Legislature(1995 - 1996)

04/22/1995 01:17 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                   SENATE RESOURCES COMMITTEE                                  
                         April 22, 1995                                        
                           1:17 p.m.                                           
  MEMBERS PRESENT                                                              
 Senator Loren Leman, Chairman                                                 
 Senator Drue Pearce, Vice Chairman                                            
 Senator Steve Frank                                                           
 Senator Rick Halford                                                          
 Senator Robin Taylor                                                          
 Senator Lyman Hoffman                                                         
  MEMBERS ABSENT                                                               
 Senator Georgianna Lincoln                                                    
  COMMITTEE CALENDAR                                                           
 CS FOR HOUSE BILL NO. 140(FSH)                                                
 "An Act relating to surety bonds required of certain fish                     
 CS FOR HOUSE BILL NO. 141(FSH)                                                
 "An Act relating to the appointment of members of the Board of                
 CS FOR HOUSE BILL NO. 107(FSH)                                                
 "An Act relating to restrictions attached to certain commercial               
 fisheries limited entry permits."                                             
 HOUSE BILL NO. 102                                                            
 "An Act extending the termination date of the Big Game Commercial             
 Services Board."                                                              
 CS FOR HOUSE BILL NO. 207(O&G)                                                
 "An Act relating to adjustments to royalty reserved to the state to           
 encourage otherwise uneconomic production of oil and gas; and                 
 providing for an effective date."                                             
  WITNESS REGISTER                                                             
 Representative Al Austerman                                                   
 Alaska State Capitol                                                          
 Juneau, Alaska  99811-1182                                                    
  POSITION STATEMENT: Sponsor of HB 140   and HB 141                           
 Katherine Buchanan                                                            
 Legislative Aide                                                              
 Alaska State Capitol                                                          
 Juneau, Alaska  99811-1182                                                    
  POSITION STATEMENT:   Testified on HB 107                                    
 Bruce Twomley, Chairman                                                       
 Commercial Fisheries Entry Commission                                         
 8800 Glacier Hwy., Ste 109                                                    
 Juneau, AK  99801-8709                                                        
  POSITION STATEMENT:    Supports HB 107                                       
 Representative Scott Ogan                                                     
 Alaska State Capitol                                                          
 Juneau, Alaska  99811-1182                                                    
  POSITION STATEMENT:  Sponsor of HB 102                                       
 Eddie Grasser                                                                 
 Alaska Outdoor Council                                                        
 P.O. Box 22394                                                                
 Juneau, Alaska  99802                                                         
  POSITION STATEMENT:  Supports HB 102                                         
 Joe Klutsch                                                                   
 Alaska Professional Hunters Assn.                                             
 Box 313                                                                       
 King Salmon, Alaska                                                           
  POSITION STATEMENT:  Supports HB 102                                         
 John Shively                                                                  
 Commissioner Designee                                                         
 Department of Natural Resources (DNR)                                         
 400 Willoughby Ave.                                                           
 Juneau, Ak  99801-1796                                                        
    POSITION STATEMENT:  Supports HB 207                                       
 Paul Wessells                                                                 
 BP Exploration                                                                
 900 E. Benson Blvd.                                                           
 Anchorage, AK                                                                 
  POSITION STATEMENT:  Supports  HB 207                                        
  ACTION NARRATIVE                                                             
  TAPE 95-47, SIDE A                                                           
 Chairman Leman called the Senate Resources Committee to order at              
 1:17 p.m.  The first order of business was HB 140, sponsored by               
 Rep. Austerman.                                                               
           HB 140 SMALL FISH PROCESSOR SURETY BONDS                          
 REPRESENTATIVE AUSTERMAN gave the following testimony.  He                    
 introduced HB 140 at the request of the Southwest Municipal                   
 Conference  of the Alaska Municipal League.  HB 140 reduces the               
 surety bonds on small processors, as an incentive to get small                
 processing businesses going throughout the state.  It lowers the              
 surety bond to $2,000 on fish processing of 30,000 pounds or less,            
 and increases the amount of the surety bond upon reapplication, if            
 wages are not paid.                                                           
 Number 043                                                                    
 SENATOR TAYLOR moved that HB 140 be moved from committee with                 
 individual recommendations.  SENATOR LEMAN asked what position the            
 Department of Revenue took on the measure in previous committee               
 REPRESENTATIVE AUSTERMAN acknowledged the Department testified in             
 support of the measure and questioned the need for a surety bond in           
 any amount.  He explained the surety bond has come into play in the           
 past in cases where large processors did not pay employees.                   
 There being no objection to Senator Taylor's motion, HB 140 moved             
 from committee with individual recommendations.                               
               HB 141 TERM OF FISH BOARD MEMBERS                              
 The next order of business before the committee was HB 141,                   
 introduced by the House Special Committee on Fisheries.                       
 Number 084                                                                    
 REPRESENTATIVE AUSTERMAN explained HB 141 moves the appointment               
 date of the Board of Fish appointees to a date after confirmation             
 by the Legislature.  The appointees would not actually sit on the             
 board until June 30.  This would prevent appointees from making               
 board decisions prior to confirmation.                                        
 SENATOR HALFORD asked Rep. Austerman if the House Special Committee           
 on Fisheries considered applying the same provisions to game board            
 members.  REP. AUSTERMAN stated the committee did, and was told by            
 several Board of Game members that the number of problems                     
 experienced by the game board were not nearly as severe as those              
 experienced by the Board of Fish.  Because of controversy                     
 surrounding the Board of Game, the Fisheries Committee chose to               
 keep the measure specific to the Board of Fisheries.                          
 Number 116                                                                    
 SENATOR HOFFMAN asked if members would remain on the board during             
 the interim, until replaced.  REP. AUSTERMAN stated they would.               
 SENATOR HOFFMAN believed that additional problems would occur once            
 the new Governor has taken office, especially if the Legislature              
 does not want to confirm an appointee.                                        
 SENATOR LEMAN questioned the current procedure for appointees that            
 are not confirmed.  SENATOR HALFORD remarked the appointee remains            
 on the board until the last day of the legislative session in which           
 he/she was presented.  After that time that appointee cannot serve,           
 and another person can be appointed to serve until the next                   
 legislative session.                                                          
 SENATOR HOFFMAN believed that process to be better, otherwise a               
 board member could remain on the board for several legislative                
 sessions if the Legislature did not confirm any new appointees.               
 Number 154                                                                    
 SENATOR HALFORD stated the bill would change the confirmation                 
 question from determining whether a specific person should be                 
 appointed to a specific position, to whether a specific person                
 should replace an existing board member.  That would give the                 
 Legislature the power to retain a board member.                               
 REP. AUSTERMAN commented under HB 141, the Governor makes the                 
 appointment, but the appointee is not seated until confirmed.                 
 SENATOR HALFORD noted if the Governor does not make an appointment,           
 the existing board member would remain in that seat.  SENATOR                 
 TAYLOR made the correlation to the situation with the current                 
 attorney general.                                                             
 The committee discussed alternatives.  SENATOR HOFFMAN stated the             
 problem is an appointee will sit on a board but be unable to vote             
 until confirmed.  SENATOR HALFORD suggested making term changes, so           
 that terms become vacant during the legislative session, and delete           
 the provision that says, "and until a successor is appointed and              
 the successor's term begins."                                                 
 Number 210                                                                    
 SENATOR PEARCE felt there was a lot of merit to the concept of                
 having a person on the board not serve until confirmation, but if             
 there is a vacancy in April and the Governor does not appoint a               
 person before the end of the legislative session, the seat would be           
 vacant for a whole year.                                                      
 SENATOR TAYLOR moved HB 141 from committee with individual                    
 recommendations.  SENATORS HOFFMAN and HALFORD objected to the                
 motion.  SENATOR LEMAN announced the bill would be held in                    
 committee for further work.                                                   
            HB 107 RESTRICTED LIMITED ENTRY PERMITS                           
 Number 235                                                                    
 The next agenda item was HB 107.  KATHERINE BUCHANAN, legislative             
 aide to Representative Grussendorf, discussed HB 107.  The measure            
 contains another management tool for the Commercial Fisheries Entry           
 Commission (CFEC) to preserve the dungeness crab resource.  It does           
 not mandate the CFEC use any particular system.  When first                   
 introduced, HB 107 was identical to SB 42.  The only change to the            
 original bill was deletion of a sentence saying the fishing                   
 capacity allowed under an entry permit may not be changed after the           
 permit is issued, on page 2, lines 22-23.   The Department of Law             
 suggested that amendment because it clarifies that nothing in the             
 bill should limit the powers of the Board of Fisheries.  The                  
 moratorium on the crab fishery expires January 2, 1996, therefore             
 if no action is taken now, the Southeast dungeness crab fishery               
 will be open to all entrants.  The crab fisheries in British                  
 Columbia, Washington State, and California are closed to entry,               
 therefore Alaska would be the only nearby crab fishery opening                
 which CFEC believes would put a lot of pressure on the resource.              
 Number 270                                                                    
 BRUCE TWOMLEY, Chairman of the CFEC, verified the moratorium will             
 expire by statute in early January, 1996.  Without HB 107, the                
 fishery will be open, and CFEC anticipates a gear rush, with much             
 pressure emanating from outside Alaska.                                       
 SENATOR HALFORD asked if HB 107 essentially establishes a new set             
 of permits.  MR. TWOMLEY responded it is a variation on existing              
 permits.  For fisheries that could be limited in the future, HB 107           
 provides a means to contain a growth in effort.  The existing law             
 was designed in 1973 for salmon; HB 107 allows the CFEC to address            
 fisheries that are quite a bit different.                                     
 Number 290                                                                    
 SENATOR HALFORD stated HB 107 is the exact format that would be               
 used for other restrictions, such as restrictions on transfer of              
 existing or new permits, or of any permits after a current transfer           
 or transferred after a certain date.  MR. TWOMLEY replied he                  
 understands HB 107 to only authorize the CFEC to limit the capacity           
 of permit holders to the fishing capacity exercised by the permit             
 holder prior to limited entry.  SENATOR HALFORD indicated he was              
 referring to the sections amended in the title and the germaneness            
 question as it applies to other limits on permits.                            
 SENATOR HALFORD noted he does not have any objections to the bill,            
 but would like to hold it in committee for further review of other            
 options.  SENATOR LEMAN commented the same bill was heard by the              
 committee two months ago, and Senator Halford made the same request           
 at that time.  He agreed to hold the bill until the following                 
 SENATOR LEMAN discussed an amendment in committee members' packets,           
 which neither CFEC nor the bill sponsor object to.  SENATOR TAYLOR            
 moved the adoption of the amendment.                                          
 SENATOR TAYLOR explained the amendment provides more flexibility              
 for fishermen involved in this limited entry fishery so that they             
 can enter and exit the fishery by allowing for the purchase or the            
 sale of smaller increments of gear than the 100-200-300 pot license           
 under which they operate.  They could not fish more than the                  
 maximum allowed.                                                              
 SENATOR TAYLOR noted the bill has a Finance Committee referral.               
 MR. TWOMLEY stated the CFEC concurs with the amendment.                       
 There being no objection to the adoption of the amendment, the                
 motion carried.                                                               
 SENATOR HALFORD withdrew his request to hold the bill in committee,           
 and moved SCS HB 107(RES) out of committee, with the accompanying             
 fiscal note, with individual recommendations.  There being no                 
 objection, the motion carried.                                                
 Number 350                                                                    
       HB 102 EXTEND BIG GAME COMMERCIAL SERVICES BOARD                       
 REPRESENTATIVE SCOTT OGAN, sponsor of the measure, gave the                   
 following overview.  He served as a member of the Big Game                    
 Commercial Services Board for two years.  If this board is not                
 extended, guides will be unregulated.  Several years ago, a                   
 contentious issue was settled by the Supreme Court, called the                
 OWSICHEK decision.  That decision eliminated exclusive use areas              
 for guides, which in the past were bought and sold as commodities.            
 That practice was found to be in violation of the common use clause           
 of the Alaska Constitution.  Currently, anyone can be assigned to             
 a guide-use area, with a maximum of three guide-use areas for a               
 minimum of five years per area.  This allows for some control, and            
 for the Division of Fish and Wildlife Protection to monitor guiding           
 Number 390                                                                    
 JOE KLUTSCH, representing the Alaska Professional Hunters                     
 Association, reviewed the background of the Big Game Commercial               
 Services Board.  In 1988 the Alaska Supreme Court ruled that the              
 former guide area system, as implemented, was unconstitutional, and           
 violated provisions of Article VIII.  As a result, the Governor               
 appointed a task force to restructure and design a new regulatory             
 apparatus for the guiding industry.  In 1988-89 a bill, which                 
 defined who could conduct what activities in a commercial capacity,           
 passed the Legislature.  By 1991, the task force had completed its            
 work and made recommendations to the Legislature and the Big Game             
 Commercial Service Board, on the structuring of a new regulatory              
 package.  The key tenet of the package was the area registration              
 system.  At the onset it was somewhat controversial.  The guiding             
 industry had anticipated a fairly complicated system for ranking,             
 evaluating and selecting individuals who were able to conduct                 
 guiding activities within areas.  Because of legal complications              
 and public pressure, that component of the regulatory package was             
 dropped.   The task force then adopted a simple and generic area              
 registration system.  The justifications were resource based; the             
 idea being to provide a spatial distribution of effort.  Guides               
 would be spread out over a wide area, rather than high                        
 concentrations of effort in small areas, to reduce the potential              
 for over-harvest of game populations.  The idea behind the five               
 year limit for area registrations was to provide a stewardship                
 incentive, and prevent individuals from roving from one area to               
 another, harvesting available game past its sustained yield level             
 and then moving on.  The system enhanced enforcement efforts and              
 created a level of accountability.  This system allowed for equal             
 access, since new guides were on the same footing as established              
 guides.  The registration concept was found to be consistent with             
 Article VIII.                                                                 
 MR. KLUTSCH continued.  The key question before the committee is              
 what will happen if the board is sunsetted.  Eight years of work,             
 since the OWSICHEK ruling, would be lost.  Land and resource                  
 managers, members of the public, the Legislature, and the guiding             
 profession have put thousands of hours into structuring this                  
 system.  If the Big Game commercial Services Board is sunsetted,              
 many key game populations will be hunted at, or beyond, maximum               
 sustained yield levels, which will force the Board of Game, after             
 the fact, to close these seasons to non-resident hunting.  Non-               
 resident hunting is what the guiding industry depends on.  The area           
 system has reduced conflicts with other user groups.  The advantage           
 of the registration system is the ability to measure the level of             
 effort before game populations have been harvested at maximum                 
 sustained yield level.                                                        
 Number 477                                                                    
 SENATOR HOFFMAN referred to a report by the Legislative Budget and            
 Audit Division, which recommends the Big Game Commercial Services             
 Board be extended to 1997.  The Department of Commerce and Economic           
 Development recommended the Board be extended to 1998.  He asked              
 why the two agencies recommended different time lengths.                      
 SENATOR LEMAN assumed the Legislative Budget and Audit Division's             
 report was issued in November of 1993.  Normally it is on a four              
 year cycle; last year it was on a one year cycle to keep it in its            
 sunset stage.                                                                 
 Number 490                                                                    
 EDDIE GRASSER, representing the Alaska Outdoor Council (AOC),                 
 testified in support of HB 102.  He expressed concern that at some            
 point in time, the AOC would like the Legislature to address  the             
 Big Game Commercial Services Board's inability to address the                 
 increasing numbers of transporters and air taxis delivering                   
 clients.  Other residents of the state are being restricted by the            
 huge increase in drop-off hunters by air taxis.  The air taxi                 
 industry is not being regulated by the Board, other than the fact             
 that carriers must obtain a transporter's license and file reports.           
 SENATOR TAYLOR asked if Mr. Grasser knew of any opposition to HB
 102.  MR. GRASSER replied he did not; he was hoping the Legislature           
 could improve regulation of the industries.  SENATOR TAYLOR felt              
 the title was too restrictive to accommodate that request.                    
 Number 513                                                                    
 SENATOR TAYLOR moved HB 102 from committee with individual                    
 recommendations.  There being no objection, the motion carried.               
 The committee recessed to a call of the Chair at 1:57 p.m.                    
          HB 207 ADJUSTMENTS TO OIL AND GAS ROYALTIES                         
 JOHN SHIVELY, Commissioner-designee of the Department of Natural             
 Resources, testified on HB 207.  There are a variety of ideas about           
 how to provide the oil industry with the incentive to develop                 
 marginal oil fields.  HB 207 was a compromise effort that can be              
 implemented this year, as opposed to other ideas that may be                  
 studied by the Governor's Oil and Gas Policy Commission.  Royalty             
 reduction legislation has been on the books since 1959, therefore             
 the ability to change the amount of royalty is not a new idea.  HB
 207 specifically adds marginal fields and clarifies language in the           
 existing law related to fields that might be shut in, or abandoned,           
 to make the assessment process easier.  Essentially, HB 207                   
 requires the oil companies to have a delineated field or pool                 
 before proposing a royalty reduction.  DNR would then look at the             
 economics, based on the capital and operating costs, the price of             
 oil, and the volume of oil.  DNR would either internally review the           
 proposal or hire experts to review it if the internal capacity was            
 unavailable.  If outside consultants were hired, the industry would           
 pay for that service.  If clear and convincing evidence is found              
 that a royalty reduction is justified short and long term, the                
 Commissioner would have to make a best interest finding that the              
 royalty reduction would be in the best interest of the state.  A              
 public hearing process would then take place.  In an amendment                
 adopted on the House floor, the DNR Commissioner would give a                 
 presentation to the Legislative Budget and Audit Committee.                   
 Number 560                                                                    
 SENATOR LEMAN discussed changes made to the bill in the House.  The           
 original bill had a hold harmless provision for the permanent fund            
 that was removed; a provision for legislative awareness was added;            
 and the floor for reduction amounts was changed.   He asked Mr.               
 Shively if those changes were acceptable to the administration.               
 MR. SHIVELY replied the House changed the language which held the             
 Permanent Fund harmless to providing floors.  The reduction can be            
 75 percent for new marginal fields, and no more than 90 percent for           
 fields that are about to be shut in, or fields that have been                 
 abandoned.  Current law allows a zero percent royalty for the                 
 latter fields, but the administration believes the floor should be            
 no more than 75 percent of the existing royalty.  That royalty                
 would be split between the general and permanent funds.  Regarding            
 the oversight provision, added on the House floor, DNR would give             
 a presentation anyway if Legislative Budget and Audit requested               
 one.  Confidential information would be protected by provisions               
 under executive sessions.                                                     
 SENATOR LEMAN cited a newspaper article by Stan Jones and asked               
 whether DNR would consider royalty reductions seriously if HB 207             
 passed.  MR. SHIVELY answered that he hoped the situation referred            
 to was a particular agreement between BP and OXY.  He anticipated             
 the industry to make serious proposals since they would be paying             
 for the economic review.                                                      
 TAPE 95-47, Side B                                                            
 SENATOR LEMAN indicated he saw the need to include in the bill                
 clear language describing the application process to avoid future             
 MR. SHIVELY noted he believes the bill contains language that would           
 prevent the industry from litigating the decision by the                      
 Commissioner.  The administration does not believe the royalty                
 reduction is a right, but rather a privilege.  It can only be                 
 granted if justified, and in the state's best interest.  He stated            
 he would support language to further clarify the process.                     
 PAUL WESSELLS, representing BP Exploration-Alaska, read the                   
 following for the record.                                                     
 BP supports HB 207 and encourages this Legislature to enact                  
 the bill this year.  This bill represents a very positive step                
 along the road to development of the state's marginal new oil                 
 fields and marginal projects within existing fields.  It is                   
 our belief that initiatives such as HB 207 signal a new spirit                
 of cooperation between the oil industry and state government.                 
 It is this joint effort that will be required for the state to                
 fully realize the value of its oil and gas resources.  In what                
 manner does HB 207 promote full development of the state's                    
 resources?  First, it clarifies the existing statute, by                      
 specifying that new developments, that is properties that have                
 never produced oil and gas, may qualify for royalty reduction.                
 Second, the bill provides that relief may be granted for                      
 individual leases, rather than solely as part of a unit                       
 application, and allows for adjustments with respect to                       
 individual pools of oil and gas within lease releases.  The                   
 bill takes additional steps to protect the public interest by                 
 assuring that the Commissioner of Natural Resources will                      
 receive the financial and technical information necessary to                  
 allow a reasoned judgment on the merits of an application, and                
 by requiring that the costs of third party professional                       
 assistance to the Commissioner in analyzing applications be                   
 borne by the applicant.  In addition, the public interest is                  
 served by the provision in the bill that the state must                       
 condition a reduction in royalty, on a readjustment at a later                
 time, if the circumstances which supported the grant of the                   
 reduction change.  It is this last aspect of the bill that                    
 makes it clear that it is not just about reducing the                         
 royalty obligations of producers in the absolute sense.                       
 Indeed it is entirely possible that a royalty adjustment                      
 program, negotiated by the state and a lease holder, will lead                
 to greater royalty payments over the full life of the                         
 property.  BP also believes the bill should allow the                         
 Commissioner of Natural Resources to modify state net profit                  
 share interests in the same way that it allows the                            
 Commissioner to adjust state royalties.  Net profit payments                  
 and royalty payments are similar forms of economic rent, that                 
 the state receives from leasing its lands for oil and gas                     
 exploration and development.  We think that giving the                        
 Commissioner flexibility to address the full economic picture                 
 when reviewing an application for adjustment, is a good idea,                 
 so it does not seem appropriate to us to give the Commissioner                
 that flexibility with respect to just one form of economic                    
 rent and not the other.  Just as the state may gain by                        
 modifications of the royalty obligations under a sliding scale                
 royalty mechanism, so it should gain in similar circumstances                 
 by allowing appropriate modifications of a net profit                         
 interest.  We in BP believe that HB 207 will make it possible                 
 for the state and the oil industry to devise, through open                    
 sharing of information, in good faith negotiations, methods                   
 for sharing the risk of developing marginal properties.  It is                
 imperative that we capture the potential of these properties                  
 to ensure a strong and stable industry and a strong and stable                
 Alaskan economy.  Thank you for the opportunity to testify.                   
 Number 532                                                                    
 SENATOR LEMAN asked Mr. Wessells if he believed the situation                 
 described in the newspaper article he referred to earlier was a               
 unique circumstance because of the arrangement of the ownership.              
 MR. WESSELS remarked BP's position is that the application referred           
 to is a serious application.  If one were to take the array of                
 applications the company might make on existing properties, the               
 one at Milne Point would be at the bottom of the spectrum, in terms           
 of the expectation of receiving relief.  He did not feel it would             
 be appropriate to characterize the application as frivolous.                  
 There being no further testimony on HB 207, SENATOR LEMAN announced           
 the next meeting would be held on Monday, and HB 208, HB 225, HJR
 23, and HB 197 would be heard.   He adjourned the meeting at 3:25             

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