Legislature(1999 - 2000)
04/23/1999 08:07 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 134 "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, and repealing the oil and gas conservation tax; and providing for an effective date." CS FOR SENATE BILL NO. 134(RES) "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; repealing the oil and gas conservation tax; and providing for an effective date." PAT CARTER, Staff, Senator Drue Pearce, explained that the Alaska Oil and Gas Conservation (AOGCG) had been created to protect the public interest through enforcement of the Alaska Oil and Gas Conservation Act. The goal of the Commission is to ensure that no hydrocarbons are wasted and that operations are conducted in a manner that provides maximum recovery of the resources. SB 134 repeals 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. Mr. Carter continued, the original intent of the legislation was to have the oil and gas industry pay for the function of the Commission through the Oil and Gas Conservation Tax. While this system may have been adequate in the past, it no longer is sufficient to cover the costs associated with the operation of that Commission. The conservation tax is directly proportional to production with a four 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. Mr. Carter pointed out that SB 134 would create 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 with the factors directly associated with the workload of the Commission. He advised that the Commission had experienced budget difficulties in the past, even when the tax proceeds exceeded annual appropriations. He testified that AOGCC is currently encountering budget difficulties that are directly related to the decline in oil production. SB 134 would create a stable funding source that will enable the AOGCC to provide the monitoring services necessary to protect the future of Alaskan interests. Senator Adams inquired if the oil industry supported the bill. Mr. Carter responded that the oil industry had not yet spoken with Senator Pearce's office. Senator Adams requested clarification of changes made in the Senate Resources Committee. Mr. Carter stated that changes had been made to the cost allocations. He added that there had been concerns regarding the past unitization agreements, which are unforeseen costs that occur throughout the budgetary year. Co-Chair Torgerson questioned if any municipal government would be exempted through Section #5. Mr. Carter did not know of any exemptions other than those directly related to SB 134. Co-Chair Torgerson referenced Page #1, Lines 11-12, which refers to regulatory charges, paid by the permittee. He questioned the inclusion of that language: "The ability to pay". Mr. Carter commented that he did not know why that language had been included, which had been brought forward from the AOGCC document. Co-Chair Torgerson asked if the sponsor would object to removing that language. Mr. Carter replied that there would be no objection. Senator Donley MOVED a conceptual Amendment #1, to delete the above mentioned language on Page #1, Line 12, "ability to pay". Mr. Carter noted that there was a committee substitute available containing the technical corrections made by the legal department at AOGCC, the "Z" version of the proposed legislation. Co-Chair Torgerson requested that version be copied for Committee members. Senator Donley MOVED to WITHDRAW Amendment #1. There being NO OBJECTION, Amendment #1 was withdrawn. JUDY BRADY, Executive Director, Alaska Oil and Gas Commission, Anchorage, (Testified via Teleconference), stated that the Commission has reviewed SB 134 and that comments and concerns were voiced. She emphasized that the Commission does not support SB 134 because they believe that the bill would weaken oversight and control over State taxation and spending. She added that it is critical that AOGCC maintains its ability to issue permits and decisions that are required for on-going oil field operations. To that end, AOGCC recommends that they remain appropriately funded so to be a fully functional and independent entity. Ms. Brady informed members that there are concerns with the funding source and the funding mechanism embodied in SB 134. All these concerns were conveyed to both the Administration and the Legislature. Ms. Brady continued, AOGCC members have concerns with moving funding from AOGCC general fund appropriation to a non- general fund category since it would lessen legislative oversight of the Commission's budget. This legislation would create a virtually unfunded taxing mechanism. It is the combination of how the tax would be established to a regulatory process plus moving to the non-general fund combination which will be of great concern to the Commission. She noting that AOGCC was willing and committed to work with the Legislature during the interim to develop an appropriate and accountable way to fund AOGCC in the future. Senator Phillips viewed the above testimony as inconsistent with previous recommendations of that Commission. Ms. Brady replied that there has been a struggle in the State in how to address non-general funds. She emphasized that moving a budget would require a different accounting system. The concern for AOGCC is how the bill proposes to tax so that the regulatory group can establish the taxes. She pointed out that AOGCC already pays tax and regulation fees. The Legislature did not always appropriate the money as it was competing with other needs. The amount of funds that were paid to that tax now has declined as the needs have risen. SENATOR PEARCE explained the change in the funding mechanism. She noted that there were no complaints from the industry when that was added; they did not want to pay for other utilities. The mechanism does charge a portion of the fees to re-inject the liquids, which definitely differs from other oil producing states. She indicated that the re- injection process is a portion of the AOGCC's responsibility. Mr. Carter explained the changes made to the Senate Resources version of the legislation. TAPE SFC-99 #108 Side B Senator Leman pointed out that language on Page 2, Lines 15- 22, was very confusing. Mr. Carter replied that the total volume of liquid would be approximately 3.3 billion. He further explained the mathematical procedure involved in determining that number. Senator Leman recognized that it was intended to be the volumetric procedure of the volume and he recommended that language be rewritten. Senator Pearce agreed that section needed further work. Senator Leman voiced concerns for future litigation with the current proposed language. Senator Donley MOVED to adopt work draft version 1-LS0259\V, Chenoweth, 4/20/99, as the version before the Committee. There being NO OBJECTION, it was adopted. Senator Donley MOVED a change to Page 1, Lines 11 and 12, delete "ability to pay". There being NO OBJECTION, the change was made to Amendment #1. Senator Phillips requested that the Department of Revenue address the proposed fiscal note. Co-Chair Torgerson asked if Senator Pearce understood the positions for requesting funds listed in the fiscal note. Senator Pearce stated that she did not endorse the use of designated receipts. She emphasized that the bill before the Committee does not address the supplemental request currently being made. Senator Pearce added that SB 133 and SB 134 had been introduced together and that SB 133 would add new funding to AOGCC. She stated that the bill before the Committee would staff AOGCC as they currently are. Senator Phillips voiced his concern regarding the proposed funding for computer enhancement. Senator Pearce explained that AOGCC currently resides in an unsafe office in Anchorage. The employees are concerned about the darkness that surrounds the building because it is located in an unsafe neighborhood. If SB 133 passes, the office will be moving to a different facility. If SB 133 does not pass, that fiscal note will "fall out" as will the moving costs associated with the above-mentioned concerns. Co-Chair Torgerson asked if the capital costs would be added into the regulatory costs. Senator Pearce believed they would. Senator Wilken MOVED to adopt the amended CSSB 134 (FIN). Senator Adams OBJECTED. Senator Adams noted that he would not vote for any tax unless he was presented with a long-range plan. Co-Chair Torgerson pointed out that the bill would repeal the tax. Senator Adams stated that was not his interpretation of the way the bill was written. Co-Chair Torgerson pointed out the repealler section, AS 43.57 & 10(a) are the tax. Senator Adams WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered and the bill was moved from Committee. CSSB 134(FIN) was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Department of Revenue dated 4/14/99 and the Department of Administration dated 4/12/99.