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House | June 6, 2013 | Committee Room | Environment

Full MP3 Audio File

I'd like to call the environment meeting to order. I got one. I'd like to welcome everyone here today to our first order of business we'd like to do. I'd like to welcome and thank our Sergent at Arms for the work they've done: Marvin Lee, Carlton Adams, Barry Moore and Martha Parrish. We have some pages with us today. If you'll stand and raise your hand when we call your name: Nicole Defrettes, from Surry County, Representative Stevens, Bandom Nixon, Chowan County, Representative Steinburg, Tyler Easterly, from Madison County, Representative Presnell, and James Ethridge, from Wake County, Representative Starnes is his sponsor. We're going to be at ease for a few minutes. We're waiting on a bill to come from printing. Do all the members have a bill? What we'd like to do is let Jennifer McMinnes go through the bill for us. Jennifer, you are recognized. [SPEAKER CHANGES] Thank you Mr. Chairman. Members, the 6th Edition of the Senate Bill 76, in Section 1-A of the Bill would authorize Deaner and the Mining and Energy Commission to issue permits for oil and gas exploration. [SPEAKER CHANGES] Excuse me Mr. Chairman. I'm having trouble hearing her and could she she can start over. I'm sorry. [SPEAKER CHANGES] Could you start over, and let's hold the raquet down in the back, and in the front too. [SPEAKER CHANGES] Thank you, Mr. Chairman. Can you hear me Representative Samuelson? [SPEAKER CHANGES] Yes, but can you start over? [SPEAKER CHANGES] Yes. Section 1-A of the 6th Edition would authorize Deaner and the Mining and Energy Commission to issue permits for oil and gas exploration and development activities using hydrolic fracturing and horizontal drilling effective March 1st, 2015. The 6th Edition, however, would prohibit those permits from becoming effective until a subsequent act of the General Assembly and the bill specifically provides that that subsequent affirmative act would include repeal of Section 3-D of the Clean Energy and Economic Security Act of 2012, which is Senate Bill 820, enacted last year. Section 3-D of Senate Bill 820 prohibited the issuance of permits to wait for the Mining and Energy Commision to develop a modern regulatory program. So Section 1-B of this bill, Senate Bill 76, the 6th Edition before you, would ammend Section 3-D of last year's bill to provide that permits could be issued but could not become effective until the General Assembly takes affirmative legislative action to allow those permits to become effective. The next sections of the bill are a number of studies. Section 2-A of the bill requires the Mining and Energy Commission with the assistance of Deaner to study development of a coordinated permiting program for oil and gas exploration and development so that a single comprehensive environmental permit could be issued. That report would be due to the Environmental Review Commission March 1st, 2014. The next section of the bill, Section 2-B, would require the Mining and Energy Commission, Deaner, and the Departments of Revenue and Commerce to study an appropriate rate of severance tax that should be imposed on oil and gas activities occuring within the state. The entities are specifically directed to examine the North Carolina oil and gas study that was prepaired by Deaner and Department of Commerce in April 2012. In addition they are required to consider the information they may have already compiled pursuant to an ongoing study that was part of Senate Bil 820, that required examination of the funding required to address infrostructure impacts from oil and gas activities, funding needed to cover

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State's needs. The six addition would instead allow [??] to fix an amount that may be produced and it directs them to formulate rules accordingly. Section 4B of the bill would amend the landman registry that was enacted in 2012. As you may recall this provision governs people who perform title or contract functions related to exploration, disposition of oil and gas interests. They negotiate for acquisition or divestiture of oil and gas rights and negotiate business agreements that provide for exploration or development of oil and gas. The bill before you would amend the landman registry to provide violations are punishable by a penalty not to exceed $5000 per violation and upon conviction a person would be guilt of a class one misdemeanor. In addition the bill authorizes the department to seek injunctive relief and it also adds language that would provide that any agreement that results from negotiations with a landman in violation of the statutory prohibitions would be null and void as being against the public policy of the state. The next sections, sections 5A through 5C of the bill amend bonding requirements that were enacted in 2011 and 2012. The first is the drilling bond that an operator must provide upon registration to drill a well. This language in senate bill 76 clarifies that that bond runs to the state. The next change to the bonding requirements specify a process to set the amount of the reclamation bond that was enacted in 2012 which requires an operator to provide a service owner a bond to cover the cost necessary to reclaim the property after they've completed the drilling activities. The bill would direct the mining and energy commission to adopt rules to establish criteria for the amount of the bond and also task the mining and energy commission with sending the bond and give service centers and operators a right of appeal concerning the amount of the bond established by the mining and energy commission. The next section of the bill, section six concerns revenue from offshore energy production. It would require revenues or royalties paid to the state from offshore exploration. That those revenues would be deposited in a fund for emergency purposes including emergency preparation response, emergency environmental protection or mitigation associated with the release of liquid hydrocarbons in a fund until that fund reaches $500 million dollars. At a point that the fund exceeds $500 million dollars those revenues would go to the general fund. The sixth addition of senate bill76 clarifies that funds are to be expended for emergency purposes only upon defining that other funds are not available to address the emergency situation in a timely fashion, and also requires the state to pursue cost recovery for funds expended. The next section, section seven of the bill concern the regional interstate offshore energy policy compact. It strongly encourages the governor to develop a compact with the governors of South Carolina and Virginia to develop a regional unified strategy for exploration of offshore energy resources. The bill provides details on the subject of compact negotiations and recommendations that should come forth from the compact. The next section of the bill, section eight would make changes to the energy policy act under current law. It would rename the energy policy council as the energy jobs council. It would amend and reconstitute the membership of the council and also change the members form 16 to 13. It also makes changes to the purpose and duties of the council and the sixth addition would move the council form the department of commerce to deaner [SP]. The final provision of the bill, section nine concerns a rule called the electrical requirements rule. The bill would direct the medical care commission to adopt a rule to replace the electrical requirements rule.

Which currently provides that facilities that are licensed by DHHS must provide emergency electricity to facilities with fuel that is stored on site. The bill would require replacement of this rule to allow use of bifuel generators that operate with both liquid fuel and natural gas that is not stored on site. The final provision is the effective day. Generally, the provisions become law except otherwise noted, and I'm happy to answer any questions, mister Chairman. [SPEAKER CHANGES] Thank you Jennifer. Senator Newton is recognized to comment on the bill. [SPEAKER CHANGES] Thank you mister Chairman. Members of the committee, thank you very much for being here today. As I said yesterday, North Carolina needs the jobs and America needs the energy. Notwithstanding what some people in the media reported yesterday, let me repeat that. North Carolina needs the jobs and America needs the energy. We have an tremendous opportunity here in North Carolina. We have the possibility to create thousands of new jobs, billions of dollars in revenue and income for our citizens and for our state. And I think we have to ask ourselves a big question. Do we want to sit around and twiddle our thumbs for fifteen or twenty years, while many other states have been doing this for decades, safely, spurring their economy, when we have, what, ten percent unemployment in Lee county? In my district, twelve and thirteen percent unemployment? Many other areas of the state suffering? Do we want to continue to sit here and talk about it, and talk about it, and talk about it, or do we want to move forward? This process was started in 2011, and if this bill is enacted either in the Senate form or the House form, we will be setting the stage to begin moving forward in 2015. Now, I think that's plenty of time to get the rules right when we have many other states that we can study and learn from. Some states have been doing this for decades. We can learn from their mistakes and learn from their successes. We have a great opportunity before us, and that's what this bill is about. We legalized this process in 820, and this bill is about setting the stage to make sure that North Carolina does it right, and we get the jobs and the billions of dollars in investment and income sooner rather than later. I am very happy to be here today. I've enjoyed working with Representative Stone and Boles and Hager and others, the administration, and we'll keep working on this and we'll get it right for this state. I'm happy to answer any questions. [SPEAKER CHANGES] Thank you Senator. Representative Stone is recognized to comment on the bill. [SPEAKER CHANGES] Thank you, thank you mister chair. Members of the committee, we've got a lot of hard work in this bill. I'd like to thank Senator Newton as well, for his part in helping us move this bill forward. We had a great vote yesterday in commerce, and so I'll yield my time so we can answer some questions today and move this bill forward. Thank you. [SPEAKER CHANGES] Thank you Representative Stone. Representative Hager is recognized for a question. [SPEAKER CHANGES] Thank you mister chairman. More of a, more of a statement than a question but I appreciate it though. Yesterday I brought up a, an issue that we had in, with the bill about as far as an energy jobs council, and I've had numerous of the committee members come and ask me about what has, what's the resolution of that. So I'll let, let folks know we're talking with the Governor's staff today and if we have a resolution on that then I'll let everyone know, if not we'll look at moving the amendment forward on the floor. [SPEAKER CHANGES] Any other questions for the committee. Representative Luebke. [SPEAKER CHANGES] Well, I, I had several but just specifically with respect to what Representative Hager just said, we would need an amendment to change that, right? You're saying you'd run an amendment on the floor. Did I understand you correctly? [SPEAKER CHANGES] I would. I'd love to get the, I'd like to get the Governor's staff some time to explain their position on it. I don't think we got a good explanation yesterday in commerce. I'd love the Governor's staff to explain why the, what's the logic of moving a jobs creating piece to a, a regulatory department. So I think it dilutes both pieces when that happens. It allows DENR to, to look at jobs issues instead of focusing on regulatory issues. [SPEAKER CHANGES] Thanks. [SPEAKER CHANGES] Representative McGrady is recognized. [SPEAKER CHANGES] Question for the bill sponsors and then two questions for staff. My question is whether, this is with respect to fracking portion of the bill, whether permits will be issued even if the rules aren't actually in effect on March, March 15, March first of 2015. [SPEAKER CHANGES] Mister Chairman. [SPEAKER CHANGES] Senator Newton is recognized. [SPEAKER CHANGES] Thank you. Representative McGrady, I

I thank you for the question. This has been a general subject of a lot of confusion for folks. I'm not sure why. Obviously there's a difference between the Senate version and the House version. I'm not quite as comfortable about the House version in terms of what its effect would be as I would be on the Senate version. I'd like to answer your question this way. The original intent, and I think still the intent, is to have the deadline stay the same. The deadline for producing the rules is October 1, 2014. They've been working on this since we passed 820 and that's their deadline. Nothing has changed by this legislation on that point. That's when the rules are supposed to be ready. October 1, 2014. Under the normal rule making process, there could be a challenge to those rules and under normal circumstances there would be typically 10 letters and it would come to the legislature and the legislature could either approve the rules or do nothing and the rules would become approved. Or could vote to not approve the rules. I'm not sure exactly, I'm dinging the House version, I'm not exactly sure how that would work, but I don't, under either version, they were not going to be able to move forward without the rules being in place. And that's my understanding of both the House version and the Senate version is that there would be no drilling, whether permit was issued under the House plan or it was done under the Senate version, they would not be able to move forward without the rules being in place. And that's what I want and I think that's what everybody wants. We need the rules there so everybody knows what they're supposed to do and in my view, there will be adequate time, more than adequate time, to get that in place. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Follow up. I guess my comment or question then is if it's possible that the rules wouldn't be in effect at the time we get to the March 1st, 2015 date, I just wonder whether the bill ought not to give DNR the authority to deny permits or defer permit decisions until they actually take effect. And I'll leave that as sort of a rhetorical issue to be discussed. Two questions to staff, Mr. Chairman, is that OK? [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Jennifer, if the General Assembly intends for DNR to start issuing permits under the rules that have been adopted and not in effect, and this is the question I was just getting to. I'm wondering what is the permit holder actually have? In other words, will the permit holder be able to claim some legal right to operate under the permit? My point being the bill doesn't say what happens if the legislature changes the rules for shale gas development after the permit has been issued, but before the permit goes into effect? [SPEAKER CHANGES] Jennifer is recognized. [SPEAKER CHANGES] Well, Representative McGrady, that's a complicated legal analysis but I would say that as far as what they have until the General Assembly takes subsequent legislative action, affirmative legislative action including repeal of last year's provision, they do not have a permit that legally can become effective. As to what happens if the rules change after the permit's issued, then that permit would be in conflict with the governing law and it would need to be reissued. In my estimation. [SPEAKER CHANGES] Follow up? Thank you. One last question, then. I believe State law now allows 60 days to file a permit appeal with whatever the office of administration or whatever, and the clock begins as soon as DNR provides notice of a permit decision. I know that these appeals are sometimes filed by the people seeking the permit and they're sometimes filed by third parties, local governments or whatever. Under the bill, when does the clock on an appeal start? When DNR issues the permit or when the permit becomes effective? [SPEAKER CHANGES] Yeah, Representative McGrady, the bill does not speak to that. It really doesn't reference Chapter 150B or a right of appeal period. I think...

You make a good point that it might be sound to clarify when the right of appeal begins. I just can’t give you a definitive answer. It may be wise to clarify your point. [SPEAKER CHANGES]: Mr. Chairman, she made my point. I don’t want to make this into the full employment for lawyers. I’m no longer a lawyer. But it seems to me that there is an issue here where it’s not at all clear at what point somebody can appeal – whether the applicant himself or somebody else. It’s probably something that needs to be taken care of at some point. [SPEAKER CHANGES]: Thank you. [SPEAKER CHANGES]: Senator Newton. [SPEAKER CHANGES]: Thank you, Mr. Chairman. Representative McGrady, I want to rewind just a little bit to your earlier question. I’m speaking about the Senate version, and this is not, again, not to ding the House version. I’m just not as…having thought through as much what their plan would do. I want to be very clear, though, for the media, for the members. Under the Senate version, no permit could be issued until the rules were in place. There was not required to issue a permit, they were just authorized to issue a permit beginning March 1, 2015. So as far as your appeal process question, there couldn’t be a permit until the rules were in place. I would think that would be your timeline as far as it would relate to that version. OK. I think it’s important that we…I think your question is important, and I think we need clarity on these things. Having been involved in the drafting of the Senate version, I feel very confident about how that would play out. We’ll keep working on this. [SPEAKER CHANGES]: Representative Harrison. [SPEAKER CHANGES]: Thank you, Mr. Speaker, and thank you, Senator Newton ?? for scaling down what I consider some of the more significantly harmful impacts of this legislation. I appreciate your hard work, and I see the hand of Assistant Secretary Gillespie in this, too, so I appreciate that. I’m not even really sure where to start. I share Representative McGrady’s concerns about the permit language. I’m confused about what that means. I’ve got an amendment that I think that ?? up but I’m just going to comment on the bill to authorize the amendment, if that’s OK. I’m not opposed to fracking if we can do it safely and protect the public health. If the state has the resources, I think it’s fine, I’m not sure we have a model out there of a state that’s done it right, which is what my concerns are and we do not have a history of extracted industries in the state, so we’re ?? and Mining and Energy Commission is working very hard and I appreciate that. I was supportive of Representative Gellispie’s ?? fracking because we do lack the regulatory structure to properly protect I think North Carolinians from the negative impacts of fracking. I am concerned about the changes to the Mine and Energy Commission. On the ?? drilling piece I’m concerned that we are putting at risk some coastal resources that are very responsible for significant revenues to the coastal counties and to our state’s coffers. There was a study out of the University of Massachusetts last year that said 50 million dollars that was invested to fossil fuel industries creates 5 millions jobs, but a million dollars invested in clean energy technology produces 17 jobs. I am concerned about the switch in the Energy Policy Council to the Energy Job Council that removes one of the fastest-growing areas of our state’s economy, which is clean energy jobs. I would also point out that the US has approximately 3 percent of the world’s oil resources but 24 percent of the oil demand, so that’s an unsustainable course. We could drill all we want offshore but we’re never going to get a level where we’re meeting our state and our nation’s energy demands unless we focus more on clean energy technology. I am concerned about this bill. I’m going to try and ameliorate it a bit with an amendment I’d like to send forth. Please if I could be recognized for that purpose. [SPEAKER CHANGES]: You’re recognized to send forward the amendment. [SPEAKER CHANGES]: And while it’s being passed out, I’ll just explain it, if that’s OK, Mr. Chair. [SPEAKER CHANGES]: That’s fine. [SPEAKER CHANGES]: So what my amendment does is actually put us back at Senate Bill 820, which on the permit issuance issue, I understand the rationale between having the Mining and Energy Commission develop the rules and then the Legislature would act after that. I think that seems to make more sense in setting up this process that’s in the current legislation as SB 76, in Section 1A.

so my amendment is intended to take us back where we were on 8/20 and not allow for the issuance of permits until these rules have been developed by the EMC, the MEC, the Health Commission and approved by the General Assembly. [SPEAKER CHANGE] Representative Newton is recognized to comment on the amendment. [SPEAKER CHANGE] Thank you, Mr. Chairman. As I understand the amendment, I would just simply say I think this is a step 180 degrees in the wrong direction which would really do nothing to move the process forward in a constructive way and I would hope that the Committee would oppose the amendment. [SPEAKER CHANGE] Representative. [SPEAKER CHANGE] Thank you, Mr. Chair. As well, I think the dates are important, I think we have to have deadlines and we have to move this process in the right direction and I think that is what we are doing with Senate Bill 76 and I would ask the Committee if you would oppose the amendment. [SPEAKER CHANGE] Representative Hamilton. [SPEAKER CHANGE] Thank you, Mr. Chair. I've got a question. Senator Newton, one thing you said earlier in the process and I just want to make sure I'm understanding it, is that the Senate version of this bill actually delayed permit issuance or the authority to issue permits prior to the approval from the Commission of Regulations, correct? [SPEAKER CHANGE] No, that is not exactly what I said. [SPEAKER CHANGE] Okay. [SPEAKER CHANGE] In the process of going through the Senate, we added language at ???'s request that permits could not be issued until the rules were in effect. [SPEAKER CHANGE] Until the rule were in effect. [SPEAKER CHANGE] In effect. [SPEAKER CHANGE] And being in effect is [SPEAKER CHANGE] Well, the rules would have been in effect at a little bit different timeline depending on how it played out. If there were no objections to the rules and it didn't go to the Legislature they would go into effect however that timeline worked. If there was 10 letters of objection that came to the Legislature, they may go into affect as earlier as the Legislature approving, taking action, early in the, we set the 2015, March 1 timeline, specifically because of the long session, we would be in session and we could have theoretically approved those rules very early in the session, before March 1 and of course if we did nothing, the rules would go in effect what is it, 90, I know they would go into effect after we were out of session anyway so at some point that's how it would have worked. The permit couldn't have been issued though until the rules were in effect. [SPEAKER CHANGE] Follow up Mr. Chairman. Thank you. Forgive my ignorance but how does that compare to the Houser version we are considering now? [SPEAKER CHANGE] Thank you for the question. That is one of the things we wrestled with in the House. As ya'll remember, in Senate Bill 820, we promised we would come back before the General Assembly in the House version and have a vote. If you will notice, the bill says will have an affirmative vote and we actually went back in and actually put Senate Bill 820 language in here to ensure everyone that when the rules are filed we take a vote. In the Senate version had we not taken a vote and went to the end of session or 90 days, the rules would simply become law and we thought we owed it to the General Assembly with the promises we made bipartisan to uphold that. [SPEAKER CHANGE] One more [SPEAKER CHANGE] Follow-up [SPEAKER CHANGE] Thank you, Mr. Chairman. So what you are saying is in the House version that we are reviewing now the ?? will have the authority to issue permits at any time but the General Assembly will still hold the right to approve the final regulations. My concern with that is being a former permittee, permitor, reviewing these kinds of permits, well obviously not tracking permits, but what will the staff be reviewing? What will they be basing their permit issuance on if there are not rules in place in which to review, to compare, to issue a valid permit. It seems to me that we are putting staff in an awkward position to be issuing permits when they have no rules for which to guide them. [SPEAKER CHANGE] We don't necessarily know we won't have any rules. We may have rules, we very well may not. But March 1 is the target date and that's the whole point. If we put a target date in there we are driving the Mining Industry Commission and the rulemaking process to have a deadline so we can get the process working. If we don't have it prepared and rules haven't been voted on then we will vote on them but that

Senator recognized IF I could, also, the date march 1, 2015 i would like to backup a second in regards to which verision I address. This date falls some five months after the rules were supposed to be completed by the commission. Remember 820 requires them to do it by octorber 1 2014 the reason for having that date andtimeline is for ample time for rules to be there and to be dealt with and to tell industry the timeline they have to work on to get ready to move forward. IT takes years for the logistical work they have infrastructure to build to accomodate this industry they have truck routes etc. What I want is for them to be ready to go with all the rules in place for 2015 2016 so the jobs get here asap and not by 2020. We have secretary ?? here State your name and position for the record MR ?// I am rep ?? ladies and gentlement of the committee I think a word we dont hear is certainty. I think this bill brings certainty for those of us who want enviro protection.And certainty to the people who are going to spend millions of dollars relative to the hydraulic extraction process. This is a larg e step forward in giving the certainty everyone wants. So for that extent the frog position or the local govt position the dates a permit can be issued we need to conintue to create certainty in the minds of everyone involved including citizens of NC. A question for rep stone What I heard you say is the process is set up go through a process... if the rules aren not completed by a certain date the assembly would vote on them. THe rules come back Oct 1 2014 and go through the normal procedures where it gets 10 letters and comes back to the general assembly.The assemlby will take affirmative action on these rules THe rule process is complex and takes a long time.I think thats one thing you want to move ahead and dont want to be held up forever. IS the rule making process being changed? because like the jordan rules took many more months to be completed. My quesiton is, if the rules are not in law by that date you have what will happen? We have all plans that those rules will be in place but if they arent they will go through the normal rule making process before it comes to the assembly. Mr ?? Thank you mr chair, I just want to speak briefly in reagrd to section 1a 1b and 3d and explain why i would not support this amendment and why i am thankful for the revisions here. One thing we have to understand... If I have the privilege to be here and vote red or green and I am grateful for the language in 3d. When we have regulatory.

Here it comes out of body u have by way of statute the statute trickles down by rules the most important aspect whether ?? there is rules and statutes trickles down to the respective departments by way of policies by allowing the permits to be issued but not be effective allow us as well as the legislative bodies to see whether the ?? it has the statutes as well as the rules all come together it how actually the department makes the policies we get to see how the ?? process goes through we get to see how the ?? issued we get to see how that all come together. I think that is very important about this aspect the bill I think it is also protective that the permits will not become effective until we take substantial legislative action. I think it is very very very important fro us t o see all three pillars of how this regulation come to effect the statutes the policies as well the rules and I definitely would ask in order with respect to representative Harrison to not supposed to ?? to this very fact that gives us a better preview about the standing what we are voting for move to further with staff of ??[SPEAKER CHANGES]representative ?? would u speak any question on the moment of ?? division all in favor with the ??raise the hand hold your hand ?? All oppose ?? we back on the bill any comments on the bill if not the have a motion representative ?? is recognized for motion [SPEAKER CHANGES]?? that i make a motion that we are ?? favorable to the committee substitute[SPEAKER CHANGES]okay [SPEAKER CHANGES] ?? u heard the motion all in favor say ah oppose no the bill is so reported Senate bill 341 is going to be ?? we will be taking out next we adjourn.