Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/21/2018 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SB184 | |
| SB175 | |
| SB150 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 184 | TELECONFERENCED | |
| *+ | SB 150 | TELECONFERENCED | |
| *+ | SB 175 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 175-DNR: DISCLOSURE OF CONFIDENTIAL INFO
1:48:30 PM
CHAIR COGHILL announced the consideration of SB 175.
1:49:06 PM
ANDREW MACK, Commissioner, Department of Natural Resources,
Anchorage, Alaska, introduced SB 175 stating the following:
The department has a longstanding issue with respect
to the handling of information considered confidential
under Alaska law. Specifically, this issue impedes the
department's ability to effectively audit and collect
the appropriate amount of royalty and net profit share
payments due under some leases held under oil and gas
producers.
A material term of the oil and gas lease requires
producers to provide price information to the
department. If this price information is higher than
the value used by the audited company for computing
royalty or net profit share due the state, the
department will use this higher value in determining
the payment due.
Because this sales information is confidential - yet
is used by the department in determining the royalty
in net profit share values, disclosing the information
to the audited party in limited fashion is necessary
to complete and finalize the audits. Some audits have
been completed using voluntary confidentiality
agreements entered into by the department, the owner
of the data, and the audited party. More frequently,
one or more of the parties refuses to sign the
agreements. This again is an obstacle to finalizing
the audit.
The leases in existing statutes allow for the
disclosure of confidential information during an
official proceeding or the investigation of the
department. What they don't provide is the method of
disclosure nor any additional protective measures to
ensure the limited use of the confidential
information. The department has taken a conservative
position and has chosen not to disclose confidential
information over the objections of the information
owner.
To be clear, every member of the Department of Natural
Resources who has access to, uses, or handles
confidential company information is well aware of the
restrictions on that information. They are also well
aware of how to safeguard that information and how to
use it in the normal course of their duties. It is a
trust we take very seriously. In fact, I am not aware
of a single instance where inadvertent or malicious
release of company confidential material or
information has occurred. It is a very serious
business to use and we do not take our
responsibilities lightly.
What this bill does is provide myself, the
commissioner, with the ability to determine [whether]
disclosure of confidential information is required in
the official conduct of state business. And if I do
find disclosure is necessary, provide a tool for me to
use to safeguard that information.
This bill is about protecting company information, not
about disclosing it in some haphazard manner. As I
mentioned earlier, DNR takes our responsibilities with
respect to this kind of information very seriously.
This bill gives the commissioner and the Department of
Natural Resources a tool to describe in specific
detail how that information is to be used, who gets to
see it, what it is to be used for, and how to dispose
of it if necessary. These are the things we think are
important in the conduct of our official duties.
I'd like to add, what we're proposing here Mr.
Chairman is not something new. It is very similar to
the process the Department of Revenue uses when they
have to determine tax issues.
1:53:24 PM
CHAIR COGHILL listed the individuals available to answer
questions.
1:54:33 PM
ED KING, Special Assistant to the Commissioner, Department of
Natural Resources (DNR), Juneau, Alaska, delivered the following
sectional analysis for SB 175:
Section 1 adds to the commissioner's authorities under AS
38.05.020(b). Paragraph (15) allows the commissioner to disclose
confidential information under a protective order during an
official proceeding such as a lease on an appeal or request for
consideration. This statute would mirror the Department of
Revenue statute AS 43.55.040. It lays out the process for which
confidential information can be disclosed to a party that is
under audit when another party's information was used to asses
that audit value.
He explained that what occasionally happens is a lease term
requires a lessee to pay royalty based on the highest price that
is within the field. For example, if a lessee sells their oil
for $50, they would pay DNR royalty based on that $50 sale. If
another lessee within that same lease sold their share of the
oil for $60, they would pay DNR based on $60. DNR would then
audit the first company saying it owed additional royalty based
on the second lessee who got more value. Because that sales
information is confidential, DNR would need to figure out how to
disclose that confidential data through the audited party. The
current statute, AS 38.05.036(f), gives the department authority
to disclose that information during an audit or during an appeal
of an audit. What the statute does not do is provide a process
to disclose that information. When the party whose information
is to be disclosed objects to the disclosure, the department
does not have statutory process to protect that information.
What SB 175 seeks to do is provide that process for disclosure
through a protective order.
Sections 2 and 3 are conforming language to adopt the new
section into AS 38.05.020.
COMMISSIONER MACK advised that the department has about $40
million in outstanding appeals that are potentially impacted by
this legislation. Embedded in the department's thinking is to
get the most and best value for the sales contracts within a
unit while protecting the confidential data of each of the
working interest owners. He was unaware of anyone who has broken
the obligation of confidentiality but the fact that there is the
possibility of criminal prosecution catches the eye of an
employee who is trying to do their job and trying to establish
what is the royalty for that unit. What SB 175 seeks to do is
allow DNR to show working interests when another working
interest has negotiated a higher price contract on that unit.
1:59:59 PM
CHAIR COGHILL summarized that competitors are worried that some
of their internal workings would be disclosed.
COMMISSIONER MACK said DNR's primary objective is to ensure that
the state is treated fairly. He referenced Mr. King's example of
sales contracts on the same unit for $50 and $60. The entity
that negotiated the $50 sales contract will be able to look at
the higher priced contract, but the particulars of what is and
is not disclosed in the protective order would be very focused.
He noted that DNR has the option of going to the court and
asking for a protective order but it's a little cumbersome to do
so in each case.
MR. KING added that the information that would be disclosed is
what is used in an audit. The information is several years old
so the ability for a company to use it to gain a competitive
advantage is very limited. The protective order can also impose
limitations on who can see that information. It's necessary to
have the flexibility to construct the protective orders to fit
each situation. What is lacking is a process. He also pointed
out that the higher of provision that DNR is enforcing is a
lease term to which the lessee agreed. The department has the
statutory authority to prosecute those terms, complete the
audit, and get the money that's due to the state but what's
lacking is a process. SB 175 provides that process, which is the
same as the one the Department of Revenue has.
CHAIR COGHILL asked where the industry feels they might be
violated.
MR. KING suggested the industry answer that because the
department doesn't see this as a problem.
CHAIR COGHILL said he understands the department's perspective.
COMMISSIONER MACK said the department holds a lot of
confidential information and has a stellar record for
maintaining confidentiality.
CHAIR COGHILL commented that there is a notice provision for all
parties. He asked if this is new.
MR. KING said there is a process in place to do a voluntary
confidentiality agreement similar to a protective order. The
problem arises in those cases where the other party won't
consent to the confidentiality agreement.
COMMISSIONER MACK advised that many royalty issues are settled
without this being an issue.
2:06:02 PM
CHAIR COGHILL stated that he would hold SB 175 in committee for
future consideration.