03/14/2018 01:00 PM House RESOURCES

           HB 330-DNR: DISCLOSURE OF CONFIDENTIAL INFO                                                                      
                                                                                                                                
8:13:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR announced that the  final order of business would be                                                              
HOUSE  BILL  NO.  330  "An Act  authorizing  the  commissioner  of                                                              
natural  resources  to  disclose confidential  information  in  an                                                              
investigation  or proceeding,  including  a  lease royalty  audit,                                                              
appeal,  or request  for reconsideration  and  issue a  protective                                                              
order limiting  the persons  who have  access to  the confidential                                                              
information."                                                                                                                   
                                                                                                                                
[Before the committee was CSHB 330(JUD)]                                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH said he did  not intend to offer Amendment 1.                                                              
He  related  his  understanding  that Amendment  2  would  not  be                                                              
offered, as well.                                                                                                               
                                                                                                                                
8:14:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH made  a motion to adopt  Amendment 3, labeled                                                              
30-GH2820\D.3, Nauman,  3/12/18, which  read as  follows [original                                                              
punctuation provided]:                                                                                                          
                                                                                                                                
      Page 4, line 2:                                                                                                           
           Delete "limiting"                                                                                                
           Insert "meeting the requirements of (c) or (d) of                                                                
      this section that limits"                                                                                             
                                                                                                                                
      Page 4, following line 6:                                                                                                 
      Insert a new bill section to read:                                                                                        
         "* Sec.  2. AS 38.05.020  is amended  by adding  new                                                               
      subsections to read:                                                                                                      
           (c)  Unless the protective order meets the                                                                           
      requirement of (d) of this section,  a protective order                                                                   
      issued under (b)(15)(B) of this section must                                                                              
                (1)  limit access to the protected                                                                              
      information to                                                                                                            
                (A)  an officer, employee, or agent that is                                                                     
      directly  involved  in   conducting  or   managing  the                                                                   
      participation of a party  in the royalty or  net profit                                                                   
      audit or appeal;                                                                                                          
                (B)  a person reasonably expected to testify                                                                    
      or provide sworn evidence  on behalf of a  party in the                                                                   
      royalty or net profit audit or appeal;                                                                                    
                (C)  a person that directly reviews and                                                                         
      approves  the  conduct  and  management  of  a  party's                                                                   
      participation in  a  royalty  or  net profit  audit  or                                                                   
      appeal; and                                                                                                               
                (D)  a person whose approval is necessary                                                                       
      for a party  to settle or  otherwise resolve  a portion                                                                   
      or all of the matters or issues  related to the royalty                                                                   
      or net profit audit or appeal; and                                                                                        
                (2)  prohibit use of the information for a                                                                      
      commercial purpose.                                                                                                     
           (d)  Unless the protective order meets the                                                                           
      requirements  of (c)  of  this  section,  a  protective                                                                   
      order  issued under  (b)(15)(B)  of  this  section  may                                                                   
      disclose  only   information   under   the  terms   and                                                                   
      conditions agreed  to by  the  party whose  information                                                                   
      would be disclosed."                                                                                                      
                                                                                                                                
      Renumber the following bill sections accordingly.                                                                         
                                                                                                                                
8:14:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR objected for purpose of discussion.                                                                               
                                                                                                                                
REPRESENTATIVE  BIRCH explained  that Amendment  3 would  strictly                                                              
limit  the access  of confidential  information  shared under  the                                                              
protective  order  to those  directly  involved in  conducting  or                                                              
managing an audit or appeal, to  those who will testify or provide                                                              
sworn evidence and to those whose  approval is necessary to settle                                                              
or resolve an audit or appeal.                                                                                                  
                                                                                                                                
REPRESENTATIVE BIRCH said  DNR's staff has suggested  that this is                                                              
already accomplished  under the  current language  in the  bill or                                                              
has suggested  a broader scope of  access; however, he  would like                                                              
to  insert  clarifying  language  which  is  essentially  language                                                              
contained within a protective order issued  by the court.  He said                                                              
having this  language in statute  would provide  further assurance                                                              
that confidential information is protected.                                                                                     
                                                                                                                                
CO-CHAIR  TARR stated  that Amendments  3  and 4  will address  an                                                              
issue brought to  the committee's attention by the  Alaska Oil and                                                              
Gas Association (AOGA).   She related that  each amendment offered                                                              
a different approach.                                                                                                           
                                                                                                                                
8:15:43 PM                                                                                                                    
                                                                                                                                
ED  KING,   Legislative  Liaison,  Office  of   the  Commissioner,                                                              
Department  of Natural Resources  (DNR), said  he appreciated  the                                                              
AOGA  raising  the  concerns  and  the  DNR  does  not  object  to                                                              
restrictions on  protective orders  since they  are limited.   The                                                              
bill as currently written provides  that the protective orders are                                                              
limited,  he   said;  however,   he  understood   industry  sought                                                              
additional clarity.   He said the  DNR would like the  language to                                                              
parallel  existing  statute.    He  related  the  language  in  AS                                                              
43.55.040 accomplishes the same goal  and provides that clarifying                                                              
and  restrictive  language  for   tax  issues  and  disclosure  of                                                              
confidential data, which was what Amendment 4 intended to do.                                                                   
                                                                                                                                
CO-CHAIR  JOSEPHSON  identified  Amendment   4  as  the  amendment                                                              
labeled D.5.                                                                                                                    
                                                                                                                                
CO-CHAIR TARR reminded members that  the committee was considering                                                              
Amendment 3, labeled D.3.                                                                                                       
                                                                                                                                
CO-CHAIR   JOSEPHSON  asked   if  the   language  in   forthcoming                                                              
amendment,   Amendment  4   would  mirror  Title   43,  which   is                                                              
essentially a protective order for the Department of Revenue.                                                                   
                                                                                                                                
MR. KING  answered yes; that the  first portion of Amendment  4 is                                                              
exact language and  the remainder is tailored to  royalties in the                                                              
context of DNR.                                                                                                                 
                                                                                                                                
8:18:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON   stated  he  observed  the   House  Judiciary                                                              
Committee's previous hearing on this  issue.  He recalled that Mr.                                                              
Hurley, Conoco Phillips  Alaska, Inc., had expressed  concern that                                                              
if protective  orders were not  designed right the  royalty audits                                                              
might not be  done swiftly and his company or  others could suffer                                                              
because, if they underpaid, the company  would incur an 11 percent                                                              
royalty interest.                                                                                                               
                                                                                                                                
MR. KING  responded that was  exactly why  the reason for  HB 330;                                                              
that  there  currently  was  no  process  to  protect  information                                                              
disclosed under the current statute,  AS 38.05.036(f), which gives                                                              
the  DNR the  authority  to disclose  confidential  data during  a                                                              
royalty audit.   He clarified that  the bill currently  before the                                                              
committee does  give the department  the ability to  disclose this                                                              
information, but because  the authority is not  expressly stated -                                                              
the process  is not expressed  within in  the language -  when the                                                              
department encounters a situation in  which terms cannot be agreed                                                              
upon  for  the  release  of confidential  data,  it  becomes  very                                                              
difficult for  the department  to complete the  audit.   The seven                                                              
pending  audits awaiting  the  commissioner's  approval cannot  be                                                              
resolved  because  the department  cannot  disclose the  data,  he                                                              
said.   He agreed  with Co-Chair  Josephson that  when audits  are                                                              
pending, they accrue 11 percent interest.                                                                                       
                                                                                                                                
CO-CHAIR  JOSEPHSON  clarified that  Mr.  Hurley did  not  express                                                              
complete approval for the bill.                                                                                                 
                                                                                                                                
MR. KING interjected that Mr. Hurley did speak to his concern.                                                                  
                                                                                                                                
REPRESENTATIVE PARISH said he found  the arguments for Amendment 4                                                              
compelling  but  asked  how  Amendment  3  would  be  superior  to                                                              
Amendment 4.                                                                                                                    
                                                                                                                                
8:20:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH said  he preferred the  tighter language  of                                                              
Amendment  3.   He  stated that  the legislature  has  a duty  and                                                              
responsibility  to assure  that  the state  is protecting  private                                                              
information  while it  conducts  its audits.    He felt  confident                                                              
Amendment 3 was a better approach.                                                                                              
                                                                                                                                
CO-CHAIR   TARR   related   her   understanding   that   in   some                                                              
circumstances the language in Amendment  3 was so restrictive that                                                              
it  would   not  be  possible   to  resolve  the   [disclosure  of                                                              
confidential   information]  issue.     She   asked  for   further                                                              
clarification   on  language   to  resolve   [the  disclosure   of                                                              
confidential information during a royalty audit].                                                                               
                                                                                                                                
MR. KING responded that circumstances  for each company is unique,                                                              
so the  structure of the companies  was also unique.   The ability                                                              
to  tailor  a  protective  order  to  meet  each  company's  needs                                                              
requires  a certain  flexibility in  protective orders.   The  DNR                                                              
wanted to address the concern  AOGA previously raised, but it also                                                              
wanted   to  avoid   having  language   so   restrictive  that   a                                                              
hypothetical  situation  might identify  a  situation  in which  a                                                              
protective order could not be issued.                                                                                           
                                                                                                                                
MR.  KING  explained  his  concern  with Amendment  3.    He  said                                                              
Amendment 3  has four requirements  that must  be met in  order to                                                              
issue  a protective  order without  the approval  of the  company.                                                              
The department wanted to avoid  circumstances that would prevent a                                                              
protective  order from  being issued.   He related  a scenario  in                                                              
which a  company had one  section that  dealt with audits  but had                                                              
approval  authority  for audits  was  in  another section  of  the                                                              
company,  so  an  officer  might   not  be  available  to  provide                                                              
approval.   He offered  his belief  this raised  the concern  that                                                              
other situations might also arise  that could prevent a protective                                                              
order  from  being  issued  under Amendment  3.    Therefore,  the                                                              
department found the language in Amendment 4 to be superior.                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH stated his support for Amendment 3.                                                                        
                                                                                                                                
8:22:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR maintained her objection.                                                                                         
                                                                                                                                
A roll call  vote was taken.  Representative Birch  voted in favor                                                              
of Amendment 3.  Representatives  Josephson, Tarr, Lincoln, Parish                                                              
and Drummond voted  against it.  Therefore, Amendment  3 failed by                                                              
a vote of 1-5.                                                                                                                  
                                                                                                                                
8:24:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR moved  to adopt Amendment 4,  labeled 30-GH2820\D.5,                                                              
Nauman,  3/12/18,  which  read as  follows  [original  punctuation                                                              
provided]:                                                                                                                      
                                                                                                                                
      Page 4, lines 2 - 4:                                                                                                      
           Delete all material and insert:                                                                                      
                "(B)  issue a protective order limiting the                                                                 
                (i)  persons who may access the information                                                                 
      to legal counsel, consultants,  employees, officers, or                                                               
      agents of a party; the protective  order may only allow                                                               
      a person  to  access the  information  under this  sub-                                                               
     subparagraph if it is necessary for the person to know                                                                 
      the information in connection with the royalty or net                                                                 
      profit share audit or appeal; and                                                                                     
                (ii)  use of the information to matters                                                                     
       related to the royalty or net profit share audit or                                                                  
      appeal;"                                                                                                              
                                                                                                                                
8:24:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON objected for the purpose of discussion.                                                                      
                                                                                                                                
CO-CHAIR TARR  reiterated her  concern this  language might  be so                                                              
restrictive  that a  protective order  could not  be issued.   She                                                              
stated  that  Mr. King  had  a  high  level  of concern  that  the                                                              
language   in  Amendment   3  would   restrict  the   confidential                                                              
information to  only those who had a  right to have access  to the                                                              
information, but it  was not so restrictive that  it would prevent                                                              
the department from resolving pending royalty audits.                                                                           
                                                                                                                                
MR. KING  answered that  he could  [unequivocally] agree  that the                                                              
language in Amendment [4] explicitly  stated that the confidential                                                              
information could  only be  used for the  purposes related  to the                                                              
royalty  or  net profit  share  audit  [or  appeal] and  that  the                                                              
information is limited  to matters related to that  royalty or net                                                              
profit  share audit  [or appeal].   Further,  those express  terms                                                              
provide or should  provide enough clarity to  appease the concerns                                                              
raised by  AOGA.   He remarked the  department believes  that even                                                              
without Amendment [4], the intent of  this bill is not to disclose                                                              
information to  anyone for  any purpose other  than the  reason of                                                              
the bill; [to  resolve the disclosure of  confidential information                                                              
during a royalty audit or appeal].                                                                                              
                                                                                                                                
MR. KING  spoke in support of  Amendment 4, noting  the department                                                              
was  happy with  the  amendment even  though it  did  not find  it                                                              
really necessary  in order  to appease the  concerns.   He offered                                                              
his belief that it does appease [AOGA's] concerns.                                                                              
                                                                                                                                
CO-CHAIR TARR stated that she  appreciated the issue being brought                                                              
to  the committee's  attention,  so  it could  be  resolved.   She                                                              
appreciated that AOGA wanted to be  as careful as possible and she                                                              
acknowledged the  reasons for  the caution.   She  offered further                                                              
consideration with  industry and offered her intention  to provide                                                              
swift  action  to resolve  future  issues  that  may arise.    She                                                              
reiterated  her   intention  was   to  avoid  language   being  so                                                              
restrictive that it would not accomplish the goal.                                                                              
                                                                                                                                
8:26:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON withdrew his objection.                                                                                
                                                                                                                                
There being no further objection, Amendment 4 was adopted.                                                                      
                                                                                                                                
8:27:19 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON moved to report  CSHB 330(JUD), as amended, out                                                              
of committee with individual  recommendations and the accompanying                                                              
fiscal  notes.    There  being no  objection,  CSHB  330(RES)  was                                                              
reported out of the House Resources Standing Committee.