Legislature(1995 - 1996)
04/11/1996 01:45 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 394 "An Act authorizing a program of natural gas and coal bed methane development licensing and leasing; relating to regulation of certain natural gas exploration facilities and coal bed methane exploration facilities for purposes of preparation of discharge prevention and contingency plans and compliance with financial responsibility requirements; amending the duties of the Alaska Oil and Gas Conservation Commission as they relate to natural gas exploration activities and coal bed methane exploration activities; and amending the exemption from obtaining a waste disposal permit for disposal of waste produced from coal bed methane drilling." ALFREDA WARD, (TESTIFIED VIA TELECONFERENCE), CITY MANAGER OF FORT YUKON, FAIRBANKS, spoke in support of HB 394, indicating the importance of the legislation to rural Alaska's ability to deal with the high cost of fuels and utilities. HANS NEIDIG, STAFF, REPRESENTATIVE SCOTT OGAN, explained Amendment #1, 9-LS1463\R.12, Chenoweth, 4/9/96. He stated as the legislation currently reads, it would reduce the bond level $25 thousand dollars on state lands. The amendment would also include Native Corporation Lands being placed at that rate. Representative Mulder MOVED to adopt Amendment #1. There being NO OBJECTION, it was adopted. Representative Brown spoke to Amendment #2, 9-LS146\R.13, Chenoweth, 4/11/96 which would change language on Page 6, Line 15, from "may" to "shall". REPRESENTATIVE SCOTT OGAN noted that he did not oppose Amendment #2. Representative Brown MOVED to adopt Amendment Representative Brown MOVED to adopt Amendment #3, 9- LS1463\R.16, Chenoweth, 4/11/96, which would add standard language addressing the royalty which the State would receive. Representative Ogan noted that he did not object to the amendment. There being NO OBJECTION from the Committee, it was adopted. Representative Brown MOVED to adopt Amendment #4, 9- LS1463\R.17, Chenoweth, 4/11/96, which would provide a 8 clarification of Title 38. Representative Ogan noted that he did not object to the amendment. There being NO OBJECTION from the Committee, it was adopted. Representative Brown MOVED to adopt Amendment #5, 9- LS1463\R.5, Chenoweth, 4/8/96, which would require the applicant to pay a reasonable application fee not to exceed $500 dollars. Representative Ogan noted that he did not object to the amendment. There being NO OBJECTION from the Committee, it was adopted. Representative Brown spoke to Amendment #6, 9-LS1463\R.19, Chenoweth, 4/11/96, which questions the distribution of the public owned resources. She thought that it would only be fair that when resources were to be disposed of, all parts of the State be included. Representative Brown remarked that this was a policy issue and that Southcentral Alaska should be included. Representative Ogan stated that he opposed Amendment #6, commenting that the program had been designed to be for rural Alaskans only, the area in which the energy problems exist. He thought the proposed legislation would also help to mitigate the environmental problem, currently estimated to be $500 million dollars for clean-up of the fuel storage facilities. Representative Brown noted that there exists a "lot of room" for expansion of the gas pipeline transmission system. She referenced Page 6, Line 11, which she thought would create a restriction. Representative Ogan replied that the intent was to cover whatever the "in-place" gas pipeline transmission systems are, and would not apply to future systems. The intent of the legislation is to subsidize a resource left in the ground to help with the Power Cost Equalization problem. He thought it would not be fair to those producing gas without the exclusion in the pipeline system. Representative Brown WITHDREW Amendment #6. She thought that gas producers should be consulted as to how this action would affect them. Representative Brown spoke to Amendment #7, 9-LS146\R.18, Chenoweth, 4/11/96, which would insert language addressing gas found in association with oil. She stressed that this section was the governing portion which determines contents of the leases. Representative Ogan noted that he opposed the amendment. He pointed out that specific language already exists in the bill which states gas can not be produced if it is below three thousand feet. He acknowledged that he did not intend to limit gas production in the rural communities. Gas could 9 be associated with methane resulting from coal when and if the source was not identifiable. He suggested that type of gas should not be excluded and pointed out that Amendment #4 already addressed the statutes in Title 38. Representative Mulder questioned the possibility of a natural gas development occurring in a commercially developed oil deposit. JIM HANSEN, (TESTIFIED VIA TELECONFERENCE), LEASE SALE MANAGER, DIVISION OF OIL & GAS, DEPARTMENT OF NATURAL RESOURCES (DNR), ANCHORAGE, advised that, above three thousand feet, the chances of an oil deposit would be remote. Gas not associated with coal could exist in the region. He noted that the chance of finding gas with oil in that shallow of a surface was remote. He also acknowledged that little is known about that area of Alaska and agreed that anything could happen. Co-Chair Hanley asked if oil had been discovered, what would be the status of the gas associated with that oil. Representative Ogan replied, if the gas is not below three thousand feet, it can continue to produce that gas. Language exists in the bill which stipulates that if oil is encountered, operations would immediately be ceased. Representative Brown noted that the issue of "discovery of gas with heavy oil" had not been addressed in the proposed legislation. KENNETH ROGOWSKI, (TESTIFIED VIA TELECONFERENCE), ENVIRONMENTAL SPECIALIST, SPILL PREVENTION AND RESPONSE (SPAR), DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ANCHORAGE, noted that Page 9 addressed the law and regulations associated with gas and oil. He reiterated that if oil was found in the gas, operations would halt immediately. Representative Brown questioned if it had been the intent to sell the gas rights within a reservoir which also had oil in it. Representative Ogan commented that the Oil and Gas Conservation Commission will protect and conserve oil resources in association with the gas above three thousand feet. That agency controls production practices. Representative Brown MOVED to adopt Amendment #7. Representative Martin OBJECTED. A roll call was taken on the MOTION to adopt Amendment #7. IN FAVOR: Brown, Hanley. OPPOSED: Parnell, Kelly, Kohring, Martin, Mulder, Foster. Representatives Navarre, Therriault and Grussendorf were not 10 present for the vote. The MOTION FAILED (2-6). Representative Brown MOVED to adopt Amendment #8, 9- LS1463\R.18, Chenoweth, 4/11/96, which would delete the language on Page 5, Lines 20-22: "If rent is not paid when due, the director shall mail the lessee written notice of nonpayment at the end of each month, while the rent remains unpaid, for a period of two months". Representative Ogan voiced objection to the amendment. Mr. Hansen agreed with Representative Brown noting that language would create a burden on DNR keeping track of lease payment schedule. He noted that lease payments are currently due annually. If a lease is to be terminated due to none- payment of rent, notification is provided. Following further discussion, between Committee members and Mr. Hansen, Representative Brown recommended that the amendment be HELD until Mr. Hansen could provide specific information. (Tape Change, HFC 96-114, Side 1). Representative Brown spoke to Amendment #9, 9-LS1463\R.6, Chenoweth, 4/8/96, which would address language on Page 4, Line 22, and would insert "that it is in the best interests of the state". She noted that in some villages, there is adamant opposition to the oil and gas operations being conducted near their area. Some of those concerns could be mitigated in a best interest finding by attaching to the lease stipulations, language addressing the pipeline placement. She emphasized that a standard needs to be included. Representative Ogan voiced opposition to the amendment. He noted that the Findings Section of the proposed legislation suggests that it be in the best interest of the State that the resource be developed. He added that surface rights were addressed in Amendment #1 and that existing language on surface rights is in Title 38. That language would apply. Insertion of the proposed language could "open the door" to a requirement for a best interest finding now excluded in statute. He thought that the director of the Oil and Gas Division would act in the "best interest of the State". Mr. Hansen agreed with the language proposed in Amendment interest finding. Representative Ogan stated that best interest findings are an extensive inventory of the area, and calculated that it would be an expensive process. 11 Representative Parnell asked if there was alternative language which could be used. Co-Chair Hanley questioned if the proposed language would be more "helpful" to the Department. Mr. Hansen recommended receiving that opinion from the Attorney General's office. Representative Brown noted that virtually all leases representing the States resources go through a "best interest" finding process. She thought that discovery and eventual production would have a large impact, warranting issues which need to be addressed. She recommended that addition of the language would create a standard. Representative Brown suggested that it was not clear that public comment could reveal what was occurring and recommended that the standard be included. Representative Parnell advised using the language "after review of all available information, the director determines it is in the State's interest". Representative Brown agreed. Representative Parnell suggested that would include public comments, as well as other information. Representative Ogan voiced concern that the added language would allow the Commissioner of DNR to be responsible for more findings and hearings which would ultimately be expensive for the State and the user. Representative Parnell thought that current language in the bill would prove to have a negative reaction and that the director would then not have a basis from which to deliver a lease. The intent of the proposed language would remove this concern from the best interest findings category. He added that he would hope to reach a "middle ground" between the various points of view. Representative Parnell MOVED the amended language to Amendment #9 which would delete "on the basis of public comments received" and insert "after review of all available information, the director determines it is in the State's interest....." Representative Kelly voiced concern that special interest groups would sway the director's decision rather than that decision being based on substantive and factual information. Representative Brown recommended deleting "all". Following discussion, most Committee members agreed to delete "all". Representative Parnell MOVED to amend the amended language, deleting "all". There being NO OBJECTION, it was deleted. Representative Parnell MOVED to adopt the amended Amendment environmentalist would use that change to benefit their interests. A roll call was taken on the MOTION. 12 IN FAVOR: Parnell, Therriault, Brown, Grussendorf, Kohring, Martin, Mulder, Hanley. OPPOSED: Kelly. Representatives Navarre and Foster were not present for the vote. The MOTION PASSED (8-1). Representative Brown MOVED to adopt Amendment #8, 9- LS1463\R.15, Chenoweth, 4/11/96. Representative Mulder OBJECTED. A roll call was taken on the MOTION. IN FAVOR: Brown, Grussendorf, Parnell. OPPOSED: Therriault, Kelly, Kohring, Martin, Mulder, Hanley. Representatives Navarre and Foster were not present for the vote. The MOTION FAILED (3-6). Representative Mulder MOVED to report CS HB 394 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTIONS, it was so ordered. CS HB 394 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Natural Resources dated 2/28/96 and a zero fiscal note by the Department of Environmental Conservation dated 2/28/96.