Alaska Suspends Fees for Easements, Rights-of-Way, and Mining Leases

State of Alaska Governor Mike Dunleavy has issued COVID-19 Disaster Order of Suspension No 2, suspending a long list of statutory and regulatory provisions. The list of suspended statutes includes AS 38.05.850 which authorizes the state to grant easements and rights-of-way for roads, pipelines, and other facilities associated with the extraction of minerals. Under such authorizations, payment due dates are suspended and no late fees will be charged. The Order suspends each statute or regulation until 11:59 p.m. on May 11, 2020, unless otherwise noted.

Also, the Division of Mining, Land and Water has issued a finding that payments due under a land sale contract or lease “that are or will be prevented because of the COVID-19 pandemic are prevented by an act of God and may be extended” until 5:00 p.m. on July 10, 2020. The extension expressly applies to an Upland Mining Lease, a Mill Site Lease, and an Offshore Mining Lease. To qualify for the extension, an affected person must submit a written request including an explanation of how the COVID-19 pandemic has prevented or will prevent their compliance with the required land sale contract or lease payment.

AOGCC Implements Electronic Permitting Procedures in Response to Office Shutdowns Caused by COVID-19

tax creditLast month, the Alaska Oil and Gas Conservation Commission (AOGCC) announced that it would be implementing electronic permitting procedures in response to office shutdowns caused by COVID-19. The electronic process will also serve as the initial step in developing a fully electronic permitting and reporting system.

The initial system will utilize “AOGCC-designed fillable PDF and Excel forms, emails, and secure FTP sites provided by each Operator.” The Industry Guidance Bulletin 20-001, released by AOGCC, provides guidance on how to complete permit to drill and sundry applications. The Industry Guidance Bulletin 20-002 includes instructions for filling out and submitting AOGCC-designed forms for sundry and well completion reports.

As of April 1, all sundry reports and well completion reports must be submitted via digital formal. Also effective April 1, “Operators shall hold data submittals until a secure, operator-hosted FTP server is available for AOGCC access, which shall be no later than April 20, 2020.” All materials submitted electronically will be stored in accordance with AOGCC’s confidential documents protocols.

Reversing 30-Year Policy, U.S. DOJ Says Settlements Can No Longer Include Supplemental Environmental Projects (SEPs)

This post was co-authored by Beth Ginsberg & Krista McIntyre.

The U.S. Department of Justice (U.S. DOJ) recently issued a memorandum stating that settlements, including consent decrees, entered by the Environmental Protection Agency (EPA) and other federal agencies can no longer include a Supplemental Environmental Project (SEP), unless the SEP is expressly authorized by Congress. Companies and individuals accused of violating environmental laws and permits, like Clean Air Act and Clean Water Act permits, commonly agree to perform SEPs to fund projects that go beyond compliance instead of paying a higher cash penalty to the U.S. Treasury. Going forward, companies, individuals, and local governments will no longer have SEPs as a settlement option.

To support this policy reversal after more than 30 years, U.S. DOJ cites to the Miscellaneous Receipts Act, which grants only Congress the authority to decide how to appropriate federal funds. The U.S. DOJ views SEPs as federal funds, and, in U.S. DOJ’s opinion, the EPA and other federal agencies lack the authority to divert those funds to third party recipients and to select the projects that should receive the funds. The power of the purse rests squarely with Congress. “[W]ith SEPs, money otherwise destined for the Treasury finds its way to another destination, not at the insistence of Congress, where the Constitution puts that authority, but instead at the insistence of an administrative agency, or a non-federal entity, or some combination thereof.” Continue Reading

PHMSA Issues Guidance on Enforcement During COVID-19 Outbreak

Like many other regulators, on March 20, 2020 the Pipeline and Hazardous Materials Safety Administration (PHMSA) released guidance on enforcement activity during the novel coronavirus (COVID-19) outbreak. The guidance states that “PHMSA does not intend to take any enforcement action with regard to [operator qualification] and [control room management] requirements, and will consider exercising its enforcement discretion with regard to Part 199 drug testing requirements.” PHMSA is “taking into consideration the exigent circumstances” that may cause regulated operators difficulty in compliance with:

  • 49 C.F.R. §§ 192.801-.809, 193.2707-.2709, 193.2713-.2717, and 195.501-.509 (operator requirements); and
  • 49 C.F.R. §§ 192.631(d)(4) and 195.446(d)(4) and (h) (control room requirements).

PHMSA’s guidance provides that operators unable to maintain compliance with the regulations should communicate with their regulator and maintain documentation explaining:

  • what specific requirements are not being met;
  • how the noncompliance is related to COVID-19; and
  • what alternative measures are being taken to ensure safety.

Continue Reading

Update on Alaska’s Ongoing Budget, Regulatory and Tax Disputes

tax creditIn my latest State Tax Notes column, I provide an update on H.B. 331, which was passed by the State Legislature in 2018 to create a mechanism to finance the purchase of some $700 million in outstanding rebatable tax credits. I also look at continuing budget tensions in the state, efforts to reduce and simplify various regulations, and the Alaska ‘Fair Share Act’ Initiative, which if enacted would impose a sizable tax increase on some North Slope oil producers.

A lawsuit was filed in 2018 challenging the constitutionality of H.B. 331, and the Department of Revenue is waiting to proceed with the bond program until after the litigation is completed. In January 2019, a judge of the Juneau Superior Court dismissed the complaint, the plaintiff filed an appeal to the Alaska Supreme Court, and oral arguments were held before the court in September. The court has not issued its decision, but once it does, it will likely be several months for the DOR to start the bond program and a few more before it begins purchasing tax credits.

Alaska’s budget tensions have also continued, with higher oil production costs, the threat of production declines and reduced prices continuing to affect state revenues, already highly dependent on the oil and gas industry. The DOR noted that unrestricted general fund revenue was $2.6 billion in fiscal year 2019 and is projected to be $2.1 billion in fiscal 2020 and $2 billion in fiscal 2021.

My next column will include an update on legislative and agency activity surrounding Alaska’s fiscal regime and any tax measures, and a status report on the Alaska Supreme Court appeal concerning H.B. 331. Depending on the status of the Fair Share Act initiative, I may also include a more in-depth discussion about the initiative process in Alaska and the proposal itself.

Read the article here.

Originally published as “Alaska: Preparing for a Tumultuous Year” on January 20, 2020, by State Tax Notes.

EPA Proposes Changes to the Multisector General Permit That Will Affect Oil and Gas Extraction Permittees

The Environmental Protection Agency (EPA) has proposed a draft Multisector General Permit (MSGP) under the National Pollutant Discharge Elimination System (NPDES) program for stormwater discharges related to industrial activity. In Alaska, EPA has jurisdiction over NPDES permitting on federal property within Denali National Park, in federal waters (three miles or more offshore), and on certain Indian Country lands. In California, EPA has jurisdiction over NPDES permitting under the MSGP on Indian Country lands.

EPA’s draft MSGP proposes several notable changes for oil and gas extraction permittees, referred to as “Sector I” permittees in the MSGP. The most notable is that oil and gas extraction permittees must now sample their discharges for pH, total suspended solids (TSS), chemical oxygen demand (COD), ammonia, nickel, total recoverable lead, nitrate-nitrogen, total recoverable zinc, and hardness. The samples must then be compared to benchmark values. For facilities that exceed a benchmark value, the permittee will be required to follow a set of “additional implementation measures,” which are progressive improvements that include, potentially, stormwater treatment. While benchmark exceedances are not permit violations, failing to follow an additional implementation measure would be a permit violation subject to EPA enforcement and citizen suits. Adding benchmark sampling to the MSGP substantially increases the regulatory burden and cost for oil and gas extraction permittees and creates new risk for permit violations. The draft MSGP also proposes other changes, including posting a sign regarding permit coverage, allowing composite sampling, and addressing major storm events and extreme flooding. Comments on the draft MSGP are due to EPA by May 1, 2020.

Coming Attractions: Section 45Q Carbon Sequestration Guidance, Part II

The IRS’s much anticipated new guidance (here and here) for Section 45Q carbon sequestration tax credits was rather anticlimactic in that it focused on just two of the many issues for which the IRS had solicited comments in May 2019.  Largely patterned after existing IRS guidance for renewable energy tax credits, the new guidance addressed (1) Section 45Q’s requirement that facility construction commence before January 1, 2024, and (2) tax credit allocation within partnerships.

While the new guidance is certainly useful, it unfortunately did not address some of the larger issues, such as whether the IRS would change its approach to Section 45Q’s “secure geological storage” requirement.  For example, carbon sequestration under a Class VI underground injection control (UIC) permit is currently eligible for Section 45Q tax credits, and 50 years is the default post-injection time horizon for the UIC Class VI program.  However, a minimum 100-year time horizon is now required under the carbon sequestration protocol for California’s low carbon fuel standard program.

Another key outstanding issue concerns recapture of Section 45Q tax credits should some leakage occur over time.  For example, how should leakage be measured and at what point would recapture be triggered?  Answers to these sort of questions are critical for project developers and investors.  The IRS’s press release indicates that guidance on at least some of the other issues, including geologic storage security and recapture, is in the works.

Alaska Oil and Gas Conservation Commission Proposes Repeal of Certain Alaska Administrative Code Regulations

The Alaska Oil and Gas Conservation Commission (AOGCC) has proposed a repeal of regulation changes in 20 AAC 25. of the Alaska Administrative Code. Specific regulations proposed for repeal are as follows: 20 AAC 25.037 well control requirements for other drilling and completion operations; 20 AAC 25.047 reserve pits and tankage; 20 AAC 25.225 potential of gas wells; 20 AAC 25.245 common production facilities; 20 AAC 25.260 illegal production; 20 AAC 25.528 open pit storage of oil; and 20 AAC 25.320 filing of forms.

AAOGC intends for the repeal to eliminate outdated or duplicative regulations.

Public comments regarding the proposed regulation changes must be submitted by 4:30 pm on December 10, 2019. Written comments may be submitted to the following address:

Jody Colombie
333 West 7th Avenue
Anchorage, Alaska  99501

Comments may also be submitted by fax (to (907) 276-7542) or email (to aogcc.customer.svc@alaska.gov).

Written comments may also be submitted at a hearing on December 10, 2019, at the above address, which will be held from 10:00 a.m. – 2:00 p.m.

Additional details regarding comment submission, along with directions for requesting a copy of the proposed regulation changes, may be viewed here.

Upon closure of the public comment period, AOGCC may either adopt the repeal or other provisions relating to the same subject, without further notice, or they may decide to take no action.

Federal Mine Safety and Health Review Commission Withdraws Simplified Procedures

The Federal Mine Safety and Health Review Commission (“Commission”) announced that it intends to withdraw its simplified proceedings rule effective November 25, 2019. The Commission’s Federal Register announcement is found here.

The simplified proceedings were originally published in a final rule by the Commission on December 28, 2010. The Commission’s intention was to streamline its increasing caseload by making the administrative process more efficient for the simplest cases, sharply limiting discovery and implementing compressed timeframes for proceedings. The Commission also expected that the simplified proceedings would better support settlement efforts by the Mine Safety and Health Administration and mine operators.

The Commission has since determined that simplified proceedings settle at approximately the same rate as those governed by conventional procedures. In addition, the Commission had given simplified proceedings priority over more complex cases, which resulted in disproportionate Commission attention to the simplest cases.

Given the Commission’s return to conventional procedures, we urge mine operators to exercise discretion in how they choose to handle their cases. While they often can continue to represent themselves before the Commission, they may be more comfortable consulting with experienced counsel before proceeding too deeply into formal litigation.

If you have any questions about the content of this post or about Commission proceedings generally, please reach out to Stoel Rives attorney Willa B. Perlmutter.

Update on Alaska’s Efforts to Finance Oil and Gas Tax Credit Purchases

tax creditIn my most recent column for State Tax Notes, I provide an update on H.B. 331, which was passed by the State Legislature in 2018 to create a mechanism for the issuance of up to $1 billion in bonds to finance oil and gas tax credit purchases. I also look at budget tensions created by the impasse over H.B. 331 as well as a push by some state legislators for additional changes to the structure of the production tax.

A lawsuit was filed challenging in two respects the constitutionality of H.B. 331 – that it might violate the requirement to not dedicate future revenue for a specific purpose or violate limitations on contracting for state debt. In January 2019, a judge of the Juneau Superior Court dismissed the complaint based on a failure to state a claim on which relief can be granted. The plaintiff filed an appeal to the Alaska Supreme Court, and oral arguments before the court were scheduled for September, with the court promising to “decide the case expeditiously.”

With state budget tensions running high, the legislature made no appropriation to the oil and gas tax credit fund this year for the purchase of tax credits, but added a placeholder appropriation of an estimated $700 million for the H.B. 331 bond program to the operating budget, which was signed by the governor.

My next column will include an update on the constitutional challenge to H.B. 331 as well as further discussion about Alaska’s revenue outlook and legislative activity.

Read the article here.

Originally published as “Alaska Taxpayers Feel the Heat” on August 19, 2019, by State Tax Notes.

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