Legislature(1999 - 2000)
05/11/1999 02:00 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.