Legislature(1999 - 2000)

04/23/1999 08:07 AM FIN

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

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