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Joint | May 28, 2014 | Committee Room | Finance Energy

Full MP3 Audio File

…take your seats and visitors retire to the gallery. Good morning. The core being present the house committee on finance is now in session. Where’s my list of sergeants at arms? NEW SPEAKER: ?? Sergeant at arms list. NEW SPEAKER: Yeah, we have sergeants at arms today. All right, the committee will come to order. We have no pages to introduce. Can I have a motion on the amendments…I mean the… Thank you, Representative Moore. Representative Moore moves, seconded by Representative Alexander, to approve the minutes of the last meeting. All in favor say aye. NEW SPEAKER: Aye. NEW SPEAKER: Opposed. All right, we have one bill today, the Energy Modernization Act, Senate Bill 786. We’ll not be taking up amendments today—we’re not going to have time—they’ll be run on the floor. We are going to be debating the finance areas only: that will be Section 11, Part 6, which is Sections 19 and 20 and also Section 30. If there is time, I am going to accept some public comment, but we will vote the bill at ten minutes to the hour. Questions? NEW SPEAKER: Mr. Chairman NEW SPEAKER: Yes. NEW SPEAKER: Mr. Chairman? Off to your right. NEW SPEAKER: Thank you. Representative Martin? MARTIN: Thank you, Mr. Chair. Inquiry of the chair if I could. And this is my fault—I was trying to engage Representative Moffitt in conversation. Did the chair state that we would not be accepting amendments today? NEW SPEAKER: That is correct, sir, we will run them on the floor later. NEW SPEAKER: And a follow-up question, Mr. Chair. NEW SPEAKER: Yes, sir, the gentleman is recognized. NEW SPEAKER: Is it accurate to say that this is the only stop in a House Committee for this bill? NEW SPEAKER: That is not accurate. It was in the Public Utilities Committee last night where there was considerable and vigorous debate, but primarily on issues other than the finance issues. NEW SPEAKER: Thank you, Mr. Chair. NEW SPEAKER: And also I would expect the Speaker will allow a lot of debate later today. NEW SPEAKER: Thank you, Mr. Chair. NEW SPEAKER: You’re welcome, sir. Further questions? Senator, would you like to present the bill? NEW SPEAKER: Thank you. NEW SPEAKER: I apologize. NEW SPEAKER: Thank you, Mr. Chairman. Members of the Committee, thank you for allowing me to come today to present to you a limited amount of finance-oriented Senate Bill 786, the modern… Energy Modernization Act. Some of you have heard my speeches before—Representative Collins forgive me for being a broken record—but when you’re dealing with a subject like this it doesn’t hurt to repeat things. North Carolina has been at this process, despite what some folks in the media would like us to believe, for quite a while. Depending on how you want to count it, at least four years. Some of you may recall Governor Perdue making a trip to Pennsylvania and coming back with the conclusion that North Carolina could do this safely, and it was worth exploring and investigating to see if we could. And in 2011 we had a significant piece of legislation which began the process by creating the Mining and Energy Commission and directing them to take about a two-year process to come up with rules for a modern energy regulatory system. Really a state-of-the-art, where we get to take the things that have been learned in all of the many other states that have been doing this for years and make them work for North Carolina. So after this long and deliberate and steady progress we have found ourselves here today where the Mining and Energy Commission has already promulgated a hundred and twenty rules for a modern regulatory system and this bill, after a lot of work with Representative Hager, Representative Stone, Representative Boles and a number of others—it’s been great working with these folks, a lot of cooperation, a lot of give and take—and we’ve come forward today with a very comprehensive and responsible piece of legislation. North Carolina needs the jobs, and America needs the energy. And I would much rather buy the energy from my friends down in Lee County than from some other country. I’d rather make—

... millionaires down there then billionaires in Saudi Arabia. And I hope people would appreciate that. But dealing with the finance part, I'm gonna let staff explain it in just a moment but we've come up with a very comprehensive and very attractive and competitive severance package, and we've come up with good fees as it relates to well pads and costs of well pads, and I stand ready to answer of your questions. Thank you. If I could have staff... Our staff today, Heather Fernell, Jennifer McGuinness, and Greg Rhoney, Heather, are you going to explain this? OK, thank you, Ms. Fernell is recognized. [SPEAKER CHANGES] I'm going to go over just the portions of the bill that relate to the finance committee, and we're going to start on page thirteen of the bill. Section 11 is a fee; and this is reducing the fee for an application to drill. The fee was $3,000 for each well drilled. What this does is set the fee at $3,000 for the first well on a pad, and charge the fee of $1,500 for each additional well on the same pad. The next sections are the severance tax sections - and this is sections 17 through 19 of the bill, and it starts on page twenty. There are currently severance tax statutes on the books, however they were adopted in 1945, and they're not really in effect - we're not currently collecting any revenues under those statutes, so these sections repeal those statutes and come up with a new way of imposing a severance tax on the severance of energy minerals. It's probably easiest for you to follow along if you turn to page six of the summary. There's a rate chart that shows you the rate that will be imposed on the severance of energy minerals. If you look at the chart, you'll see for oil and condensates, the rate starts in 2015 at 2% and goes up to 5% in 2023, or excuse me, 2021 and thereafter. For marginal gas the rate starts at 0.4% in 2015. Marginal gas is gas that's produced by a well that is incapable of producing more than 100 MCF per day. MCF is the measure of the gas, and the Mining and Energy Commission or its successor will make that determination whether the gas is incapable of producing that much, so this is a well that is producing very little gas. So these wells will have a lower rate than the other wells, as you can see it starts at 0.4% and goes up to 0.8% for 2021 and thereafter. So for all other gas wells, starting in 2015, the rate is 0.9%, and then as you see, starting in 2019, there becomes a graduated rate for the severance of gas. This is similar to the graduated income tax. So for the deliver-to-market price paid per MCF of gas, for the first $0 to $3 in 2019 is 0.9%, the next $3 to $4 is 1.9%, and then anything $4 and over paid for the gas is 2.9% of the rate. As you can see, the stairsteps go up to 2023 and thereafter to a high rate of 9%, for 2023 and thereafter. So the tax base, what these rates are applied to, differs on the type of mineral. For oil and condensate the tax base is the gross price paid, and this is the actual price paid by the consumer; for gas the tax base is actually the deliver-to-market price. And the reason for this is that when gas comes out of the wellhead there are a lot of processes that need to happen before it can be actually delivered to market, ready for consumption, and put in the pipeline. Almost all states allow a deduction for these costs to deliver it to market; this is really not an incentive or deduction, this is really a tax fairness issue. We're trying to make sure that we're taxing the same concept or the same unit - either the wellhead price or the deliver-to-market price, so that is the base. For gas, this is going to be administered similar to the sales tax, returns will either be monthly or quarterly depending on the liability of the producer. For those producers with much higher liability, they will be required to file more often, and will probably be required to file monthly. A bond or letter of credit is required if a producer fails to file a return or pay a tax, and also any producer that fails to file a return or pay the tax - their permit will be suspended under Chapter 113. The bill also provides that there will be no additional local taxes, so no privilege taxes or any other impact fees or local taxes on energy development. And finally, for property tax, there is a property tax exemption for the presence of energy minerals, will be exempt from tax where there is not a Permit to Drill been issued. So if you decide not to drill on your land, the value of the energy minerals on that land will not be taxed for property tax purposes. I'm going to now turn to the last page of the bill, and this is Section 30, and what this does is this is a change to the motor fuels tax. The motor fuels tax is variable, it's currently 37.5 cents, that's on gas and diesel; for alternative fuels the Department of Revenue, through the Secretary, can either set an alternative rate or alternative unit of measure...

And this creates the alternative unit of measure for both liquefied natural gas and compressed natural gas. For compressed natural gas, the alternative measure will be the gas gallon equivalent of 5.66 pounds and for liquefied natural gas, it will be the diesel gallon equivalent of 6.06 pounds. And so chairman that is all the tax and pay provisions of the bill. [SPEAKER CHANGES] Thank you Ms. Fennell. Are there questions for the bill sponsor or for staff? Alright, Representative Luebke? [SPEAKER CHANGES] Mr. Chairman...I guess, well this is a question for staff: What kind of fiscal note do we have on this in terms of how much revenue would come in, we expect to bring in, well for any of the four categories, the four columns? [SPEAKER CHANGES] Ms. Fennell? [SPEAKER CHANGES] There is a fiscal note on the bill, and Patrick McHugh, one of our fiscal analysts is here and he can go through the fiscal note as required. [SPEAKER CHANGES] Mr. McHugh, are you present? [SPEAKER CHANGES] Mr. Chairman, do we have that to look at? [SPEAKER CHANGES] The fiscal note is in your packet; it's towards the end. It should be on every members' desk. [SPEAKER CHANGES] It's part of this? [SPEAKER CHANGES] It's part of the packet given to the entire committee. The bill is on front, then the summary, and then the fiscal note in the back. [SPEAKER CHANGES] Members, the fiscal note, Legislative Incarceration Fiscal Note, is that the way it's labeled? [SPEAKER CHANGES] That's the very rear. There's one before that, the Fiscal Memorandum. [SPEAKER CHANGES] Representative Starr, are you complete? Representative Luebke, if you'd like, I'll come back to you after you've had the chance to review. If you'd go ahead and explain the fiscal note, sir. [SPEAKER CHANGES] Yes, Patrick McHugh, fiscal research. Due to uncertainty about precisely when exploration or extraction would actually take place, it's not possible right now to estimate the timing of or level of any fiscal impacts generated through these seven taxes. [SPEAKER CHANGES] Representative Luebke, a follow up? [SPEAKER CHANGES] Just reading the fiscal impact, we're bringing in just a hundred and nine thousand dollars in 2004 to '14-'15 and just a hundred and fourteen thousand in 2018-'19? Is that correct? [SPEAKER CHANGES] Representative Luebke, that's actually a possible expenditure. That is for the attorney position in one of the bills I didn't go over. Section 29 of the bill allows the energy policy council to use a ?? attorney if they would like instead of an A.G. attorney. It doesn't create a new position, so it's not sure that this money would be expended; however, if they did hire a position, that is the amount of money that would be expended to hire an additional attorney. [SPEAKER CHANGES] So if I understand what you're saying is, this is the worst case cost for administering the severance tax and we don't know what the revenue is. [SPEAKER CHANGES] This is actually for just the attorney position. [SPEAKER CHANGES] Just for the attorney. [SPEAKER CHANGES] It actually doesn't have any administrative cost for the severance taxes. [SPEAKER CHANGES] Rawley, you and I are on the same page, which is how much revenue...I'm trying to be on a page, that shows how much revenue is estimated by our fiscal staff to be brought in per fiscal year based on this severance tax? How much money are we talking about in terms of bringing in revenue? How much revenue is coming in? And if I can be shown what page that's on and also how much it is. [SPEAKER CHANGES] Staff, want to comment? [SPEAKER CHANGES] Yes, sir, I'm still getting the page number up right now, but I'll just expand slightly more. Given the relatively unproven nature of the reserves in terms of how much is down there, what economic level, essentially what price point would make the reserves that may exist, economically recoverable in North Carolina. And uncertainty surrounding the price of natural gas on the national market, it is unclear when any exploration would actually occur.

What level of productivity would be resulting from that exploration and as such it’s hard to say what fiscal revenues would be realized if that would happen and the timing that would be attended to that so it’s not possible at this point, given those numbers of uncertainties, to say whether any substantial exploration would happen in the next several years and if it were to occur what level of product and therefore what level of severance tax revenue would be generated as a result of that. [SPEAKER CHANGE] Okay, so in fact we have no idea how much revenue is going to come in from this I think is what I’m hearing. If I may follow up Mr. Chairman I would like to know two things. First of all, why does the tax start so low at 2% and rise to 5% as opposed to being a fixed rate? [SPEAKER CHANGE] The short answer Representative Luebke is that we want to encourage operators to come here and explore and drill and begin extracting the natural gas. [SPEAKER CHANGE] Thank you Senator. Follow up? [SPEAKER CHANGE] Yes, to follow up this would probably be for staff or maybe for you Senator but probably for staff. Where does North Carolina rank with this proposed tax? Are we on the high side, are we medium, are we low? Or can you give us a number among the states that have the severance tax as to where we are? [SPEAKER CHANGE] Ms. Fennell. [SPEAKER CHANGE] This tax is on the lower side. I will note that when this bill was introduced last year in the senate, when the severance tax was originally discussed in the senate, we had a higher default rate in the bill. There was a lower incentive rate in the bill. Other states such as Texas and Arkansas have offered lower incentive rates at the beginning of the energy exploration. When we looked at the bill we realized every well that was drilled in North Carolina would qualify for the incentive rate so we removed the higher default rate so this just has the lower incentive rate and the incentive rate is similar to the incentive rate offered to the incentive rate offered in other states but it is lower than the default or average of the other states. [SPEAKER CHANGE] Could I ask a clarifying question? It seems to me what you’ve said is if we set a higher rate but then had an incentive rate for the type of well that would be drilled in North Carolina that we would end up in same place that in other states which have more accessible natural gas they charge a higher rate on the easier to drill wells but on the type of wells that would be drilled in North Carolina their rate how does their incentive rate for difficult natural gas recovery compare to our rate in North Carolina? [SPEAKER CHANGE] This rate is similar to the incentive rate in Arkansas and Texas. I’m not sure of every state with incentive rates but this is largely based on the rates in Arkansas so it’s very similar to the incentive rates in Arkansas for the high cost wells or the deeper wells that were more difficult to access. [SPEAKER CHANGE] Follow up? [SPEAKER CHANGE] Well just one more in this area. Senator why is our tax on the lower side? Why wouldn’t it be with all of the questions that are about this legislation, about this policy, why wouldn’t we want to have a tax that brings us on the higher side? Bringing us in more revenue to deal potentially with problems involving this issue. I’d like to see why not on the higher side. [SPEAKER CHANGE] Senator Newton. [SPEAKER CHANGE] Thank you Mr. Chairman and thank you Representative Luebke. As you know Representative Luebke North Carolina has not been in the energy business and has not been known in the nation as an energy producing state and so a lot of the companies that we want to come here to operate to explore and develop these energy resources candidly have not had North Carolina until recently on their list of possible states to operate in. What we wanted to do, as you know higher taxes tend to drive away business and tend to drive away investment and tend to drive away jobs, and what we want to do is create jobs and we want to create investment and so we thought it was prudent to come in at a more competitive tax rate to make sure that the operators knew that we want them to come in to North Carolina and we ant them to develop these resources. It has nothing to do with..

With tax rates have nothing to do with the perceived fears that some people have about this process that’s been going on for decades, it has everything to do with creating jobs. [SPEAKER CHANGE] Thank you. Before I recognize Representative Starnes, we now have two pages. We have Ian Bruner from Orange County, his sponsor is Representative Meyer and we have Lauren Lee from Mecklenburg and she has the misfortunate of being sponsored by me. Representative Starnes. [SPEAKER CHANGE] Thank you and I guess I’ll ask this to staff but I’m going to turn to page six of the bill summary where it has the chart on the tax rate. My first question it looks like you have three categories of oil and gas: one is oil and condensates, marginal gas, and gas. Now, what will be produced from the wells that we’re anticipating in North Carolina? Which one of these categories will that be? [SPEAKER CHANGE] Senator Newton? [SPEAKER CHANGE] Thank you Representative Starnes. Candidly because there has been no real exploration, nobody is sure exactly what kind of gas would come up. There are good indicators that there are condensates and that is a much more valuable commodity than regular gas or what’s called dry gas in the industry and marginal gas as Ms. Fennel explained earlier are just wells that don’t produce that much to begin with. So we really don’t know and that’s why we needed the different rate structure for the different forms of gas. I hope that answers your question, certainly Ms. Fennel may be able to add to that. [SPEAKER CHANGE] Follow up. [SPEAKER CHANGE] Yes, please. On the last category where it just says gas and you’ve got the different rates and it says based on delivery to market price and then going back in the writing underneath under tax base it says delivery to market value is the actual gross price paid minus the cost incurred by the producer to get the gas through the mouth of the well. I don’t understand the taxing formula, I’m not questioning it, I’m just trying to understand it. A producer spends X number of dollars to produce the gas but he gets to subtract his cost and then it’s taxed on the gas minus his cost, is that the way that operates? I’d like to hear from staff on that. [SPEAKER CHANGE] Ms. Fennel. [SPEAKER CHANGE] Yes Representative Starnes, it is not all of the cost of the producer. It is actually the cost from the wellhead to the pipeline so this is not the cost of drilling and all of those costs. This is basically when you pull it out of the wellhead you can either sell it at the wellhead price or sell it when you deliver it to market so between getting it at the wellhead and delivering it to the market, there are several costs and they’re outlined in the bill like sweetening the gas, compressing the gas, and preparing the gas for market and those are the costs that are deducted. Most states that have a value priced rate like this instead of charging per volume allow the deduction of marketing cost, if not all marketing cost at least some marketing cost, and it’s really not seen as an incentive, it’s more of a tax fairness issue. You want to make sure that you’re actually imposing the tax on the same thing. If you’re charging it at the wellhead or at the actual pipeline, you want to make sure that you’re trying to tax the same price instead of taxing gross price. [SPEAKER CHANGE] One last question then. [SPEAKER CHANGE] Follow up. [SPEAKER CHANGE] So if I understand this chart correctly on that part, that’s not necessarily based on the introductory price, that’s just basically a tax that would be consistent with what other states are doing? Or is that an introductory price as well? [SPEAKER CHANGE] Ms. Fennel. [SPEAKER CHANGE] The base is not introductory. The base will always be the deliver to market base what the rate is charged on and that is consistent with all states who have a value tax. There are states that tax the value so it’s like a percentage so it’s like a rate like this. There are a few states that have a price for MCF so they’ll charge you X amount of dollars per MCF and they don’t generally have the same mechanism because they don’t need to because it’s a price per volume, but this tax base is in line with most states regarding the value tax. [SPEAKER CHANGE] Follow up? Okay, Representative Hamilton.

Thank you, Mr. Chairman. I mean, it sounds to me the tax offering here is intended to incentivize the industry so I'm wondering if we're using a favorable tax structure to incentivize the industry if new industries coming in to North Carolina will be eligible for the same kind of favorable tax structure? [SPEAKER CHANGES] I'll take a stab at it. I'm not sure that this bill actually encompasses that, Representative Hamilton. [SPEAKER CHANGES] Well, I mean, with this bill comes reduced taxation on these industries, correct? [SPEAKER CHANGES] Representative Hamilton, we'll certainly welcome your support in reducing the tax burden for businesses in North Carolina but I think maybe you're a little outside the scope of the bill. [SPEAKER CHANGES] Weren't we just discussing reduced taxes on the industry? [SPEAKER CHANGES] Correct but, I'm sorry, I'm interpreting your question to say what, I feel, would you restate your question then 'cause I- [SPEAKER CHANGES] Are we offering a more favorable tax rate to this industry in North Carolina than we are currently offering to other industries in the state of North Carolina? ?? [SPEAKER CHANGES] Okay, yeah, okay Senator. [SPEAKER CHANGES] Representative Hamilton I think understand your question. Actually this bill raises the taxes above what the current tax structure is for oil and gas extraction significantly but what we've done is we've created a tax rate in these variables that is a competitive tax rate with other states, when you compare to other states. So it's an offer to attract industry, to make them interested in coming here to create the jobs but, quite honestly, this piece of legislation technically raises the taxes on oil and gas over what current law is. [SPEAKER CHANGES] Okay, but reducing it, go ahead. [SPEAKER CHANGES] No, come on, yeah. [SPEAKER CHANGES] Alright, I think I've got the answer to the question. I guess what I'm trying to get to is you've got a tax structure in which they will be given a reduction if they choose to do business in North Carolina under the current- [SPEAKER CHANGES] No, no, actually, actually if we didn't pass this piece of legislation the tax rate would be much higher than what we're proposing in this legislation. Excuse me, would be much lower, I misstated. It would be much lower under current law than what's in this bill. So actually this bill is a tax increase. However, however it's setting the rate at a competitive rate compared to what other states tax. Not the lowest, but in the lower tier. [SPEAKER CHANGES] Representative Robert Brawley. [SPEAKER CHANGES] If I might add to the confusion of this discussion. What is the current market value per MCF? [SPEAKER CHANGES] If I may. [SPEAKER CHANGES] Senator. [SPEAKER CHANGES] I believe it's, it fluctuates but it's about $4.50 an MCF. [SPEAKER CHANGES] Okay, so the current market value is $4.50 so that means anyone, the way I'm reading this bill, anyone producing gas in North Carolina will be paying 1.9%, not starting off at 0.9, but they will be paying whatever that going rate is. In effect it's a graduated rate, just like our gas tax at the pump. [SPEAKER CHANGES] That's correct. [SPEAKER CHANGES] Ms. Finnell? [SPEAKER CHANGES] For the first three years it is a, it is a flat set tax. So for the first three years it's .9% regardless of the price paid. You are correct starting in 2019. So if an individual pays $4.00 per MCF in 2019 they would pay 2.9% in 2021 they would pay 2.9%. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Okay, what's the earliest we expect anyone to actually start producing? [SPEAKER CHANGES] Senator Newton. [SPEAKER CHANGES] We're hoping for the latter part of 2015. [SPEAKER CHANGES] Follow-up. Representative Carney. [SPEAKER CHANGES] Thank you, Mr. Chairman. I have a question on section 11 where the reducing the fee. Could you explain why we are reducing the, for each PAV[?], from 3,000 reducing the next one's going down at 1500? [SPEAKER CHANGES] Senator. [SPEAKER CHANGES] Thank you, Mr. Chairman, thank you Representative Carney. After further examination we couldn't really find where there was any additional

Most of the work goes into the first well of a pad, so we couldn’t really find a reason to justify continuing the higher rate, and we thought it would be a better incentive to charge the three thousand on the first well and then only fifteen hundred on any remaining wells. That would also be an incentive to put more wells per pad so there’s less disruption of the surface. [SPEAKER CHANGES] Can I follow-up? [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Could you just… since a lot of this Heather said we’ve based on Arkansas and Texas, could you please tell me what those two states are charging? [SPEAKER CHANGES] Miss?? [SPEAKER CHANGES] I actually don’t know the well ??. [SPEAKER CHANGES] Representative Carney, if it’s allowed… [SPEAKER CHANGES] Miss ??. [SPEAKER CHANGES] It’s been several years since I looked at the fees among the states, but as I recall, three thousand was on the high end. There may have been one or two states that approached that amount, but the basic premise is that it’s rather an apples to oranges kind of situation among the states. Some charge higher fees initially for the permit to drill, some charge other fees for a permit application, so it’s all over the place, but on a straight comparison for the initial drilling fee, North Carolina was on the high-ish end. [SPEAKER CHANGES] Follow-up? [SPEAKER CHANGES] Just a comment. If we’re potentially headed into this new venture for North Carolina, that the verdict is still out on whether it is a good thing for North Carolina or a potentially harmful thing for North Carolina moving forward, so if we’re looking at incentivizing this industry to come here, I’m not so sure with what potential damage there could be for us going forward that we shouldn’t be thinking about capturing at any moment we can. If this industry really wants to be in this state, then you’ll pay to play here. [SPEAKER CHANGES] Further discussion, further debate? [SPEAKER CHANGES] Mister President ?? [SPEAKER CHANGES] Yes. Representative Martin. [SPEAKER CHANGES] Thank you very much, Mr. Chair. I’m wondering – and the bill sponsor’s probably uniquely suited to address this question because it relates to prosecutions. I am still trying to get my head around some of the changes that have been made to the criminal provisions of this bill since it started off. As I understand it, Senator Newton, it’s now the punishment for someone who discloses the chemicals - [SPEAKER CHANGES] Representative Martin, that received a full debate in Public Utilities last night, but to summarize it, it essentially copies proprietary information protections and several other provisions of North Carolina statutes. It is not the most severe punishment. There’s actually a felony provision in some of the hazardous waste laws, but I would ask that you take the debate of that issue to the floor, since that’s not related to the actual finance portions of the bill. [SPEAKER CHANGES] Inquiry to the Chair. [SPEAKER CHANGES] Yes Sir? [SPEAKER CHANGES] I’m trying to limit my questions specifically to the finance portions, and I’m looking at the fiscal/incarceration note where it actually specifically references cost to the state, and maybe that would be more appropriate for an appropriations committee – I don’t know – so out of respect to at least limit it - [SPEAKER CHANGES] Well okay, I’ll allow the question, Sir. [SPEAKER CHANGES] Thank you, Sir. I’m trying to get my head around exactly what the punishment is for someone who discloses the chemicals that are being pumped into our water. Is it correct that it’s now a misdemeanor and that will result in at least reduced cost to the state? [SPEAKER CHANGES] Yes, Senator. [SPEAKER CHANGES] Thank you, Mister Chairman. Thank you, Representative Martin. By amendment, it was reduced to a misdemeanor. That would in fact reduce cost, however I must correct something slightly that you said. It is not a criminal penalty for disclosure; it’s a criminal penalty for unlawful and inappropriate disclosure of trade secrets. Just for everybody’s understanding, the basic chemical formulas are going to have to be disclosed to FracFocus under the rules of the Mining and Energy Commission have promulgated. So that’s basically the basic ingredients. If you take Coca Cola, the basic ingredients. The trade secret, if anybody wants it to be a trade secret, is what we might call the recipe. All of that information is going to be available. First of all the state holds it through the Geologist’s Office, and we have a whole regimen in this bill set up to have that fully disclosed to first responders, healthcare professionals, if there’s any kind of event where it’s needed. So that would be a lawful disclosure, if a doctor had an emergency, thinking…

something came from some sort of exposure or something like that, they'd be able to get that, okay? That would not be an unlawful disclosure. But if the doctor, they won't get the recipe either. They'll just get the basic chemicals, what they need to react to whatever the situation might be. This is very similar to how we deal with other aspects like hazardous waste and other hazardous substances that may exist throughout the industry and the state. So I just want to make that point clear. There's been a lot of misinformation about that. There's no criminal penalty until there's an unlawful disclosure of a trade secret and, in this case with this bill, that would be a misdemeanor. [SPEAKER CHANGES] Excuse me, Senator. [SPEAKER CHANGES] Follow-up, Mr. Chair. Follow-up, Mr. Chair. [SPEAKER CHANGES] Just a minute. Nurse McGinnis has a qualification to the Senator's answer. [SPEAKER CHANGES] Thank you, Mr. Chairman. Well you had just asked whether it would, whether it was the recipe vs. ingredient. Anything that was included in the trade secret or confidential information. In an emergency situation a healthcare provider or first responder could immediately get that trade secret information. So whatever is there they will be eligible to receive in an emergency. [SPEAKER CHANGES] Just to clarify my understanding, so the chemicals used are going to be generally available and public but the actual recipe combination of the chemicals will be available, the state will have custody of that information. First responders, emergency management, environmental management, health physicians, even fire chiefs dealing with exigent circumstances can get that information. So everything will be available on a needed basis and so the information will be out there and even anyone in the public will know what the chemicals are just not necessarily the proportions, is that correct? [SPEAKER CHANGES] That's my understanding from the Mining and Energy Commission's rules, that the chemicals, the cast numbers and that kind of thing will be on FRAC focus for public information and things that are, the recipes as commonly used, that are eligible for trade secret status, and there will be a determination whether they are eligible for trade secret status, those will be maintained by the department, Public Safety, and the Mining and Energy commission and then in an emergency will be given to first responders and medical personnel. [SPEAKER CHANGES] Alright, thank you. Follow-up, Representative Martin. [SPEAKER CHANGES] I think so, Mr. Chair, and I just want to clarify, so is that, and this is for the bill sponsor, the chair, or staff, whoever, Mr. Chair, you think best equipped to answer it. So every chemical that's in there will be publicly disclosed? [SPEAKER CHANGES] Representative Martin, I would defer to actually sending you the rule from the Mining and Energy commission. They have a proposed rule and I'm just simplifying it here, but my understanding is is that the general chemical families are available through Frac Focus but as far as the combinations, anything that is proprietary and trade secret, that would not be public information. But I will be happy to send you MEC's proposed rule so that I don't simplify it in a way that does not do, because it is a comprehensive rule. [SPEAKER CHANGES] Senator. [SPEAKER CHANGES] Thank you, Mr. Chair, and whenever, no questions but would like to debate the bill when you deem appropriate. [SPEAKER CHANGES] Sir? [SPEAKER CHANGES] No question but would like to debate the bill when you deem the appropriate time for debate on the bill. [SPEAKER CHANGES] Well we are in debate now. If you'd like to debate, your recognized. [SPEAKER CHANGES] Yes sir, I thank you. These are the kind of questions that a full and open process can actually allow us to answer and I regret that we're not getting that, at all, that this is rushed. In my experience here nothing good has ever come out of such a rushed process and it's only done when we're trying to hide something. It's exactly what happened with the lottery. People were embarrassed about what their pushing and I think that's the same thing here. [SPEAKER CHANGES] Representative Martin, you're not debating the finance aspects of the bill, you're wanting to debate the bill as a whole. [SPEAKER CHANGES] I think it's fair to say that just the finance aspect of this bill, Mr. Chair, are highly complicated and- [SPEAKER CHANGES] Representative Martin, I would say it's fair to state that you're misstating what's happening in this committee today and what's in this bill and of, we're about out of time we're to accept the public comment. If you'd like to continue I'll let you use the four minutes remaining. [SPEAKER CHANGES] I'd welcome the opportunity to have the public comment. We've got the time to do that and have another meeting on this. You did say, at least, I'll take some tiny consolation that there will be a full debate on this on the floor. Maybe mis-characterizing what you said and so if Representative Moore decides to call the

... questioning cutoff amendments, I think that will put the lie to that idea, so I hope that won’t happen and I’ll stop there. [SPEAKER CHANGES] Further discussion, further debate by the committee? Elizabeth Ouzts, you got three minutes. Miss Ouzts, would you please state your name and organization for the record? [SPEAKER CHANGES] Thank you, Mr. Chairman. My name is Elizabeth Ouzts and I’m the State Director for Environment North Carolina. We’re a statewide citizen-funded advocacy organization and I urge you to vote against this bill. It breaks the promise, it fast-tracks fracking and it fails to protect our waters. Fracking has contaminated water and threatened public health and safety around the country, and here in North Carolina it would threaten the Dan River to Falls Lake to the Cape Fear River, and the drinking water for as many as two million North Carolinians. Unfortunately this bill would weaken liability requirements for would-be drillers, it usurps local governments, and it punts on the issue of whether a landowner could be forced to allow fracking on his or her land, but worst of all, this bill breaks the promise that this body made two years ago. After the changes made in public utilities, this bill fast-tracks fracking even more quickly than the version passed by the Senate. It lifts the moratorium and could allow permits to be issued as soon as May 2015. It offers a major exemption for the 120 rules being developed now by the Mining and Energy Commission. These rules are far from complete, and as we’ve heard today, they don’t address a number of fracking’s risks. As just one example of their inadequacy, they would allow toxic fracking wastewater to be stored in pits, and we saw from the coal ash spill that that spells trouble for our rivers. Due to the complexity of these rules, the fact that this would be a brand new industry in our state, and the tremendous public interest in these rules, it is extraordinary and it’s inappropriate to cut the legislative review period for these rules by more than 12 months as section 2 of this bill before you does, and it is even more irresponsible for the legislature to lift the moratorium before those rules are complete. Thank you for your time, and again, I urge you to vote against. [SPEAKER CHANGES] Thank you Ma’am. Representative Hager is recognized for a motion. [SPEAKER CHANGES] Thank you, Mr. Chairman. I will move for a favorable on Senate bill 786. [SPEAKER CHANGES] Thank you. The motion before the committee is favorable report on Senate bill 786. We’re going to take a show of hands on the vote to make sure the count is correct, so many as favor the motion, please raise your hand and hold it until released. Thank you. So many as opposed, please raise your hand. On a vote of 19 to 14, the bill passes. The meeting is adjourned.