Various oil, gas bills at play in Juneau
As this legislative session moves toward its 90-day statutory limit at mid-month, various oil and gas related bills are being heard, with Senate Bill 125, extending bond authority for the Alaska Industrial Development and Export Authority for an Interior LNG production and natural gas distribution system, already in the House, showing strong bipartisan support.
SB 125 was sponsored by Senate President Pete Kelly, R-Fairbanks, Sen. Click Bishop, R-Fairbanks, Sen. Donny Olson, D-Golovin, and Rep. Scott Kawasaki, D-Fairbanks. It passed the Senate 19-0 in February and is in House Labor and Commerce, along with the companion House Bill 261, sponsored by Rep. Steve Thompson, R-Fairbanks, and Kawasaki.
AIDEA’s bonding authority for the Interior LNG project and distribution system expires June 30; the bills extend that expiration date by five years to June 30, 2023.
BondingSB 176 and HB 331, administration bills to bond for payment of oil and gas tax credits, would pay companies which agree to accept funds from the bonding at a discount to cover the state’s costs. SB 176 was passed out of Senate Resources in late March and is now in Senate Finance. A hearing in that committee had not yet been scheduled when this issue of Petroleum News went to press.
HB 331 had a first hearing March 30 in House Resources; a second hearing is scheduled in that committee April 6.
Industry has expressed concern over the discount rates the state is proposing but supports the idea of paying off the credits sooner rather than later.
Revenue said in the fiscal note accompanying the bill that some $800 million in tax credits awaited state repurchase at the end of calendar year 2017 and said although most cashable tax credits were repealed by the Legislature in 2017, it will take time for the remaining credits to work their way through the system. The bill allows the state to bond for as much as $1 billion to pay credits, with that amount to be determined by the number of companies that commit to the discounted purchase by the state.
Updated spill finesRep. Andy Josephson, D-Anchorage, co-chair of House Resources, told House Finance March 29 that HB 322 is fundamentally an update of spill fees and penalties and said it grew out of natural gas spills in Cook Inlet last year.
Josephson said he asked Kristin Ryan, director of the Department of Environmental Conservation’s Division of Spill Prevention and Response, if there was any authority the division needed, and was told they had what they needed for the gas spills incident, but that spill penalties legislation hadn’t changed since the 1970s and 1980s.
Josephson said SPAR has had penalties for decades but those haven’t been updated and inflation has severely undercut those penalties. The result is that SPAR doesn’t have a very big stick, he said.
Spills have continued, but the state’s ability to penalize responsible parties has diminished very significantly, Josephson said.
He characterized the bill as mostly an adjustment of fines to 2018 dollar values, but said it also sharply increases penalties for continuing spills to motivate parties to deal with them. Penalties are tied to the consumer price index, so they increase without a requirement for SPAR to come back to the Legislature on that issue, he said.
The bill gives SPAR the ability to level administrative penalties, which means the department wouldn’t have to go to court to get those penalties. It also requires trucking companies transporting crude oil to submit contingency plans they prepare for the federal government to DEC.
Asked about the derivation of the bill, Josephson said when he was told penalties could use some updating he and his staff began working on the issue with the assistance of leg legal and a state assistant attorney general. The bill moved out of House Resources in mid-February on a party-line vote.
Ryan told the committee that the legislation would add the ability to include deterrents when considering penalties, something the division can’t currently do. Existing language in statute says “but not punitive” which is removed in the bill. She said punitive is allowed in other environmental areas such as air or water violations - only for oil spill penalties is punitive not allowed.
Increase in penaltiesThe minimum civil penalty for illegal discharges of less than 18,000 gallons was established in 1976 and never raised. For an initial violation the minimum is $500 ($2,118 in 2018 equivalent) with $1,000 proposed; the maximum was set at $100,000 ($423,581 would be the equivalent) with $200,000 proposed.
The real increase in this example, as in other areas of the bill, is for each day after the violation: The original was $5,000 ($21,179 in 2018 dollars); $25,000 is proposed.
Civil penalties for crude oil spills of more than 18,000 gallons were set at a minimum for 420,000 or fewer gallons of $8 per gallon in 1989 ($15.64), with $16 proposed; the maximum, for more than 420,000 gallons, was $12.50 ($24.44 in 2018 dollars), with $25 proposed.
The bill also includes produced water as crude oil in calculating civil penalties.