Legislature(2023 - 2024)BARNES 124
03/08/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB50 | |
| HB49 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 50 | TELECONFERENCED | |
| *+ | HB 49 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 50-CARBON STORAGE
1:07:11 PM
CHAIR MCKAY announced that the first order of business would be
HOUSE BILL NO. 50, "An Act relating to the geologic storage of
carbon dioxide; and providing for an effective date." [Before
the committee, adopted as the work draft on 3/1/23, was the
proposed committee substitute (CS) for HB 50, Version 33-
GH1567\S, Dunmire, 2/28/23, "Version S."]
CHAIR MCKAY began by addressing three concerns raised by the
committee. Firstly, he referenced a recent opinion piece
suggesting that carbon dioxide pipelines could be dangerous. He
asked Mr. Strupulis to discuss the pipeline safety procedures in
place in Alaska.
1:08:45 PM
TONY STRUPULIS, State Pipeline Coordinator, Division of Oil and
Gas, Department of Natural Resources (DNR), discussed the
pipeline safety policy and procedures in place. He described
the systematic approach to the entire pipeline system,
highlighting the thorough design reviews performed during the
project development phase to guarantee that codes and
regulations were met. In addition, field surveillance was done
on a regular basis to ensure compliance with the lease
stipulations, as well as regular coordination with a variety of
state and federal agencies to ensure that pipeline safety and
integrity were maintained.
1:11:06 PM
REPRESENTATIVE SADDLER questioned the responsibilities of the
State Pipeline Coordinator's Office should the need arise to
regulate carbon dioxide pipelines.
MR. STRUPULIS affirmed that his office may need additional
resources to meet the needs of the added workload. Nonetheless,
he did not foresee a drastic change in the operational
structure.
REPRESENTATIVE SADDLER asked whether the fees paid under
regulation would be sufficient to pay the cost of the additional
workload on the State Pipeline Coordinator's Office.
MR. STRUPULIS answered yes.
1:12:24 PM
JOHN CROWTHER, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), cited AS 38.35, which was
amended in Sections 17-23 of the bill to add carbon dioxide
pipelines to the state pipeline coordinator's statutory
authorities. He noted that a cost recovery mechanism was
included for pipeline applications to ensure that costs were
recouped by the project development.
REPRESENTATIVE SADDLER referenced the disbandment of the
Pipeline System's Integrity Office (PSIO) and asked whether that
office provided additional comfort in the integrity of the
Alaska pipeline systems.
MR. STRUPULIS said the PSIO was before his time with the State
Pipeline Coordinator's Office.
1:13:49 PM
MR. CROWTHER described the authorities under AS 38.35 as robust.
In addition, he expressed the administration's support for a
forthcoming amendment that would confirm DEC's existing
statutory authority to regulate carbon dioxide pipelines. He
further highlighted the suite of federal regulatory standards
for the safety and operational capacity of pipelines through the
Pipeline and Hazardous Materials Safety Administration. He
shared his belief that existing lines were robustly regulated
and operating safely, indicating that future lines would be so
as well.
REPRESENTATIVE MCCABE asked whether there were material data
safety sheets for carbon dioxide and whether it was considered a
hazardous substance for transport or any other means.
MR. CROWTHER shared his understanding that material data safety
sheets were not required for the transport of carbon dioxide, as
it was not generally toxic or hazardous for human health. He
stated that the op-ed referenced by Chair McKay relayed concerns
associated with high concentrations of carbon dioxide.
Consequently, in the course of designing pipelines, it would be
important to understand and anticipate concentration issues. He
further explained the dangers that occur when a very large
volume of concentration meets a natural geologic low point,
causing breathable air to be displaced in the few minutes before
disbursement. Nonetheless, he stated that carbon dioxide was
less dangerous than many other materials.
1:16:35 PM
REPRESENTATIVE MCCABE likened carbon dioxide to water, which
also displaced oxygen, indicating carbon dioxide, like water,
was not hazardous on its own.
CHAIR MCKAY moved to the second concern related to amalgamating
property rights, as referenced in the bill. He asked
Commissioner Huber to compare the process in the bill to the
current practices for oil and gas units.
1:17:34 PM
BRETT HUBER, Commissioner, Alaska Oil and Gas Conservation
Commission (AOGCC), Department of Commerce, Community & Economic
Development (DCCED), stated that the process envisioned in HB 50
was the same as the existing process. He explained that the
bill would give AOGCC the authority to amalgamate a property
owner who wasn't interested in being part of the project along
with a voluntary property owner into a unit. He noted that the
authority existed for oil and gas but was never utilized because
often, people wanted to represent themselves instead of having
their destiny determined by regulators. He explained that an
operator would look for a project space with simple, public
ownership patterns that did not involve multiple owners.
Otherwise, the commission would have the ability to unitize by
compelling the property owners to participate in the unit,
volumetrically assess the property as a percentage of the total
project, and allocate costs and proceeds based on that.
CHAIR MCKAY, continuing to the third concern, asked Ms. Glover
to speak to the deductibility of cost related to carbon storage
activities against a company's production tax liability.
1:20:14 PM
COLLEEN GLOVER, Director, Tax Division, Department of Revenue
(DOR), explained that under AS 43.55.165, allowable lease
expenditures were generally any cost in the unit directly for
exploring or producing oil and gas unless expressly disallowed.
Therefore, carbon projects would generally be allowable unless
expressly stated otherwise. She added that a carbon capture,
utilization, and storage (CCUS) project unrelated to oil and gas
in any way would not qualify under statute as an allowable cost.
1:21:34 PM
CHAIR MCKAY asked Mr. Crowther to speak to the changes in the
updated fiscal notes for Version S.
MR. CROWTHER directed the question to Commissioner Huber.
CHAIR MCKAY asked Commissioner Huber to speak to the changes in
AOGCC's updated fiscal note.
COMMISSIONER HUBER said AOGCC's updated fiscal note better
described the anticipated federal grant proceeds to supplant the
general fund (GF) spend in the first two years. In addition,
all out years reflected program receipts, as there were avenues
within the bill for cost recovery.
1:23:46 PM
REPRESENTATIVE SADDLER asked where the federal funds were
reflected on AOGCC's fiscal note.
COMMISSIONER HUBER directed attention to the last page of the
fiscal note, adding that the anticipated federal funds were a
grant program that AOGCC had applied for, as described in the
analysis.
REPRESENTATIVE SADDLER asked Mr. Huber to speak to the
commission's confidence in the ability to obtain those federal
grants.
COMMISSIONER HUBER relayed that a $50 million appropriation was
available for all 50 states, of which a subset was actively
seeking primacy for the grant funding. He calculated that with
less than half the states pursuing this, Alaska could receive $2
million or more. He portrayed his confidence level as "decent,"
because the U.S. Environmental Protection Agency (EPA) had asked
states to participate in the program.
1:25:24 PM
CHAIR MCKAY moved to the consideration of amendments.
1:25:48 PM
REPRESENTATIVE ARMSTRONG moved to adopt Amendment 1 to Version
S, labeled 33-GH1567\S.3, Dunmire, 3/7/23, which read:
Page 1, line 5, following "Resources;":
Insert "relating to carbon dioxide pipelines;"
Page 30, following line 18:
Insert a new bill section to read:
* Sec. 40. AS 46.03.020 is amended to read:
Sec. 46.03.020. Powers of the department. The
department may
(1) enter into contracts and compliance
agreements necessary or convenient to carry out the
functions, powers, and duties of the department;
(2) review and appraise programs and
activities of state departments and agencies in light
of the policy set out in AS 46.03.010 for the purpose
of determining the extent to which the programs and
activities are contributing to the achievement of that
policy and to make recommendations to the departments
and agencies, including environmental guidelines;
(3) consult with and cooperate with
(A) officials and representatives of any
nonprofit corporation or organization in the state;
(B) persons, organizations, and groups,
public and private, using, served by, interested in,
or concerned with the environment of the state;
(4) appear and participate in proceedings
before any state or federal regulatory agency
involving or affecting the purposes of the department;
(5) undertake studies, inquiries, surveys,
or analyses it may consider essential to the
accomplishment of the purposes of the department;
these activities may be carried out by the personnel
of the department or in cooperation with public or
private agencies, including educational, civic, and
research organizations, colleges, universities,
institutes, and foundations;
(6) at reasonable times, enter and inspect
with the consent of the owner or occupier any property
or premises to investigate either actual or suspected
sources of pollution or contamination or to ascertain
compliance or noncompliance with a regulation that may
be adopted under AS 46.03.020 - 46.03.040; information
relating to secret processes or methods of manufacture
discovered during investigation is confidential;
(7) conduct investigations and hold
hearings and compel the attendance of witnesses and
the production of accounts, books, and documents by
the issuance of a subpoena;
(8) advise and cooperate with municipal,
regional, and other local agencies and officials in
the state, to carry out the purposes of this chapter;
(9) act as the official agency of the state
in all matters affecting the purposes of the
department under federal laws now or hereafter
enacted;
(10) adopt regulations necessary to carry
out the purposes of this chapter, including
regulations providing for
(A) control, prevention, and abatement of
air, water, or land or subsurface land pollution;
(B) safeguard standards for carbon dioxide,
petroleum, and natural gas pipeline construction,
operation, modification, or alteration;
(C) protection of public water supplies by
establishing minimum drinking water standards, and
standards for the construction, improvement, and
maintenance of public water supply systems;
(D) collection and disposal of sewage and
industrial waste;
(E) collection and disposal of garbage,
refuse, and other discarded solid materials from
industrial, commercial, agricultural, and community
activities or operations;
(F) control of pesticides;
(G) other purposes as may be required for
the implementation of the policy declared in
AS 46.03.010;
(H) handling, transportation, treatment,
storage, and disposal of hazardous wastes;
(11) inspect the premises of sellers and
suppliers of paint, vessels, and marine and boating
supplies, and take other actions necessary to enforce
AS 46.03.715;
(12) notwithstanding any other provision of
law, take all actions necessary to receive
authorization from the administrator of the United
States Environmental Protection Agency to administer
and enforce a National Pollutant Discharge Elimination
System program in accordance with 33 U.S.C. 1342 (sec.
402, Clean Water Act), 33 U.S.C. 1345 (sec. 405, Clean
Water Act), 40 C.F.R. Part 123, and 40 C.F.R. Part
403, as amended;
(13) require the owner or operator of a
facility to undertake monitoring, sampling, and
reporting activities described in 33 U.S.C. 1318 (sec.
308, Clean Water Act);
(14) notwithstanding any other provision of
law, take all actions necessary to receive federal
authorization of a state program for the department
and the Department of Natural Resources to administer
and enforce a dredge and fill permitting program
allowed under 33 U.S.C. 1344 (sec. 404, Clean Water
Act) and to implement the program, if authorized.
Renumber the following bill sections accordingly.
Page 30, line 31:
Delete "Section 40"
Insert "Section 41"
REPRESENTATIVE RAUSCHER objected for the purpose of discussion.
REPRESENTATIVE ARMSTRONG explained that Amendment 1 ensured that
CCUS projects were done with the highest standards for public
safety and environmental protection by giving DEC the statutory
authority to regulate carbon dioxide pipelines.
1:26:26 PM
REPRESENTATIVE RAUSCHER asked whether the department considered
Amendment 1 a friendly amendment.
MR. CROWTHER answered yes, the administration was in support of
the proposed amendment. He deferred to the legislative liaison
from the Department of Environmental Conservation (DEC).
1:26:54 PM
CRYSTAL KOENEMAN, Legislative Liaison, Office of the
Commissioner, Department of Environmental Conservation (DEC),
said DEC had no objections to the language proposed in Amendment
1.
1:27:15 PM
The committee took a brief at-ease.
1:27:53 PM
CHAIR MCKAY sought further questions on Amendment 1 from members
of the committee.
REPRESENTATIVE RAUSCHER removed his objection. There being no
further objection, Amendment 1 was adopted.
1:28:32 PM
REPRESENTATIVE MCCABE moved to adopt Amendment 2 to Version S,
labeled 33-GH1567\S.4, Dunmire, 3/7/23, which read:
Page 6, line 9, following "exploration":
Insert "and the leasing of state land for carbon
storage"
Page 6, lines 12 - 14:
Delete all material and insert:
"(c) The commissioner shall establish in
regulation minimum acceptable commercial terms for
carbon storage exploration licenses and carbon storage
leases, including license fees, rental payments,
injection charges, other forms of compensation, and
financial assurances. The commissioner shall review
and update a regulation adopted under this subsection
at least every five years."
Page 6, line 30:
Delete "of at least $20 an acre"
Insert "applicable to a carbon storage
exploration license under regulations adopted under
AS 38.05.700(c)"
Page 7, lines 4 - 6:
Delete "provide for the posting of a bond or
other security acceptable to the department and in
favor of the state"
Insert "meet the requirements of regulations
adopted under AS 38.05.700(c)"
Page 7, lines 23 - 26:
Delete all material.
REPRESENTATIVE PATKOTAK objected.
1:28:37 PM
CHAIR MCKAY questioned the administration's position on
Amendment 2.
MR. CROWTHER said the department was supportive of Amendment 2.
REPRESENTATIVE PATKOTAK removed his objection. There being no
further objection, Amendment 2 was adopted.
1:29:15 PM
REPRESENTATIVE MEARS moved to adopt Amendment 3 to Version S,
labeled 33-GH1567\S.15, Dunmire, 3/7/23, which read:
Page 6, line 8, following "licensing":
Insert "and leasing"
Page 6, line 9, following "exploration":
Insert "and the leasing of state land for carbon
storage"
Page 6, line 14, following "terms.":
Insert "If the lease holder sells carbon credits
on the lease, the fee for an annual lease rental must
be at least four percent of the lease holder's gross
revenue from carbon credit sales on the lease plus
four percent of the value of carbon oxide
sequestration credits the lease holder is allowed for
the lease under 26 U.S.C. 45Q (Internal Revenue Code).
If the lease holder does not sell carbon credits on
the lease, the fee for an annual lease rental must,
for each ton of carbon injected, be at least equal to
four percent of the average sale price of a California
Carbon Allowance over the preceding 30 days on the New
York Mercantile Exchange plus four percent of the
value of carbon oxide sequestration credits the lease
holder is expected to be allowed for the lease under
26 U.S.C. 45Q (Internal Revenue Code)."
Page 6, line 30:
Delete "of at least $20 an acre"
Insert "applicable to a carbon storage
exploration license under regulations adopted under
AS 38.05.700(c)"
Page 7, lines 4 - 6:
Delete "provide for the posting of a bond or
other security acceptable to the department and in
favor of the state"
Insert "meet the requirements of regulations
adopted under AS 38.05.700(c)"
Page 7, lines 23 - 26:
Delete all material.
REPRESENTATIVE RAUSCHER objected.
1:29:39 PM
REPRESENTATIVE MEARS stated that Amendment 3 was similar to
Amendment 2 in terms of the technical corrections; however, it
included more definite terms related to market value. She
expressed concern about the business plan and the benefit to the
state, noting that she was working through the bill to identify
many of the undefined terms. She explained that Amendment 3
added a four percent market term, which was the minimum for oil
production. She added that four percent was variable depending
on the market and would allow the state to recoup funds.
REPRESENTATIVE RAUCHER questioned the administration's opinion
on Amendment 3.
1:31:04 PM
MR. CROWTHER said he appreciated the intent and focus on
retaining a fair return for the state; however, he believed that
Amendment 2 would give flexibility to the department to recoup
that return. He emphasized the importance of flexibility of
commercial terms in the context of an evolving market to provide
return for the state and to enable projects to proceed. For
those reasons, he said the department did not support Amendment
3.
REPRESENTATIVE SADDLER pointed out that [the legislature] had
overriding direction from the state constitution to obtain
maximum benefit consistent with the public interest. He added
that should there be excess value escaping the state's grasp,
the regulation authority would allow the legislature to change
those regulations to capture that value. He appreciated the
amendment's intent; however, he believed that the overriding
goal was accomplished elsewhere in the bill.
1:32:08 PM
REPRESENTATIVE MCCABE voiced his concern that Amendment 3 was
"going down a rabbit trail" by specifying revenues in statute
and shared his understanding that the revenue would be decided
in the future by regulation. He said he was not in favor of the
proposed amendment.
REPRESENTATIVE MEARS reiterated her concern about the absence of
the ability to build a financial case for the bill. She
expressed her interest in forming a subcommittee to continue
working on the bill.
REPRESENTATIVE RAUSCHER said he appreciated that amendment;
however, he shared his belief that it failed to "hit the mark."
He maintained his objection to Amendment 3.
1:34:40 PM
A roll call vote was taken. Representatives Armstrong, Mears,
and Dibert voted in favor of Amendment 3. Representatives
McCabe, Patkotak, Rauscher, Saddler, and McKay voted against it.
Therefore, Amendment 3 failed by a vote of 3-5.
1:35:29 PM
The committee took a brief at-ease.
1:36:29 PM
REPRESENTATIVE MCCABE moved to adopt Amendment 4 to Version S,
labeled 33-GH1567\S.13, Dunmire, 3/7/23, which read:
Page 10, line 8:
Delete "satisfies the requirements of
AS 38.05.705(b) and"
Page 10, line 24:
Delete "apply for"
Insert "acquire"
Page 10, line 28:
Delete "an applicant under (a) of this section if
the applicant"
Insert "a lessee under AS 38.05.180 if the
lessee"
Page 11, line 3:
Delete "the minimum"
Following "terms":
Insert "acceptable to the department as"
Page 11, line 7:
Delete "; and"
Insert "."
Page 11, lines 8 - 15:
Delete all material and insert:
"(d) Before a carbon storage lease issued under
this section may be transferred or assigned to an
entity that is not the responsible party under the
existing oil and gas lease under AS 38.05.180, the
assuming party must provide financial assurance
acceptable to the department that the obligations of
the lease can be met.
(e) The department may adopt regulations that
allow a lease issued under AS 38.05.180 to be
transitioned to a lease under this section upon the
receipt of a permit issued under AS 41.06.185."
Page 11, lines 25 - 26:
Delete "governing the joint management of a unit
executed by two or more lessees"
Insert "by lessees with an interest in the unit,
the state, and any other carbon storage lessor"
Page 12, following line 7:
Insert a new paragraph to read:
"(2) "enhanced oil or gas recovery" has the
meaning in AS 41.06.210;"
Renumber the following paragraph accordingly.
Page 28, lines 25 - 27:
Delete all material and insert:
"(4) "enhanced oil or gas recovery" means
the increased recovery of hydrocarbons, including oil
and gas, from a common source of supply achieved by
artificial means or by the application of energy
extrinsic to the common source of supply, including
pressuring, cycling, pressure maintenance or injection
of a substance or form of energy, including injection
of water, gas, carbon dioxide, or both gas and carbon
dioxide, including immiscible and miscible floods, as
long as the enhanced oil or gas recovery does not
include injection of a substance or form of energy for
the sole purpose of
(A) aiding in the lifting of fluids in the
well; or
(B) stimulation of the reservoir at or near
the well by mechanical, chemical, thermal, or
explosive means;"
REPRESENTATIVE RAUSCHER objected for the purpose of discussion.
CHAIR MCKAY questioned the administration's position on
Amendment 4.
1:36:52 PM
MR. CROWTHER said the administration was in support of Amendment
4 and appreciated the work for additional corrections to the
bill language.
CHAIR MCKAY invited Mr. King to explain the purpose of Amendment
4.
1:37:17 PM
ED KING, Staff, Representative Tom McKay, Alaska State
Legislature, on behalf of Representative McKay, explained that
Amendment 4 was a cleanup amendment to the process involving a
current oil and gas production lease with a storage opportunity.
The language would clarify some of the technical aspects of
transitioning from oil and gas activity to storage activity.
REPRESENTATIVE MCCABE sought to confirm that the proposed
amendment clarified that the state was already injecting carbon.
In addition, he asked whether it codified the process of
shifting [the current production lease] over to a deep well.
MR. CROWTHER shared his understanding that the purpose of
Amendment 4 was to cleanup sections related to coextensive
operations in which an operator may be developing oil and gas
and moving into a carbon storage posture.
REPRESENTATIVE SADDLER sought further explanation of the
definition of "enhanced oil or gas recovery" on page 2, line 19
of Amendment 4.
MR. KING stated that the language was inserted at the request of
AOGCC because the definition was lacking in the original version
of the bill. He explained that the expansive definition in
Amendment 4 was intended to replace a placeholder definition
that was inserted in Version S.
REPRESENTATIVE SADDLER asked Mr. Huber to expound on the
definition.
1:39:35 PM
COMMISSIONER HUBER said the original placeholder definition
excluded gas from the terms of "enhanced oil or gas recovery."
He noted that the expansive definition was adopted from
Oklahoma's definition [of "enhanced oil or gas recover"], which
worked best for Alaska's purposes.
REPRESENTATIVE RAUSCHER removed his objection. There being no
further objection, Amendment 4 was adopted.
1:40:49 PM
REPRESENTATIVE MEARS moved to adopt Amendment 5 to Version S,
labeled 33-GH1567\S.14, Dunmire, 3/7/23, which read:
Page 1, line 5, following "credits;":
Insert "relating to the oil and gas production
tax;"
Page 10, line 8:
Delete "satisfies the requirements of
AS 38.05.705(b) and"
Page 10, line 24:
Delete "apply for"
Insert "acquire"
Page 10, line 28:
Delete "an applicant under (a) of this section if
the applicant"
Insert "a lessee under AS 38.05.180 if the
lessee"
Page 11, line 3:
Delete "the minimum"
Following "terms":
Insert "acceptable to the department as"
Page 11, line 7:
Delete "; and"
Insert "."
Page 11, lines 8 - 15:
Delete all material and insert:
"(d) Before a carbon storage lease issued under
this section may be transferred or assigned to an
entity that is not the responsible party under the
existing oil and gas lease under AS 38.05.180, the
assuming party must provide financial assurance
acceptable to the department that the obligations of
the lease can be met.
(e) The department may adopt regulations that
allow a lease issued under AS 38.05.180 to be
converted to a lease under this section upon the
receipt of a permit issued under AS 41.06.185."
Page 11, lines 25 - 26:
Delete "governing the joint management of a unit
executed by two or more lessees"
Insert "by lessees with an interest in the unit,
the state, and any other carbon storage lessor"
Page 12, following line 7:
Insert a new paragraph to read:
"(2) "enhanced oil or gas recovery" has the
meaning in AS 41.06.210;"
Renumber the following paragraph accordingly.
Page 28, lines 25 - 27:
Delete all material and insert:
"(4) "enhanced oil or gas recovery" means
the increased recovery of hydrocarbons, including oil
and gas, from a common source of supply achieved by
artificial means or by the application of energy
extrinsic to the common source of supply, including
pressuring, cycling, pressure maintenance or injection
of a substance or form of energy, including injection
of water, gas, carbon dioxide, or both gas and carbon
dioxide, including immiscible and miscible floods, as
long as the enhanced oil or gas recovery does not
include injection of a substance or form of energy for
the sole purpose of
(A) aiding in the lifting of fluids in the
well; or
(B) stimulation of the reservoir at or near
the well by mechanical, chemical, thermal, or
explosive means;"
Page 30, following line 1:
Insert a new bill section to read:
"* Sec. 39. AS 43.55.165(e) is amended to read:
(e) For purposes of this section, lease
expenditures do not include
(1) depreciation, depletion, or
amortization;
(2) oil or gas royalty payments, production
payments, lease profit shares, or other payments or
distributions of a share of oil or gas production,
profit, or revenue, except that a producer's lease
expenditures applicable to oil and gas produced from a
lease issued under AS 38.05.180(f)(3)(B), (D), or (E)
include the share of net profit paid to the state
under that lease;
(3) taxes based on or measured by net
income;
(4) interest or other financing charges or
costs of raising equity or debt capital;
(5) acquisition costs for a lease or
property or exploration license;
(6) costs arising from fraud, wilful
misconduct, gross negligence, violation of law, or
failure to comply with an obligation under a lease,
permit, or license issued by the state or federal
government;
(7) fines or penalties imposed by law;
(8) costs of arbitration, litigation, or
other dispute resolution activities that involve the
state or concern the rights or obligations among
owners of interests in, or rights to production from,
one or more leases or properties or a unit;
(9) costs incurred in organizing a
partnership, joint venture, or other business entity
or arrangement;
(10) amounts paid to indemnify the state;
the exclusion provided by this paragraph does not
apply to the costs of obtaining insurance or a surety
bond from a third-party insurer or surety;
(11) surcharges levied under AS 43.55.201
or 43.55.300;
(12) an expenditure otherwise deductible
under (b) of this section that is a result of an
internal transfer, a transaction with an affiliate, or
a transaction between related parties, or is otherwise
not an arm's length transaction, unless the producer
establishes to the satisfaction of the department that
the amount of the expenditure does not exceed the fair
market value of the expenditure;
(13) an expenditure incurred to purchase an
interest in any corporation, partnership, limited
liability company, business trust, or any other
business entity, whether or not the transaction is
treated as an asset sale for federal income tax
purposes;
(14) a tax levied under AS 43.55.011 or
43.55.014;
(15) costs incurred for dismantlement,
removal, surrender, or abandonment of a facility,
pipeline, well pad, platform, or other structure, or
for the restoration of a lease, field, unit, area,
tract of land, body of water, or right-of-way in
conjunction with dismantlement, removal, surrender, or
abandonment; a cost is not excluded under this
paragraph if the dismantlement, removal, surrender, or
abandonment for which the cost is incurred is
undertaken for the purpose of replacing, renovating,
or improving the facility, pipeline, well pad,
platform, or other structure;
(16) costs incurred for containment,
control, cleanup, or removal in connection with any
unpermitted release of oil or a hazardous substance
and any liability for damages imposed on the producer
or explorer for that unpermitted release; this
paragraph does not apply to the cost of developing and
maintaining an oil discharge prevention and
contingency plan under AS 46.04.030;
(17) costs incurred to satisfy a work
commitment under an exploration license under
AS 38.05.132;
(18) that portion of expenditures, that
would otherwise be qualified capital expenditures, as
defined in AS 43.55.023, incurred during a calendar
year that are less than the product of $0.30
multiplied by the total taxable production from each
lease or property, in BTU equivalent barrels, during
that calendar year, except that, when a portion of a
calendar year is subject to this provision, the
expenditures and volumes shall be prorated within that
calendar year;
(19) costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment, other than a
well, that results in or is undertaken in response to
a failure, problem, or event that results in an
unscheduled interruption of, or reduction in the rate
of, oil or gas production; or costs incurred for
repair, replacement, or deferred maintenance of a
facility, a pipeline, a structure, or equipment, other
than a well, that is undertaken in response to, or is
otherwise associated with, an unpermitted release of a
hazardous substance or of gas; however, costs under
this paragraph that would otherwise constitute lease
expenditures under (a) and (b) of this section may be
treated as lease expenditures if the department
determines that the repair or replacement is solely
necessitated by an act of war, by an unanticipated
grave natural disaster or other natural phenomenon of
an exceptional, inevitable, and irresistible
character, the effects of which could not have been
prevented or avoided by the exercise of due care or
foresight, or by an intentional or negligent act or
omission of a third party, other than a party or its
agents in privity of contract with, or employed by,
the producer or an operator acting for the producer,
but only if the producer or operator, as applicable,
exercised due care in operating and maintaining the
facility, pipeline, structure, or equipment, and took
reasonable precautions against the act or omission of
the third party and against the consequences of the
act or omission; in this paragraph,
(A) "costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment" includes costs to
dismantle and remove the facility, pipeline,
structure, or equipment that is being replaced;
(B) "hazardous substance" has the meaning
given in AS 46.03.826;
(C) "replacement" includes renovation or
improvement;
(20) costs incurred to construct, acquire,
or operate a refinery or crude oil topping plant,
regardless of whether the products of the refinery or
topping plant are used in oil or gas exploration,
development, or production operations; however, if a
producer owns a refinery or crude oil topping plant
that is located on or near the premises of the
producer's lease or property in the state and that
processes the producer's oil produced from that lease
or property into a product that the producer uses in
the operation of the lease or property in drilling for
or producing oil or gas, the producer's lease
expenditures include the amount calculated by
subtracting from the fair market value of the product
used the prevailing value, as determined under
AS 43.55.020(f), of the oil that is processed;
(21) costs of lobbying, public relations,
public relations advertising, or policy advocacy;
(22) costs associated with carbon capture
or storage, including construction and modification of
new or existing infrastructure as well as costs
associated with obtaining or operating a license or
lease."
Renumber the following bill sections accordingly.
Page 30, line 17:
Delete "Section 40"
Insert "Section 41"
REPRESENTATIVE MCCABE objected.
REPRESENTATIVE MEARS highlighted an area of concern regarding
geological sequestration. Further, she opined that there was a
lack of clarity on the transition from enhanced oil recovery to
carbon storage and the double dipping that could occur between
the oil and gas production tax exemptions and qualification for
45Q federal tax credits. She said Amendment 5 would "brighten
that line" between oil and gas recovery and carbon
sequestration.
CHAIR MCKAY asked Ms. Glover to address Amendment 5 and describe
whether it was required by Version S.
1:42:53 PM
MS. GLOVER shared her understanding that Amendment 5 would
disallow any costs related to lease expenditures for enhanced
oil recovery; consequently, it could be challenging to
administer and differentiate costs between an enhanced oil
recovery project that had some carbon components.
REPRESENTATIVE MCCABE asked how page 3, line 5 of Amendment 5
pertained to the bill.
1:45:26 PM
REPRESENTATIVE MEARS said page 6, lines 7-9, which added an
additional exclusion for the oil and gas production tax, was the
substantive area of the amendment.
1:45:58 PM
The committee took an at-ease from 1:45 p.m. to 1:47 p.m.
1:47:05 PM
CHAIR MCKAY asked for guidance from Deputy Commissioner Crowther
on Amendment 5.
MR. CROWTHER stated that the administration did not support the
proposed amendment for two primary reasons. He reiterated that
per Ms. Glover, storage projects would not be eligible under the
current statute and therefore, Amendment 5 would not be needed.
In addition, to the degree that lease expenditures for enhanced
oil recovery projects were eligible under the current system, he
did not believe there should be a change. He opined that the
bill should remain focused on the framework and production tax
changes should be left out at this time.
1:48:23 PM
REPRESENTATIVE MCCABE maintained his objection.
1:48:58 PM
A roll call vote was taken. Representatives Dibert, Armstrong,
and Mears voted in favor of Amendment 5. Representatives
McCabe, Patkotak, Saddler, Wright, and McKay voted against it.
Therefore, Amendment 5 failed by a vote of 3-5.
1:49:49 PM
REPRESENTATIVE MEARS moved to adopt Amendment 6 to Version S,
labeled 33-GH1567\S.2, Dunmire, 3/7/23, which read:
Page 1, lines 1 - 6:
Delete all material and insert:
""An Act relating to the duties of the Alaska Oil and
Gas Conservation Commission and the control of
underground injection in class VI wells; and relating
to carbon oxide sequestration tax credits.""
Page 1, line 8, through page 2, line 5:
Delete all material.
Page 2, line 6:
Delete "Sec. 3"
Insert "Section 1"
Page 2, line 14, through page 30, line 11:
Delete all material.
Renumber the following bill sections accordingly.
Page 30, lines 16 - 31:
Delete all material.
REPRESENTATIVE MCCABE objected.
1:50:03 PM
REPRESENTATIVE MEARS shared her belief that the bill was "not
ready for prime time" and opined there was more work to be done
in committee. She stated that Amendment 6 would seek primacy
for class VI wells and remove the state's liability for federal
Q45 tax credits while deleting the rest of the bill.
CHAIR MCKAY questioned the administration's position on
Amendment 6.
MR. CROWTHER explained his opposition to Amendment 6, as he did
not support separating class VI primacy. He opined that moving
forward as a package was needed to advance the state's interest.
1:52:10 PM
REPRESENTATIVE MCCABE commented that the committee had spent
almost 20 hours of committee time on HB 50, not including time
spent researching and drafting the bill. He opined that
amendment 6 "neuters" the entire legislation and emphasized that
the bill was a framework bill. He shared his belief that the
bill should be sent to the House Finance Committee and
reiterated his opposition to Amendment 6.
1:54:41 PM
REPRESENTATIVE MEARS in wrap up, said she appreciated the
framework and wanted to support moving forward on the bill
without delaying the primacy for class VI wells. Nonetheless,
she stated that there were too many questions about the
framework, such as the differentiation between enhanced oil
recovery and carbon storage. She reiterated her belief that the
framework was not ready.
REPRESENTATIVE MCCABE maintained his objection.
1:56:05 PM
A roll call vote was taken. Representative Mears voted in favor
of Amendment 6. Representatives Dibert, McCabe, Patkotak,
Saddler, Wright, Armstrong, and McKay voted against it.
Therefore, Amendment 6 failed a vote of 1-7.
1:56:45 PM
CHAIR MCKAY sought final comment on Version S, as amended.
1:56:54 PM
MR. CROWTHER thanked the committee for the work that had been
done and anticipated furthering that work with every interested
member of the legislature.
REPRESENTATIVE SADDLER commended the administration for trying
to find alternate ways to utilize resources in new and
innovative ways.
REPRESENTATIVE WRIGHT thanked DNR for providing the information
in a way that was easy to understand.
1:59:36 PM
The committee took a brief at-ease.
2:00:41 PM
REPRESENTATIVE MCCABE moved to report CSHB 50, Version 33-
GH1567\S, Dunmire, 2/28/23, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
2:01:19 PM
REPRESENTATIVE MEARS objected.
2:01:54 PM
A roll call vote was taken. Representatives Armstrong, Dibert,
McCabe, Patkotak, Saddler, Wright, and McKay voted in favor of
reporting CSHB 50, Version S, out of committee. Representative
Mears voted against it. Therefore, CSHB 50(RES) was reported
out of the House Resources Standing Committee by a vote of 7-1.
2:03:19 PM
The committee took an at-ease from 2:03 p.m. to 2:06 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 49 committee substitute version S.pdf |
HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 49 Summary of changes (A to S).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 49 Transmittal Letter 01.26.2023.pdf |
HRES 2/24/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 49 Sectional Analysis 2.1.2023.pdf |
HRES 2/24/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 49 Carbon Offset Bill Overview 2.1.2023.pdf |
HRES 2/24/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 49 Overview Presentation DNR 03.01.23.pdf |
HRES 3/1/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 49 |
| HB 50 updated fiscal note (DEC).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 updated fiscal note (DNR).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 updated fiscal note (AOGCC).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB50 CS - S.pdf |
HRES 3/1/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 Summary of Changes (A to S).pdf |
HRES 3/1/2023 1:00:00 PM HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 49 DOF Forest Management Presentation.pdf |
HRES 3/8/2023 1:00:00 PM HRES 3/13/2023 1:00:00 PM |
HB 49 |
| HB 50 amendment 1 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 amendment 2 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 amendment 3 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 amendment 4 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 amendment 5 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |
| HB 50 amendment 6 (HRES).pdf |
HRES 3/8/2023 1:00:00 PM |
HB 50 |