pointed out that DNR would have no authority to
continue as the lead agency if a sunset took place.
MS. BURLESON-BAXTER said DNR would not have prescriptive
statutory authority but it might engage in a memorandum of
understanding.
SENATOR ELTON said his understanding is that a sunset would
require the state agencies to revert to the ad hoc process used
now. He said the argument for a sunset review is that it would
set in motion a process to answer some of the questions, i.e.,
is the new office charging the permittees an appropriate amount.
A sunset review would give the legislature the opportunity to
review the definition of a large natural resource project and
tweak or eliminate aspects of the program that are problematic.
A sunset also reminds the department that the program will be
reviewed, which induces good behavior.
MR. LEFEBVRE told members one benefit of having clear statutory
authority is that the federal agencies, when preparing
environmental impact statements (EIS), would know who they have
to deal with. Right now, they must deal with state agencies
individually unless state agencies agree amongst themselves
prior to the start of a project.
SENATOR STEVENS said in his opinion, some of the annual sunset
reviews undertaken by the legislature are routine
reauthorizations. The legislature has the authority to make
changes to a program at any time, if need be. He said while a
sunset review forces the legislature to review a program, there
is a dividing line between a reauthorization and a review and
evaluation. He said DNR's annual report to the legislature
should keep legislators informed about how DNR's authority as
lead agency is being utilized.
SENATOR WAGONER said he planned to support the amendment but
would prefer an annual review because sunset reviews are very
time consuming. He believes this legislation is one of the most
important before the legislature this year.
SENATOR STEVENS said he believes in putting the onus on DNR to
describe how this concept is working by requiring it to present
an annual report to the legislature.
MR. LEFEBVRE pointed out that one of the benefits of the lead
agency concept is that it is voluntary on the part of the permit
applicant. If the applicant is not satisfied with the project
process, the legislature will know about it well in advance of
the next legislative session.
SENATOR DYSON said inherent in the missions and measures process
is an annual review by the Legislative Finance committees. He
said he believes most sunset review time lengths should be
doubled because they are very time consuming. However, because
this is a new concept, he feels a sunset provision is valid so
that the legislature makes sure an annual review takes place
every year.
SENATOR ELTON said he prefers the formalized process of a
[sunset] review.
CHAIR OGAN pointed out the next DNR commissioner could be very
anti-development and a lot of power has been consolidated within
that position. He advised that it might be prudent to take a
formal look at this change in a few years as a check and balance
measure.
SENATOR WAGONER said his concern with a sunset review is that
the legislature has the right to review this piece of
legislation any time it deems it necessary but he feels the
legislature should watch this program change closely because it
is new. He expressed concern that 2008 is a long time from now
so he proposed a sunset review in two years.
SENATOR ELTON accepted Senator Wagoner's proposal as an
amendment to his amendment.
SENATOR DYSON objected.
The motion to adopt the amendment to the amendment, to change
the date of the sunset review from 2008 to two years, carried
with Senators Stevens, Wagoner and Elton in favor, and Senators
Dyson and Ogan opposed.
MS. SIROKY told members that from the agencies' perspective, a
longer time frame for a sunset review would be better. She
expressed concern that projects take a significant amount of
time from start to finish so a two-year window might not be long
enough to see whether the process is working. She suggested a
four or six year window.
CHAIR OGAN moved to amend the amendment to require a sunset
review in four years.
There being no objection, the motion carried.
The committee then voted on the amended amendment, that being
whether to include a sunset provision [to take effect in four
years]. The motion carried with Senators Dyson, Elton, and Ogan
in favor, and Senators Wagoner and Stevens opposed.
There being no further testimony, SENATOR WAGONER moved SB 142
as amended from committee with individual recommendations and
its accompanying fiscal notes. There being no objection, the
motion carried.
The committee took a brief at-ease.
SB 50-ROYALTY GAS CONTRACTS
CHAIR OGAN informed members that a proposed committee substitute
had been prepared, Version I, which is essentially the same as
the House Finance Committee substitute to HB 57.
SENATOR WAGONER moved to adopt Version I as the working document
of the committee.
CHAIR OGAN objected for the purpose of discussion. He then
informed participants that he did not intend to move the
legislation from committee today because Version I makes
substantive changes to the last version of the bill. In
addition, an amendment has been proposed.
MS. MARY JACKSON, staff to Senator Wagoner, sponsor of SB 50,
verified that Version I is the companion legislation to CSHB
57(FIN), which is in the House Rules Committee. She explained
the differences in Version I as follows:
· On page 2, the merged utility and manufacturing language
was separated into two subsections, (1)(A) and (1)(B). New
language was added to line 23 that reads, "for a contract
entered into for a circumstance described in (1)(A) of this
subsection." Section (1)(A) is specific to the utilities
and is existing language in statute. Section 1(B) is new
and contains the requirements for manufacturers of
agricultural chemicals. She told members that separating
the requirements of utilities and manufacturers into two
sections reads more clearly.
· On page 3, line 9, the word "and" was changed to "or"; the
net result being that any one of the exceptions would come
into play, rather than all of them. That change was
recommended by the Administration.
MS. JACKSON said Chair Ogan previously asked whether the
legislation contains a mechanism to allow the commissioner to
negotiate a contract so that the State of Alaska would share in
the profit as well as the risk. She said such a provision would
lead to a better fiscal note and told members the sponsor has
provided a proposed amendment on that subject for the
committee's consideration.
SENATOR STEVENS referred to Section 2(B)(ii) on lines 5, 6 and 7
of page 3 and asked why it contains the words "tangible benefits
to the state" and differs from Section (2)(A)(ii) on page 2.
MS. JACKSON explained that Section (2)(A) applies to the
utilities. Section (2)(B) is new [and applies to value-added
manufacturers]. Those words were added so that if the
commissioner determined that a royalty reduction would lead to
certain benefits related to employment opportunities or some
other unknown tangible benefit, the commissioner could go
forward with a contract.
SENATOR STEVENS said he thought tangible benefits were included
in respect to the manufacturer, not just the utility.
MS. JACKSON said that is correct.
SENATOR STEVENS said the two sections seem to be contradictory
in terms of tangible benefits.
MS. JACKSON referred Senator Stevens to subsection (A) on page
2, regarding the utilities contracts. She pointed out the
language that begins on line 26 is the same as the language on
page 3, line 5, however it is specific to the manufacturer of
agricultural chemicals.
SENATOR STEVENS asked if that language is more aligned with
subsection (A) than it was in the last version.
MS. JACKSON said it is essentially the same; it has just been
separated into two sections.
SENATOR STEVENS said he thought the commissioner could consider
royalty reductions by offsetting other tangible benefits in the
last version. Now, Version I says the royalty reduction receipts
would not be balanced, which is contradictory. He said the word
"not" should not be included.
TAPE 03-27, SIDE B
SENATOR ELTON clarified that the list of items on page 3
contains the reasons the commissioner could deny a contract
based on a written finding, one being that the royalty reduction
would not be balanced by employment opportunities or any other
tangible benefit to the state. He asked why this language is
more specific for the manufacturers, as it further defines
benefits as employment opportunities or other tangible benefits.
CHAIR OGAN commented that if the state lets a utility lock into
a certain price and the state loses some money, Alaskan
consumers will benefit with cheaper electricity. With
manufacturers, the public benefit is not as tangible. In the
original bill, the manufacturers asked to be treated like a
utility. However, Agrium and its employees might have benefitted
but at an expense to the state.
MS. JACKSON said that is a fair analysis. She pointed out that
language on page 2, line 27, of Version I includes a bar that
the utilities must reach. The language on page 3 includes the
bar the manufacturers must meet.
SENATOR ELTON commented that in the case of the manufacturer,
the consumers who benefit could be overseas and not Alaskan
consumers.
SENATOR WAGONER remarked that one benefit is jobs in Kenai.
Right now, Agrium is operating at 75 percent capacity and may be
losing money everyday it operates. If this bill helps Agrium
operate at 100 percent capacity, it will maintain and increase
jobs. He noted if one of Kenai's petrochemical plants shuts
down, the chances of it ever reopening is very low. He pointed
out that Agrium is a big part of the economy on the Kenai
Peninsula.
CHAIR OGAN expressed concern that this legislation singles out
one type of industry and sets a precedent for other industries,
such as the LNG plant at Pt. Mackenzie that ships LNG to
Fairbanks.
MR. MARK MYERS, Director of the Division of Oil and Gas, DNR,
told members that in regard to the previous discussion about
Sections (2)(A) and (2)(B), Senator Elton was correct when he
pointed out that the royalty reduction is granted unless one of
those four conditions exists, in which case the commissioner can
deny it.
SENATOR STEVENS asked if the commissioner will have to prove
that the royalty reduction would not be balanced and not have a
positive impact on the economy.
SENATOR ELTON said he did not understand Mr. Myers' explanation
because if the commissioner can deny the royalty reduction based
on the first factor listed, the commissioner would not consider
the second factor, that the royalty reduction would not be
balanced by employment opportunities or other tangible benefits.
MR. MYERS said that is correct as the four variables are
independent. The commissioner can deny the reduction if any one
of the four variables exists.
CHAIR OGAN asked Mr. Myers if he anticipates that this
legislation will set a precedent for other industries.
MR. MYERS said the petrochemical industry could argue, as Agrium
has, that it adds a lot of value to the state based on gas-to-
liquids (GTL) projects, for example.
CHAIR OGAN asked if, under the Stranded Gas Act, the
commissioner of revenue was given the ability to negotiate
royalty payments for the petrochemical and GTL industries.
MR. MYERS answered the commissioner cannot change the rate but
valuation methodologies can be negotiated. The producers
proposed similar treatment to the previous administration in
terms of their gas leases.
CHAIR OGAN felt justification could be made that this incentive
should be given to other industries.
MR. MYERS agreed and said DNR understands Agrium's concern that
it needs a good supply of gas to get up to 100 percent capacity.
CHAIR OGAN asked if more gas is available but not at the price
Agrium needs to be profitable.
MR. MYERS said supply and demand is balanced at this time but,
at current rates of consumption without additional exploration
success, Cook Inlet will begin to squeeze out those who are
willing to pay less for the gas. Typically, the utility market
pays a higher value, followed by LNG, followed by the
agricultural manufacturer. That will put Agrium in a tight spot
when deliverability is less. He noted that a good deal of
exploration is going on in Cook Inlet at this time.
SENATOR STEVENS expressed concern about the differences between
Section (2)(A) and Section (2)(B) [the four factors the
commissioner can use to deny a reduction], and pointed out that
Section (2)(A) contains the word "and" while Section (2)(B)
contains the word "or". Therefore, all variables must exist in
Section (2)(A) while only one variable must exist in Section
(2)(B) for the commissioner to deny a royalty reduction.
MR. MYERS indicated the original bill contained the word "and"
and he does not know why this version was changed to "or". He
said Version I in its current form sets a different standard for
agricultural manufacturers than it does for the utilities. All
four conditions must exist for the commissioner to deny an
application from a utility.
SENATOR STEVENS said he believes the statement on page 2, lines
21-22, should be changed because he reads it to mean that (A)
and (B) fall under that statement.
MS. JACKSON said the issue is that the standards for the new
manufacturer are more restrictive. For a utility, the
commissioner must enter into a contract unless all four
conditions are met. For a manufacturer, the commissioner shall
enter into a contract unless any one condition is met. She
repeated the provision is more restrictive for the manufacturer
than it is for the utility.
SENATOR STEVENS said he understands the intent but he does not
read those sections that way because both (A) and (B) are
subsections of Section (1)(aa)(2).
SENATOR ELTON said the bill makes it easier for the commissioner
to deny a contract with a manufacturer than with a utility.
MR. MYERS told committee members the Administration has taken no
position on the bill but said he supports the proposed
amendment.
CHAIR OGAN removed his objection to adopting the work draft,
therefore the motion to adopt Version I as the working document
before the committee carried.
SENATOR WAGONER moved to adopt Amendment 1, which reads as
follows:
Page 3, after line 11, insert "(C) in granting an
application under this section, the commissioner may
use or accept an amount in excess of the price for the
gas established in the contract but less than would
otherwise be due under the lease when it is in the
best interest of the state."
CHAIR OGAN objected for the purpose of discussion. He told
members he intended to adjourn the meeting without adopting the
amendment to give members a few days to consider it.
CHAIR OGAN said Amendment 1 is a profit sharing amendment that
will allow the state to share in any upside.
SENATOR WAGONER told members Amendment 1 was written in
consultation with Division of Oil and Gas staff, who said it is
necessary to allow the commissioner to negotiate profit sharing.
SENATOR ELTON pointed out that Amendment 1 will cause a change
in the fiscal note.
SENATOR WAGONER agreed Amendment 1 will make the fiscal note
much more powerful.
CHAIR OGAN told members the committee would take up SB 50 and
the proposed amendment on Monday and adjourned the meeting at
4:45 p.m.
##
| Document Name | Date/Time | Subjects |
|---|