Legislature(2003 - 2004)
04/16/2003 03:34 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 50-ROYALTY GAS CONTRACTS
CHAIR OGAN announced that Version Q of SB 50 was before the
committee and that an amendment was adopted at the last meeting.
A second amendment, labeled Q.1, has been proposed.
SENATOR DYSON moved to adopt Amendment 2 (Q.1, Chenoweth,
4/15/03), which reads as follows:
23-LS0429\Q.1
Chenoweth
A M E N D M E N T 2
OFFERED IN THE SENATE BY SENATOR WAGONER
TO: CSSB 50( ), Draft Version "Q"
Page 2, line 23, following "acceptance of":
Delete "the use of the contract price"
Insert "an amount that is different than the amount due
under the lease [THE USE OF THE CONTRACT PRICE]"
Page 2, line 31, following "commissioner":
Delete "shall"
Insert "may"
Page 3, line 4, following "agreement":
Insert "if it is in the best interest of the state"
Page 3, line 17:
Delete "and"
Insert "or"
Page 3, line 19, following "state":
Delete ";"
Insert "."
Page 3, lines 20 - 22:
Delete all material.
CHAIR OGAN objected for the purpose of discussion.
SENATOR WAGONER explained that he, his chief of staff, Mary
Jackson, and Mark Myers discussed this amendment with Mr.
Chenoweth on Monday. Everyone concurred these amendments clean
up the bill and accomplish the intent. He noted Mr. Myers was
available via teleconference to answer any questions.
CHAIR OGAN asked Mr. Myers to discuss the overall effect these
amendments will have on SB 151.
MR. MARK MYERS, Director of the Division of Oil and Gas,
Department of Natural Resources (DNR), told members that the
amendments give the commissioner some discretion to decide on
the amount of royalty relief to grant. The commissioner can
choose one of three values: the higher of value; the market
value; or the contract price. The (aa) treatment says the
commissioner shall only use the contract price if certain
conditions are met so it gives the commissioner discretion to
use the contract price or something in between that and the
higher price associated with market value or the higher of
price. DNR supports that language. However, the amendments will
have a dramatic effect on the fiscal note, which is now
indeterminate. Because the commissioner has the discretion, in
the public interest, to adjust the royalty, DNR believes the
amendments will protect the state's interest.
MR. MYERS said the previous version of the bill gave the
commissioner discretion, but the amendments make the language
consistent by changing "shall" to "may" throughout. He noted
(aa) treatment for utilities originally meant that all of the
conditions had to be met. Changing "and" to "or" means that any
one of the conditions is sufficient to deny an application and
provides more protection for the state.
CHAIR OGAN asked if the Administration took a position on SB 50
previous to the amendments.
MR. MYERS said he was only speaking for DNR but he believes the
Administration will support the legislation.
CHAIR OGAN asked what these changes will do to the fiscal note.
MR. MYERS said the changes make the fiscal note indeterminate.
Prior to the amendments, DNR felt there was minimal discretion
in the amounts. In the particular case of Agrium, the division
could calculate the volume of gas it expected would fall under
this contract. The fiscal note was reasonable given the
uncertainty of the volumes that might potentially be used by the
plant. Now, the fiscal note says that number could be the higher
number if all of the conditions are met but it could be
significantly lower. He said because the commissioner can only
enter into a contract if it is in the best interest of the
state, there could be increased value in other areas.
SENATOR SEEKINS referred to the change from "shall" to "may" on
line 31, page 2, and asked if that will have any effect on the
90-day provision. He asked if the commissioner could, after the
written request, decide not to enter into an agreement.
MR. MYERS said if the commissioner determined it was not in the
public interest, he could deny it; the amendment just clarifies
the "or" conditions if the price is unreasonably low or if the
reduction is not balanced by employment or other opportunities.
SENATOR SEEKINS asked if the 90-day provision is useless because
nothing compels the commissioner to say yes or no.
MR. MYERS said he believes the commissioner has 90 days to make
the decision.
SENATOR SEEKINS disagreed and said the bill says at the end of
90 days the commissioner may enter into an agreement.
MR. MYERS said if the commissioner determines it is not in the
best interest of the state and denies the application, he will
obviously not enter into the agreement.
SENATOR SEEKINS said he would prefer that provision be
clarified.
SENATOR BEN STEVENS said he shares Senator Seekins' concern but
pointed out the language on page 3, line 3, says the
commissioner may enter into the agreement if it is in the best
interest of the state. He agrees with that principle. He said
the language on page 2 says the commissioner shall enter into
the agreement so the commissioner must determine, within 90
days, whether the agreement is in the best interest of the
state.
SENATOR SEEKINS agreed but said his concern is that the previous
language called for an action within a specified time period.
The new language does not call for any action within that
specified time period.
CHAIR OGAN said his interpretation is the same as Senator
Stevens'; that being there is a 90-day window during which the
commissioner may enter into an agreement if it is in the best
interest of the state. He noted the word "shall" cannot be used
since the commissioner has the leeway to decide whether it is in
the best interest of the state.
SENATOR SEEKINS said he would prefer the bill to say within 90
days, the commissioner will decide whether or not it is in the
best interest of the state and, if so, may enter into the
contract.
SENATOR STEVENS commented that Senator Seekins wants the bill to
say within 90 days the commissioner shall issue a written
decision.
CHAIR OGAN said he is not prepared to offer an amendment at this
time.
SENATOR SEEKINS said he is not either, but the intent that the
commissioner cannot delay the decision forever is on the record.
SENATOR WAGONER commented that no response in 90 days will
conclude the negotiation.
SENATOR LINCOLN said she agrees with Senator Seekins. She said
she believes the word "shall" should be used because three
conditions follow.
MR. MYERS said in order to deny, the commissioner must make a
written finding so positive action on the part of the
commissioner is required. Therefore, this language leans in
favor of approving the agreement.
CHAIR OGAN asked if the parties that drafted this amendment
discussed this matter with Mr. Chenoweth.
MR. MYERS said they didn't talk about the timing but the word
"shall" on page 2, line 31, was inconsistent with the word "may"
on the following page. He said he interpreted the language to
mean the commissioner must make a decision within 90 days. If
the commissioner denies the contract, he must make a written
finding within that time period.
SENATOR ELTON asked if a company that is asked for data to
support a decision might stall because after 90 days the
agreement would be valid if a written finding to deny could not
be done. He pointed out the burden of proof is on the
commissioner to deny.
MR. MYERS said without reasonable information, the commissioner
would have grounds to deny. He said DNR has had that experience
in the past. Although a lack of information can be problematic,
when it is essential to the decision, DNR stresses the need to
get it from the applicant and acquiring that information has
generally not been a problem. He said it is in the company's
interest to make a clear showing to DNR.
SENATOR ELTON said he understands the impulse behind this
legislation but the indeterminate fiscal note gives him
heartburn. The state treasury will be losing several millions of
dollars over time. He feels the legislature should be cognizant
of that as this bill moves forward, especially while it is
trying to "nickel and dime a whole bunch of people in the state
for additional revenues to cover the budget gap." He said it is
a bit disingenuous to say the fiscal note is indeterminate when
the impact could be millions of dollars per year.
CHAIR OGAN said this is the fourth or fifth hearing on this
piece of legislation, and the committee has had several
discussions on the fiscal note. He said he shares Senator
Elton's concerns. However, he has to trust the Administration to
bring forth an appropriate fiscal note. The bill has a referral
to the Senate Finance Committee where the fiscal note will again
be scrutinized.
SENATOR WAGONER said the Agrium plant is not likely to close
down, but the state receives a fair amount of revenue from the
sale of royalty gas to Agrium so, if it did close, that would be
a negative to the treasury. He said SB 50 has been reworked
several times. If a royalty reduction contract is not in the
best interest of the state, the commissioner does not have to
enter into a contract. He questioned how the fiscal note can be
very high if the commissioner has that authority.
SENATOR SEEKINS said he agrees with Senator Wagoner that this
legislation provides a way to support Alaskan workers through
value-added processing. He said in his business, he long ago
learned that half a loaf is better than none.
CHAIR OGAN noted that Senator Wagoner has worked with him on
this bill and appreciates the spirit of cooperation.
SENATOR LINCOLN asked Mr. Myers if he said DNR supports the bill
but he was not sure of the Administration's position and, if so,
why he does not know since this bill has been around awhile.
MR. MYERS said he asked the Administration for clarification of
its position. He noted the bill has changed over time, with the
most recent amendments being proposed as late as this week. He
said he has talked with his commissioner who supports the bill
with these changes. He said it is his belief that the
Administration is leaning toward supporting the legislation but
he has not heard a direct statement to support that belief.
CHAIR OGAN noted this bill has morphed considerably since the
last hearing. He then asked if anyone else wished to testify.
MS. LISA PARKER, representing Agrium, stated support for the
committee substitute before the committee.
CHAIR OGAN removed his objection to adopting Amendment 2 and
announced the motion carried.
SENATOR BEN STEVENS moved CSSB 50(RES) from committee with its
forthcoming indeterminate fiscal note.
CHAIR OGAN announced without objection, the motion carried. The
committee then took a brief at-ease.
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