Legislature(1999 - 2000)
04/12/1999 03:12 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE April 12, 1999 3:12 p.m. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Robin Taylor, Vice Chairman Senator Pete Kelly Senator Jerry Mackie Senator Lyda Green MEMBERS ABSENT Senator Sean Parnell Senator Georgianna Lincoln COMMITTEE CALENDAR SENATE BILL NO. 133 "An Act creating and providing for the Alaska Energy Conservation Commission and transferring to it the powers and duties of the Alaska Public Utilities Commission and the Alaska Oil and Gas Conservation Commission; repealing the Alaska Public Utilities Commission and the Alaska Oil and Gas Conservation Commission; relating to regulation of waste collection and disposal; relating to the powers of the chair of the Alaska Energy Conservation Commission; relating to the appellate procedures of the Alaska Energy Conservation Commission; and providing for an effective date." -HEARD AND HELD SENATE BILL NO. 134 "An Act authorizing the Alaska Oil and Gas Conservation Commission to determine the amount of and to collect a charge for operating wells subject to the commission's jurisdiction, and to allocate expenses of investigation and hearing, and repealing the oil and gas conservation tax; and providing for an effective date." -MOVED CSSB 134(RES) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 133 - No previous action to consider. SB 134 - No previous action to consider. WITNESS REGISTER Senator Drue Pearce State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 133 and SB 134. Mr. Robert Christenson, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Dr. Anchorage, AK 99508 POSITION STATEMENT: Commented on SB 133 and SB 134. Mr. Eric Yould, Executive Director Alaska Rural Electric Cooperative Association 703 W Tudor #200 Anchorage, AK 99503 POSITION STATEMENT: Commented on SB 133. Ms. Ginny Faye, Legislative Liaison Department of Commerce and Economic Development P.O. Box 112100 Juneau, AK 99811-2100 POSITION STATEMENT: Commented on SB 133 and SB 134. Mr. Jim Arneson Commercial Refuse, Inc. 750 E. International Rd. Anchorage, AK 99518 POSITION STATEMENT: Opposed SB 133. Mr. Jim Rowe, Director Alaska Telephone Association 201 E. 56th #114 Anchorage, AK 99516 POSITION STATEMENT: Opposed SB 133. Ms. Heather Grahme Waste Management, Inc. 1031 W 4th Ave. Anchorage, Ak 99501 POSITION STATEMENT: Commented on SB 133. Ms. Pam Krieber Valley Refuse P.O. Box 879109 Wasilla, AK 99687 POSITION STATEMENT: Opposed SB 133. ACTION NARRATIVE TAPE 99-24, SIDE A Number 001 SB 133-COMBINE APUC AND AOGCC CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:12 p.m. and announced SB 133 to be up for consideration. SENATOR PEARCE, sponsor of SB 133 and SB 134, said she would give an overview of the two together and then speak specifically to SB 134. She said she would speak more specifically to the AOGCC side, since this was the Resources Committee. Her goals and objectives in putting these bills together are numerous. Last summer, she received a call from Ms. Cammy Oechsli, one of the commissioners of AOGCC, who wanted to talk about funding problems the AOGCC is facing. The AOGCC is loosely attached to the Department of Administration. It serves a very important function in terms of conservation in the oil and gas fields throughout the State. AOGCC has a funding mechanism in statute that depends on oil and gas conservation taxes along with a fee for inspection services of wells. The taxes and the inspection fees that have come in to the general fund over past years have exceeded the amount of money the legislature has appropriated to the AOGCC. The number of active wells this agency is supposed to oversee is increasing, which is good, but the number of employees the legislature has allowed for that function has substantially decreased, which is not good. After discussions with Ms. Oechsli, SENATOR PEARCE suggested looking at the APUC funding mechanism, a designated program receipt system, making the entities being overseen directly responsible for paying for that function. AOGCC would not be a profit making entity, but one that pays for itself. This would allow the Commission to have the number of employees it needs. She added that the AOGCC has not been audited since 1991. SENATOR PEARCE said she has also heard concerns about a perception of dysfunction at the APUC. In thinking about both entities, she came up with the idea of putting the two regulatory agencies together in a structure that many other states have. SB 133 combines the AOGCC and the APUC. It repeals both commissions and allows for a reasonable transition period. It requires that all existing regulations and matters pending before both commissions be carried forward. She thought this would improve the long-term function, effectiveness, and efficiency of both commissions in a number of ways. The new entity will be set up as an independent, quasi-judicial agency of the State called the Energy Conservation Commission. It would have seven members appointed by the Governor and confirmed by the Legislature. The Commission would nominate to the Governor one public member of the Commission as the chairperson. The Governor could then choose that person or choose to appoint another person as chair. The chair would serve for a term of four years but could not be appointed for successive terms. This feature is already embodied in the AOGCC statutes because of concerns about a previous chair. The Commission would be composed of five members from the general public, one a petroleum engineer and one a geologist. Currently, the AOGCC has a petroleum engineer, a petroleum geologist, and one public member. The APUC currently has two public members, an accountant, an engineer with electrical experience, and an attorney. The bill addresses a number of other technical matters such as a time management system to maintain a record of time that applies to all staff and the administrative director and commissioners. It adds three junior positions to the AOGCC function: a junior reservoir engineer, a junior petroleum engineer, and a junior petroleum geologist. All three positions would be filled by qualified professionals capable of moving into the senior positions. One problem is that the institutional knowledge is only one person deep at present. The people in the senior positions today are nearing the end of their professional careers and will most likely retire within the next five to 10 years. There is no one backing them up to move into those positions. The joint entity would add one hearing officer, which should help the ongoing time constraints for both commissions. They have added an office manager and eliminated the executive director position of APUC. SENATOR PEARCE said it was not her intent to necessarily save dollars, but she thought over the long term the Commission would be more efficient and provide more effective services. She said she deferred to AOGCC statutes any time there was a question, because of the perception that it is working more efficiently at the moment. The powers and duties of the Commission have been upgraded in that the bill sets up a system to work like an appeal process in a court of appeals. The chairperson would empanel three commissioners to consider decisions before the Commission. Under this bill, the chairperson can assign an individual commissioner to act as a hearing officer, a procedure used by the AOGCC. It contains an appeal process that allows a case to be heard by a larger number of commissioners if the entities involved want to appeal. That is also patterned after the court of appeals. SENATOR PEARCE said she would like to add to the draft that the entity could ask for an appeal to a larger commission and the commission could decide whether or not to accept that. She is having an amendment drafted that would make the appeal process only available if the opinion of the panel directly conflicts with an existing opinion that was made by an earlier PUC. Appeals would not be granted under any other circumstances. Because it has been requested in every audit of the APUC, she said the only policy change in the bill is that it would deregulate the refuse industry. Number 250 SB 134-WELL REGULATORY COST CHARGE/CONS TAX SENATOR PEARCE explained that SB 134, the program receipts bill, repeals the existing oil and gas conservation tax and institutes a stable funding source to assure the Commission is capable of carrying out its objective of protecting the public interest. Its primary goal is to ensure that no hydrocarbons are wasted and that operations are conducted in a manner that provides maximum recovery of the resource. The original intent of the Legislature was to have the oil and gas industry pay for this function of the Commission through the oil and gas conservation tax. The system was adequate in the past, but it is no longer sufficient to cover the costs associated with the operation of the Commission. The conservation tax is directly proportional to deduction with a formula per barrel fee rate. The work of the Commission is not proportional to the production of oil and gas. Production is declining, but the work of the Commission is not. SB 134 creates a program receipt system in which the regulatory cost charge is directly associated with the total volume of fluids produced or injected. This type of system more accurately reflects the factors directly associated with the workload of the Commission. It would only assess costs when there is production or injection. Exploratory wells would not have that burden until they begin production. It also contains a provision to provide for recovery of costs associated with an investigation or hearing. Those costs would be allocated to the parties involved, as opposed to being allocated across all wells in production. SB 134 creates a stable funding source that would enable the AOGCC to provide the monitoring services necessary to protect the future of Alaska's interests. She said she was unaware of the fact that as of June 1 the AOGCC was going to have to close its doors because of a budget shortfall. The Commission has not received any money for maintenance of their building in at least 10 years and they desperately need a new roof because they have leaks that are causing them to cover their desks with visqueen at night. They are concerned about losing many of the records that they are charged with keeping by statute. The proposed CS (N version by Mr. Chenoweth) changes language on page 2, line 18 to "calendar year" because the industry reports are done by calendar year. This reflects the legislature's and the AOGCC's intent to have the flexibility to assess the regulatory cost charge by field, pool, or well. Also, language on page 4, lines 11-17, contains new transition language that will allow them to continue the regulatory cost charge until the new regulations take effect under SB 133. CHAIRMAN HALFORD asked if the new mechanism would generate about $2.3 million per year while the old one generates about $1.5. SENATOR PEARCE answered that the new mechanism could generate more than that. Number 320 SENATOR MACKIE moved to adopt the CS (LS0259/N Chenoweth) to SB 134. There were no objections and it was so ordered. COMMISSIONER CHRISTENSON, Chairman of the AOGCC, said their job is to watch the subsurface estate for the State of Alaska and to settle disputes on property, etc. The AOGCC controls all of the drilling done in the State. It also keeps track of all records for the wells drilled in the state since it started. It keeps track of production, voidage and pressure of reservoirs. It sets up all of the rules for production at Prudhoe Bay, the production limits that provide maximum recovery from the resource. The AOGCC also provides for the inspection of rigs from a conservation and safety standpoint on the North Slope. It inspects on the Slope 24 hours a day, seven days a week, checking drilling rigs to make sure they meet safety requirements. It does surface and subsurface inspections on safety valves and a secondary blowout prevention system. He added that Alaska has a very good position and excellent record regarding the amount of wells drilled and the amount of blowouts that have happened with five gas blowouts in the total time drilling has occurred in Alaska and no fluids on the tundra. It believes the current systems are working. With the current budget problems, the Commission has been forced to give inadequate attention to things like reservoir management and inspections for proper compliance. The budget mechanism is very important. The current system is set up on a declining scale so AOGCC gets less and less money as production goes down but, more importantly, it does not represent the AOGCC's workload. The wells in the fields last 20-25 years and the Commission conducts numerous operations on them from the time they are spudded until they are closed out and abandoned. CHAIRMAN HALFORD asked him what his plan was for the month of June if they didn't get a supplemental passed. COMMISSIONER CHRISTENSON said the plan was to be the least interruptive as possible to the total scheme. The inspection team is on a three-week schedule and accumulates overtime and actually trades it in for comp time. Because they are on that schedule, the AOGCC will have to make sure it doesn't have an overtime cost impact on June 1. They will change their schedules on the Slope. On June 4, the three commissioners, the three professional engineers, and the four inspectors will be put on leave without pay status. One lady is on maternity leave. They will continue to receive production reports and do the data gathering and those kinds of things. The effect is that no new work will be going on from June 4 until July 1. CHAIRMAN HALFORD asked what the plan for the roof is and who is responsible for it. COMMISSIONER CHRISTENSON answered that they hadn't found anyone who would take responsibility for it and the AOGCC's budget doesn't cover any maintenance. CHAIRMAN HALFORD asked if they had money, would they get to spend it or would DOT take it and then give it to the Commission to spend. COMMISSIONER CHRISTENSON said DOT would take if first and then give it back. Number 420 SENATOR PEARCE commented that the building is in a part of Anchorage that is unsafe at night according to staff and commissioners. CHAIRMAN HALFORD asked if the AOGCC would move its offices to another location if it had the financial resources. COMMISSIONER CHRISTENSON said it would and that the State needs to make a decision about that building, because it is old and needs a lot of work. It doesn't meet any OSHA requirements for ventilation and the boilers were basically condemned in 1996. He thought a downtown location would be better. CHAIRMAN HALFORD asked in terms of AOGCC's workload, what Mr. Christenson thought about the BP/ARCO merger. COMMISSIONER CHRISTENSON replied there is little doubt that all State oversight agencies on oil and gas have benefited from the fact that the large operators have been paying very close attention to what the others are doing. He thought the State would have to expand its vigilance to watching these activities. He saw an addition to the inspection force and another engineer. He said the driving force behind the merger is to reduce the production costs up there. CHAIRMAN HALFORD asked if $2.3 million was enough to do that annually. COMMISSIONER CHRISTENSON answered there would be an additional requirement for more inspectors and engineers. They would also need contractual money to hire people with specific expertise. CHAIRMAN HALFORD asked if this mechanism is flexible enough to generate the revenue needed if they get the program receipt authority in the budget document. COMMISSIONER CHRISTENSON said it is. Number 535 SENATOR MAKCIE moved to pass CSSB 134(Res) with individual recommendations. There were no objections and it was so ordered. SENATOR PEARCE said, at the moment, regulated pipelines are under the PUC. The intent of SB 133 is to move the regulation of those to the oil and gas folks in the larger commission so they could use their expertise in the industry to do the regulations for the pipelines. She asked Commissioner Christenson what kind of hours he and the other commissioners work. COMMISSIONER CHRISTENSEN answered that they basically work from 8 to 4:30. SENATOR PEARCE asked if they work longer hours sometimes. COMMISSIONER CHRISTENSON said they are pretty much on schedule on an average, but they are not as timely as they should be sometimes. CHAIRMAN HALFORD asked where he would put oil and gas pipelines if he could put them anywhere he wanted between the PUC and the AOGCC. COMMISSIONER CHRISTENSON answered that engineering would have a good idea of the technical part. The tariffs and accounting sides would have to have people with that expertise which they don't have on staff right now. TAPE 99-24, SIDE B Number 590 CHAIRMAN HALFORD said he was worried about infecting the new commission with the maladies that run amok in the various battles on public utilities. He didn't know the answer to that. Pipeline regulation will get much bigger as we see less competition and less of the natural tendency to gather information from the competing interests. SENATOR MACKIE asked what Mr. Christenson thought about merging the two commissions. COMMISSIONER CHRISTENSON answered that he understood the AOGCC would move intact. He would not change the daily operations and they would perhaps improve as new folks came in to handle the work. He is less sure of the impact on how the commission would work. SENATOR MACKIE asked if he would be doing utility stuff, too. COMMISSIONER CHRISTENSON responded that he didn't know. SENATOR PEARCE pointed out that there are no utility people on the Commission. It is her intent to empanel three people for any oil and gas or pipeline measure that comes before them. Two of the people have to be the engineer and the geologist. It is not necessarily their intent that it is always the same third person. SENATOR MACKIE asked if the five public members would handle any of the utility questions. SENATOR PEARCE answered that is right. SENATOR MACKIE asked if the two other members of the Commission could participate in those. SENATOR PEARCE answered that the chairman of the Commission could always empanel the full seven person Commission if there was a big enough issue. She thought smaller panels in most cases could get the work done a lot more efficiently. SENATOR MACKIE asked why they are merging the two, if they are not going to be two entities combined into one. SENATOR PEARCE said the two entities will be combined into one. Her original idea was not to specify a geologist or an engineer, but the oil and gas industry thought that was very important. She thought they would find the greatest efficiency within the staffing area - two hearing officers instead of one. She thought they would see actual decisions coming out in a more efficient manner. She expects there is room in the present building where the APUC is for the AOGCC to move in. Number 513 MR. ERIC YOULD, Executive Director, ARECA, said he is also the statewide Association Executive Director of the Electric Utility Industry which provides about 95 percent of the electricity throughout the state. His members recently adopted a resolution supporting the continuation of the APUC primarily because of issues on the horizon that relate to restructuring and deregulation. It is the general consensus of the industry that changes could be made to APUC to streamline the process. Their sole objective is to get APUC to operate better so it can get dockets out more timely, their biggest frustration. Their second biggest frustration is the associated cost but those are basically passed through to the customers. SB 133 addresses many things that are in their own resolution, such as use of limited panels of three commissioners, use of different settlement techniques, better use of hearing officers to hear cases and recommend decisions, and more frequent use of special masters to expedite procedural issues. It will help make the APUC a more responsive entity. Their biggest question is how the two commissions will mesh procedurally and whether they will be compatible. They are concerned about the potential for restructuring the electric utility industry itself. On the positive side, he said, this is a good working document with positive things in it. He would like to see SB 133 continue as a working document to see how they can flesh out the best out of it. Number 447 MS. GINNY FAYE, Department of Community and Regional Affairs (DCRA), complimented Senator Pearce for bringing this issue forward. DCRA is always interested in good ideas especially if they offer consolidations and ways of saving money. DCRA's primary concern is that the integrity of these two important agencies be maintained because they have significant oversight of issues that affect the State and almost everyone who lives in Alaska. MS. FAYE said DCRA preferred a five member instead of a seven member commission in the spirit of keeping costs down. They are also reviewing how moving from a three panel field to a five panel field will work. DCRA has not come to a decision about what it would mean to deregulate the refuse industry, although she thought the bill doesn't necessarily deregulate it, but passes it on to local governments, some of which may be more or less capable of doing that. DCRA is also looking at the advocacy function and how it will work to assign staff as opposed to assigning to contract employees. The final issue of how attorneys will be selected to represent the Commission differs from how that is done now in these agencies. She said it is a good bill that offers a lot of opportunities. SENATOR PEARCE said the way the bill is drafted, the Department of Law should provide full-time legal counsel in the same fashion it currently does for the AOGCC. One ongoing fight within the APUC appears to be over how legal counsel gets assigned to it. The AOGCC doesn't have that disagreement. On the question of the advocacy staff, the APUC is the entity that watches over consumer rates. Staff members who work for the APUC are asked to act in an advocacy role to represent the public rate payers, but they many not have that role in another case. They have to play two different functions and there is a question about how effective they can be. CHAIRMAN HALFORD asked who the attorneys are for the APUC. SENATOR PEARCE answered that Ron Zobel is one. Number 375 MR. JIM ARNESON, Commercial Refuse, Inc., said he is concerned about the proposed deregulation of refuse in this bill. If there was ever a time the refuse industry needed to be regulated, it is now. Over the last couple of years, Waste Management, Inc. came to Alaska and "gobbled up 95% of all business up here." MR. JIM ROWE, Director, Alaska Telephone Association (ATA), said ATA is apprehensive about the impact of this legislation because the Telecommunications Act of 1996 has increased the number of issues before the APUC and some of them are new social policy. He thought creating a new Commission would set things back by two years and more for the issues that need to be resolved quicker. He thought there are very good aspects of restructuring in this bill, but it is not a simple thing to do. MS. HEATHER GRAHME said she was available to answer questions on refuse. CHAIRMAN HALFORD asked if the APUC deregulates refuse, whether municipalities will have the authority to pick up refuse regulation under Title 29. MS. GRAHME answered that municipalities have that power under Title 29. She said it is the view of Waste Management that refuse should not be deregulated, but that controlled refuse collection and disposal should be handled at the local level rather than the state level. Number 247 MS. PAM KRIEBER, Valley Refuse, opposed language that removes garbage hauling from statewide regulation. Sections 2,3, and 9 propose to remove it from the jurisdiction of the new Alaska Energy Conservation Commission. She said the committee would not hear from other companies, because 95 percent of the companies in the entire state were bought up by U.S.A. Waste of Alaska, a wholly owned subsidiary of Waste Management, Inc., the largest waste hauling conglomerate in the world. She said that statewide oversight would ensure impartial pricing structures and fair and equitable business practices. Placing the responsibility of regulations on local governments would make them bear the financial and legal responsibilities for regulation. This would equate to higher taxes and user fees for citizens who would end up paying more money for the same services. If local governments choose to not regulate refuse at all, the door is left wide open for Waste Management to charge fees that would provide them the greatest possible profit margin. MS. KRIEBER said that starting a garbage collection company is hard work. It requires a large investment in equipment, working capital, and time to develop a reliable customer base large enough to pay the bills. This is the reason large companies buy smaller ones; it is the most cost effective thing to do. CHAIRMAN HALFORD thanked everyone for their comments and said they would continue to work on this bill. Number 247 He adjourned the meeting at 4:30 p.m.