Legislature(1999 - 2000)

05/11/1999 02:00 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                            
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                                                                                

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