Governor's Program Bill 1981 Memorandum

This is an OCR'd version of this document, ( http://www.westfirmlaw.com/flare/GovernorsProgramBill1981Memorandum.pdf ) which was introduced in a "motion to renew", or to get the lower court to reconsider the decision. A notice of appeal has also been filed. There may be errors introduced by the OCR process. Please verify against the original.

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GOVERNOR'S PROGRAM BILL
1981
MEMORANDUM

RE: AN ACT to amend the state finance law, in relation to the creation of a natural resources fund; to amend the environmental conservation law, in relation to fee to be paid for producing oil and gas, solution mining, and storing gas in underground reservoirs, and making an appropriation to the department of environmental conservation for carrying out certain provisions of the act


Purpose of the Bill:

To establish an efficient and effective Oil, Gas and Solution Mining-Regulatory Program in the Department of Environmental Conservation and to create a Natural Resources Fund.

Summary of Provisions;

(a) Natural Resources Fund

The Natural Resources Fund is established by bill section two in the custody of the State.Comptroller to receive revenues resulting from the fees authorized by this bill and will rise to a level of two million dollars after reimbursement of first instance funding.

The monies of the fund shall be utilized to pay for the administration and enforcement of the Oil, Gas and Solution Mining Law; to pay up to a maximum of $200,000 annually for the proper plugging of leaking oil and gas wells abandoned prior to October 1, 1963, that pose public safety or environ¬mental hazards; and to pay for plugging hazardous wells that were improperly plugged and abandoned since October, 1963. Expenses and penalties recovered from violators would be deposited in the fund. Monies may be withdrawn from the two . million dollar reserve upon the certification of the Commissioner of Environmental Conservation and the approval of the Division of the Budget, to mitigate unforeseen circumstances related to public safety or environmental conditions arising from oil, gas or solution mining activities.

(b) Oil, Gas and Solution Mining Regulation and Reclamation Fee

An Oil, Gas and Solution Mining Regulation and Reclamation Fee is imposed by bill section three by adding a new Title 19 to Article 23. The fee would be assessed against owners of oil and gas wells at a rate of no greater than two percent of the market value at the well of the oil or gas produced in New York State. The owners of inactive oil and gas wells, solution (salt) mining wells and underground gas storage facilities would be charged varying fees depending upon the degree of regulatory control required by the Department of Environmental Conservation. Federal, state and local agencies that own oil or gas wells and residential . gas well owners are exempt from the fees imposed; however, the exemption for local agencies from paying fees extends only to oil or gas utilized for their own fuel purposes and upon sale or exchange of the fuels, the local agency would be subject to the fee.
The two percent maximum fee will be reviewed annually by the Department and modified with the approval of the Division of the Budget to maintain the two million dollar reserve in the Natural Resources Fund. The Department will review the schedule of all fees every three years and report its findings and recommendations to the Legislature.

The requirement of posting of performance bonds for plugging and abandonment of wells would be suspended except for gas wells drilled in Lake Erie. However, the bond requirement could be reimposed after hearing upon a finding by the Commissioner that a well owner was in violation of the requirements of the statute or regulations promulgated thereunder.

Reporting requirements are imposed on all well owners and first purchasers and a schedule for payment of the fees is established- A hearing procedure is set forth for deter¬mining the amount of the fee owed when disputed.

Local laws relating to regulation of the oil, gas and solution mining industries are superseded by Article 23 of the Environmental Conservation Law, as are local laws imposing fees similar to that created herein. However, local taxing authority remains unaffected.

Further, the Department is authorized to issue a finding, after notice and public hearing, allowing a state or local agency to drill a well to produce natural gas for its exclusive use under.an exemption from the minimum statewide spacing requirements of forty acres. The Department will be required to determine that no other entity will develop a resource within twelve months of the public hearing and that the state or local agency has made a finding that such drilling is likely to be economically sound before granting such a permit to the agency.

(c) First Instance Funding

A first instance appropriation of $650,000 is provided to fund the regulatory program for the remainder of fiscal year 1981-82.

Existing Law:

Present funding for the oil, gas and solution mining regulatory program comes from State Purposes funds. Minor fees for drilling permits are collected by the Department. Performance bonds securing plugging responsibilities are required from all drillers.

Statement in Support:

The increasing cost of foreign oil and imported fuel supplies has resulted in a renewed interest in the development of domestic energy resources and the.consequent ability to. economically develop oil and gas resources present in New York State.

The revitalization of oil and gas development in New York State has resulted in an unmanageable workload for the Department of Environmental Conservation in performing its responsibilities to provide for the efficient, equitable development of the State's oil and gas resources in an environmentally safe manner. Without sufficient staff to perform its mandated responsibilities, new energy sources will not be developed and the environment will be jeopardized.

Increased drilling activity in recent months has resulted in an increase in drilling accidents exposing the public to severe danger. The need for personnel to monitor drilling activities cannot be met without additional funds. It is only equitable that the burden for providing these funds rests with those who benefit directly from the development of these fuel resources.

Approximately 26 of the 32 states which produce oil or gas impose a fee or tax on the value of oil and gas produced. The monies are utilized for the administration of the oil and gas regulatory program as well as for other purposes. In 1978, the average percentage for the states imposing a tax was 3.34 percent.

The two percent maximum fee encompassed by this proposal is a reasonable price to pay for a regulatory program that will insure the efficient and equitable development of needed energy resources while at the same time minimize potential environmental damage. As noted, the fee will be revised accordingly to maintain the two million dollar reserve, limited, however, to the maximum of two percent.
Under the federal Natural Gas Policy Act of 1978, the fee on gas production imposed herein may become part of the legal price for gas that enters the pipelines and is distributed to all consumers in our region until such time as deregulation occurs in 1985 and 1987. Under the federal Crude Oil Windfall Profits Tax Act of 1980, approximately 30 percent of the fee may be assumed by the federal government because of the allowable deductions anticipated for this 'fee.

The provision for supersedure by the Oil, Gas and Solution Mining Law of local laws and ordinances clarifies the legislative intent behind the enactment of the oil and gas law in 1963: The comprehensive scheme envisioned by this law and the technical expertise required to administer and enforce it, necessitates that this authority be reserved to the State. Local government's diverse attempts to regulate the oil, gas and solution mining activities serve to hamper those who seek to develop these resources and threaten the efficient development of these resources, with Statewide repercussions. With adequate staffing and funding, the State's oil, gas and solution mining regulatory program will be able to address the concerns of local governments and assure the efficient and safe development of these energy resources.

Budget Implications:

The oil, gas and solution mining regulatory program in the Department of Environmental Conservation will be funded by this proposal. In addition, those wells that are unplugged and abandoned and pose a significant public safety hazard or an unacceptable environmental situation, will be plugged. When the two million dollar reserve is reached after deduction of program expenses, the amount of the fee will be reduced accordingly. Thereafter, the fee will be revised to maintain the two million dollar reserve although not to exceed the two percent maximum. Additionally, in the succeeding years, the present regulatory staff can be transferred to' the first instance account, thereby saving the State Purposes budget some $150,000 annually.