ACTION ALERT: Please call your State Senator and tell them you oppose SB 1164 and SB 1184

SB 1164, introduced by Senator Roger Kahn (R-Saginaw), would strip the ability of the Michigan Department of Natural Resources (MDNR) to regulate and manage oil, gas and mineral development in the state. The bill would create a public/private partnership charged with developing oil and gas on state lands. This entity, known as the “Clean Energy Authority,” would have the power to force the MDNR to enter into an oil and gas or mineral lease agreement with the Authority, unless the proposed site is already in production or has “unusual or sensitive” environmental features. The Authority would enter into production partnerships with private oil and gas producers. It would also absorb the production costs, losses and earnings, just like any private producer would.

SB 1184, introduced by Senator McManus, requires the MDNR to provide to the Clean Energy Authority, an inventory of all contracts, including oil and gas leases, for the taking of oil and gas from state-owned lands. It requires the MDNR to enter into a direct oil and gas lease with the Authority upon the Authority’s request. The MDNR has no discretion regarding whether to lease or not. Current practice allows the MDNR the ability to designate certain lands off-limits to leasing or some lands to be non-developable to protect the surface, but still allow for appropriate drainage of oil and gas resources.

It allows the MDNR to continue with the oil and gas lease auctions, but gives the Authority 180 days to decide whether they want to lease any of the lands identified for auction. The bill also allows the MDNR and the Authority to enter into contracts for storage of greenhouse gas.

Currently, revenue generated through the leasing of state mineral rights is deposited directly into the Michigan Natural Resources Trust Fund, which is used by the state to purchase land for recreation and conservation, and for recreational developments. Under the new proposal, the authority would pay the MDNR a royalty for the lease, which would be deposited into the Michigan Natural Resources Trust Fund. Any additional income would be diverted away from the MDNR and instead go towards funding a new “Clean Energy Fund.” This fund would, in turn, be used for a variety of programs, including the development of new coal-fired power plants and enhanced oil recovery projects.

There are significant concerns with these bills which include:

• The loss of federal funds for forest and wildlife management activities because of conflicts with federal law. Lands purchased with federal funds can only be leased as “non-development” or not at all.
• Under the proposal, the Authority would get to decide what is environmentally sensitive.
• There is no opportunity for protecting special lands from oil and gas leasing, which is currently the case for the Mason Tract, state parks, the Jordon River Valley, natural areas, Sand Lakes Quiet area, and the Pigeon River Country, outside of the consent area.
• It takes away the authority of the MDNR to determine sensitive areas where oil and gas leasing should not occur and gives that responsibility to the Authority.
• If environmental contamination occurs because of production and drilling activities, it is not clear who is responsible for addressing the problem.
• The potential elimination of competitive bidding for oil and gas leases.
• It threatens the current process for oil and gas development on state lands.
• It gives the Authority an edge by allowing the nomination process to steer where development activity has potential and then assume management control over those areas.
• It precludes the orderly development of minerals, which is currently the responsibility of the MDNR.
• It conflicts with the forest certification program, putting state forests in jeopardy of becoming “uncertified.”
• The MDNR losses the ability to manage state lands for multiple uses, including hunting.
• It puts the state in the position of making risky and speculative investments with state tax dollars.
• It gives the Authority a monopoly on oil and gas development.
• The Michigan Natural Resources Trust Fund would lose millions of dollars because bonus payments are eliminated for leasing.
• It requires the MDNR to prepare an inventory of contracts for oil and gas development and requires information to be included in the inventory which is currently not available. The creation of the inventory is very labor intensive and there are no funds identified to pay for the creation of the inventory.
• It circumvents the appropriations process and also the contract approval process of the state.
• It requires the state to get into the business of energy production by requiring the development of at least one integrated gasification combined cycle power plant. Power production has traditionally been the business of the private sector.
• Allows the Authority to invest state assets at the Authority’s discretion in obligations it determines to be proper.