Legislature(1999 - 2000)
05/11/1999 02:00 PM House FIN
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* first hearing in first committee of referral
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CS FOR SENATE BILL NO. 134(RLS)
"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; authorizing the commission to employ
additional professional staff; repealing the oil and
gas conservation tax; and providing for an effective
date."
SENATOR DRUE PEARCE, SPONSOR spoke in support of SB 134. She
noted that SB 134 addresses the issue of funding for the
Alaska Oil and Gas Conservation Commission (AOGCC) It
appeals the existing Oil and Gas Conservation tax and
institutes a stable funding source to assure that the
Commission is capable of carrying out their objectives of
protecting the public interest. The AOGCC's primary goal is
to ensure that no hydrocarbons are wasted and that
operations are conducted in manner that provides maximum
recovery of the resource.
The original intent of the Legislature was to have the oil &
gas industry pay for the function of the Commission through
the Oil & Gas Conservation Tax. While this system may have
been adequate in the past, it is no longer sufficient to
cover the costs associated with the operation of the
Commission. The conservation tax is directly proportional to
production with 4 mils per barrel fee rate. The work of the
Commission, however, 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. SB 134 also contains a
provision to provide for recovery of costs associated with
an investigation or hearing. These costs would be allocated
to the parties involved.
Senator Pearce noted that the Commission experienced budget
difficulties in the past, even when tax proceeds exceeded
annual appropriations. The AOGCC is currently encountering
budget difficulties that are directly related to the decline
in oil production. Some members of the oil and gas industry
have raised concerns about the program receipt budgets not
being given the same level of scrutiny by the legislation as
budgets based on the general funds. She felt that these
concerns were unfounded. The AOGCC is strengthened by the
addition of four staff. This addition would improve the
level of institutional knowledge at the AOGCC. The bill
creates a stable funding source that will enable the AOGCC
to provide the monitoring services necessary to protect the
future of Alaskan interests.
Co-Chair Therriault asked how the additional new staff would
increase the institutional knowledge. Senator Pearce
observed that the current Commission is composed of three
members. One member is required to be petroleum geologist,
one is required to be a petroleum engineer and one is a
public member. There is also technical staff. The
legislation authorizes the Alaska Oil and Gas Conservation
Commission shall to employ, in addition to currently
authorized professional staff, one petroleum engineer, one
reservoir engineer, one petroleum geologist, and one
inspector in FY00 (section 8 page 4, line 30).
Senator Pearce noted that the fiscal note accompanying SB
134 would fund the AOGCC for fiscal year 2000. The AOGCC is
not funded in the House or Senate operating budgets.
Representative J. Davies questioned why the language is
specific to fiscal year 2000. Senator Pearce explained that
since the additional personnel are not in the Senate or
House operating budgets that the language is needed to carry
the fiscal note in the conference committee.
Vice-Chair Bunde recognized the need for increased staff and
program receipts, but asked what would be the provision for
downsizing. Senator Pearce observed that the regulatory cost
charge would be brought to the Office of Management and
Budget. The Office of Management and Budget would bring it
to the legislature for approval. The budget can be reduced
at any point in the process. She noted that the Division of
Oil and Gas, Department of Natural Resources are showing
increased production coming on line.
Senator Pearce observed that industry came forward with some
concerns regarding to the tax rate. Industry was interested
in increasing the tax rate. The House Labor and Commerce
Committee did not make a change in the tax rate. He
maintained that funding should follow the level and type of
work as opposed to a straight tax rate. The industry also
asked if there could be some step in the process to allow
review of the budget in order to prevent complaints about
the way the money is being spent. Industry wanted to impanel
a group to review the budget prior to submission to the
legislation. She recommended that a letter be sent to those
paying the RCC prior to the submission of the budget to the
Office of Management and Budget. This would give those that
pay the RCC an opportunity to make comments before the
budget is submitted.
Co-Chair Therriault reiterated concerns that the monitors on
the wells do not lend themselves to the monetary charge.
Senator Pearce observed that the Commission monitors the
injection of the liquids. There has never been a metering of
the cost charges. She observed that they do allow the
testing of wells. She referred to the commingling of oil
from facilities in Prudhoe Pay. A decision was made and
placed in to regulations to allow testing of wells on an
interim basis, so that oil would not have to be measured
from each site on a daily basis. She maintained that
accommodation could be found through averaging testing
results. Co-Chair Therriault pointed out that a method was
found to resolve the commingling issue. Senator Pearce gave
further examples utilizing general testing.
Representative J. Davies questioned what the fees would be
and what share of the total cost of the Commission do they
represent. Senator Pearce noted that the fee was based on
the AOGCC's expectation of costs. A rebate could be given if
there is excess or a reduction could occur in the subsequent
year. Representative J. Davies noted that the RCC is in
addition to the fee. Senator Pearce added that there is also
a separate fee for the well permit that is considered as
statutory designated program receipts. Co-Chair Therriault
added that the fiscal note takes into consideration the
statutory designated program receipts.
Representative G. Davis clarified that the Senate did not
fund the AOGCC.
Representative J. Davies clarified that the fiscal note has
$2.454 million dollars in the statutory designated program
receipts category. Co-Chair Therriault explained that the
funds could be taken out of the operating budget.
BOB CHRISTENSON, CHAIRMAN, ALASKA OIL AND GAS CONSERVATION
COMMISSION testified via teleconference in support of the
legislation. He stressed that it would provide a more stable
funding mechanism. He maintained that it is a fair system
that takes into account the difference between Cook Inlet
and the North Slope.
In response to a question by Co-Chair Therriault, Mr.
Christenson stated that fee system has been working.
CSSB 134 (RLS) was HELD in Committee for further
consideration.
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