HB 69-REGULATION OF SHALLOW NATURAL GAS    CHAIR OGAN told members that he had assigned HB 69 to a subcommittee chaired by Senator Dyson. He declared a conflict of interest with HB 69 and asked to be excused from taking action on it. SENATOR BEN STEVENS objected. CHAIR OGAN then stated that Vice Chair Tom Wagoner would chair the meeting. SENATOR ELTON asked Chair Ogan to describe his conflict. CHAIR OGAN said he works during the interim for a company that will be directly affected by this legislation. VICE-CHAIR WAGONER told members that a proposed committee substitute, Version C, was before the committee. SENATOR SEEKINS moved to adopt Version C as the working document of the committee. VICE-CHAIR WAGONER noted without objection, the motion carried. SENATOR DYSON moved the adoption of Amendment 1, which reads as follows. A M E N D M E N T 1 Page 3, line 26, after "laws" delete all language through lines 31 and replace with: If DNR clearly demonstrates an overriding state interest, waiver of local planning authority approval and the compliance requirement may be granted by the commissioner. The commissioner shall issue specific findings giving reasons for granting any waiver under this section. Page 4, line 2, after (o) delete all language through line 6 and replace with: If DNR clearly demonstrates an overriding state interest, waiver of local planning authority approval and the compliance requirement may be granted by the commissioner. The commissioner shall issue specific findings giving reasons for granting any waiver under this section. SENATOR OGAN explained that Amendment 1 articulates that the state has a vested interest in that subsurface right and if the local regulations are so onerous, the commissioner can override them. He said he personally believes it is good state policy to protect state subsurface rights. Currently, in other states, cases have arisen in which local governments have passed regulations that prevented developers from accessing state subsurface property. SENATOR SEEKINS said he supports this language because it is just a restatement of a truism. The state has certain rights under the Constitution; Amendment 1 reserves those rights. SENATOR ELTON asked if a precedent for this language exists anywhere else in statute. SENATOR OGAN said there is a precedent in the section on public projects. SENATOR ELTON stated the original language in Version C was problematic for the Alaska Municipal League (AML) and questioned whether AML supports Amendment 1. SENATOR OGAN said it does and that a representative from the AML was available to testify. VICE-CHAIR WAGONER asked if any of the public participants wanted to testify on Amendment 1. There was no response. SENATOR BEN STEVENS asked if the sponsor endorses Amendment 1. VICE-CHAIR WAGONER asked that the record reflect that the sponsor nodded affirmatively in support of Amendment 1. SENATOR OGAN informed members the citation for the waiver for public projects is AS 35.30.030. With no further objection to the adoption of Amendment 1, VICE- CHAIR WAGONER announced the motion carried. SENATOR DYSON moved to adopt Amendment 2, proposed by the Department of Law. He told members Department of Law staff has advised that the language in Amendment 2 is more consistent with existing statutory language and will help to avoid litigation. Amendment 2 reads as follows. A M E N D M E N T 2 OFFERED IN THE SENATE RESOURCES BY SENATOR DYSON COMMITTEE TO: SCS HB 69 (23-LS0428\C) Page 1, line 7 Delete "unconventional" Insert "shallow" Page 1, lines 7-8 Delete ", including coal bed methane," Page 1, line 9 Delete "unconventional" Insert "shallow" Page 1, line 12 Delete "unconventional" Insert "shallow" Page 2, line 3: Delete "unconventional" Insert "shallow" Page 2, line 7, following "as" Delete "unconventional" Insert "shallow" Page 2, line 15 Delete "unconventional" Insert "shallow" Page 2, line 17 Delete "unconventional" Insert "shallow" Page 2, line 21 Delete "unconventional" Insert "shallow" Page 2, line 22 Delete ", including coal bed methane" Page 2, line 25 Delete "unconventional" Insert "shallow" Delete ",including coal bed methane," Page 2, line 26, following "and, if so," Delete "establish the response" Insert "whether the volume of oil encountered will be of such quantities that an oil discharge prevention and contingency plan will be required." Page 2, lines 27-28 Delete all material. Page 3, line 2 Delete "unconventional" Insert "shallow" Page 3, line 25 Delete "unconventional" Insert "shallow" Page 3, line 30 Delete "unconventional" Insert "shallow" Page 3 lines 30-31 Delete ", including coal bed methane," Page 4, line 1 Delete "title" Insert "chapter" Page 4, line 1 Insert a new bill section to read: "*Sec.5 AS 31.05.170 is amended by adding a new paragraph to read: (15) "shallow natural gas" means coal bed methane, natural gas drilled for under a lease authorized by AS 38.05.177, or natural gas drilled for in a well whose true vertical depth is 4,000 feet or less." Renumber the following bill sections accordingly. Page 4, line 1: Delete "AS 38.05.177" Insert "AS 38.05" Delete "subsection" Insert "section" Page 4, line 2 Delete "(o)" Insert "Sec. 38.05.178. Regulation of shallow natural gas; relationship of chapter to other laws." Page 4, line 13 Delete "unconventional" Insert "shallow" Page 4, lines 13-14 Delete ", including coal bed methane," Page 4, line 6 Insert "For purposes of this section, 'shallow natural gas' has the meaning given in AS 31.05.170" Page 4, line 13 Delete "unconventional [SHALLOW] Insert "shallow" Page 4, lines 13-14 Delete "including coal bed methane gas," Page 4, line 15, following "determines" Insert "under AS 31.05.030(j) that" Page 4, line 16, following "(1)" Delete "under AS 31.05.030(j) that" Page 4, line 16, following "for" Delete "unconventional" Insert "shallow" Page 4, line 19, following "plan" Delete "with an appropriate response planning standard described in" Page 4, line 20 Delete "AS 46.04.030(k)" Page 4, following line 22 Insert a new bill section to read "*Sec.8. AS 46.04.900 is amended by adding a new paragraph to read: (30) "shallow natural gas" has the meaning given in AS 31.05.170" Renumber the following bill sections accordingly. Page 4, line 26 Delete "unconventional" Insert "shallow" Page 4, line 26 Delete "unconventional" Insert "shallow" Page 4, following line 30 Insert a new bill section to read: "*Sec.10 AS 46.40.210 is amended by adding a new paragraph to read: (10) "shallow natural gas" has the meaning given in AS 31.05.170." Renumber the remaining bill section accordingly. SENATOR OGAN objected for the purpose of discussion. VICE-CHAIR WAGONER asked Mr. Mintz to explain the intent of Amendment 2 to the committee. MR. ROBERT MINTZ, Assistant Attorney General, Department of Law (DOL), explained to members that Amendment 2 was drafted by the DOL after consultation with representatives of the Alaska Oil and Gas Conservation Commission (AOGCC), Department of Natural Resources (DNR), and the Department of Environmental Conservation (DEC). It is intended to do three things. · The term "unconventional natural gas" was changed to "shallow natural gas" throughout the legislation. The title of the bill uses the term "shallow natural gas" so the term was made consistent to avoid a potential problem with the title not describing the subject of the bill. The common understanding of "unconventional natural gas" includes gas at deep depths. · It provides a statutory definition of "shallow natural gas." DOL felt that inclusion was important because as the bill has been developed, it actually affects not only the AOGCC statute, but also DEC and DNR. The definition makes clear what projects would and would not be covered by the bill. MR. MINTZ told members that an AOGCC member would explain the definition to members. MR. DAN SEAMOUNT, Alaska Oil and Gas Conservation Commission, said both the AOGCC and DNR discussed ways to define shallow natural gas and agreed on this definition. Any one or more of three criteria is sufficient to meet the definition. One criterion is coal bed methane. Because there is a practical depth limitation involved, coal can be squeezed to a point where gas cannot flow out of it at that depth, probably at about 4,000 feet. The second criterion could be covered by a DNR shallow gas lease, under AS 38.05.177. The third criterion is natural gas drilled for in a well with a true vertical depth (TVD) of not more than 4,000 feet. Both the AOGCC and DNR felt these criteria would cover the types of projects the committee intends to cover under this legislation. MR. MINTZ then told members the third change in Amendment 2 will correct an inconsistency in the language between what the AOGCC is expected to do under Section 6 of the bill (related to oil spill contingency plans) and what the AOGCC is authorized to do under Section 2 of the bill (the AOGCC's powers and responsibilities). Using the language from Section 6 in Section 2 will avoid any uncertainty about the AOGCC's authority. In addition, a superfluous phrase was deleted. MR. MINTZ noted a fourth change in Amendment 2 is technical and relates to Section 5. As written, the committee substitute adds a new subsection to Section 177 of AS 38.05, the shallow gas leasing statute. Because the coverage of Section 5 is broader than shallow gas leasing and the concept of shallow natural gas is broader than what is provided for under the leasing statute, DOL thought placing Section 5 in the shallow gas leasing section could cause confusion. DOL instead suggested it be placed in a new section by itself. Amendment 2 adds that new section. SENATOR OGAN referred to page 2, lines 22-25 of Amendment 2, and asked if the intent of that language is to prevent AOGCC from playing the role traditionally played by DEC. MR. MINTZ said that is a policy call for the committee to make. He said Section 2 is only supposed to provide express authority for the AOGCC to do what Section 6 asks it to do. The language on lines 22-25 would make the language consistent with Section 6. SENATOR OGAN asked if AS 31 is the AOGCC statute. MR. MINTZ said that is correct. SENATOR OGAN asked, "So you don't want AOGCC to be in the business of establishing a response? That's more what DEC - I mean is that why we're doing this basically - the DEC job description?" MR. RANDY RUEDRICH, AOGCC, told members that two sections of the bill were inconsistent. Section 6 contained the requirements to provide information, which are left unchanged. Section 2 required the AOGCC to do the task described in Section 6. The amendment attempts to make consistent what the AOGCC is being asked to do with what it is doing. He said the AOGCC will be defining the likely flow rates to give to the DEC for the establishment of a spill contingency plan. SENATOR OGAN asked if the line number changes on page 4 reflect the adoption of the committee substitute. MR. MINTZ said that is correct. He explained that Amendment 2 was originally drafted to apply to Version B. However, when Version C was introduced, handwritten revisions were made to apply to Version C. He acknowledged that because of limited time, he cannot assure that all of the necessary revisions were included. [Amendment 2 as typed above contains the handwritten revisions provided by Mr. Mintz that apply to Version C.] VICE-CHAIR WAGONER announced that with no further questions or objections, CSHB 69(RES) [Version C] as amended was before the committee. SENATOR OGAN moved that the bill drafter be able to make any technical conforming changes necessary to incorporate Amendment 1 as he believed some clean-up changes may be required. VICE-CHAIR WAGONER suggested that the motion allow the chair to make sure the changes are technical in nature before the draft is considered finalized. SENATOR BEN STEVENS asked Senator Ogan to clarify why he believes Amendment 1 will require a technical correction. SENATOR OGAN said he is concerned the heading will not conform. He added that he is only asking the committee to give the legal drafter the ability to make technical corrections, not substantive changes. He said the legal drafter made that suggestion because he did not draft Amendment 1. SENATOR ELTON commented that if any technical amendments need to be made, he would also like a copy. SENATOR OGAN indicated the legislation could also be changed on the Senate floor, if necessary. There being no further discussion or objections, VICE-CHAIR WAGONER announced the motion carried and that the committee would take public testimony. MR. MATT DAVIDSON, representing the Alaska Conservation Voters, expressed concern that the public has had very little chance to review the changes to HB 69 made in the Senate. He said he agrees that the development of coal bed methane and shallow gas drilling has huge potential for the development of energy across the state, especially in rural areas where energy costs are very high. Unfortunately, the bill does not recognize the potential risks of this type of development to groundwater, surface water, community development and public and private lands. The bill is lacking in that it does not instruct the agencies to take a proper look at these impacts. He asked that the bill recognize, in its findings section, the potential impacts to the waters, neighborhoods and communities of the state from coal bed methane. MR. DAVIDSON said the bill erroneously implies that the impacts of coal bed methane developments are less of a threat to the resources of the state. He agrees they differ from deep well drilling, but the impacts to private landowners and surface waters in the Rocky Mountains have been very big. He described the process of coal bed methane development, particularly reinjection, and problems associated with salinity, seepage, and groundwater levels and contamination. He repeated the findings section should reflect those risks and that AOGCC should develop regulations to address them. MR. DAVIDSON said he believes it is inappropriate to leave the variance provision in Sections 1 and 3 of the bill. A variance will not be necessary once regulations are developed to properly manage coal bed methane production. He urged the committee to add the sunset provision to the variance language. MR. DAVIDSON said he also believes it is inappropriate that the public notice of the variances continues to be included in the legislation. There has been no compelling testimony as to why the variances are necessary. The AOGCC is currently processing some of the variances requested by Evergreen Drilling. He said he continues to object to the language limiting local government planning in Sections 4 and 5. Coal bed methane has tremendous impacts on private land. A local government should have the right to tell the producer and the state that it does not want a compressor station built next to a school. His final point was that the exemption to coastal zone consistency review is inappropriate because coal bed methane produces wastewater and has the potential to affect marine and other ecosystems and should not be exempted. SENATOR OGAN told Mr. Davidson that the subcommittee held a number of meetings and publicly noticed each one. He then told Mr. Davidson, regarding ground and surface water contamination, the plans that Evergreen Resources submitted to the AOGCC contain double protection to ensure no aquifer infiltration. He said water is not actually injected to produce the well. The water is drawn down to lower the pressure in the reservoir, which makes the methane to rise. He said some of that water does have low salinity levels. That is reinjected below the level of production into bedrock. It is virtually impossible for that water to infiltrate the aquifer. He also told Mr. Davidson that the boroughs will be able to say they do not want a compressor station next to a school through land use and planning. This bill does not remove that ability; it does allow the commissioner to waive local requests if there is a compelling issue but he believes those mitigating concerns can be addressed in the permit. SENATOR OGAN said he believes Mr. Davidson must have been referring to a New York Times article about methane seepage in the Powder River Basin. He said the methane seepage was a natural seepage that had been there forever. He pointed out that methane is non-toxic. He has seen friends in the Mat-Su Valley turn on their faucets, hold a match and light a fire. He noted the coal is very shallow in some places in the Mat-Su Valley. Those people are actually drawing water out of coal. Their water wells produce gas. SENATOR ELTON commented that it is easy to talk about a lot of these issues as if the public has the same understanding of them. Often what gets in the way is a lack of knowledge. He said the issue is that at one end the bill constricts the possibility of public notice, at the other end, communities are being told they have no say. That sets up a situation where no rational discussion will take place because there will be no forum in which to do so. He asked whether situations in the past have occurred that warrant the new sections in the bill. SENATOR OGAN asked to respond to a previous comment and said the only thing this bill does is to change public notices for technical changes made by the AOGCC, basically for down-hole operations. He said a technical change might be requested when a company wants to make minor changes to its plan of operation because it encountered a slightly different geology than expected. He said the public still has plenty of opportunity to comment on the leasing issue itself and mitigating measures on the overall plan. He pointed out to date, no one has requested a public hearing on any of those technical changes. SENATOR ELTON asked if any situation has arisen that requires the kind of relief this bill seeks. SENATOR OGAN said, to the best of his knowledge, there have been no requests on these technical down-hole issues, and that they have all been public noticed with the AOGCC. He told members that someone who wants to delay a project could request a hearing, which requires a 30-day notice. That could force an operation to shut down over a technical change to a plan that the AOGCC commissioners are capable of deciding upon without harming the public. He said he believes this change is consistent with the Governor's attempt to streamline the regulatory process. SENATOR ELTON maintained that one can always envision a situation in which public notice and public hearings could create problems, even if they haven't in the past. MR. DAVIDSON told members that he testified at the first subcommittee hearing, at which time the first committee substitute was introduced. That was the first time he saw the municipal language and called the Mat-Su Borough to inform staff. Since then, the chair of the subcommittee asked him to hold his comments and bring them before the full committee. He said he appreciates Senator Ogan's knowledge of coal bed methane. He noted that the State of Montana just considered a bill to regulate the discharge of water drawn from coal bed methane. The farmers and ranchers want it regulated because they cannot use that water on their operations. He pointed out that neither the state nor the AOGCC has a lot of experience with coal bed methane production or drilling so he feels it is appropriate to discuss potential issues in communities. SENATOR OGAN said he agrees that other states have had problems with water discharges. However, in some areas of Colorado, the water is so pure it is drinking water quality. Ranchers love it because they can get a water supply they did not have before. However, there are problems with salinity in other areas. That is not the case in Alaska because that water cannot be discharged on the ground; it must be reinjected below 4,000 feet. MR. DAVIDSON told members his goal is that the legislation recognize that impacts from coal bed methane production can occur. He asked the committee to consider the comments from the Mat-Su Borough because placing limits on Title 29 authorities' ability to zone these production wells is important. VICE-CHAIR WAGONER said he thought the committee had the concurrence of the Mat-Su borough on the bill as amended. TAPE 03-18, SIDE B SENATOR OGAN invited Mr. Davidson to contact staff at Evergreen Resources who would be glad to give him a tour and explain their operations. He said he believes Mr. Davidson would be impressed with how conscientious Evergreen is about its operations. MR. DAVIDSON said he is not arguing Evergreen's intentions or that this legislation is a back door way to do business, he just believes the public deserves to recognize the potential impacts. VICE-CHAIR WAGONER announced a 10-minute at-ease. When the committee reconvened, he said he would entertain a motion to move the legislation from committee. SENATOR SEEKINS said he would like to express support for the rally going on in front of the Capitol Building to support our troops and President Bush. He then moved SCSHB 69(RES) with individual recommendations. SENATOR ELTON objected and asked what the original motion was. VICE-CHAIR WAGONER said the original motion was to adopt Version C and then the committee adopted two amendments. SENATOR ELTON asked for an explanation of the differences between Versions B and C. SENATOR DYSON explained that when the subcommittee sent its proposal to the legal drafters, it had a line drawn through a few words but the drafter did not exclude those words. Senator Dyson did not notice that the words remained when he reviewed the draft committee substitute. He said those words kept the municipalities from having any say, which the subcommittee did not intend. Those words were removed in Version C and, as far as he knows, that is the only difference between the two versions. He said he takes total responsibility for the error and apologized for the mistake. SENATOR ELTON removed his objection and VICE-CHAIR WAGONER announced that without objection, the motion carried.