Brief (1)
HB 2782 would amend several statutes pertaining to the Abandoned Oil and Gas Well Fund, which is administered by the Kansas Corporation Commission. Specifically, the bill would include the following provisions:
Change in Financial Assurance Fee Structure. The bill would require all oil and gas operators to pay an annual nonrefundable fee of at least $50 for financial assurance, to be credited to the Abandoned Oil and Gas Well Fund. Under existing law, the Commission collects a $50 annual fee only from operators with acceptable records of compliance and a fee equal to 3 percent of the bond amount from operators who fail to meet the conditions of acceptable compliance (the 3 percent fee is one of several statutorily-authorized options available to such operators). These moneys are currently credited to the Conservation Fee Fund. Moreover, the law does not require operators who obtain performance bonds or letters of credit to remit any fees to the Commission.
One Fund to Finance Abandoned Well Activities. The bill would require moneys from the Abandoned Oil and Gas Well Fund to be used to pay the costs of: investigation and remediation of contamination sites; investigation of abandoned wells and their well sites; plugging, replugging, or repairing abandoned wells; and remediation of the well sites. Expenditures from this Fund for those purposes would be authorized regardless of when the affected wells were drilled. Plugging and remediation would continue to be done in accordance with the Commission's prioritization schedule which is based on public health or environmental factors. Under existing law, such moneys may be expended from the Abandoned Oil and Gas Well Fund only for wells drilled before July 1, 1996; for wells drilled on or after July 1, 1996, moneys come from the Conservation Fee Fund. In the bill, the date of July 1, 1996, would no longer be a factor. Finally, the bill would specify that the Abandoned Oil and Gas Well Fund be a limit fund. It is now a no limit fund.
Administrative Expenses. The bill would authorize the Abandoned Oil and Gas Well Fund to pay for administrative expenses for the purposes outlined above, including identifying and locating responsible parties for abandoned wells and employee compensation. The bill would require these functions to be line item appropriations. Under existing law, administrative expenses may not be paid from the Abandoned Oil and Gas Well Fund but only from the Conservation Fee Fund.
Sunset Date. The bill would remove the expiration date of July 1, 2002, for demand transfers to the Abandoned Oil and Gas Well Fund. These transfers, which total $1.2 million annually, include: $400,000 from the State General Fund, $400,000 from the State Water Plan, and $400,000 from the Conservation Fee Fund. Also credited to the Abandoned Oil and Gas Well Fund is half of all moneys received by the state from the federal Mineral Leasing Act. These moneys are not subject to the statutorily-prescribed expiration date.
Background
HB 2782 was introduced at the request of a spokesperson from the State Corporation Commission. The House version of HB 2782 would create the Well Plugging Assurance Fund. This Fund would be used exclusively to pay the costs of investigations of abandoned oil and gas wells, as well as the plugging, replugging, and repairing of abandoned wells and remediation of sites. For all such actions, drilling had to begin on or after July 1, 1996. Any authorized activities would be financed by fees assessed operators for financial responsibility assurance. These fees are currently credited to the Conservation Fee Fund but would be redirected to the proposed fund. The fund would be interest bearing. No administrative expenses incurred by the Conservation Division may be paid from the Well Plugging Assurance Fund.
At the hearing on the bill before the House Committee on Environment, a spokesperson from the State Corporation Commission indicated that the 1996 Legislature passed legislation requiring financial assurance from oil and gas operators for abandoned wells which were drilled on or after July 1, 1996. The conferee indicated that the moneys generated by these assurance fees were credited to the Conservation Fee Fund instead of a separate fund. He noted that the Commission believes that the moneys raised through financial assurance fees should be set aside to pay for potential future plugging liabilities of abandoned wells which were drilled on or after July 1, 1996.
Other conferees appearing in support of the bill included representatives of the Kansas Independent Oil and Gas Association and the Kansas Petroleum Council. No conferees appeared in opposition.
The House Environment Committee amended the bill to provide that if there were insufficient moneys in the Well Plugging Assurance Fund or the Abandoned Oil and Gas Well Fund to pay liabilities and those liabilities were imposed on the Conservation Fee Fund that they be incurred in accordance with the prioritization schedules established by law.
The Senate Committee also held public hearings on the bill. The Senate Committee's version of the bill resulted from a review of: impediments to more rapid plugging and remediation of abandoned oil and gas wells; and projections of receipts and expenditures in the Abandoned Oil and Gas Well Fund. The Committee undertook this review in response to a request by the Senate Ways and Means Committee. The Senate Utilities Committee issued a final report to the Senate Ways and Means Committee (March 22, 2000), with recommendations addressing proposed amendments to the bill. In its report, the Committee provided the following justification for recommending one fund (as opposed to two funds) for abandoned well plugging, remediation, and other related operations: "We believe the date of July 1, 1996, is an artificial date that diverts some funding from being used for plugging and remediation on the most dangerous, highest priority sites. We do not believe that a new fund is needed, as would be established in the House version of HB 2782. Indeed, in our view, such a fund would only perpetuate the artificial juncture that we seek to eliminate."
The Senate Committee also amended the bill to: require all operators to pay at least $50 annually in financial assurance fees; authorize moneys from the Fund to be expended for administrative functions, including identifying and locating responsible parties for abandoned wells and employee compensation; make the fund a limit fund; remove the expiration date governing the demand transfers to the Fund; and include provisions to redirect on July 1, 2000, the revenues already in the Conservation Fee Fund to the Abandoned Oil and Gas Well Fund.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html