ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 23, 2005
1:03 p.m.
MEMBERS PRESENT
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Kurt Olson
Representative Paul Seaton
Representative Mary Kapsner
MEMBERS ABSENT
Representative Jay Ramras, Co-Chair
Representative Harry Crawford
COMMITTEE CALENDAR
HOUSE BILL NO. 197
"An Act exempting certain natural gas exploration and production
facilities from oil discharge prevention and contingency plans
and proof of financial responsibility, and amending the powers
and duties of the Alaska Oil and Gas Conservation Commission
with respect to those plans; and providing for an effective
date."
- MOVED CSHB 197(RES) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 5
Opposing imposition of a milk tax on Alaskans.
- MOVED CSHJR 5(RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 197
SHORT TITLE: OIL SPILL EXEMPTIONS FOR GAS WELLS
SPONSOR(S): OIL & GAS
03/03/05 (H) READ THE FIRST TIME - REFERRALS
03/03/05 (H) O&G, RES
03/15/05 (H) O&G AT 5:00 PM CAPITOL 124
03/15/05 (H) Moved Out of Committee
03/15/05 (H) MINUTE(O&G)
03/16/05 (H) O&G RPT 5DP 1NR
03/16/05 (H) DP: SAMUELS, GARDNER, DAHLSTROM,
ROKEBERG, KOHRING;
03/16/05 (H) NR: KERTTULA
03/21/05 (H) RES AT 1:00 PM CAPITOL 124
03/21/05 (H) Heard & Held
03/21/05 (H) MINUTE(RES)
03/23/05 (H) RES AT 1:00 PM CAPITOL 124
BILL: HJR 5
SHORT TITLE: NO MILK TAX
SPONSOR(S): REPRESENTATIVE(S) LYNN
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) RES, L&C
03/21/05 (H) RES AT 1:00 PM CAPITOL 124
03/21/05 (H) Scheduled But Not Heard
03/23/05 (H) RES AT 1:00 PM CAPITOL 124
WITNESS REGISTER
BRECK TOSTEVIN, Assistant Attorney General
Environmental Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 197.
JOHN NORMAN, Commissioner/Chair
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 197.
STEVE DAVIES, Petroleum Geologist
Alaska Oil and Gas Conservation Commission
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 197.
MARK MYERS, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 197.
REPRESENTATIVE BOB LYNN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HJR 5 as sponsor.
PETE FELLMAN, Dairy Farmer and Staff
to Representative John Harris
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on HJR 5.
JIM EICHSTADT, Senior Manager
Public Affairs and Trade Policy
Dairy Trade Coalition
POSITION STATEMENT: Testified on HJR 5.
MARIO CASTILLO
Washington, D.C.
POSITION STATEMENT: Testified on HJR 5.
JLONA RICHEY
Alaska Dairy Coalition
POSITION STATEMENT: Testified on HJR 5.
LARRY DEVILBISS, Director
Division of Agriculture
Department of Natural Resource
Palmer, Alaska
POSITION STATEMENT: Testified on HJR 5.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 1:03:17 PM. Representatives
Samuels, Seaton, Elkins, LeDoux, Olson, and Gatto were present
at the call to order. Representative Kapsner arrived as the
meeting was in progress.
HB 197-OIL SPILL EXEMPTIONS FOR GAS WELLS
CO-CHAIR SAMUELS announced that the first order of business
would be HOUSE BILL NO. 197, "An Act exempting certain natural
gas exploration and production facilities from oil discharge
prevention and contingency plans and proof of financial
responsibility, and amending the powers and duties of the Alaska
Oil and Gas Conservation Commission with respect to those plans;
and providing for an effective date."
CO-CHAIR SAMUELS said he wanted to discuss the crude oil
definition in HB 197.
BRECK TOSTEVIN, Assistant Attorney General, Environmental
Section, Department of Law, Anchorage, said there isn't a
definition of crude oil elsewhere in the statutes, and it was
put there to clarify the meaning of the exemption. "The
exemption for a natural gas facility did not extend to a
facility that is going to be producing or transporting crude
oil. So crude oil is defined in terms of not including natural
gas or a refined petroleum product," he said.
REPRESENTATIVE SEATON said this is an exemption, but the
exemption does not include crude oil, and crude oil does not
include natural gas or refined petroleum products. He said that
means refined petroleum products would be exempt the same way
natural gas is exempt. Within the definition it is tying
natural gas and refined petroleum products together, he added.
Unless there is a reason to keep "refined petroleum products" in
the definition, he said he would like to remove it.
MR. TOSTEVIN said Representative Seaton is misunderstanding the
way the exemption works. "The exemption is for a natural gas
facility. Now if a natural gas facility involves crude oil,
then there is no exemption. It would need to have a contingency
plan. With respect to a refined product, if you had a facility,
for example, that was storing refined products, that doesn't
take it out of the exemption unless the refined petroleum
product exceeds the volume set out in (a) of that section, which
is 10,000 barrels."
1:07:37 PM
MR. TOSTEVIN said homes and residences store small amounts of
refined petroleum, and a plan is not required. "So what the
bill is saying is that if you are a natural gas facility and you
are only producing gas, and you're not producing crude oil or
you're not storing petroleum products in amounts that exceed
10,000 barrels, then you are exempt," he stated.
REPRESENTATIVE SEATON said the language regarding exceeding
10,000 barrels is in a different section. The bill says a
natural gas production facility or terminal facility is exempt,
and crude oil is not exempt, he said. But the bill then states
that crude oil is not a refined petroleum product, which
confuses the subject, he stated.
MR. TOSTEVIN said that in Section 4, lines 11 and 12, the bill
says "for purposes of this subsection." He continued:
The definitions are only for this subsection, and we
aren't exempting crude oil facilities. We're not
exempting refined product facilities. What we're
saying is, is what does "natural gas production
facility" mean. And then in Section 2, it goes on to
say "a natural gas production facility means a
platform facility or structure that is used solely for
the production ... of natural gas." It does not
include a facility that produces, stores, or
transports natural gas in combination with crude oil
or that would be an oil terminal facility, if it's
storing oil in excess of the amounts in [subsection]
(a). The practical point that this section is aimed
at is: a gas exploration facility may need lubricant,
fuel for engines and for operations on it, and so even
if it's exploring for natural gas, it's going to have
small amounts of petroleum on it.
REPRESENTATIVE SEATON said that is allowed up to the barrel
limit anyway.
REPRESENTATIVE GATTO asked if natural gas is always methane.
MR. TOSTEVIN said the definition of natural gas in statute is a
hydrocarbon that is in a gaseous state at 70 degrees Fahrenheit
and at atmospheric pressure, and it is not limited to methane.
REPRESENTATIVE GATTO asked if there is anything called natural
gas that is not methane.
JOHN NORMAN, Commissioner/Chair, Alaska Oil and Gas Conservation
Commission, Anchorage, said methane is the "ordinary" natural
gas, but it can include hydrocarbons that are not methane.
STEVE DAVIES, Petroleum Geologist, Alaska Oil and Gas
Conservation Commission, said the intent is to eliminate the
exemption for things that would spill and flow on the ground.
MR. NORMAN said natural gas is a gaseous form of petroleum or
hydrocarbon consisting of hydrocarbon gases and vapors including
methane, ethane, propane, butane, pentane, and hexane.
1:17:18 PM
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, said oil spill contingency plans are for
underground production; "it did not relate to the potential use
or storage tanks or other facilities on the surface," which he
thinks are covered under other Department of Environmental
Conservation regulations. "This bill is to look at the risks
and the clean-up associated with a release of hydrocarbons from
formation," which would not be refined. "So it is making a
distinction between that sort of regulation that you would use
for any user on the surface that would be storing hydrocarbons
or grease, or oil, or gasoline, or kerosene for whatever
purposes, versus those that would be drilling to an underground
reservoir and finding unrefined crude."
1:20:06 PM
MR. MYERS said, "The bill is pretty well thought out in terms of
its definition of natural gas, which, I think, fits the purpose
for spill planning." He added that one would never encounter
refined products in an underground reservoir, "and that is
covered through other regulations in terms of storage of surface
facility use."
REPRESENTATIVE SEATON referred to page 3, line 25, where the
language defines oil. He said there are two definitions, and
one says a plan is required for crude but not natural gas or
refined petroleum products. "We're giving a blanket exclusion,
not based on 10,000 barrels or anything else, to natural gas and
refined petroleum products." On line 25 and 26, "we're defining
oil and we're just removing natural gas, which I don't have a
problem with. I am trying to figure out why, when we have other
exclusion portions that allow certain quantities of refined
petroleum products, why are we putting this in the definition of
crude and then excluding these from the exclusion?" he asked.
MR. MYERS said, "To be honest, I will have to look more at the
section to answer your question."
REPRESENTATIVE SEATON said the purpose of HB 197 is to exclude
natural gas production, not refined petroleum products, and he
asked if there would be a detrimental effect by taking "refined
petroleum products" out of the bill.
1:24:17 PM
MR. TOSTEVIN said there are pre-existing definitions of oil and
natural gas. He continued:
Lines 25-26 say oil has a meaning in that section and
that oil doesn't include natural gas, because there is
some overlap between the two definitions, because
butane and propane are listed as an oil. But then it
explains that those things ... are part of natural
gas, if they're gaseous or if they're under pressure.
The exemption you're speaking of, with respect to
petroleum products and the volumes--that's in a
different section of AS 46.04.050, that's 050 (a).
That's an existing exemption. So all we're simply
doing in (b) is acknowledging that that exemption
exists and that if you're storing ... the way it was
originally phrased is, in existing statute, just
refers to oil, and that's ambiguous because oil can be
crude oil, [it] can be refined products, [or] it could
be some components of natural gas. So each one of
these definitions is really just explaining what is
being excluded when we speak in terms of what is
natural gas. The harm if you took it out, it would
create, well, the provisions were put in, really, to
provide clarity as to the scope of what does it mean
when you're transporting/producing natural gas in
combination with oil, because that took you out of the
exemption if you had oil with you. So if you took out
those definitions it would be unclear as to what was
meant by the term "oil".
REPRESENTATIVE GATTO said he agrees with Representative Seaton.
The simplest process can turn crude into a refined product, he
said.
CO-CHAIR SAMUELS said he sees what Mr. Tostevin is saying.
"We're not changing any exemption, we are simply clarifying what
we mean the exemption is. The exemption for this is if you're
drilling for gas and there is no chance ... that you'll hit oil,
that you don't have to have the c-plan. That's all we're doing
here. We're not changing any other exemptions - there's no fast
one being pulled on the refined petroleum products. But if you
happen to have gas for the vehicles or the pumps or oil for this
or that, just regular lubricants for the day-to-day business of
running a facility, that you don't need a c-plan because you
happen to have that on site."
1:27:25 PM
REPRESENTATIVE SEATON said it is like an equation; crude oil
does not equal natural gas, so there will be no exemption with
crude oil. But then crude oil does not mean refined petroleum
products, he said, so it looks like a loophole. "I am all for
exempting natural gas," he said, but not refined petroleum
products. He said there is no concern with small amounts of
petroleum products because that is covered in another section.
He said he still hasn't gotten an acceptable explanation.
CO-CHAIR SAMUELS said it is only a clarification.
REPRESENTATIVE SEATON offered to move Amendment 2, labeled 24-
LS0664\G.1, Chenoweth, 3/23/05, as follows:
Page 3, lines 13-14:
Delete "or refined petroleum products"
Page 4, Lines 7-8:
Delete "or refined petroleum products"
CO-CHAIR SAMUELS objected.
A roll call vote was taken. Representatives Seaton, Elkins,
LeDoux, Olson, and Gatto voted in favor of Amendment 2.
Representatives Samuels and Kapsner voted against it.
Therefore, Amendment 2 passed by a vote of 5-2.
REPRESENTATIVE SEATON moved to report HB 197 as amended out of
committee with individual recommendations and the attached
fiscal notes. There being no objection, CSHB 197(RES) was
reported from the House Resources Standing Committee.
HJR 5-NO MILK TAX
CO-CHAIR SAMUELS announced that the final order of business
would be HOUSE JOINT RESOLUTION NO. 5, Opposing imposition of a
milk tax on Alaskans.
1:32:23 PM
REPRESENTATIVE BOB LYNN, Alaska State Legislature, said the tax
referred to in HJR5 is a mandatory tax assessment from 1983,
which was designed to increase sales of milk when there was a
milk surplus. Alaska, Hawaii, and Puerto Rico were exempted
from the tax because all are milk deficit states. The tax would
be a serious detriment to Alaskan milk producers and consumers,
he said, and it would only benefit states that have milk
surpluses. The National Milk Federation wants to tax foreign
milk imports, and the United States can't tax foreign milk
unless all states are taxed, he explained.
1:34:06 PM
REPRESENTATIVE LYNN said that Alaska already has high milk
prices. "Milk in bush communities is already outrageous ... to
the point that children in many of these communities are
drinking sugar-laden soft drinks rather than milk because it's
less expensive," he said. He said Alaska dairy farmers have
trouble making ends meet.
1:35:01 PM
PETE FELLMAN, Staff to Representative John Harris, Alaska State
Legislature, said he produces milk and is representing milk
producers. He said the tax would be an undue burden on Alaska
dairy farmers. Currently, 75 percent of Alaska milk comes from
outside the state, he said. As a producer, he said, he has
shipping costs and delays unlike farmers in the Lower 48 states.
1:36:50 PM
MR. FELLMAN said there has not been an increase in Alaska's milk
prices since 1987, but fuel costs have doubled, and everything
else has gone up. He also said Alaska producers don't get the
benefit of being paid extra for milk with high butterfat and
protein. The tax would equal one cent per gallon, which would
cost Mr. Fellman $1,200 per year.
1:39:30 PM
CO-CHAIR SAMUELS asked if this tax is pending in Congress.
REPRESENTATIVE LYNN said yes.
REPRESENTATIVE GATTO asked if the purpose of the tax is to
encourage milk consumption. Alaska consumes all of its milk, so
there is no need to advertise, he surmised.
1:40:32 PM
REPRESENTATIVE SEATON asked why farmers aren't paid for milk
components.
MR. FELLMAN said the question requires a long answer, but there
was an attempt three years ago to pass legislation to compensate
for butter.
1:42:37 PM
REPRESENTATIVE LEDOUX asked who makes the decisions.
MR. FELLMAN said Matanuska Maid is a state-owned facility, and
there is a creamery corporation that is supposed to represent
dairy farmers. The shareholders of Matanuska Maid is the state
of Alaska, but the creamery corporation claims it does not need
to follow the recommendations of the shareholders.
1:44:44 PM
JIM EICHSTADT, Senior Manager of Public Affairs and Trade
Policy, Dairy Trade Coalition, said that even though the tax is
1.3 cents per gallon, the middlemen are going to double or
triple the increase to consumers. He said Congress never
intended the tax to include Alaska. When the tax was
implemented there were milk surpluses costing the American
public millions of dollars because the government was buying the
products and not using them, he said. Instead of paying to
store dairy products in caves, he stated, a milk tax was
instituted to market the product.
1:48:09 PM
MR. EICHSTADT said there is no longer a big surplus, but the
milk promotion bureaucracy has taken a life of its own. In 2002
organic milk was excluded from the tax, he said, so there is no
sense to suddenly apply the tax to Alaska, Hawaii, and Puerto
Rico. The dairy industry has noted that Alaska is not part of
the dairy surplus problem, but the lobby in Washington is behind
the tax.
1:51:03 PM
MARIO CASTILLO, Washington, D.C., said he used to be the Chief
of Staff for the House Agriculture Committee, and he quoted two
republicans who said "there is something fundamentally un-
American about forcing people to pay taxes." He said he is not
against marketing promotions, but the milk tax is designed to
hurt people like Pete Fellman.
1:52:42 PM
JLONA RICHEY, Alaska Dairy Coalition, said there is a double
taxation on milk coming in from Seattle and other places. She
said HJR 5 will help the elderly and the young who depend on the
milk.
LARRY DEVILBISS, Director, Division of Agriculture, Department
of Natural Resource, Palmer, said, "This is a really a no
brainer."
1:54:37 PM
CO-CHAIR SAMUELS said the last whereas on page 2, line 8,
doesn't seem to fit the topic, and he would like to eliminate
it.
REPRESENTATIVE LYNN said he had no problem eliminating it.
REPRESENTATIVE SEATON moved Amendment 1 as follows:
Page 2, delete lines 8-11
There being no objection, Amendment 1 carried.
REPRESENTATIVE SEATON moved to report HJR 5 as amended out of
out of committee with individual recommendations. There being
no objection, CSHJR 5(RES) was reported from the House Resources
Standing Committee.
1:56:13 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 1:56 p.m.