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Senate | May 27, 2014 | Chamber | House Utilities

Full MP3 Audio File

The sooner we get going, the sooner we can get finished. Let me recognize the House Sergeant of Arms. Hey Reggie. Thank you. Marvin Lee. Thank you, Marvin. Mike Clam. Thank you Mr. Clam for being here today. Before we get started today, ?? I’d like to thank Mike Stone for being co-chair with me, I greatly appreciate it. I needed the help, you guys are getting to be a handful, so Mike said he could help me do it there a little bit. I think he’d seen what was coming. He knew Rucho was going to be here so I needed a little extra muscle. So thank you for being here Mike Stone, you have any comments, Representative Stone? Just happy to be here? Good. Well thank you for helping out. We have one bill on the agenda. Senate bill 786. The way we’ll do this is I’ll let Senator Rucho make some opening remarks if he wants to and then we’re going to go straight to Miss Fenell to do the tax piece of it because she has to leave. And then the staff will finish the rest of the bill and then we’ll take questions. So Senator Rucho, the floor is yours. [SPEAKER CHANGES] Thank you, members of the committee. Thank you for allowing us to be here today, and presenting Senate bill 786 energy modernization act. This is a continuation of what we started a number of years back with establishing the mining energy commission, looking at trying to make North Carolina energy-independent, trying to create a broad-based diversified economy, including natural gas production both for the utilization by our citizens and by our businesses and also all the jobs that it will create. Mr. Chairman, I will ask staff to present this bill. I’m so pleased that we had a great join energy policy commission, worked hard putting together what is a very good bill and I would hope that this committee will allow us to move it forward. [SPEAKER CHANGES] Thank you, Senator Rucho. At this time, I’d like get Miss Fenell to talk about the severance tax piece. [SPEAKER CHANGES] Thank you. Yes sir. On page 20, line 25 of the bill, starting the part on severance tax, this is section 17-19. So at this point it’d probably be most helpful if you looked at the summary of the bill, starting on page six there is a chart that shows you the tax rates for the severance tax. There is currently a severance tax in the state, however this bill repeals that and creates a new system of the severance tax. We’re not currently collecting anything under the current severance tax. But what this would do is create a new system of severance tax on oil, gas, and condensates. As you can see at the top of the chart, oil and condensates will start at 2% in the year 2015-18 and they will go up to 5% in year 2023. Marginal gas is gas that’s produced from a well that’s incapable of producing more than a hundred MCF a day, so this is a well that’s producing very little gas. So the mining and energy commission, or its successor, will actually designate whether a well, and the gas from that well, qualifies for the marginal gas rate. And this rate is a little bit lower than the rate for all other gas. So as you can see, the marginal gas rate starts at .4% in 2015 and goes up to .8% in 2023 and thereafter. The rate for gas, you can see in 2015 starts at .9%, and then starting in 2019 there’s sort of a different way. It’s a stair step model and basically this is similar to the graduated income tax. For the first 0 – 3 dollars of the delivered market price, the rate is .9% for the price paid. 3-4 dollars is 1.9 and for 4 and above, it’s 2.9. As you can see on your chart, this goes up and through 2023, anything above 10 dollars is 9%. Now the base for these two taxes is different. For oil and condensates, it’s the gross price paid, so that’s the entire price paid. But for gas, the rate is applied to the deliver to market price for MCF. What this means is that when the oil is drilled and comes out at the wellhead, that is one price. But when it’s prepared for market, or delivered to market, there are several processes and several costs that are incurred by the producer to get it ready and to be delivered for market. So the delivered to market price is actually the price paid minus all of the costs to get it ready to be delivered to market. And almost all states that have this sort of tax mechanism allow those deductions for those costs. So that is the delivered to market price. So the administration of this tax is very similar to the sales tax. Returns will either be filed monthly or quarterly, depending on liability of the producer. If you have a larger liability, you will have to file more often and file monthly returns. A bond or a letter of credit will be required

Acquired for producers that fail to pay the tax or file a return and permits will be suspended for any producer that fails to pay the tax or fails to file a return. The bill also provides that there will be no new local taxes. There will be no privilege tax, no impact fees. Local governments will have no other taxes allowed on energy expiration other than the property tax. And then finally section eighteen of the bill is a property tax exemption. It provides that the value of real property attributable to the presence of energy minerals is exempt from property tax unless a drill has been issued. So for a property owner that chooses not to drill on their property, they will not be paying the property tax on the value of these energy minerals. I'm gonna briefly go over two studies real quick that are tax related, sections twenty of the bill directs local government division of the department of revenue to study how states value energy minerals for the purpose of property tax. And this is too insure that we can give guidance to local government so that there is fair and consistent taxation of the energy minerals throughout the one hundred counties. Section twenty one of the bill instructs the joint legislative commissional energy policy to study the development of the energy industry and how this will effect property tax revenues of local governments. and they will also study how the presence of energy minerals will affect property in the presence use value program. And there's one last tax provision that I'll go over real quick and that is section thirty of the bill. And this is part of the bill that provides that there's a howdy motor fuels tax will be imposed on liquefied natural gas and compressed natural gas. The motor fuel rate is thirty five, thirty seven point five cents a gallon and the secretary of revenue is allowed to establish an equivalent rate for alternative fuels. This sets the equivalent rate for liquefied natural gas and compressed natural gas. For compressed natural gas, the rate is set at the gas gallon equivalent of five point six six pounds and for liquefied natural gas. It's set at the diesel gallon equivalent of six point o six pounds. And that is all for the tax portions, thank you. [Speaker Changes] Any question on the tax piece while Heather is still here, she has to leave. [Speaker Changes] Mr. Chairman [Speaker Changes] Represent Harrison [Speaker Changes] Thank you Mr. Chair and thanks Heather for that, if you don't mind how does that rate compare to other states. The chart that you laid out and the summary on page 6. [Speaker Changes] Yes Sir, Yes Mam, there are the other rates that have a percentage tax, they can range from twelve percent down to two percent, this is on the lower end, this is if you compare it to the incentive rates that other states give for new fracture, I'm sorry new Shell gas expiration. This is in line with the incentive rates. When this was introduced in the Senate last year, the bill actually had a higher default rate and a low incentive rate. At a certain point we realized that all the wells in North Carolina would qualify for that lower incentive rate so the higher default rate was taken out and just the incident rate was left done. [Speaker Changes] Further questions? Thank you, Thank you Ms. Finell. We'll move on to the next sections, I think Jennifer McGuiness, Whenever you're ready Jennifer take you're time, you're good. [Speaker Changes] Thank you Mr. Chairman, part one of the bill members, section one would extend the rule development deadline that applies the the mining and energy commissions development of rules for oil and gas management under Senate bill eight twenty from two thousand twelve, that date was set October first two thousand fourteen. This bill would extend that to January first, two thousand fifteen. Part two of the bill contains a number of exemptions from the administrative procedure act, the first provision, section two a, modifies a provision under the APA that requires that rules come out of rules review commission at least twenty five days prior to the start of session in order to be eligible for legislative review during that session. This provision would eliminate that twenty five day requirement and make rules that came out basically at any point including while the general assembly was in session subject to review during that legislative session. Section two b and two c are related provisions. They relate to disapproval bills for rules that come out of rules review under the APA currently a member has thirty legislative days to file a rule disapproval bill and that bill could pend until the end of session and during that period the rules would be stayed. These provisions section 2...

2C would allow a member to have 30 calendar days rather than 30 legislative days to file a disapproval bill and then those disapproval bills would basically have 60 days to pend during session. And if no action were taken on those rules during the 60 day period, those rules would become effective on the 61st day. Excuse me. Section 2C, 2D of the bill would modify a provision in the ATA that provides that rules received by the Rules Review Commission by the 20th of the month would need to be reviewed by the Rules Review Commission by the last day of the second subsequent month. The provision under the bill would amend that and would require the rules review and rules by the end of the month, by the end of the following months. So basically, one month is eliminated under the bill. Section 2E would exempt the rules for management of oil and gas from limitations under the APA that governs certain environmental rules. Basically, this provision under the APA is commonly known as the Hardison Amendment and prohibits agencies from adopting environmental rules generally unless several factors exist such as a serious and unforeseen threat to the public’s health, safety or welfare, an act of the general assembly, a federal requirement, and that type of thing. The rules for oil and gas would be exempt from this provision of the APA. Section 2F of the bill would modify a provision enacted in 2013 that exempted the oil and gas rules from requirements under the APA for a fiscal note. This provision would extend that exemption through December 31st, 2017. Section 2G of the bill would exempt rules for oil and gas from any requirements under the APA that pertained to a certification and a preliminary review by the offices of State, Budget and Management. Part 3 of the bill contains a date certain for issuance of permits to July 1st, 2015 and it would also repeal in conjunction with that, two provisions enacted in 2012 and 2013 that basically prohibit issuance of permits until the rules for oil and gas become effective and the general assembly took subsequent legislative action including repeal of the moratorium from 2012. Again, it would repeal these previous provisions and authorize issuance of permits effective July 1st, 2015. Part 4 of the bill would reconstitute what is currently the Mining and Energy Commission and break it into two separately operating commissions - the Oil and Gas Commission and the Mining Commission. As you all may recall, the Mining Commission existed before 2012 and was then amended to include the energy component and the membership was modified. This would be effective July 31st, 2015 and would terminate that combined commission to individual commissions. The membership of the Mining and Energy Commission would terminate on July 31st, 2015 and reappointments to the two new commissions, the Mining Commission and the Oil and Gas Commission would be required by August 1st, 2015. Section 7 of the bill makes various changes related to Shell Gas exploration. The first change would be to eliminate a reference in the statute concerning the Mining and Energy Commissions authority to require operation of wells with efficient oil and gas ratios in as much as that language is archaic and doesn’t really adapt to unconventional oil and gas wells such as those in the Triassic Basin. The 2nd provision in Section 7 would provide that entry of rules in the administrative code in the areas that were set forth in the 2012 legislation – there were specific areas that the general assembly addressed that they directed the Mining and Energy Commission to cover when they created a modern regulatory program for oil and gas. This provision would say that if rules that addressed those areas are entered into the…

…administrative code, a rebuttable presumption would be created that the rules would be sufficient to meet the general assembly’s requirements for development of a modern regulatory program. Section 8 of the bill would clarify requirements applicable to trade secrets received in connection to oil and gas activities. Specifically, the provision requires that DENR and MEC retain trade secret information, also that they would provide this information to the division of emergency management as well as first responders and medical personnel in the event of an emergency. Also the state geologist or the state geologist designee would be required to review the information received as a trade secret to ascertain whether the hydraulic fracturing fluid and the chemicals contained therein violated state or federal laws as to prohibited constituents or exceedances of contaminants and then issue a written certification to be delivered to DENR and MEC would certify that there was no violation on that basis. I would note that unlawful disclosure of confidential information under this provision would constitute a class 1 misdemeanor. Section 9 of the bill would again repeal some archaic language in the oil and gas conservation act that requires the departments involved in a survey. The provision under current law provides that the department would be involved with surveys upon application with an owner who has reason to believe a well has been drilled unlawfully by another person on their land. The provision does provide that the owner requesting the survey would pay for the survey so the department’s involvement is just unnecessary in that situation so the language is being repealed. Section 10 of the bill would repeal a provision in the statutes that requires that each well be drilled in the center of a drilling unit. Again this is archaic, it does not lend itself to Shell gas and modern exploration techniques. Section 11 of the bill would reduce a fee that is due upon a permit to drill a well as enacted in 2011. That was 3000 per well, it would modify the fee so that it would be 3000 per well on a pad and then 1500 per well for each subsequent well on that same pad so 3000 for the first well on a pad and then 1500 for each subsequent well on that same pad. Section 12 of the bill would amend a provision enacted several years ago that requires oil and gas operators to provide notice to service owners to entry to land that was fourteen days for entry for non-land disturbing activities and thirty days notice for land disturbing activities. That notice was only for surface owners however and this bill has a provision that would give sub-surface owners, some mineral owners, who at least ?? notice of initiation of drilling activities so they would get thirty days notice of drilling commencement. Section 13 of the bill would make several changes to the oil and gas statutes. The first would be to amend a provision enacted in 2011 that established an oil and gas operators presumptive liability for water contamination within 5000 feet of a wellhead to change that distance to water supplies located within a half mile radius within the wellhead. A connected provision required an oil and gas operator to conduct water testing in a 5000 mile distance from a wellhead, that too would be changed to a half mile radius from the wellhead. In addition to the change of distance this provision requiring an operator to test water supplies was modified on the basis of how many tests required. Under current law there are three tests required: one thirty days pre-drilling and two post-drill within a twenty-four month period after commencement. The bill would increase that number from three to five and specify that those testing events would occur at thirty days prior, six months after, twelve months, eighteen months, and twenty-four months after production.

Also, the 2011 provision required that the operator conduct testing, or the surface owner could elect to have DENR conduct the testing. The third edition would require that this testing be done by an independent third party from a DENR approved list rather than the operator or DENR. Also, it would explicitly state that an operator must provide the test results to DENR within 30 days of sampling and authorize operators to share the information from testing among themselves. Finally, the results of testing would be designated as a public record and DENR would be required to post the results on their web site. The next provision would require an operator to provide a bond running to the state to cover any potential environmental damage from drilling processes in an amount of no less than a million dollars, and that amount could be increased if MEC determined that the drilling operations were occurring in environmentally sensitive areas. The next provision in section 13 would specify that actions for recovery of cleanup costs, damages and civil penalties could be brought against any person having control over the activities that contributed to the contamination, and provided that such persons would be jointly and severally liable with ultimate liability between the parties determined by common law principles. Section 14 of the bill would invalidate local ordinances that would prohibit or have the effect of prohibiting oil and gas exploration and development activities, including those that would impose taxes, fees, charges, or regulate health, environment or land use. This provision mirrors similar language in the hazardous waste statutes. Section 15 of the bill contains a number of changes to the statutes. The first would require that natural gas compressor stations associated with oil and gas activities would need to be housed in a baffled building. The next provision would prohibit the injection of wastes produced in connection with oil and gas activities to subsurface or groundwaters of the state. This is currently prohibited under law in other chapters of the general statues, but this prohibition would explicitly be brought in to the oil and gas conservation act. Also, there's a provision that would provide that DENR could conduct an environment compliance review of each applicant for a new permit to drill in order to determine the extent to which the applicant was compliant with environmental laws in North Carolina, in other states and Federal law, and it would authorize DENR to deny an application for a permit if the applicant had a history of significant or repeated violation of environmental laws. DENR would also be authorized to modify or revoke a permit, or require a issuance of a new permit based on substantial changes to environmental compliance history. The next provision in section 15 would provide that no liability for trespass would arise from activities conducted for the purpose of seismic or geophysical data collection, if a person had a land owner's written consent to enter the land or if the person conducted the seismic and geophysical activities offsite by undershooting the property. If the activities were conducted without a landowners consent and entry to land, that would constitute a class 1 misdemeanor. The provision specifically states, however, that persons who are conducting these activities would be civilly liable for any physical property damage determined to be a direct result of their activities whether or not they conducted the activities with the consent of the land owner on site, or they undershot the land offsite. Section 16 would exempt persons that engaged in construction, repair or abandonment of a well used for oil and gas from the water well contractors certification requirements under chapter 87. Miss Fennel(??) has already briefed you on the severance tax, so the next portion of the bill is studies, and miss Mont(??) will brief you

On some and I will brief you on others. [SPEAKER CHANGES] Thank you Mr. Chairman. Members, just if you skip ahead to section 22 of the bill found on page 26 and on your summary on page 7. This section would direct the department of commerce on consultation with ?? The ports authority and the department of administration to study the desirability and feasibility of sighting, constructing and operating liquefied natural gas export terminal in North Carolina. The study stipulates numerous items that must be evaluated and it directs the department of commerce to report its findings and recommendations to the energy policy commission and the environmental review commission on or before January 1st of next year. Section 23 of the bill would direct the department of transportation to study the statutory authority that may be necessary or advisable for the department to adequately address energy related traffic including the authority that pertains to permitting an assessment of fees. The feasibility or advisability of managing energy related traffic and the resulting impacts and the coordinated permit developed in conjunction with requirements from ?? or whether such requirements should be implemented through a separate permitting process and performance bonding and other surety mechanisms to reclaim and repair any state posted roads that are damaged to the heavy vehicle traffic associated with shale gas exploration and production. The department is directed to report these findings and recommendations to the energy policy commission and transportation oversight committee on or before January 1 of next year. Section 24 of the bill would direct the State board of community colleges to study the feasibility and desirability of developing a program which prepares students for general education foundation and the technical competencies for employment in the oil and natural gas drilling gathering and filling operations industry. The board is directed to consider the developing such a program at one or more of their colleges where the potential for shale gas resources is highest. And is also directed to evaluate similar program at community college systems in other States. The board is directed to report its findings to the energy policy commission and the transportation oversight Committee on or before January 1 2015. [SPEAKER CHANGES] Section 25 of the bill would direct the department to study the mining and energy commission rules once adopted relating to oil and gas exploration and including rules concerning drilling units, spacing requirements setbacks and all rules that the department determines and act the regulation of compulsory pooling. They would also be directed to study in conjunction with mech and the consumer protection division of the attorney General's office. The issue of amending the state’s current dormant Mineral statutes regarding extinguishment and other consumer protection issue related to compulsory pooling and split the States. Also they would be directed to issue specific recommendations for legislative action related compulsory pulling and dormant Mineral statutes and report their findings to joint Legislative commission on energy policy and the ERC on or before October 1st 2015. As the members may recall direction was given to mining and energy commission and the department in 2012 to study the compulsory pooling issue and give the general Assembly specific legislative recommendations. Thus entities reported in the fall of the energy policy commission the mining and energy commission did give specific recommendations on the issue. The department however did not. They recommended that the general assembly wait and examine the pertinent Rules and look at the issue of the dormant Mineral statutes and thus, the further study directed under this bill. The Section 26 of the bill would direct mining and energy commission and the department to study the development of mid steam infrastructure which is necessary or advisable to facilitate exploration and development activities for oil and gas and that includes development of pipelines, gathering systems, compressor stations, pumping systems on site and near site storage tanks and natural gas liquid processing systems. The department and commission would be requires to report their findings to the joint legislative commission on energy policies on or before March 1st 2015 [SPEAKER CHANGES] The next section of the bill section 27 directs the state energy office to study ??

[0:00:00.0] …Foundations on the comprehensive long range State Energy Policy, part of the study the energy office will look at the long term environmental and economic impact of basically power generation it will also compare basically the power generation one side all forms of energy use including renewable and alternative sources of energy. And we also look at the implementation of session of 2007, 397 which is better known as Senate Bill 3 including the environmental and economic impacts of the law. The State Energy Office is directed to report its findings to the Joint Legislative Commission on energy policy on or before December 1st, 2014. [SPEAKER CHANGES] Section 28 of the Bill would direct the division of purchasing contract and the department of administration and coordination with the DPI to allow any fuel option to be considered for the award of a school bus contract and this would include any changes or modifications to term contracts that are executed on or after the effective date of the Act. This provision would also direct the entities to study the infrastructure that would be necessarily to support school bus fuel by natural gas and report any findings to the Joint Energy Policy Commission on or before January 1 of next year and that completes the studies provisions within the Act. Part A, a couple of miscellaneous provisions that are unrelated to ___[01:20] the first and Section 29 with repeal a provision that requires the Energy Policy Counsel to use an attorney assigned by the Attorney General’s Office and instead allow the counsel to have legal support provided by ___[01:31] Miss. Fiona already covered the provisions under Section 30 and Section 31 is your severability an effective date. We will be happy to answer any questions Mr. Chairman. [SPEAKER CHANGES] Thanks you as always you did an excellent job before I go to questions I wanna let… [SPEAKER CHANGES] Thank you Mr. Chairman, Amendment coming forward basically what we are doing is removing the date certain, making sure the rules were in place for any promise or issues with the 60 days delay and all the staff do more to explain the amendment. [SPEAKER CHANGES] Does there one have the amendment in front if not, it’s coming out right now so just hold for a second and bring the amendment in front. [SPEAKER CHANGES] [Pause] Everyone have the amendment now? Okay, Miss ___[03:02]. [SPEAKER CHANGES] Thank you Mr. Chairman, members if you would look at page 3 of your bill this amendment would overwrite the portion of the bill beginning at line 41 and ending at 45 that would have established a date certain for issue ones a permit of July 1st, 2015 and substitute it with a direction that our permits would be authorized to be issued 60 days after the rules directed by Senate Bill 20 have become effective. [SPEAKER CHANGES] Questions, discussion, Mrs. Harrison? [SPEAKER CHANGES] Thank you and thank you Representative Stein for that amendment, I’m just confused was there another provision and Senate Bill 820 where the legislator had affirmatively act before the permits could be issued, is that changed at all? [SPEAKER CHANGES] Representative Harrison reached out Senate Bill 76 last year… [SPEAKER CHANGES] Yeah, what I have in front of me is the exact language the Senator Bill 76 we talked about management, the Environmental Management Commission, Commission of Public Health ____[04:23] SAO 2012 become effective which is the rule and the general assembly take the full action including repeal of the ___[04:33], so the Senate Bill 76 is an affirmative action. [SPEAKER CHANGES] Further comments, further questions? Representative Stein moves for the passage favorable passages of this amendment. All in favor, all opposed? Thank you Representative Stein. We are back on the bill, questions and discussion on the bill. Representative Cullen. [0:04:59.7] [End of file…]

Speaker:Cant hold out for a second let's do some let's get some question will get you next ?? got you got you so little a discussion and we got three ?? that are waiting right now and we make sure that we didn't have anymore discussion of questions on what staff ?? drop forth, Speaker Changes:Mr.Chair, Speaker Changes:Yes, Speaker Changes:Are the sponsors gonna explain ??we do have a mining energy commission ?? it's getting expertise and legislation's i just have a ?? Speaker Changes::thanks for your question representative ?? Speaker Changes:I think they will explain if you need further explanation please ask questions,if you think you get the right answer think you need to ask him that to explain it to the wishes and after that you guys ask questions thanks you ?? you ought to bring this together on the three men we have Speaker Changes:thank Mr.Chairman, i also open the opportunity for my other co sponsors the mining commission under Jim ?? will give the charge come forward in safe and official way of shell gas exploration to be particularly customized for north Carolina little over two years these folks have done remarkable job in looking on all of the shell gas exploration and development across the country the mistakes they have made and goods that have done some of the thing we were able to bring forwards with bad act of provision and other that was the visitation of our concern we sure that they are very stronger financially and very stronger effectively people would be able to come here and other are dealing with this issue of not allowing disposal of waste water into ground and you know we pick the ?? waste water completely some of the examples and some of the issue we have taken up in this task, in this particular bill request up to the mining energy commission to get the direction from general assembly representative i don't know but if you know this mining energy websites their rules and regulations are ready for you as the public hearing coming up this summer go to the revenue review commission and to the general assembly i would urge you to read the and participate in the public hearings you and any folks and choose to but deliberate job has been done by chairman and mining energy commission and other than one board everything else was a ?? decision and all these think that i m the issue of the rules over 120 rules on 100 pages ,they did a tremendous job and putting this together third task that was given to them by general assembly what i think you will see is state of the art and regulations that will be model for rest of the country in following and how do actually allow shell gas and exploration to be developed i have already talked about purposes behind this to diverse our economy create good jobs and North Carolina energy and dependent so i urge you in the members of the committee to to make sure that you do have the chance to review these e their online with that the other parts of it was lots of reaction to what energy mine commission did request to us and then other position that i very comfortable with representatives stone and ?? it always felt that i m the reason for the rules and regulations and now e have them this falls on perfect line . Speaker Changes:Mr.Chairman, Speaker Changes:Thank you, Speaker Changes:Thank you Mr.Chairman Speaker Changes: First i like to say how much i appreciate all the hard work with staff representative Stones, Representative ?? Representative Bolts and others that you have worked on the during the ?? joint energy commission leading's i really appreciate the hard on toe end of this i have answered your questions directly representative ?? as you not debated this before on television North Carolina needs job and America needs energy and that's the short answer to the question this bill moves us another step forward after having worked on it ?? from four years,mining energy commission has ?? indicated working on these rules for two years but the states man working on it for really long.

In 4 years I believe. If I remember correctly Governor Purdue was working on it before I was elected in 2010. If I recall she took a trip up to Pennsylvania and came back convinced this could be done safely. And so was I would posit to you and to the committee is that we are taking one more step that needs to be taken in order to move forward. After 4 long years, it is time to move forward with the process by recognizing that mining and energy commission has come up with a set of rules that are state-of-art. That we have pulled from all over the country and a lot of hard work has gone into. We are at the point now where we can go ahead and move forward and tell the industry to be prepared to come here. Here we have our rules and it's time to come forward and hopefully starting in 2015 we'll start getting some of this investment in some of these jobs. [SPEAKER CHANGE] Senator. I ask the senators to keep it a little brief and Brock said he would. He was the one I was worried about. So Brock you have the floor. [SPEAKER CHANGE] Thank you Mr. Chairman and members of the committee. One thing with this language that we have in legislation is that we're doing more tweeks of things that we've learned over the last 2 years, over the last year. The trip to Arkansas showed of what changes we needed to do before the actual process. There were over a hundred drill in the ground before they passed their very first rule and Senator ?? stated before this will become the model for states across the country because we are late to the game in comparison to other states. However, our rule process are small deliberate steps to make sure we have the safest practice in the country. And it's one thing that we've learned through the examples of all the states is taking the best practices both on the regulatory aspect as well as the tax aspect, that you mentioned before, that we will make the best choices available for all of North Carolina and looking at the possibility of growing an energy source here in North Carolina, the job source here in North Carolina that there's great potential behind it but we're going to do it in a safe responsible way. [SPEAKER CHANGE] Thanks Senator. If there's any questions or comments before we get to the next amendment? Yes Representative Harrison. [SPEAKER CHANGE] If I could ask the chairs this, it's probably a minor point, but I'm trying to figure out why we're just banning mining and energy commission and reconstituting. I don't think I understand why. [SPEAKER CHANGE] Senator Ruscho [SPEAKER CHANGE] Thank madam chairman, yes Representative Harrison. The mining and energy commission was assigned the task of doing the study and the due diligence and putting the rules and regulations together and then we're splitting them off and returning mining to itself and the oil & gas will be having the responsibility and then there's a different group of people, the one's that will study it and then the one's that will provide over the operations of it. [SPEAKER CHANGE] Follow up? [SPEAKER CHANGE] I think this will last for a short period and I'm not sure if this directed to the sponsors or maybe the staff. I don't see anything in here on air quality issues and I know from other state's experiences and some health studies related to air quality, air emissions. Because I thought that the MEC was directed to work with it and they haven't. This bill doesn't. Could you enlighten me please? [SPEAKER CHANGE] Ms. McGinnis [SPEAKER CHANGE] Thank you Mr. Chairman. Senate Bill 76 did task them with the host rule making direction with looking at air toxic issues. They have a rule under development. I could provide you that by link if you want to take a look at it. But there is nothing in this bill. It was addressed in 76. [SPEAKER CHANGE] And to that point, thank you Representative Harrison for reminding me. This is not the rules. The rules are due on January 1st of next year. So we will get that packet of rules we think will be rather large. They are some of the toughest in the nation. This is just the framework for getting there for the next year. Further questions? Further comments? Representative Stone you're recognized to send forth another amendment. [SPEAKER CHANGE] Thank you Mr. Chair. Ladies and gentlemen, the next amendment we have come before us pertains to section 15 of the bill. The bad actors clause and basically what we've done is we've turned the word "may" back to "shall". When we talked about environmental compliance review. I'll let staff go over the amendment. [SPEAKER CHANGE] Mr. Chairman. As Representative Stone noted, the provision in the bill described as the bad actor provision which is on page 19 actually beginning on the bottom of page 18. As introduced, required the department to do an environment compliance review of each applicant for oil and gas activities to look at their past 5 years of conduct.

As far as their compliance with state and federal laws, subsequently the bill was changed to authorize the department rather than require the department to conduct such a review, and Representative Stone's amendment would change that back to a requirement for the department to review an applicant's compliance history. [SPEAKER CHANGES] Thank you Miss ??. Questions? Comments? Representative Harrison, you have a question? Just giving you a hard time. Questions? Comments on that? Senator Roucheau? [SPEAKER CHANGES] Mr Chairman, I'll just say to you that's a good amendment from Representative Stone and we can support that. [SPEAKER CHANGES] Thank you Senator Roucheau. No further discussion, all in favor? Representative Stone moves to amend the bill as noted. All in favor? All Opposed? OK - I think we've got the next amendment is from Representative Samuleson. I think everybody has it. Representative Samuelson, you have the floor. [SPEAKER CHANGES] Thank you Mr. Chairman. This is a really simple amendment. In the section over there where we've got on page 29 all those studies, they have to do with looking at sort of the whole picture of energy in North Carolina and the one piece that was missing was third party sales which is a true free market option for considering electrical sales. And so this amendment would study it and narrowly apply it to military installations, partially too because the military has another federal requirement regarding efficiency and so this would work well with that and as I understand it there's no objection to adding this in there so I urge your support. [SPEAKER CHANGES] I think Senator Roucheau has agreed to that. Any comments from staff? Sounds good? Any further comments, questions from the committee on this amendment? I'll hold up a second here, look to get his questions answered. Everybody good? Thank you, guys. Representative Samuleson moves to amend the bill as read. All in favor? All opposed? Thank you. Last amendment - Representative Catlin, you are recognized to send forward your amendment. [SPEAKER CHANGES] Thank you Mr. Chairman. Actually I do have one more short one. [SPEAKER CHANGES] OK Representative Catlin, do we have it here? [SPEAKER CHANGES] Yes you do. [SPEAKER CHANGES] OK Good. Which one are we going over right now? [SPEAKER CHANGES] We're going over the amendment on the drinking water issue. [SPEAKER CHANGES] OK - you are recognized, Representative Catlin. [SPEAKER CHANGES] OK - I think you all remember last session we passed legislation called the Water Well Education Act which was intended to prevent people from drinking contaminated ground water without knowing, that didn't know they were drinking contaminated ground water. There were a number of places in the state that they would take their water test to the Public Health Commission and it would be tested for bacteria and some other things and they weren't notified that it wasn't being tested for solvents or Benzene or other dangerous contaminants. So what this does is it requires the health department to notify them what they're testing for and what they're not and give them advice on what they should test for if they have some concerns. And so that passed unanimously in both houses, then this confidential information part of this bill was in conflict with that so I'm proposing a compromise that's been supported by Deaner and we've talked to a number of people about it. Basically it says that the state geologist, which the state geologist gets the information on what the constituents are, would review in consultation with the state health director the confidential information that concerns hydraulic fracturing fluid, and as that item is identified in general statute so and so to advise local health departments of additional parameters that should be included in testing of private drinking waters to be in conformance with our private Water Well Education Act. So basically that communication would develop what the testing requirements would be at the local level for those who were concerned about that. I do think this is a way to continue to protect the public health. The confidentiality of the formulas would still be preserved. I urge you to support this. [SPEAKER CHANGES} Senator Roucheau [SPEAKER CHANGES] Thank you Mr. Chairman, members of the committee. Thank you, Representative Catlin, for your effort. We believe along with what the Mining and Energy Commission has done and what changes that were made that DENR should be the one responsible and not the operator and I would hope, members of the committee, that we don't move this amendment forward. [SPEAKER CHANGES] Questions, Comments? Representative ?? [SPEAKER CHANGES] Thank you, Mr. Chair. If I am reading this correct

[0:00:00.0] …In 35 V3, and line 21 of page 1 it references at the transmit of the certifications going to meet in the Mining and Energy Commission based on my understanding the bill passes it should go to the Oil & Gas Commission, a brand new commission as Mining and Energy Commission technically won’t exist perhaps we should offer a perfecting amendment I would imagine we can do that without wording, I think that Representative ____[00:28]. [SPEAKER CHANGES] Mrs. ___ she made a bill share some light on this. [SPEAKER CHANGES] Thank you Mr. Chairman, yes as the change from the Mining and Energy Commission to the Oil & Gas Commission and the Mining Commission won’t occur until August 1st, 2015 those references to the Mining and Energy Commission need to be left in place. There are provisions in this bill that direct the ____[00:56] statues to change the name from the Mining and Energy Commission to the new commissions names effective August 1st, 2015. [SPEAKER CHANGES] Thank you Mrs. Chairman. [SPEAKER CHANGES] Hold on one second I’m trying to get ___[01:15]. [SPEAKER CHANGES] The Senates used to be and so thanks a lot. [SPEAKER CHANGES] [Pause] Senate Richard would you like to recalibrate on this one? [SPEAKER CHANGES] Yes, sir. I don’t remind what date as I’m not sure what time it is. [SPEAKER CHANGES] Sorry, I think the Representative ___[01:37] puts forward the amendment and we will accept that if you would kind of… [SPEAKER CHANGES] Sorry for the confusion Senator Richard I apologize, any further discussions, questions on the amendment by Representative ____[01:47] and Representative ___ would you tell me what number maybe on the service on the right amendment? [SPEAKER CHANGES] Yeah, let’s just clarify this, its 135 version 3 I think that’s the right number. And what this does as it preserves the water education act by coordinating that information with the State Health Department. [SPEAKER CHANGES] Thank you Representative Kelvin, any discussions, comments? [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Representative ___[02:11] I apologize. [SPEAKER CHANGES] That’s alright thank you Mr. Chairman, I need some clarification on the amendment, is the intent of the amendment for affected areas of the state because my fear is when you create additional requirements with the water test we are gonna see people testing for things all over the state that might not be necessary. [SPEAKER CHANGES] Mrs. Vergennes can you answer that? Do you have the question? [SPEAKER CHANGES] I did it does not specify whether it’s in the affected areas where drilling would occur or if it’s state wide it would have a state wide application but basically the direction is to the state geologist to confirm what the State Health Director to advise as necessary local health departments, if there are additional parameters or chemicals that they need to be testing for. So, I don’t think the result would be them directing every county to test for additional parameters they would alert local health departments as necessary. [SPEAKER CHANGES] Representative Cullen. [SPEAKER CHANGES] Thank you and I can clarify a little bit too, it also in last session we passed requirement to made people informed as we are putting a well within thousand feet of known contamination. So, the testing suggestions are different in every location. So, this would only be in the areas where there natural gas was. [SPEAKER CHANGES] Further questions, discussions on the Representative Cullen’s amendment? Representative Cullen, the bill has known as what I told you about all in favor, all opposed, late I guess. [SPEAKER CHANGES] Hi, Representative Cullen you had a second amendment as you are pulling down and you send it forward. [SPEAKER CHANGES] That was the one that have some conflict, it was recommended by Dino so make that a little bit more… [SPEAKER CHANGES] This will be in finance and floors so we have the couple of opt-ins___[04:03]. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Thank you. Okay guys further discussion on the bill as amended, I apologize. [SPEAKER CHANGES] Thank you Mr. Chairman and I really appreciate the improvements that the sponsors have brought forward to us such as the bad cost because that’s really important, there have been situations well I don’t actually the state has gone fracking, right. So, I appreciate that because it looks like they are kind of people that we are gonna be attracting to North Carolina with limited resources and that might be the ___[04:40]. So, I’m proud of that provision but I really informed about tracking this bill I think we have charged the Mining and Energy Commission to come up with a plan for us to safe way to draw on the state, I don’t think we need to be making these changes, APA and creating a faster track for fracking, our resources… [0:04:58.6] [End of file…]

BALKQF [0:00:00.0] …Perhaps a 12 day supply for the country and they are located close to enlarge and many cases and that’s where he was more ___[00:09] first which is one pair of drinking water one of which is the Jordan Lake, I think there is more fund delivered about this the number of jobs that the commerce department said this frocking would bring to our state is 387 and that was in the study that was conducted a couple of years ago and we know most of those when I go to North Carolinians because we don’t really have an expertise here and extracted industry. So, this will be a lot of outer stators coming into take those 387 jobs. I’m troubled by the non disclosure of the contaminants and toxins that are making people sick all over the country, I’m troubled about the fact that we don’t have a waste disposal, I appreciate the fact that we are maintaining our ban on injecting that wastewater into our eco source___[00:50] but where are we gonna put that wastewater, where they keeping in place that people are getting sick and animals were dying. I’m concerned about the half of the area for the presumptive liability I thought that 5,000 feet was adequate but half a mile is not, it’s a very troubling bill that I think deserves more thought and concern that we are rushing through the short session and just gonna argue about that, thank you. [SPEAKER CHANGES] Representative Lucie. [SPEAKER CHANGES] Mr. Chairman, mine was about the usage of or what happens to the contaminated frocking wastewater, alright. It’s not clear to me from the bill what kind of protections people would have from the wastewater. [SPEAKER CHANGES] Representative Lucie would like to send ____[01:45] but again I will tell you that this is not the final rule I think we should talking about we will in the Mining Energy Commission rules but… [SPEAKER CHANGES] Representative Lucie, the Mining Energy Commission report that I described to you early includes all of that and my understanding is that they are in the process of, their rules will allow for reuse of the water by recycling any of the wastewater but as you knew from this bill wastewater disposal in the ground is totally prohibited under these rules but if you read and you listen to read that report you will have all your answers in regard to how it manages the wastewater. [SPEAKER CHANGES] Follow up questions. [SPEAKER CHANGES] Thank you Senator Richard, I’m just wondering why we wouldn’t have something like that in clear language in the bill itself rather than waiting for rules? [SPEAKER CHANGES] Mrs. ___[02:40] [SPEAKER CHANGES] Thank you Mr. Chairman, Representative Lucie that direction to the Mining Energy Commission was given in Senate Bill 820 in 2012, they were directed to among other things to create rules for the management of waste, they have a proposed rule that I believe they are planning on sending it out for public notice in mid June as I understand it and predominantly the wastewater recycle but they also allow under the rule the waste to be pretreated and then sent to a wastewater treatment plant or it could be transported out of state. I believe that is the crocks of the road but I will happy to send you the full rule if it would be helpful. [SPEAKER CHANGES] Reply that would be helpful because I’m concerned that some of these contaminated water blends up in our rivers and I would like to see more on that, okay thank you. [SPEAKER CHANGES] Thank you Representative Lucie, Representative Warren. [SPEAKER CHANGES] Thank you Mr. Chairman I just have a question about the Representative Stein’s amendment. And I don’t know if it’s just an outsider but I need some clarification line 25 of the amendment says the department may deny an application for permit if the applicant has a history of significant or repeated violations statutory orders to permit terms & conditions etcetera, etcetera. So, my question is—is that supposed to see shall there or could you explain me what the conditions would be that you will go ahead and offer permit or approve a permit for some of the history? [SPEAKER CHANGES] Senator ___[04:20]. [SPEAKER CHANGES] Thank you. Well, I have changes words to make sure that they have an opportunity to know what was going on and it will go to a review process versus originally they just may, if that was the case it maybe anything. So, we wanna make sure we will aware of anything out there and then depending on what the causes was prior that would either issued allow permit or not? [SPEAKER CHANGES] Yeah, I understand that part at the moment like I’m not sure, thank you. [SPEAKER CHANGES] Follow up, follow up. [SPEAKER CHANGES] Thank you Mr. Chairman. I understand that and I agree with the ____[04:52] and the necessity of finding out what the history of that but my question which I’m not sure what was answer of this, why… [0:04:58.6] [End of file…]

[0:00:00.0] …But what conditions would we give the permit to someone with a significant history of significant violations? [SPEAKER CHANGES] Just the question is to what degree and that’s what we are gonna leave the discussion to the department to know when do we allow someone to get a permit or not get a permit and that will be based on what the violations were in other communities? So, there are severe violations off course and moderate violations I think we have to review that and let Dino made those decisions. [SPEAKER CHANGES] Miss. Vergennes can you share some light on this? [SPEAKER CHANGES] Mr. Chairman, yes, representatives this language mirrors a similar provision in the solid waste statues for landfill applicants and it is warded identically shall that they conduct the environmental compliance review and may deny a permit based on the types of violations they find. [SPEAKER CHANGES] Representative Callus. [SPEAKER CHANGES] Just foremost this energy bill is appropriate Mr. Chairman. [SPEAKER CHANGES] Thanks sir, any further questions, comments…? [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] I’m sorry, Representative ____[01:00] [SPEAKER CHANGES] Thank you Mr. Chairman I wanna to clarify something that I thought I understood from reading the bill but I heard Representative Harrison say something significantly different. It’s my understanding the actual chemicals making up the fracking compounds will be publicly disclosed but the particular recopies for creating the chemicals will be not disclosed publicly but held by the state geologist and made available to emergency management and also Dino, I guess what I would say is we are gonna get the list of ingredients on the cane of cola but not get the recipe itself and I’m wondering am I under a misapprehension here? [SPEAKER CHANGES] Representative Harris. [SPEAKER CHANGES] Thank you and I think both of you take the political room here I thank both of you are little bit right. I think from my experience, from my experience working in the heavy industry that we have MSDS material safety datasheets and slide for the first responders in the fire protection to get when they get there or the local fire departments I think that’s what you are referring to, is that correct? The local chemicals but not the mixture and how it’s mixed and how many parts are mixed in that chemical but the chemical is on the site usually a heavy industrial and I think it’s a Federal Law contained in the material safety. [SPEAKER CHANGES] Further questions… [SPEAKER CHANGES] Can I ask a follow up? [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Are there circumstances under which the whole recipe might be disclosed to an emergency management agency or…? [SPEAKER CHANGES] I think and as Mrs. Vergennes have same questions. [SPEAKER CHANGES] Yes, Representative the bill doesn’t address the whole ingredients versus recipe issue that is a matter that has been address by the Mining And Energy Commission’s role what the bill says is that if something is determined to be a trade secret then it shall be disclosed to the division of emergency management, it shall be disclosed to first responders and medical personnel and retained by the department of the Mining And Energy Commission. And those apply whether it’s the ingredient or the recipe. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Welcome. [SPEAKER CHANGES] Well, the questions Representative Harrison? [SPEAKER CHANGES] The sort of the question for me I understand so there was a provision in there that made a felony to disclose that looking at you Jennifer Vergennes, oh yeah. So, there was a provision that made a felony that was just reduced ____[03:28]. So, those entities are allowed to have that information but like doctor but doctor can’t disclose it, there is a penalty in here is for disclosing these chemicals I’m just wondering. [SPEAKER CHANGES] No, no I mean make sure we know the distinction, we are not talking about the trade secret which is the ___[03:48] mix which is ___ portions, they do know and will know on the local side in the first responders again the material safety datasheet which is particularly chemicals you have onsite and how much you have onsite, what reactivity they have to humans, what reactivity they have to fire? That’s four years of reactivity that’s right four and it shows if you ever seen material safety danger sheet it has all the information that a first responder needs to react to emergency on that side. [SPEAKER CHANGES] So, Representative Mrs. Vergennes… [Chuckle] [SPEAKER CHANGES] Thank you Mr. Chairman, representative it would…You are right it was originally a felony for unlawful disclosure. Now, it is a class one misdemeanor for unlawful disclosure that portion of the bill allows lawful disclosure to first responders and medical personnel in the event of an emergency and allows department personnel and Mining and Energy Commission personnel and Public Safety Division of Emergency Management personnel to share that trade secret information as necessary to perform their duties but if that trade secret information goes beyond those individual… [0:04:59.8] [End of file…]

That either need it for an emergency and are authorized under the statute to have it or amongst the departments to perform their duties, that would be an unlawful exposure and subject them to a class one misdemeanor or civil actions. [SPEAKER CHANGE] Further questions, further discussion? [SPEAKER CHANGE] Mr. Chairman, is this the only case in North Carolina law where disclosure of trade secrets is a crime? [SPEAKER CHANGE] Ms. McGuiness? [SPEAKER CHANGE] No it isn’t. Actually the provision as it was originally introduced as a class I felony was modeled under our department of labor statutes concerning disclosure of hazardous chemicals. It is a class I felony for improper disclosure and there are also class one misdemeanors for unlawful disclosure of trade secret information in the solid waste statute and likely a host of other criminal penalties scattered throughout the statutes. The trade secret provisions are very uneven throughout the statutes. [SPEAKER CHANGE] Thank you Ms. McGuiness. Further questions? Representative ?? [SPEAKER CHANGE] Follow up for Ms. McGuiness. Going through your track down the line the doctors can find out; however, the doctor couldn’t tell the patient or it’s a class 1 misdemeanor, is that correct? So the doctor treating you could know what you have but at no point could the doctor tell the patient what they’re being treated for, is that correct? [SPEAKER CHANGE] Really quick let me just tell you the doctor can tell you you’ve had an exposure to X chemical. Doctor can’t say you’ve had exposure to this fracking fluid, here’s the portions, here’s the percentages, and all that so again it’s the difference between the chemical versus the trade secret piece of it. Was I right Ms. McGuiness? [SPEAKER CHANGE] That’s correct. I would also note that it is in the event of an emergency, that’s what gives the health care provider the privilege to have the information and then of course if they felt it was a medical necessity they could always ask the operator. But it is in an emergency that these people receive the information. [SPEAKER CHANGE] Questions, comments? ?? Collins you remember your motion? [SPEAKER CHANGE] Yes Mr. Chairman I’d like to move for a favorable report to the house commerce committee substitute senate bill 786 as amended with serial referral to finance and authorization of our staff to make technical changes identified in the bill. [SPEAKER CHANGE] You read that very well. All in favor. All opposed. Motion passes, meeting is adjourned.