CHEVRON U.S.A., INC., Cоnocophillips Alaska, Inc., Exxonmobil Alaska Production Inc., and FOREST OIL CORPORATION, Appellants, v. STATE of Alaska, Department of Revenue, Appellee.
Supreme Court No. S-15891
Supreme Court of Alaska.
December 16, 2016
STOWERS, Chief Justice.
Finally, Bachner argues that the superior court erred by granting the State‘s motion to dismiss the suit without first considering the terms of the lease. Civil Rule
Bachner faults the superior court for its “refus[al] to take evidence or convert the motion [to dismiss] to a motion for summary judgment.” Bachner contends that the court was required to look at the lease because “a lease prepared by the state might possibly establish remedies that are different from, or even in conflict with, statutory law.” But although Rule
Bachner‘s complaint alleged that it had entered into a contract with the State in 2003 to lease the Denali Building for the use of the Department of Natural Resources; that the firm term expired in September 2013 and was followed by a one-year renewal; that the State continued to occupy space for which it had failed to pay rent; and that accordingly the State was in material breach of the lease and “must vacate the premises, negotiate another long-term lease,” and pay past-due rent, “or they will be in trespass on the property.” The face of the complaint thus alleged the existence of a contract claim subject to the procurement code and its exhaustion requirement, as explained above. The face of the complaint contained no suggestion that the lease‘s remedy provisions conflicted with or superseded the procurement code, nor did Bachner make this argument before the superior court.54 The court was therefore presented with a legal issue: whether a dispute over an ongoing state office lease was a “contract claim” subject to the procurement code.
We conclude that the superior court did not err when it ruled on the motion to dismiss on the basis of the allegations of the complaint alone. Because Bachner‘s complaint failed to allege any facts that would support a theory of relief not barred by the procurement code‘s exclusive remedy provision, the superior court did not err in granting the State‘s motion.
V. CONCLUSION
We AFFIRM the judgment of the superior court.
Dario Borghesan, Kenneth J. Diemer, Joanne M. Grace, Assistant Attorneys General, Anchorage, and Craig W. Richards, Attorney General, Juneau, for Appellee.
Before: Stowers, Chief Justice, Fabe, Winfree, Maassen, and Bolger, Justices.
OPINION
STOWERS, Chief Justice.
I. INTRODUCTION
In this appeal oil producers (the Producers)1 challenge an administrative decision (the Decision) in which the Alaska Department of Revenue (DOR) decided to treat separate oil and gas fields operated by common working interest owners as a single entity when calculating the Producers’ oil production tax obligations. Relying on a statute that gave DOR the discretion to “aggregate two or more leases or properties (or portions of them), for purposes of determining [their effective tax rate], when economically interdependent oil or gas production operations are not confined to a single lease or property,”2 DOR concluded that operations on a number of smаller oil fields were economically interdependent with larger operations on the adjacent Prudhoe Bay oil field. The Producers argue that in interpreting the phrase “economically interdependent” in the Decision, DOR effectively promulgated a regulation without following the procedures
II. FACTS AND PROCEEDINGS
A. Facts
1. An overview of Alaska‘s taxes on oil production
The Prudhoe Bay oil field is one of the largest oil and gas fields yet discovered in the United States. Explorers discovered the Prudhoe Bay oil field in 1967 and the field began producing oil about ten years later. Just as oil production began in Prudhoe Bay, Alaska passed the initial version of the Oil and Gas Production Tax, which laid out a new system for taxing oil production in Alaska.4 During the relevant time frame this legislation set the production tax rate for oil fields by multiplying a constant nominal tax rate of 15% by the economic limit factor (ELF), a coefficient between zero and one calculated for each individual oil field.5 In other words, a higher ELF resulted in a higher tax rate, and a lower ELF resulted in a lower tax rate for any given oil field.
The legislature passed House Bill 118 in 1989, adding the “field size factor” as a component of the ELF formula. The field size factor is the total volume of production from a field during a given reporting month.6 All else being equal, the field size factor produced a higher ELF (and therefore a higher tax rate) for larger fields and a lower ELF (and therefore a lower tax rate) for smaller fields. The legislature reasoned that smaller fields needed similar production infrastructure to larger fields but, because they produced less oil, smaller fields had poor economies of scale and were less profitable.7
However, including the field size factor in the ELF formula also created an incentive for oil producers to capitalize on tax breaks for smaller fields by classifying certain areas as independent fields even if the areas were economically interdependent with other, larger oil fields. Therefore,
To eliminate uncertainty whether DOR would aggregate particular fields, DOR adopted
In August 2006 the legislature repealed the ELF-based tax system and replaced it with a new production tax system, effective retroactively to April 1, 2006.14
2. Oil production at Prudhoe Bay
Before beginning production at Prudhoe Bay, the working interest owners of the field‘s oil and gas leases combined those leases into a unit called the Prudhoe Bay Unit so that the working interest owners could conduct operations as if the entire unit area were a single lease. The Alaska Department of Natural Resources approved the creation of two separate Participating Areas within the Prudhoe Bay Unit; we refer to them
At the start, the two Participating Areas making up the Initial PAs were divided such that one area produced oil and the other produced gas.16 In 1986 the Department of Natural Resources approved an additional participating area on a separate reservoir, known as the Lisburne Participating Area (Lisburne PA). The working interest owners built a separate set of production facilities to handle production from the Lisburne PA.
Later, the working interest owners identified nine additional reservoirs within the Prudhoe Bay Unit, and the Department of Natural Resources approved separate participating areas for each of these nine reservoirs.17 Six of these nine participating areas are involved in this appeal, and we refer to those areas as the “Satellite PAs.”18 The Satellite PAs covered separate reservoirs, were developed long after the development of the Initial PAs, and produced significantly smaller oil outputs than the Initial PAs. The Satellite PAs integrated operations with the Initial PAs, because, unlike the Lisburne PA, the Satellite PAs did not have their own production facilities.19 Instead, production facilities originally built to serve both the Initial PAs also processed the fluids produced at the Satellite PAs.20
Until oil and gas are separated from one another and from any waste present in the well fluids, producers cannot accurately
Furthermore, the amount of oil developed from each participating area depended on the amount and quality of oil produced at the others. Because the centralized production facilities serving the Initial PAs and the Satellite PAs could not process all production from all wells in those participating areas, fluids from some wells were “backed out,” or blocked, in favor of fluids from other wells based on the “best well produces” principle. This principle favored well fluids with the highest ratio of oil to gas, which were ultimately the most profitable fluids to produce, regardless of their participating area of origin and regardless of which working interest owner owned that participating area.
In the Prudhoe Bay Unit, each Satellite PA had a smaller field size factor and therefore a lower ELF thаn the Initial PAs. Consequently, while DOR taxed production from the Initial PAs at a rate of about 12.5%, DOR taxed production from the Satellite PAs at a rate of less than 0.5%. Furthermore, the older Initial PA wells tended to produce more gas and water per barrel of oil than wells in the Satellite PAs. Therefore, lower-tax oil from the Satellite PAs backed out higher-tax oil from the Initial PA wells at increasing rates. The number of barrels of Initial PA production backed out in favor of Satellite PA production increased substantially from 217,896 barrels in 2000 to 1,224,090 barrels in 2004. As the low-tax oil from the Satellite PAs increasingly backed out the high-tax oil from the Initial PAs, the total amount of tax DOR collected from the Prudhoe Bay Unit decreased accordingly.
The Producers sought advance rulings from DOR that it would not aggregate several Satellite PAs that used Initial PA production facilities. Between August 1998 and November 2001 the Producers filed multiple requests for advance rulings involving the Aurora, Borealis, Midnight Sun, and Polaris Participating Areas. As early as 2000 DOR informed the Producers that it was examining the issue, but it never acted on these applications. During that time period DOR considered the requests and conducted internal analyses on the best way to clarify the phrase “economic interdependence” as it was used in the Aggregation Statute.21
3. DOR‘s internal analyses of the Aggregation Statute
DOR produced a variety of internal memoranda and internal departmental рosition papers acknowledging confusion over the interpretation of “economic interdependence” and analyzing whether it would be better to clarify the term via statute, regulation, or administrative decision. In August 2001, Dan E. Dickinson, the Director of DOR‘s Tax Division (the Director) prepared an internal memorandum expressing concern that the Aggregation Statute did not clearly define the grounds for aggregation and that the then-existing regulations did not remedy the confusion. The Director complained that “[t]he ELF is difficult to administer because the base criteria for aggregation and segregation are not clearly articulated in the statute. . . . [O]ur attempts to further clarify the criteria in the regulations are self-contradictory and have not dispelled the murkiness.” In particular, the Director was concerned that a straightforward reading of the term “economically interdependent” would permit aggregation only if the fields were “mutually contingent,” (emphasis added) preventing DOR from aggregating older fields and satellite fields relying on the production facilities originally built to serve only those older fields, the situation DOR faced with regard to the Initial PAs and the Satellite PAs. The Director wrote that DOR
may aggregate [fields] when they are economically interdependent. Going to Webster suggests that [DOR] must show that
the [fields] are “mutually contingent” before [DOR] aggregate[s]. The argument can always be made that as long as new production comes on and uses empty space in old production facilities, there is no mutual dependency.
The Director suggested that DOR could repeal
While DOR never adopted those proposed regulations, it continued to internally discuss the need for clarification. The Director began drafting a departmental position paper (the White Paper) on the application of the Aggregation Statute, particularly the meaning of “economic interdependence.” August and September 2002 versions of the White Paper draft suggested that the term “economically interdependent” as it was used in the Aggregation Statute was ambiguous, theorized that DOR could change its “established reading” of the statute tо a “better, alternative reading of the law” that could “turn the current ELF practice on its head,” and suggested that such changes would be so extensive that they should probably occur through legislation rather than regulation.
Shortly after the completion of the September 2002 White Paper draft, the Director acknowledged that upcoming advance ruling decisions, which were likely to result in the “granting of separate ELFs,” would provide an opportunity to clarify the Aggregation Statute‘s reference to economic interdependence. However, he expressed doubt that DOR should use the decisions to change the existing interpretation of the statute and stated that DOR “do[es] not inten[d] to amend that policy without either (a) legislative direction or (b) encountering a factual situation that is so egregious that to preserve any measure of original legislative intent it becomes necessary for us to act.”
In subsequent drafts of the White Paper circulated internally from February 2003 to November 2004, DOR continued to explore options for addressing its concerns about the interpretation of the phrase “economic interdependence.” In the February 2003 draft DOR suggested that these changes to ELF policy “should [be] . . . enshrined in a regulation.” The White Paper also pointed out that DOR “ha[s] the power through regulation . . . to raise an additional 100 million dollars a year in taxes by changing course and raising taxes on the [Satellite PAs].”
A March 2003 draft of the White Paper again stressed the need to clarify the statutory standard through the adoption of regulations, emphasizing that “the definition of economic interdependence . . . [is] sufficiently vague in statute that [DOR] ought to adopt regulations to clarify the definition.” The draft recognized the policy implications of such a decision, explaining that DOR likely “has the discretion through regulation to either validate its current practices, or take a much more aggressive revenue stance.” In its analysis of the then-current policy, DOR acknowledged that one of the primary dictionary definitions of the term “interdependence” involved mutual dependence, which could require each field to be contingent upon the existence of the other before DOR could aggregate the fields. The draft reasoned that under this definition, the Satellite PAs and the Initial PAs could not be economically interdependent because the Initial PAs were developed long before and independently of the Satellite PAs, and, therefore, the Initial PAs could not be contingent upon the Satellite PAs. This March 2003 draft also explored alternative interpretations of “economic interdependence” that would produce different results when applied to the Prudhoe Bay Unit. The draft concluded this analysis by recognizing that the “words and concepts” of the Aggregation Statute “are not well defined.”
Finally, the August 2004 draft, seeming to assume that DOR would proceed via regulation—the White Paper draft discussed what
B. Proceedings
In January 2005 the Director issued DOR‘s Decision notifying the Producers that DOR had decided to aggregate the Initial PAs and the Satellite PAs in the Prudhoe Bay Unit22 for the purpose of calculating production tax obligations effective February 1, 2005, the start of a new monthly period for determining production tax obligations.23 DOR found that operations at the Initial PAs and the Satellite PAs were economically interdependent, and, therefore, DOR aggregated them, referencing a variety of policy reasons for its decision. The Decision effectively treated the aggregated areas as a single lease or property for calculating the ELF, resulting in a higher ELF and a higher tax rate on the oil produced from these properties.
The Decision explained that DOR‘s prior administrative decisions related to aggregation provided “only limited guidance” on the meaning of the term “economically interdependent.” The Decision then reviewed judicial decisions analyzing the term in other legal contexts in jurisdictions outside of Alaska and a 1998 DOR decision in which DOR aggregated multiple leases covering a single reservoir developed under a sole management plan. DOR concluded that “while the guidance provided by past administrative precedent is sparse, the applicable generality . . . seems to be that economic interdependence is shown by or associated with unified or integrated operations or enterprise encompassing the several leases or properties in question.”
Based on that review, DOR‘s Decision stated that “if [fields] are so integrated as to be reasonably treated as an economically unitary activity,” the fields are economically interdependent. DOR further explained that a “weak” form of economic interdependence “exists between two or more things when the economic activity or condition of each has a material effect on the economic activity or condition of the other” and a “strong” form of economiс interdependence “exists when formally distinct entities or activities are sufficiently economically integrated that for some practical purpose they may reasonably be considered as equivalent to a single or unitary economic entity or activity.” DOR observed that these two concepts often, if not always, “differ . . . only in the degree of interdependence that exists.”
DOR did not decide which standard controlled for the purposes of the Aggregation Statute. However, DOR concluded that the areas in question easily satisfied the more demanding standard because (1) the Initial PAs and the Satellite PAs shared common production facilities for oil and gas, and the use of common facilities made the volume of oil produced from any participating area dependent on the volume of oil produced from the others; (2) the working interest owners made decisions about which wells to produce and which wells to back out “across participating areas, not within each participating area on an isolated basis“; and (3) “the commingling of produced fluids in common production facilities and the consequent need to estimate and allocate volumes from different [participating areas] renders the production volumes of all the [participating areas] interdependent.”
DOR then explained the policy rationale behind its Decision. First, DOR concluded that “the backout phenomenon, taken together with highly disparate economic limit factors as between the Initial PAs and the [S]atellite PAs, results in a tax structure that is grossly at odds with the economics of oil production.” DOR explained that the legislature intended the ELF system to serve as a tax break for costlier production, but in Prudhoe Bay, non-aggregation gave a tax break to oil from the Satellite PAs even though that oil was less costly to produce due to its higher ratio of oil to gas than the oil from the Initial PAs. Second, due to the rising cost of oil in recent years, oil production on all Prudhoe Bay fields was moving further away from its economic limit; therefore, increasing the tax rate on oil from the Satellite PAs would not discourage the Producers from continuing to produce oil from the Satellite PAs. Third, DOR believed “[i]t [was] inherently problematical to tax oil at widely differing effective rates when the determination of how much oil is subject to which rate is based not on accurate metering but on estimation.” DOR acknowledged that it had approved the use of allocation in previous instances of facility sharing but that “its subsequent experience ha[d] not been without significant problems.” Finally, based on the history of North Slope development, DOR found “little reason to believe” that declining to aggregate the Satellite PAs with the Initial PAs in the Prudhoe Bay Unit would “promot[e] additional development.”
DOR concluded its Decision by determining that the Satellite PAs in question were eligible for aggregation with the Initial PAs, relying on factors including the use of common production facilities, the coordination of well production to deal with constrained capacity in shared production facilities, the use of backout volume and compensation arrangements, and the allocation of production to wells without exact metering.
In March 2005 the Producers appealed the Decision24 and requested an informal conference with DOR under
Pursuant to
Judge Kennedy‘s decision acknowledged that the internal memoranda аnd White Paper drafts “suggest that the question of how to interpret ‘economically interdependent’ and other phrases in the ELF statute could have been approached by asking the legislature for clarifying amendments or by adopting an interpretive regulation[ ], and that the department considered those options,” but that “[a]s preliminary, informal, internal, confidential, and generally unattributed papers, the[y] . . . show nothing more.” In October 2012 Judge Kennedy upheld DOR‘s decision and concluded that DOR was not required to engage in formal rulemaking in interpreting the Aggregation Statute the way it did in its Decision.
The Producers then appealed Judge Kennedy‘s decision to the superior court, again raising APA and due process arguments. In March 2015 Superior Court Judge Michael D. Corey held that DOR had adopted a commonsense interpretation of the Aggregation Statute that did not require formal rulemaking under the APA. The court also held that DOR did not abuse its discretion or violate the Producers’ due process rights.
The Producers appeal to this court. The Producers claim that DOR‘s Decision constitutes a regulation and, since a regulation adopted without complying with the APA is invalid,29 the Decision itself is invalid. The Producers argue that DOR should recalculate the production tax for the period from February 2005 through March 2006 and refund any amounts the Producers paid in excess of the recalculated production tax for that period with interest.
III. STANDARD OF REVIEW
“Whether an agency action is a regulation is a question of law that does not involve agency expertise, which we review applying our independent judgment.”30 Therefore, “more deferential standards of review sometimes reserved for agency interpretations are inappropriate here” where “[t]he threshold question . . . is whether the APA applies” to DOR‘s action.31
IV. DISCUSSION
A. DOR‘s Decision Applying The Term “Economically Interdependent” To The Initial PAs and Satellite PAs Was A Commonsense Interpretation Of The Statute And Did Not Trigger APA Rulemaking Requirements.
1. Defining a regulation under Alaska law
The APA defines a regulation as “every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of a rule, regulation, order, or standard adopted by a state agency to implement, interpret, or make specific the law enforced or administered by it.”32 Regulations that are not promulgated under APA procedures are invalid.33
“[T]he label placed on a particular statement by an administrative agency does not determine the applicability of the APA. Under the Alaska statute, ‘regulation’ encompasses many statements made by administrative agencies, including policies and guides to enforcement.”34 But while the APA‘s definition of regulation is construed broаdly,35 not
In analyzing whether an agency action was adopted “to implement, interpret, or make specific the law enforced or administered by it”38 we have recognized that agencies must have some freedom to apply relevant statutes
without the burden of adopting a regulation each time they do so. We have explained that “[n]early every agency action is based, implicitly or explicitly, on an interpretation of a statute or regulation authorizing it to act. A requirement that each such interpretation be preceded by rulemaking would result in complete ossification of the regulatory state.”39
Therefore, we have clarified that agency actions that are merely “[commonsense] interpretation[s]” of existing requirements are not regulations requiring compliance with APA rulemaking standards.40 In other words, “obvious, commonsense interpretations of statutes do not require [rulemaking].”41 We have further explained that
2. DOR interpreted the Aggregation Statute according to its own terms.
An agency action may not be a commonsense interpretation of existing law when it adds “requirements of substance” rather than serving as an “interpretation of the [statute] according to its own terms.”43 In its Decision, DOR determined that oil production operations are economically interdependent when they are “so integrated as to be reasonably treated as an economically unitary activity.” Comparing our previous decisions in Jerrel v. State, Department of Natural Resources44 and Burke v. Houston NANA LLC45 with Alaska Center for the Environment v. State46 and Alyeska Pipeline Service Company v. State, Department of Environmental Conservation,47 we conclude that DOR‘s Decision was a commonsense interpretation of the statute according to its own terms, and DOR‘s interpretation does not add any requirements of substance.
In Jerrel, the Jerrels held grazing leases on state land subject to a statute and its implementing regulation requiring them to mark their horses that grazed on the leased land.48 The Department of Natural Resources sent a lettеr informing the Jerrels that they were not in compliance with the statute, which required that the livestock owners “tag[ ], dye[ ], or otherwise mark[ ]” their animals.49 The Department of Natural Resources directed them to mark their animals with “[sufficiently] permanent” markings visible from at least twenty feet, even though neither the statute nor relevant regulations contained that specific requirement.50 We rejected the agency‘s argument that a twenty-foot requirement was an informal “policy rule,” concluding that the requirement was a regulation developed “precisely in order to interpret, make specific, and implement the statutory requirement that a mark or brand ‘show[ ] distinctly.‘”51
Similarly, in Burke, we held that an agency‘s action was a regulation when that agency decided that its filing deadline‘s exemption for extenuating circumstances included an unwritten “discovery rule” that capped the grace period at ninety days.52 In both Jerrel and Burke, the agency action in question added specific criteria or values that clarified the existing statutory or regulatory standard and required the public to comport with precise criteria not specified in existing rules. In other words, the agencies’ actions in Jerrel and Burke added requirements of substance and, therefore, we held that the agencies’ actions were regulations.
In contrast, in Alaska Center for the Environment, an agency clarified that the term “major energy facility” as used in a regulation did not include an airport expansion project because the regulation was not meant to include businesses that used fuel incidentally in daily operations.53 We held that the
In this case, DOR‘s Decision is more similar to the agencies’ actions in Alaska Center for the Environment and Alyeska Pipeline Service Company than to the agencies’ actions in Jerrel and Burke. DOR clarified the scope of the statute by indicating the degree of economic interdependence that could warrant aggregation, but it did not add any specific criteria to the term “economically interdependent” that went beyond the scope of the Aggregation Statute‘s existing language. Instead, DOR‘s Decision was based only on existing statutory language, and the Decision served only to clarify whether the broad term “economically interdependent” covered the specific situation involving the Satellite PAs and the Initial PAs. Notably, the interpretation of “economically interdependent” set forth in DOR‘s Decision does not do much to clarify the Aggregation Statute until that interpretation is applied to the specific facts of this case. This suggests that DOR narrowly tailored its interpretation of the phrase “economically interdependent” to the facts of this case and applied the existing language of the Aggregation Statute to this case without adding any additional terms.
DOR acknowledged in its White Paper drafts that there were a variety of possible definitions of “economically interdependent” based on dictionary definitions of related terms. The Producers argue the decisions by the superior court and the Office of Administrative Hearings “ignore completely the confusion and wildly different valid interpretations that DOR acknowledged, and the effort it expended over several years evaluating alternative interpretations different from the one obtained by looking at the primary dictionary definition.” The Producers claim that this “demonstrates that it achieved the desired interpretation through considerable, complicated effort, not through a routine, [commonsense] interpretation of clear statutory language.” The Producers also fault DOR for failing to cite any of the dictionary definitions related to the phrase “economically interdependent” in its Decision.
But it is not uncommon for there to be multiple ways to read a given phrase in a statute without adding any additional substantive terms or requirements; if this were not the case, agencies would always be required to proceed via rulemaking. Furthermore, DOR‘s interpretation of “economic interdependence” is consistent with dictionary definitions of the terms. Webster‘s Dictionary defines “inter-” as a prefix meaning “reciprocal.”57 It defines “dependent” as “determined or conditioned by another” and “dependence” as “the quality or state of being influenced or determined by or subject to another.”58 DOR‘s determination that oil production operations may be economically interdependent “if [fields] are so integrated as to be reasonably treated as an economically unitary activity” is consistent with these definitions.59 In Smart v. State, Department
3. DOR‘s interpretation of the term “economically interdependent” was foreseeable.
The legislature enacted the ELF tax regime and gave DOR the discretion to aggregate oil fields in order to accomplish its main purpose: to tax different oil fields at different rates to reflect each field‘s underlying economics and to incentivize oil production in smaller, less profitable fields. When oil and gas operations in different fields become integrated such that there is no meaningful separation between production in the different fields, there is no justification for maintaining different effective tax rates on those fields. The Initial PAs and the Satellite PAs used common production facilities, coordinated wеll production to deal with constrained capacity in shared production facilities, implemented backout and compensation agreements based on the interconnections between the Initial PAs and the Satellite PAs, and allocated production to wells without exact metering. This meant that the Satellite PAs received tax breaks that were designed to alleviate costs they did not face, and the Satellite PAs began to back out oil taxed at the higher rate. DOR‘s Decision to interpret “economically interdependent” such that “economic substance prevail[ed] over form” should therefore have been foreseeable in light of the ELF tax regime and the well-known purposes behind it; DOR‘s Decision was consistent with the legislature‘s intent. What had changed was the way in which the Producers increasingly integrated their operations among the Initial PAs and the Satellite PAs. It was foreseeable that DOR would use the tool the legislature gave it—its discretionary ability to aggregate fields if they were economically interdependent—to aggregate the Satellite PAs with the Initial PAs to better reflect the economic realities of the Prudhoe Bay Unit.
4. DOR‘s decision did not depart from a previous interpretation of the Aggregation Statute.
The Producers rely mainly on internal DOR memoranda and White Paper drafts to argue that “DOR‘s extended internal analysis of the [A]ggregation [S]tatute and the then-existing interpretation of and policy under that statute” demonstrate that “the Decision . . . altered DOR‘s prior interpretation of the statute.” The Producers highlight the fact that in one memo, the Director acknowledged that an interpretation of the Aggregation Statute similar to DOR‘s interpretation in its Decision represented a “180-degree switch in the roles played by production facilities in the ELF decision.”61 In another 2002 draft, the Director wrote that “two very different—almost opposite—interpretations can be drawn from” the ELF statute and that DOR
First, these documents were never meant to represent DOR‘s official policy positions.63 These documents were internal, and DOR clearly labeled them as drafts. Thus, an official decision, such as DOR‘s Decision, that reaches a conclusion different from those reached in internal White Paper drafts or memoranda does not represent a change in official policy that requires rulemaking because the internal documents never purported to set forth DOR‘s official position on the interpretation of the Aggregation Statute. Relying on these internal documents as evidence of DOR‘s previous interpretations of
the Aggregation Statute under the facts of this case would be problematic because agency officials would fear that any written materials, even internal ones, could invalidate later official actions that differed from initial, non-public approaches. This would dissuade agency officials from conducting important internal written analyses and examining policy issues from all sides while in the process of establishing the agency‘s official position on vital administrative matters.
Second, the internal documents as a whole do not suggest that DOR‘s Decision represented a departure from DOR‘s previous interpretations of the Aggregation Statute‘s use of the phrase “economically interdependent.” At most, the internal documents suggest that the term “economically interdependent” is subject to more than one commonsense reading. But the mere fact that a term can be interpreted in more than one way does not automatically mean that rulemaking is required or that DOR changed its interpretation of the Aggregation Statute.64 In multiple internal documents, DOR concluded that the Satellite PAs and the Initial PAs were not economically interdependent under one of the definitions of interdependence it found in the dictionary. But DOR also noted that within the same dictionary, other listed definitions for the same terms yielded different interpretations of economic interdependence that supported aggregation of the Satellite PAs and the Initial PAs.
Mr. Dickinson seems to have been under the impression that
Furthermore, in reaching its Decision, DOR carefully reviewed its own administrative precedent surrounding the Aggregation Statute. It found that early decisions were “not particularly informative” but that they did “contain a common factual predicate that logically supports a finding of economic interdependence, namely, that a single operator manages the production operations.” DOR also analyzed a 1998 decision aggregating multiple leases covering a single reservoir developed under a sole management plan. DOR acknowledged that the 1998 decision focused on development history in deciding whether to aggregate, but it clarified that it took that approach because the agency was aggregating the leases for a retroactive determination of tax burdens. DOR determined that “insofar as the question of economic interdependence of current or future production operations is concerned, the manner in which development previously occurrеd may not necessarily be of much relevance.” After closely reviewing past precedent, DOR concluded that “while the guidance provided by past administrative precedent is sparse, the applicable generality . . . seems to be that economic interdependence is shown by or associated with unified or integrated operations or enterprise encompassing the several leases or properties in question.” Rather than disavowing precedent, DOR looked to its past decisions and interpretations of the Aggregation Statute and determined that its interpretation of “economically interdependent” as meaning “so integrated as to be reasonably treated as an economically unitary activity” did not conflict and was consistent with its prior decisions.
Overall, while DOR may have changed the way it exercised its discretion in deciding to aggregate, this was the first time that DOR had been called upon to articulate its understanding of the phrase “economically interdependent,” and its analysis in the Decision was not inconsistent with related, but not entirely analogous, precedent. Instead, DOR observed changing realities in the Prudhoe Bay Unit and decided to aggregate increasingly interdependent operations.
B. The Producers Had An Opportunity To Be Heard Throughout The Proceedings.
Although the Produсers dropped their argument that DOR violated their right to due process by issuing its Decision, we note that we have explained that in agency decision-making contexts, due process requires an opportunity to be heard.65 We note that the Producers had a fair opportunity to be heard and to challenge DOR‘s interpretation of “economic interdependence” throughout these proceedings. After DOR issued its Decision, the Producers appealed the Decision and requested an informal conference with DOR under
During oral argument to this court, the Producers admitted that “[t]he [Producers] did have an opportunity to challenge [DOR‘s] interpretation,” but they argued that they did not have the opportunity to challenge the interpretation “in the context of a clean slate the way there would be with the discussion of a regulation. . . . Instead of going through the public regulation process where anybody could participate, any interested party could state what their concerns were, now you‘re just dealing with the arguments about the
V. CONCLUSION
We AFFIRM the superior court‘s conclusion that DOR‘s Decision was not a regulation but instead was a commonsense interpretation of the Aggregation Statute. We also AFFIRM the superior court‘s decision upholding DOR‘s Decision.
Janet HUDSON, on behalf of herself and all others, Petitioner, v. CITIBANK (SOUTH DAKOTA) NA, Alaska Law Offices, Inc., and Clayton Walker, Respondents.
Cynthia Stewart, on behalf of herself and all others who are similarly situated, Petitioner, v. Midland Funding LLC, Alaska Law Offices, Inc., and Clayton Walker, Respondents.
Supreme Court No. S-14740, Supreme Court No. S-14826 (Consolidated)
Supreme Court of Alaska.
December 16, 2016
Notes
(1 - (PEL / TP))(150,000 / (TP / Days))((WD / TP) / PEL)
“PEL” represents the monthly production rate at the economic limit; “TP” represents the field‘s total volume of production during a reporting month; “WD” represents the total number of well days, or days the well operates, during the month; and “Days” is the number of days in the month. The first exponent in this equation is commonly known as the “field size factor.”ConocoPhillips Alaska, Inc. used a similar rationale to advocate for the proposed change in a letter to members of the House Resources Committee dated February 7, 1989. The letter stated that[t]here are many economies of scale realized as a result of larger field size. For instance, each field, regardless of size, still would require the following: operations center, base camp, airstrip, roads, warehouse, power plant, drill pads, sewage treatment, water storage, transportation support vehicles, gas conditioning and compression facility, oil/gas/water separation plant, flow station, waterflood facility, water injection facility, dehydration plant, and so forth.
[a]ll fields, regardless of size, must possess living quarters, roads, pipelines, and personnel transportation infrastructure in addition to the normal production handling facilities. In Alaska‘s high cost environment, these factors result in significant diseconomies of scale for smaller fields. For smaller fields to be economically developed, we believe some adjustments must be made in the tax or royalty structure.
The Producers cite Friends of Willow Lake, Inc., 280 P.3d 542, Smart, 237 P.3d 1010, and Alaska Center for the Environment, 80 P.3d 231 in support of their proposition that Alaska courts only—or at least predominantly—apply the commonsense language to cases where an agency has already interpreted a statute through regulation. But we have specifically stated that “obvious, commonsense interpretations of statutes do not require rulemaking.” Alyeska Pipeline Serv. Co., 145 P.3d at 573 (emphasis added). Notably, we did not state that “obvious, commonsense interpretations of regulations based on statutes do nоt require rulemaking,” and we did not qualify this statement in any other way that would suggest that we exclusively or even predominantly apply the commonsense language to cases where an agency has already interpreted a statute through regulation.
Second, the Producers argue that even where Alaska courts have applied the commonsense “exception” to situations where an agency interpreted a statute directly, as opposed to interpreting its own regulation, Alaska courts have only done so when the agency‘s “interpretation was . . . routine.” But whether the challenged interpretation was “routine” is not a factor courts must analyze when determining whether an agency action is a regulation under the APA‘s definition of a regulation or relevant case law. The Producers merely use the word “routine” to attempt to distinguish this case from those they cite in support of their argument, such as Squires v. Alaska Board of Architects, Engineers & Land Surveyors, 205 P.3d 326 (Alaska 2009) and Alaska Center for the Environment v. State, 80 P.3d 231 (Alaska 2003).