Legislature(2017 - 2018)HOUSE FINANCE 519
03/13/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB30 | |
| HB90 HOUSE BILL NO. 90 | |
| HB6 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 31 | TELECONFERENCED | |
| + | HB 90 | TELECONFERENCED | |
| + | SB 30 | TELECONFERENCED | |
| + | HB 6 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 13, 2017
1:49 p.m.
1:49:57 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:49 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Jim Shine, Commercial Manager, Division of Oil and Gas,
Department of Natural Resources; Doug Chapados, Chief
Executive Officer and President, Petro Star; Representative
Sam Kito, Sponsor; Crystal Koeneman, Staff, Representative
Sam Kito; Darrell Breese, Staff, Representative George
Rauscher; Representative George Rauscher, Sponsor;
Representative Geran Tarr, Sponsor.
PRESENT VIA TELECONFERENCE
Susan Terwilliger, Midwives Association of Alaska,
Anchorage; Brent Goodrum, Director, Division of Mining,
Land and Water, Department of Natural Resources.
SUMMARY
HB 6 JONESVILLE PUBLIC USE AREA
HB 6 was HEARD and HELD in committee for further
consideration.
HB 31 SEXUAL ASSAULT EXAMINATION KITS
HB 31 was HEARD and HELD in committee for further
consideration.
HB 90 OCC. LICENSING FEES; INVESTIGATION COSTS
HB 90 was HEARD and HELD in committee for further
consideration.
SB 30 APPROVAL: ROYALTY OIL SALE TO PETRO STAR
SB 30 was HEARD and HELD in committee for further
consideration.
1:50:29 PM
Co-Chair Foster discussed the meeting agenda.
SENATE BILL NO. 30
"An Act approving and ratifying the sale of royalty
oil by the State of Alaska to Petro Star Inc.; and
providing for an effective date."
1:51:09 PM
JIM SHINE, COMMERCIAL MANAGER, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, provided a PowerPoint
presentation titled "Proposed Sale of the State's Royalty
Oil to Petro Star: Senate Bill 30" dated March 13, 2017
(copy on file). He relayed that the proposed sale was the
result of a lengthy commercial negotiation and public
review process. He began on slide 2:
Royalty In-Kind Versus Royalty In-Value
The State has a choice to take its royalty in-
kind (RIK) or in-value (RIV).
lessees who produce the oil also market the
State's share along with their own production and
pay the State the value of its royalty share.
SOA assumes ownership of the oil, and the DNR
Commissioner disposes of it through the sale
procedures prescribed by AS 38.05.183.
oil as RIK (starting in 1979).
million in additional revenue over what the state
would receive if the contracted volumes were
taken RIV.
review and Royalty Board processes.
Mr. Shine related that the state was currently selling oil
to Petro Star under a one-year contract, which had not
required legislative approval. Contracts over one year
required legislative ratification.
Mr. Shine addressed slide 3 titled "Non-Competitive RIK
Sale Process":
Before taking RIK, the DNR Commissioner must find it
is in the State's best interest.
DNR must decide whether to sell RIK pursuant to a
competitive auction or a non-competitive, negotiated
sale.
Solicitation of Interest issued January 2015 to
prospective purchasers to gauge market interest.
DNR determined that there was not competition allowing
for a competitive sale, and proposed to enter into two
negotiated contracts with Petro Star.
The first contract, in effect for the period January -
December 2017, did not need legislative approval under
AS 38.06.055(a) and (b)(1), received recommendation of
the Royalty Board and was entered into in August 2016.
The second contract, effective for the period January
2018 -December 2021, received the recommendation of
the Royalty Board, but requires Legislative approval.
Mr. Shine detailed that the Department of Natural Resources
(DNR) sent the solicitation of interest to five instate
refineries: Petro Star, Tesoro, Flint Hills, BP, and
ConocoPhillips. The state choose to enter into negotiated
sales with Tesoro and Petro Star. In 2016, the legislature
ratified a 5-year contract with Tesoro under HB 373
Approval of Sale of Royalty Oil to Tesoro [Chapter 3 SLA
16/ - 04/21/2016]. The department prepared a best interest
finding and determined that the 4-year Petro Star contract
was in the state's best interest. In addition, DNR issued a
30-day public comment review where no public comments had
been received. Subsequently, DNR presented the contract to
the Alaska Oil and Gas Royalty Development Advisory Board
(Royalty Board) on August 31, 2016, which unanimously
approved the contract and recommended it for legislative
approval. He noted that the "Report to the Alaska
Legislature" (copy on file) and the Approval Resolution
[Resolution 2016-2 (copy on file)] were included in the
committee member's packets.
1:55:38 PM
Co-Chair Foster noted Representative Wilson had joined the
meeting.
Vice-Chair Gara relayed that he had never had a problem
with the oil royalty contracts. He spoke to RIK versus RIV
and noted that the state stood to gain more taking RIK. He
asked whether the RIK "net positive" accounted for the
amount of oil used to pay the pipeline tariff. Mr. Shine
answered that Petro Star had already received its "feed
stock" from other producers. The state was maximizing the
value of it royalty by selling the oil to Petro Star. He
elaborated that Petro Star refined roughly 25 to 30 percent
of each barrel of oil and returned the remaining percentage
of the barrel back into Trans-Alaska Pipeline System (TAPS)
in the comingled stream. He noted that the same volume of
oil would be shipped upstream and downstream from the
refinery.
Representative Guttenberg referenced the Quality Bank
allowance calculation and a related court case. He asked
what the state would lose in the Quality Bank allowances
versus if there was no sale. He thought that the Quality
Bank cost the state and buyer money. He asked whether there
was a calculation for the expense. Mr. Shine deemed that
the case Representative Guttenberg referred to concerned
the valuation of the residual portion of a barrel of oil
and was a Quality Bank administrative mandated federal
program. The value was determined by a Quality Bank
administrator contracted through the TAPS owners. He
delineated that the Quality Bank payment was a deduction on
the netback formula, determined by the Quality Bank
administrator. He noted the formula was the same if the
state chose RIV. Representative Guttenberg relayed that the
court determined that the state had no standing in the
Quality Bank allowance situation. He was under the
impression the state lost money because "the calculation
was higher than it should be." He asked if the state looked
at the Quality Bank costs and how it impacted the sale of
oil. Mr. Shine replied in the affirmative. He reiterated
that the number was the same whether the state took its
royalty in-value or in-kind. He explained that the Quality
Bank was an economic leveling mechanism that ensured
upstream producers were in the same economic position at
the Valdez main terminal based on the value of oil they
contributed into the comingled stream. He agreed that
larger Quality Bank payments may impact the bank's
deduction that was part of the state's netback formula. He
surmised that the real value to the state taking RIK was
not being subject to a marine transportation deduction.
Representative Guttenberg requested a letter explaining how
the in-kind and in-value worked out to be the same number.
Mr. Shine agreed to follow up.
2:01:34 PM
Representative Grenn referenced point number 4 on slide 4
and read:
The ability of the prospective buyer to provide
refined products for distribution and sale in the
state with price or supply benefits to the citizens of
the state…
Representative Grenn asked whether there was a breakdown of
what Petro Star would do with its refined products. Mr.
Shine answered that the items were covered in the best
interest finding included in the member's packets ["Final
Best Interest Finding and Determination for the Sale of
Alaska North Slope Royalty Oil to Petro Star Inc." Division
of Oil and Gas, Alaska Department of Natural Resources,
September 15, 2016 (copy on file)].
Co-Chair Seaton spoke to refineries tax credits that were
not "transparent." He asked if the department was opposed
to the suggestion of adding transparency language regarding
the credits to the bill. Mr. Shine did not believe the
department would have a problem with increasing
transparency.
Representative Wilson asked whether the bill was the
appropriate vehicle to discuss the refinery tax credits.
Mr. Shine replied that the contract was not subject to
amendment. He believed that DNR preferred the legislature
address the issue in standalone legislation.
Mr. Shine moved to slide 4 titled "Commissioner's Decision
Criteria":
AS 38.05.183(e) states that the commissioner must sell
the State's royalty oil to the buyer who offers
"maximum benefits to the citizens of the state." In
making this determination, the commissioner must
consider:
1. The cash value offered;
2. The projected effects of the sale on the economy
of the state;
3. The projected benefits of refining or processing
the oil in state;
4. The ability of the prospective buyer to provide
refined products for distribution and sale in the
state with price or supply benefits to the citizens of
the state; and
5. The eight criteria listed in AS 38.06.070(a), as
reviewed by the Royalty Board.
In considering these criteria, the commissioner will
state which criteria apply to the proposed disposition
and discuss the weight given to the applicable
criteria in determining the maximum benefits to the
state.
Mr. Shine noted that Petro Star had two refineries: North
Slope and Valdez. The refined products provided jet fuel,
home heating, and ultralow sulfur diesel fuel for Alaskan's
use.
Mr. Shine advanced to slide 5 titled "Approval Process for
the RIK sale":
DNR must make a Best Interest Finding (BIF) in support
of the sale.
Preliminary BIF issued July 2016.
Final BIF issued in September 2016.
DNR presented the proposed sale to the Royalty
Board on August 31, 2016.
The Board reviewed the Preliminary BIF and the
proposed contracts, and unanimously voted to
recommend the Legislature approve the sale of ANS
royalty oil to Petro Star.
The Board issued a Report to the Alaska
Legislature and Resolution 2016-2 stating that
the proposed disposition of ANS royalty oil to
Petro Star meets the requirements of AS
38.06.070.
Prior to finalizing the RIK contract, the
Legislature must pass a bill ratifying the
contract with Petro Star (HB 70; SB 30).
Mr. Shine turned to slide 6 titled "Royalty Board's
Decision Criteria":
AS 38.06.070(a) states that the Alaska Royalty Oil and
Gas Development Advisory Board must consider:
1. The revenue needs and projected fiscal condition
of the state;
2. The existence and extent of present and projected
local and regional needs for oil and gas
products;
3. The desirability of localized capital investment,
increased payroll, secondary development and
other possible effects of the sale;
4. The projected social impacts of the transaction;
5. The projected additional costs and
responsibilities which could be imposed upon the
state and affected political subdivisions by
development related to the transactions;
6. The existence of specific local or regional labor
or consumption markets or both which should be
met by the transaction;
7. The projected positive or negative environmental
effects related to the transactions; and
8. The projected effects of the proposed transaction
upon existing private commercial enterprise and
patters of investment.
Mr. Shine notified the committee that the Royalty Board
addressed the criteria in its report.
2:05:48 PM
Mr. Shine addressed slide 7 titled "Petro Star RIK Contract
Terms":
Quantity
1-year contract: from 18,800 bpd to 23,500 bpd for
Jan. 2017 -Dec. 2017
4-year contract: from 16,400 bpd to 20,500 bpd for
Jan. 2018 -Dec. 2018
from 13,200 bpd to 16,500 bpd for Jan. 2019 -Dec.
2019
from 10,800 bpd to 13,500 bpd for Jan. 2020 -Dec.
2020
from 8,400 bpd to 10,500 bpd for Jan. 2021 -Dec.
2021
Price: the contracts use a netback formula and
provides higher revenue to State compared to RIV.
Quantity flexibility
Petro Star may nominate zero barrels up to 3
consecutive months if "turnaround clause" is used,
otherwise the contract terminates.
The State can cap its delivery amounts to 95% of the
total ANS royalty oil if the nominations from all RIK
buyers is greater than the 95% threshold.
Provided that the supply of ANS royalty oil exceeds
demand from both RIK buyers, the State can sell
Additional Sale Oil as long as the total deliveries
are not greater than the 95% threshold.
Security
Petro Star's guarantor (ASRC) shall provide a letter
of opinion from a financial analyst or a stand-by
letter of credit or surety bond equal in value to 50
days of delivery.
If guarantor's credit rating falls below investment
grade level, then guarantor shall provide a stand-by
letter of credit or surety bond described previously.
In-state processing: Petro Star to use "commercially
reasonable efforts" to manufacture refined products
in-state from the ANS royalty oil.
Employment of Alaska residents: no discrimination
against AK companies and residents.
Mr. Shine reported that the decline in the nomination
values was reflective of the state's anticipated royalty
barrels. The numbers were based on 2015 Fall Production
Forecast using only currently producing assets. He
indicated that the state expected to receive 50 thousand to
55 thousand barrels of oil per day in 2017 and from 2018
through 2021 the state anticipated receiving 36 thousand to
50 thousand barrels of oil per day. The Tesoro contract (HB
373 from the previous year) was based on 20 thousand to 25
thousand barrels per day during the same time period. The
total accounted for approximately 95 percent of the state's
royalty oil in the next five years.
Representative Thompson referenced slide 7 and interpreted
that the state could sell an increased amount of royalty
oil up to the 95 percent threshold if supply was greater
due to increased production. He asked whether the statement
was correct. He noted that current oil production was over
550,000 barrels per day but the fall forecast predicted
under 500,000/bbl. Mr. Shine replied in the affirmative. He
pointed to the third bullet point on slide 7 under
"Quantity Flexibility" and reported that if more royalty
oil was available during the contract period the state
could provide the excess barrels based on the contracts. He
restated that the contract was based on 2015 currently
producing assets.
2:09:08 PM
Mr. Shine spoke to the security provisions. He reported
that the state negotiated a surety bond with the Arctic
Slope Regional Corporation; Petro Stars parent company, for
$46 million that would ensure the state was reimbursed at
the same level in case of default. He elaborated that there
were two default risks: - if barrels were delivered and the
company was unable to meet its obligation or a denomination
risk. He explained that the state employed a nomination
process to receive its royalty oil. One hundred days prior
to the delivery of royalty oil, the state received the
nomination volumes information from Petro Star. The state
then had 10 days to notify upstream producers how many
barrels it was taking in-kind. The purpose of the security
provision and the bond was to ensure the state was "kept
whole" if either default occurred. He indicated that Petro
Star employed over 300 Alaskans.
Mr. Shine offered that the following slide contained the
netback formula for the contract. He discussed slide 8
titled "RIK Contract Price:"
ANS Spot Price - $1.95 - Tariff Allowance +/-
Quality Bank Adjustments - Line Loss
ANS Spot Price = Average US West Coast Price for
Alaska North Slope oil (reported by industry
trade publications Platts and Reuters)
$1.95 RIK Differential
This is a deduction used to calculate the price
of ANS oil sold in Alaska.
The deduction is applied to the price of ANS oil
at its most common destination market (the U.S.
West Coast).
It resembles the deduction used in sales of ANS
oil in Alaska between North Slope producers and
between North Slope producers and in-state
refineries.
In contrast, for the ANS royalty oil that is sold
outside of Alaska and that is taken in-value,
producers use a deduction that approximates the
marine transportation cost.
Since deduction that represents the marine
transportation cost is generally higher than the
value of the RIK differential, the State has the
potential to obtain a higher price for its ANS
royalty oil by taking it in-kind and selling it
in Alaska.
Tariff Allowance = Tariffs for TAPS and pipelines
upstream of Pump Station 1 (PS-1).
Quality Bank Adjustments = adjustments reported
by TAPS Quality Bank Administrator.
Line Loss = loss or mismeasurement of volume
between PS-1 and the Valdez Marine Terminal
(VMT). It is calculated as 0.09% of the amount
resulting from the formula above, excluding "Line
Loss."
Mr. Shine summarized that the main difference between the
RIK and the RIV netback formula was the difference in the
marine transportation deduction versus the RIK
differential. He delineated that the RIK differential was
$1.95 /bbl. in both contracts and the marine transportation
deduction was expected between $3.30/bbl. and $3.70bbl. The
RIK differential represented the value of oil sold within
the state. He referenced the $29 million to $37 million
over 5 years increase in excess of a RIV contract was the
delta between no marine transportation deduction and an RIK
differential at approximately $1.50bbl.
2:13:09 PM
Representative Guttenberg asked who performed the marine
transportation calculation. Mr. Shine replied that the
calculation on fields that were covered under RSAs
(Reimbursable Service Agreements) was an average subtracted
from the netback formula for the RIV.
Mr. Shine instructed that the line loss was an industry
standard deduction in netback formulas for pipeline
transportation that accounted for the difference in flow
meters. He moved to slide 9:
CONTRACT IS IN THE STATE'S BEST INTEREST
The State will receive between $29 to $37 million in
additional revenue over what the state would receive
if the volume of ANS royalty oil the contracts is
taken in-value. 1-year contract (Jan. -Dec. 2017):
from $7.6 to $9.5 million 4-year contract (Jan. 2018 -
Dec. 2021): from $22.3 to $27.9 million
On average, producers selling ANS royalty oil outside
Alaska for the 5-year period of the proposed RIK
contracts with Petro Star are expected to deduct from
$3.37 to $3.70 per barrel as a "marine transportation
cost" in arriving at the price for RIV. This is the
deduction used to adjust the price of ANS oil from the
U.S. West Coast to Alaska.
The proposed contracts with Petro Star will
deduct only $1.95 as a "location differential"
from the west coast ANS value.
The proposed sale provides crude to Petro Star's
refineries at North Pole and Valdez with the
associated economic and social benefits to
Alaska's economy: Petro Star employs
approximately 44 people in its refining
operations.
Maximum throughput capacity North Pole refinery:
22,000 barrels per day (bpd). Valdez refinery:
60,000 bpd.
Of the throughput amounts, approximately 25%-30%
will be refined products.
Petro Star refineries' estimated contribution to
the local economy in 2014 was $25mm
Mr. Shine commented that the total of the two current
contracts and another previously approved Tesoro contract
brought the state $75 million to $95 million more over the
next five years than available under RIV contracts.
2:15:40 PM
Mr. Shine addressed slide 10 titled "Comparison of RIK
Contracts." The slide contained charts summarizing the
breakdown in the difference between the volumes in the
Tesoro and Petro Star contracts. He mentioned that there
was a positive fiscal note accompanying the bill reflecting
the value of the four-year contract taken in RIK versus
RIV.
Representative Guttenberg spoke to the tariff allowance on
slide 10. He read the following from a box titled "Tariff
Allowance":
…If royalty comes from fields upstream of PS No 1,
then RIK contracts consider tariffs filed with FERD
for shipment of royalty oil upstream of PS No 1.
Representative Guttenberg asked where the tariffs were
filed and who set the rates. He asked whether the state was
paying twice for shipments and if the upstream costs were
regulated. Mr. Shine responded that if the state nominated
royalty barrels from Prudhoe Bay the netback formula was
only subject to a TAPS deduction, which represented the
transportation costs from Prudhoe Bay to Valdez. However,
if the state was nominating royalty barrels from other
locations like Pt. Thompson, additional tariff adjustments
were made for moving the oil from the point of production
to the comingled stream at Pump Station number 1. He was
not certain whether the costs were regulated. He would
follow up.
2:18:25 PM
Representative Guttenberg was concerned that in the past
some of the tariff allowances on TAPS were disputed
because, in his view, owners were overcharging themselves
and lowering the costs at the wellhead and getting a better
deal from themselves for shipping costs. He wondered what
happened upstream with TAPS owners and independent
producers and asked for a follow up. Mr. Shine agreed to
follow up.
Co-Chair Seaton asked whether there was any interaction
with the gross value reduction (GVR) for new oil or the 10
percent GVR for those with royalty shares above 12.25
percent. Mr. Shine answered in the negative.
Representative Wilson thanked the department for
negotiating the deal, which she believed was long overdue.
She asked about the difference between the Tesoro contract
and the Petro Star contract in how much more the state
received. Mr. Shine replied that the prior Tesoro contract
was $56 million more over 5 years and in the two current
contracts between $29 million to $37 million more or the
difference between the minimum nomination volumes versus
the high-end volumes. Representative Wilson spoke to the
best interest of the state. She asked if the department
believed the contract was in the state's best interest. Mr.
Shine replied in the affirmative.
Representative Grenn asked for clarification of the fiscal
note (FN 2 (DNR). He noted that according to the analysis
on page two the proposed contract is expected to generate
between $22 million and $27 million in revenues. He asked
about the difference.
2:21:22 PM
Mr. Shine responded that SB 30 was based on a four-year
contract. He cited sub-bullets on slide 9 that reported the
range for a four year contract similar to the fiscal note
at $22.3 million to $27.9 million the minimum versus the
maximum nomination range.
DOUG CHAPADOS, CHIEF EXECUTIVE OFFICER AND PRESIDENT, PETRO
STAR, thanked DNR for its work on the contract and felt
that the contract was equitable.
Representative Thompson asked whether Mr. Chapados was in
favor of the contract. Mr. Chapados replied in the
affirmative. He added that crude oil for his refineries was
essential to remain in business and stated that it was
becoming harder to source with the decline in throughput.
The royalty oil served as the basis of his supply.
Co-Chair Seaton agreed the contract was in the state's best
interest. He asked if the company had any opposition to
transparency regarding refinery credits. Mr. Chapados
answered that Petro Star was happy to provide a level of
transparency, but he believed it was more appropriate to
have the issue attached to a tax bill. Co-Chair Seaton
replied that he was not planning to add any language to the
current bill.
2:25:09 PM
Representative Wilson thanked Mr. Chapados for taking up
the "gap" that had been left in Fairbanks by Flint Hills.
Mr. Chapados answered that Petro Star was happy to still be
in business and was happy to fill the gap left by the
closure of Flint Hills. The company utilized the refinery
credits that enabled Petro Star to fill the void. He
reported that the company invested in an asphalt project
and produced a low-cost fuel for use by Golden Valley
Electric Association due to the credits.
Representative Thompson stated that the company was
currently holding about $15 million in tax credits. He
asked if the company had been paid anything. Mr. Chapados
replied that Petro Star submitted $5 million in tax credits
generated in 2015 and would apply for $10 million in tax
credits generated in 2016.
2:27:17 PM
Co-Chair Foster OPENED and CLOSED public testimony. He
relayed that the bill would be heard on Friday.
SB 30 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 90
"An Act relating to occupational licensing fees;
relating to an occupational investigation surcharge;
and providing for an effective date."
2:28:06 PM
REPRESENTATIVE SAM KITO, SPONSOR, introduced himself and
the bill.
CRYSTAL KOENEMAN, STAFF, REPRESENTATIVE SAM KITO, explained
that HB 90 eased the burden of regulatory costs for
licensees governed under Title 8 regarding corporations,
business and professional licensing. The legislation
would remove investigative fees out of regulatory costs
paid by each licensee and spread the total cost of
investigation charges across all licensees regardless of
profession. The investigative surcharge was in lieu of the
current amount that licensees paid in their overall license
fee. The licensee would pay a licensing and administrative
fee and in addition, pay a separate investigative
surcharge. The Department of Commerce, Community and
Economic Development (DCCED) estimated the separate
surcharge at $55 for all licensees every two years. Some
boards would benefit greatly and conversely, others might
experience a slight increase. She knew that the licensing
issues pertained to working people that had an interest in
avoiding large fee increases and a level playing field
without barriers to entering a profession. She felt that
licensees wanted assurances from DCCED that it would
stabilize licensing fees. She elaborated that one of the
reasons for large fee spikes was due to investigative
costs, which were difficult to contain. If a professional
licensing program received a complaint leading to a complex
investigation, an enforcement action could exceed $100,000.
The scenario would cause devastating fee increases in
licensing programs with fewer licensees. She summarized
that the bill would spread investigative expenditures
across all 74,000 licensees.
2:32:33 PM
Representative Wilson appreciated the effort to resolve the
issue, but she wondered if the bill solved the issue
related to investigations. She wondered what really drove
the high cost of investigations Representative Kito
identified that the yearly total investigative costs were
relatively consistent at roughly $4 million. He recapped
that for smaller boards an investigation can significantly
increase their fees. Some boards were large and
investigative fees were spread out across members. He
commented that some boards with fewer members that
developed a large debt were at risk of losing their ability
to perform statutory board functions; one board did
temporarily shut down. Some of the boards with higher costs
caused fee increases to the point of being a barrier to
entry into the professions. He surmised that since
investigative costs were fairly consistent and the state
had a large number of licensees, spreading the costs out
was a small burden to the larger boards and eased the
burden on smaller boards. He reported that one challenge
that remained was how to ensure the state was maintaining
efficient use of the fee revenue while still carrying out
effective investigations. The issue was not addressed in
the bill. Currently, individual boards identified which
cases to consider and certain board members decided whether
to pursue further action. Subsequently, the investigative
result was communicated to the boards. He noted that the
solution in the bill was similar to an insurance model. The
goal was to protect public safety and have reasonable fees.
He learned that some of the large boards ran a surplus in
anticipation of an investigation, so the fees would remain
consistent. However, if the investigation costs were spread
out over all boards, the larger boards' fees may also
decrease. The larger pool for investigative costs created
fee stability that averaged out over years and prevented
large fee spikes. He felt that the larger boards could
eliminate their practice of maintaining a surplus.
2:37:28 PM
Representative Wilson questioned whether each board should
be responsible for its own costs and felt the issue was the
larger policy call. She wondered whether another issue was
whether the state decided to pursue investigations instead
of the board. She mentioned hearing from the Board of
Nursing, relaying that the board worked hard to keep its
costs down. Representative Kito responded that the
investigative process would not change. He offered that an
investigation was initiated by the public or through a
board member complaint. The exact same processes would be
used to implement investigations. The provision was related
to how costs were attributed to boards. He used the Board
of Midwifery as an example. A single investigation caused
fees to possibly skyrocket to $4.8 thousand biennially,
which was identified as a barrier to entry by the
Legislative Audit agency. An audit recommendation was to
merge the midwifery board with a larger board. However,
merging boards created members that lacked expertise in the
other profession and engaged members in professional issues
and functions they were not familiar with and possibly
involved them in the decision on whether an investigation
was warranted for a profession they did not belong to. How
professions were licensed was a big question, but he wanted
to ensure the professions were protecting public safety.
Representative Wilson agreed the issue had existed for many
years and appreciated the sponsor's effort. She was trying
to determine if the proposed bill was the solution. She
asked whether the boards were notified of the legislation
and how the provisions would impact each board.
Representative Kito responded that his office had been
communicating with some of the boards. Some were
supportive, and others had expressed concern about
increasing fees. He noted that information was included in
the member's bill packets regarding the new fee schedule
["Division of Corporations, Business and Professional
Licensing Professional Licensing Fee Changes and Program
Investigation Costs Comparisons" (as of January 1, 2017)
(copy on file).]
Representative Wilson hoped to hear feedback from the
boards. She observed that the bill was a big policy shift
that affected the boards. Ms. Koeneman relayed that DCCED
was engaged in discussions with the boards regarding HB 90
and boards were meeting and proposing action.
2:43:19 PM
Co-Chair Foster suggested Representative Wilson work with
Representative Kito's office on the issue.
Co-Chair Seaton was concerned about investigations related
to non-licensed individuals, which resulted in a cost to
law abiding licensed individuals. He asked how the issue
was handled within the system. Representative Kito answered
that the question pertained to unlicensed practice and
whether the board should have to pay for the
investigations. He elaborated that if the state made
unlicensed practice a crime, the Department of Law would
investigate, but it was likely the DCCED investigators
would still be drawn in because of their expertise. He had
not collected information identifying how many of the
complaints were a result of unlicensed practice or other
activities related to a licensed practice. He hoped to
pursue unlicensed practice as a separate issue next year.
Co-Chair Seaton voiced that one board the committee had
heard from had high fees due to investigations related to
unlicensed individuals. He suggested that the legislature
consider a remedy that included cost recovery from the
unlicensed individuals. He thought the scenario could lower
licensing fees. Representative Kito answered he would keep
the issue at the forefront of their work.
Vice-Chair Gara asked whether the cost impact of the one
fee proposal on all the boards was accessed by the
department. Representative Kito answered that the
information was included in members' packets. [Document
cited earlier.]
Ms. Koeneman added that DCCED performed the analysis and
the fee was $55 every two years. Vice-Chair Gara asked for
the number of boards. Ms. Koeneman replied there were 43
boards. Vice-Chair Gara did not believe that the sponsor
should perform an analysis on every board. Ms. Koeneman
answered that if board action was required to proceed, a
board meeting was necessary, which could add additional
costs for the boards. Vice-Chair Gara spoke to a recent
committee hearing on a midwifery bill. He referred to a
conversation regarding penalties for violations. He asked
whether there was a uniform penalty structure for boards.
Ms. Koeneman replied that AS 08.01.075 outlined the
disciplinary powers of a board and subsection 8 specified
that the fine not exceed $5,000. In addition, AS 08.01.102
authorized that DCCED could issue a citation for unlicensed
practice or activity but did not specify a dollar amount.
Vice-Chair Gara asked whether the penalty structure also
included cost recovery for the state. Ms. Koeneman replied
in the negative.
2:50:03 PM
Representative Kito interjected that one issue involving
cost recovery for investigations was that penalty proceeds
were deposited into the general fund (GF), which he
preferred. He worried that collecting penalties to support
the licensing program opened the possibility that
investigations could be used to fund the licensing program.
He favored using the licensing fees to fund the programs.
Vice-Chair Gara clarified that he had only inquired whether
the costs were recovered in general. Representative Kito
replied that he would examine the issue over the interim.
Ms. Koeneman added that DOL raised concerns with the issue
of raising penalties to cover the full investigative costs.
Representative Guttenberg spoke to investigations of people
practicing without a license and how it impacted the cost
to a specific board. He suggested parity for a board when
the investigative cost were recovered and deposited into
GF. He asked whether the sponsor considered some type of
cost recovery allocation from GF to a board. He stated that
the system was broken and believed the bill contained a
decent solution.
2:54:01 PM
Ms. Koeneman replied that if there was a mechanism in place
for the fines to reimburse the board, more than likely it
would come through the operating budget process and the
legislature could possibly allocate some funds back to the
boards.
Representative Thompson relayed hearing about incompetence
by state board investigators that resulted in longer than
necessary investigations which added costs onto the
profession. He favored a cost recovery process for the
boards. He believed HB 90 was a good solution. He worried
about boards currently with large defaults that increased
its fees. He asked whether the one fee system would be
charged in concert with fees related to a large deficit.
Ms. Koeneman answered in the affirmative and added that the
boards with deficits were required to pay their deficits
before participating in the bill. She agreed it would hurt
to pay off the deficits, but it would be in the best
interest in the long-term. She reported that the Medical
Board accrued investigative costs of $632 thousand over the
biennium. The Nursing Board had $909 thousand in
investigative costs for FY 14 and FY 15. The Big Game
Commercial Service Board accrued investigative costs of
$559 thousand. She surmised that in the long run the costs
would level off and create a more predictable cost
structure for all boards.
2:58:18 PM
Representative Pruitt spoke to a handout ["Division of
Corporations, Business and Professional Licensing,
Professional Licensing Fee Changes and Program
Investigation Costs Comparisons as of January 1, 2017"
(copy on file)]. He remarked on the large income disparity
among the different professions. He identified the Board of
Barbers and Hairdressers and cited the professions as
examples of lower income occupations. He asked how to
justify increasing fees for some boards and penalizing them
for mistakes and incompetence by the state when managing
boards' fees. He agreed that a solution was needed but
disagreed with the provisions in HB 90. Representative Kito
answered that at first glance the solution seemed unfair
due to the income inequities. However, he likened the
solution to an insurance policy and pointed to how
automobile insurance works as an example of the benefits of
HB 90. He offered that the Board of Barbers and
Hairdressers may not receive a benefit in the current year,
but perhaps there would be an investigation in the future
that would have significantly increased their fees. He
communicated that rather than every board paying for 30
percent to over 50 percent of their investigations,
everyone paid a smaller percentage and all boards had
access to the investigative services.
Ms. Koeneman added that in FY 12 and FY 13 the Board of
Barbers and Hairdressers had only paid $59 thousand for
investigations but the amount rose to $131 thousand in FY
14 and FY 15. The board's surplus was diminishing; one more
large investigation would likely increase their fees. She
expected that the bill would level off fees.
Representative Pruitt countered that if the provision was
likened to insurance, a person paid less if they were
accident free. He surmised that there should be different
levels of payment versus one fee, for boards with lower
costs; lower cost boards should pay less. He stated that
currently there was pressure on the legislature and DCCED
for prudent use of investigations to contain costs. He
opined that the pressure was necessary to keep the
investigatory process in check. He wondered how the bill
ensured the efficient use of investigations.
3:06:01 PM
Ms. Koeneman answered that there would be 74,000 licensed
individuals to collectively weigh in on the department's
regulatory process and the amount of the surcharge, which
would maintain pressure on the department.
Representative Kito interjected that one of his concerns
was a board that made decisions regarding whether to
proceed with an investigation based on fees increasing. He
believed the scenario was an example of inappropriate
pressure; if the state did not investigate a person
practicing inappropriately the state was failing its
mission. He related that investigators were overworked and
responded to public or licensee complaints. He had not
heard of investigators "trying to drum up work for
investigations." He reiterated that the investigatory
process would remain the same. He did not believe that
currently boards made investigatory decisions based on
possible fee increases.
Co-Chair Seaton OPENED public testimony.
SUSAN TERWILLIGER, PRESIDENT, MIDWIVES ASSOCIATION OF
ALASKA, ANCHORAGE (via teleconference), spoke in strong
support of the legislation. She voiced that the bill was
beneficial for the consumers of midwifery care. She shared
that midwifes attended the births of people in all
different occupations. She hoped the bill would pass.
Co-Chair Seaton CLOSED public testimony.
HB 90 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 6
"An Act establishing the Jonesville Public Use Area."
3:10:36 PM
DARRELL BREESE, STAFF, REPRESENTATIVE GEORGE RAUSCHER,
explained the legislation. He reported that the area was
north of Sutton and was historically a coal mining area
from 1919 to 1977. The bill would establish the 11
thousand-acre Jonesville Public Use Area and maintain its
popular recreational opportunities for Alaskans. The bill
would protect, maintain, enhance, and perpetuate the
present use of the area for year-round public recreation,
migratory waterfowl nesting areas and habitats for fish and
wildlife, and other uses. He noted that along with the
popular uses negative activities were happening in the
unmanaged area. Burning cars, illegal activity, and gunfire
causing stray bullets were reoccurring events. He shared
that a death had taken place in the area in the prior year.
The people of the Sutton Community Council coined the
phrase "Mad Max Theater" to describe the activities in the
area. The Sutton Community Council and the Chickaloon Tribe
had worked to remove thousands of pounds of garbage and
abandoned vehicles from the area. The groups had worked to
develop a compromise for the land use by creating the
Public Use Area (PUA). The area would allow for all the
proper uses of the area that included hiking, biking,
camping, ATV use, etc. He noted that a petition was
included in the committee member's packets ["A Petition
Regarding Jonesville\Slipper Lake Area" (copy on file)].
The goal was to move forward to create a safe recreation
area.
Representative Wilson wondered why an agreement could not
be made between the Department of Natural Resources (DNR)
and Mat-Su. Mr. Breese deferred the question to the
department.
3:15:06 PM
BRENT GOODRUM, DIRECTOR, DIVISION OF MINING, LAND AND
WATER, DEPARTMENT OF NATURAL RESOURCES (via
teleconference), replied that by establishing an area
merely through an agreement the department would not be
able to adopt regulations for enforcement. The legislation
authorized DNR to adopt and enforce restrictions that
curtailed undesirable activities.
Representative Wilson referred to the DNR fiscal note, FN 4
(DNR). She read from the analysis:
The department would need to develop the management
plan with existing staff resources.
Representative Wilson noted that the analysis further
stated that was unlikely to happen due to costs. She
understood that the Matanuska-Susitna (Mat-Su) Borough
would undertake the obligation. The fiscal notes were zero,
consequently, DNR lacked funding for writing the management
plan and regulations, enforcement, or policing. She
wondered what the current benefits of the bill was without
funding attached. She surmised that the Borough could write
the management plan. Mr. Goodrum answered the department
would work closely with other local partners to enlist
help. He indicated that DNR had the ability to develop
plans, but the current workload and queue of projects ahead
of Jonesville PUA was long.
Representative Wilson requested more information regarding
the Knik River Public Use Area. She cited the fiscal note
analysis stating that enforcement regulation would be
similar to the Knik River PUA. She believed that the Mat-Su
did not want a lot of government regulation. Mr. Breese
answered that the Knik River PUA was in the Mat-Su Borough
and the regulations would be similar. He related that the
community would be accepting of similar regulations. He
reiterated that it was necessary to establish the PUA to
begin work on the management plan.
Co-Chair Seaton pointed to a document [unknown] in the bill
packet that referred to the ability of the Commissioner of
DNR to appoint one of the department's employees or other
individual as a Peace Officer for the PUA. He asked what
was envisioned as the work of the Peace Officer. Mr.
Goodrum answered that DNR had a rigorous training program
for its employees that resulted in a Peace Officer
certification. Many Peace Officers were operating in the
Knik River PUA. In addition, state troopers had the
authority to enforce DNR regulations. Co-Chair Seaton
remarked that currently the Department of Revenue (DOR) and
Department of Public Safety (DPS) entered into a joint
agreement and transferred authority to 8 DOR enforcement
officers to carry firearms. He asked whether DNR program
was similar. Mr. Goodrum replied that the department had
certain park rangers who were able to carry weapons. He was
not aware of public use area peace officers carrying
weapons. He reported that the peace officers were trained
to interact with and educate the public regarding the
regulations. Co-Chair Seaton requested a memo from the
department about its intentions related to firearms and
peace officers for the PUA.
3:23:20 PM
Representative Kawasaki referred to the first paragraph of
DNR's fiscal note analysis that mentioned the long queue of
other projects ahead of the Jonesville PUA. He asked for
clarification. He wanted the legislation to accomplish
something. Mr. Goodrum answered that the challenge was the
amount of work and the number of current staff. He
explained that the reason the fiscal note was zero was that
the project was far off in the queue. He reiterated that
DNR was looking for other local partners to help with
development with the plan.
Co-Chair Seaton asked whether nothing will happen until
2023. Mr. Goodrum replied in the affirmative.
Representative Kawasaki looked at the fiscal notes from the
establishment of the Knik River PUA in 2006. He noted the
initial cost of roughly $400 thousand. He believed that
costs would be associated with the development of
Jonesville PUA. He wondered about the cost of enforcement
related to Knik River Public Use Area and observed that the
fiscal note cited a Reimbursable Services Agreement (RSA)
for enforcement. Mr. Goodrum answered that in the FY 17
budget, $125,000 had been allocated to the troopers for
enforcement.
Representative Guttenberg asked about the difference
between a PUA and multi-use recreational area. Mr. Goodrum
replied that a PUA allowed DNR to establish enforcement for
the area. A multi-use area was general state land.
Co-Chair Seaton noted that Representatives George Rauscher
and Geran Tarr had joined the audience.
Representative Guttenberg asked whether a trooper or law
enforcement officer was required and who paid for it. Mr.
Goodrum replied that due to enforcement regulations and
associated bail fees for PUA areas, and resources available
to compensate state troopers, the troopers enforced PUAs.
He added that on general state land it was less likely to
obtain trooper support due to the size of the state.
3:29:48 PM
Representative Guttenberg stated that for years he had
tried to establish a recreational area. He reported that he
was unable to dissuade the State Parks to back off on
providing an armed officer, even though the public did not
want one.
Representative Wilson inquired whether the Mat-Su and DNR
could enter into an agreement granting Mat-Su the
responsibility for developing the management plan to
eliminate DNR's funding needs.
REPRESENTATIVE GEORGE RAUSCHER, SPONSOR, answered that the
Mat-Su Borough strongly supported the bill. He referred to
a letter from the Mat-Su Borough planning department (copy
on file) that strongly supported development of the PUA. He
related that the bill development lasted for over one year
and involved the borough, public, and all user groups. The
borough was thoroughly committed to the project through its
completion. He reiterated that the process required that a
PUA was established to develop the plan, however DNR did
not have to write the plan; only approve it.
Co-Chair Seaton noted that public testimony would remain
open.
HB 6 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 31
"An Act requiring the Department of Public Safety to
develop a tracking system and collection and
processing protocol for sexual assault examination
kits; requiring law enforcement agencies to send
sexual assault examination kits for testing within 18
months after collection; requiring an inventory and
reports on untested sexual assault examination kits;
and providing for an effective date."
3:33:09 PM
Representative Wilson MOVED to ADOPT the proposed committee
substitute for HB 31, Work Draft 30-LS0271\J (Martin,
2/28/17). There being NO OBJECTION, it was so ordered.
REPRESENTATIVE GERAN TARR, SPONSOR, introduced the bill.
She identified that a problem related to addressing sexual
assault in the state was the untested sexual assault
examination kits. She explained that the kits were
typically associated with the individual crime at the time
of collection. However, perpetrators can be serial
assaulters and can be involved in multiple cases. The issue
had prompted multiple jurisdictions across the country to
test untested kits and assess the serial assault problem.
She related the story of a rapist in 2014 and reported that
if the DNA was tested at the time against other kits, the
assailant would have been discovered as a serial rapist.
She felt that the legislation would further safeguard the
public's safety.
HB 31 was HEARD and HELD in committee for further
consideration.
Co-Chair Seaton addressed the meeting for the following
day.
ADJOURNMENT
3:37:05 PM
The meeting was adjourned at 3:37 p.m.