Legislature(2017 - 2018)BARNES 124
03/14/2017 03:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB111 | |
| HB87 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 111 | TELECONFERENCED | |
| + | HB 87 | TELECONFERENCED | |
| + | HJR 12 | TELECONFERENCED | |
| *+ | HB 32 | TELECONFERENCED | |
HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
3:21:16 PM
CO-CHAIR TARR announced that the first order of business would
be HOUSE BILL NO. 111, "An Act relating to the oil and gas
production tax, tax payments, and credits; relating to interest
applicable to delinquent oil and gas production tax; and
providing for an effective date." [Before the committee,
adopted as a work draft on 3/10/17, was the committee substitute
(CS) for HB 111, Version 30-LS0450\N, Nauman, 3/10/17.]
3:21:20 PM
CO-CHAIR TARR directed the committee's attention to the fiscal
note analysis [Identifier: HB111CS(RES)-DNR-DOG-03-13-17] on
page 2, paragraph 1, that refers to Section 26(n), Version N, HB
111, which requires the Department of Natural Resources (DNR) to
develop regulations to establish a preapproval process as
follows:
This bill would require the department to analyze
lease expenditures that could qualify to be carried
forward and determine if those expenditures meet the
requirements set out in regulations yet to be written.
Because the regulations are not yet written, the
extent of the required analysis is not clear. As
written the fiscal impact to the department could
range from minimal to significant, depending on final
regulations.
CO-CHAIR TARR acknowledged the fiscal note is not as clear as
the committee would have liked. As discussed at prior hearings,
the state currently is not engaged during the early part of a
project, and thus does not have any influence over spending, or
a mechanism to dispute any of the spending that has taken place.
She explained that the aforementioned provision in the bill is
an attempt to work with DNR to determine how the legislature
could be better engaged in the early part of a project through a
clear and regulated process. Previous industry testimony
revealed that when a project in Alaska is proposed by a company
to its board of directors, the project must be proven to be a
good investment relative to other locations; in fact, this is
the same kind of information that would be part of [industry's]
"conversation" with the state [through the proposed review
process]. Furthermore, a review process through regulation
would also provide the opportunity for public comment and
stakeholder engagement.
CO-CHAIR JOSEPHSON stated that the review provision in the bill
creates a need for new regulations and cooperation from the
department. He opined the provision came about because there
was concern about costs associated with future developments that
are unforeseen by the state, and so there was a desire for some
type of review process by DNR. He acknowledged subsequent
committees may modify [Version N, Section 26(n)], which read:
(n) The Department of Natural Resources shall
adopt regulations that require the preapproval of
lease expenditures carried forward under (a)(3) of
this section. Regulations under this subsection may
add additional requirements or restrictions on the
ability of a producer or explorer to carry forward a
lease expenditure under (a)(3) of this section. For a
lease expenditure to qualify under (a)(3) of this
section, a producer or explorer shall provide to the
Department of Natural Resources the information
necessary to determine whether a lease expenditure
qualifies to be carried forward under regulations
adopted under this subsection.
CO-CHAIR JOSEPHSON added, "But we thought this was a good start
for beginning the process of reviewing lease expenditures
through a preapproval system."
3:24:54 PM
REPRESENTATIVE BIRCH strongly disagreed and said he was
expecting a fiscal note that actually had "some numbers tied to
it." He observed the fiscal note indicates the fiscal impact to
the department could range from minimal to significant,
depending on final regulations. He pointed out that the bill
also requires the department to manage data, [the cost of which]
is indeterminable; in fact, the department is unable to
determine the fiscal impact of the proposed legislation.
Representative Birch recalled the committee has discussed fiscal
uncertainty and instability of the investment climate, and
opined the fiscal note speaks to the concerns members have
voiced when comparing "these massive changes to ... what's
already working vis-a-vis our oil and gas tax policy." He
acknowledged that credits do need to be reviewed; however, he
expressed deep disappointment that the committee did not receive
a more substantive fiscal note from the Department of Natural
Resources. He concluded, "I don't see this is acceptable ....
It's incomplete."
REPRESENTATIVE RAUSCHER agreed with Representative Birch on the
incomplete fiscal note and emphasized the magnitude and scope of
the provision, especially since DNR was asked to provide a
fiscal note in one day. He said, "It seems like two arms almost
simultaneously doing two things, competing for different ...
properties of the same project, and trying to define, 'whose is
whose?' [That] seems to be a little bit of a problem."
Representative Rauscher expressed his understanding that the
Department of Revenue (DOR) operates under a policy of
confidentiality, and he questioned whether DNR has the same
policy. Further, since DNR would be working with similar data,
he asked, "How do we overcome that with the DNR?"
3:28:05 PM
CO-CHAIR TARR, in response to Representative Rauscher, explained
DOR receives information from tax returns, which reveal "after-
the-fact-spending" and is confidential tax information. The
provision in the bill envisions DNR as Alaska's resource manager
that would, for example, review the pre-spending type of
information, such as what types of projects are underway and
when projects would come on line. Further, DNR could determine
whether there is good management of a project: if the state
allows losses to be carried forward and used against production
tax liability, even though the state does not write a check for
a credit, there is lost revenue. However, if DNR can make
certain every dollar is spent as strategically as possible, then
the state is assured certain spending was necessary to bring the
development on line. Co-Chair Tarr related the example of poor
management that caused construction season delays, forcing a
project into another year and resulting in a more expensive
project. In this case, the state, through the application of
the subsequent losses against future revenue, would have
invested in poor management. She continued, noting that because
of the current fiscal crisis, the state seeks to control
expenses, and it is appropriate for DNR to develop regulation,
because it offers every company a unique development profile and
an opportunity to comment. She observed the legislature does
not have the opportunity [to develop regulations]; however, the
sponsors are interested in refining the provision in the
legislation if it would result in clarification.
CO-CHAIR JOSEPHSON added that the sponsors' concern is that even
with a reduced net operating loss (NOL) not treated as a credit
through the carry forward allowance, the state is a partner in a
joint venture but does not enjoy the full privileges that
normally come to partners in a joint venture; conversely, the
companies see the benefit of their investments, either by
carrying forward losses, or "this uplift." The purpose of
uplift is to provide some parity, although it is difficult to
have full parity without offering cash credits. He opined the
state needs a role in these enterprises, other than simply
affording a deduction against liability in the future. The
situation is further influenced by "ring fencing," whereby
decisions could be made to take a loss in one field knowing the
loss will be largely offset by [profits in another field]. Co-
Chair Josephson recalled his long-standing interest in a
preapproval process, and although the provision needs some
refinement, the state should be entitled to know - with a level
of oversight - the expenses that become allowable deductions
when they become a loss. He cautioned against allowing industry
to ask the state to bear risk without the assurance of good
management.
REPRESENTATIVE RAUSCHER stressed the importance of understanding
how the proposed legislation could affect Alaska's business
partners - the oil producers - before voting. He warned the
committee should not proceed to a vote without a fiscal note
that has identified the challenge the provision presents to DNR.
CO-CHAIR TARR said she appreciated Representative Rauscher
bringing a level of scrutiny to this issue.
3:34:34 PM
REPRESENTATIVE PARISH advised that the legislature is entering
into expensive deals with Alaska's industry clients to whom it
sells its oil and to whom it [leases] the right to drill on
Alaska's lands; the notion the state cannot exercise discretion
into those deals is distressing. For example, if a company
spends $1 billion on a risky venture, without success, the state
would be co-invested for $350 million; therefore, it makes sense
to hire staff in order for DNR to provide some oversight.
Representative Parish emphasized the importance of - when
interacting with the state's clients - having a degree of
control and discretion.
REPRESENTATIVE WESTLAKE said he would also like to see a fiscal
note from DNR pertaining to this provision. Speaking from his
experience representing House District 40, he said he knows the
oil, gas, and mining industries and the oil and gas companies
have a lot of money to hire the best [personnel] in the field;
thus, if the state begins micromanaging [projects], "the best
we're probably going to get is second-best in the field ...."
He cautioned that the state will be micromanaging companies'
leases and questioned whether a monthly accounting is possible
given that the state is already five years behind in its
accounting. He asked, "Is this going to be an additional
pressure for the industry ... how do we make this right for
everyone? They're willing to talk, they're willing to
negotiate, but we all have to be reasonable."
3:37:51 PM
CO-CHAIR TARR clarified that the review process, as proposed, is
for a single preapproval and not approvals on a monthly basis.
Further, she opined statutes should be written in a less
prescriptive manner because details can be provided in
regulations, which are easier to update, and that is why the
provision directs that the regulations are to be developed by
expert DNR staff and industry, rather than by the sponsors of
the legislation. Returning to the intent of the legislation,
she stressed that the legislature must be mindful of where state
dollars are spent and/or where there are reductions in revenue.
Although DNR is not prepared to offer a detailed fiscal note at
this time, if the legislation is reported from the committee,
then it will advance to the House Finance Committee and then to
the floor of the House for consideration and further refinement.
CO-CHAIR TARR returned attention to the aforementioned DNR
fiscal note analysis on page 2, paragraph 2, which read:
This bill also requires the department to manage
additional data associated with a new "dry hole
credit." It is indeterminable how many of these
credit applications would be filed, but additional
staff time would be required to review applications
and manage the data.
CO-CHAIR TARR reiterated that the first paragraph on page 2
applies to preapproval; the second paragraph refers to the "dry
hole credit," which was recommended by Richard Ruggiero,
Managing Partner, Castle Gap Advisors, Castle Gap Energy
Partners, [consultant to the Legislative Budget and Audit
Committee]. In response to Representative Birch's comment that
it was indeterminable how many credit applications would be
filed, she acknowledged DNR would need more time to work on this
detail. She said there was support within the committee for Mr.
Ruggiero's recommendation of establishing a dry hole credit as
it would not discourage exploration because there is always
potential that an exploration company will be unsuccessful.
Given the high costs of starting an oil and gas exploration
company in Alaska, a dry hole credit would be a financial
mechanism to compensate should a company experience the
unfortunate event of performing work, spending money on
exploration, and then finding a dry hole.
CO-CHAIR TARR returned attention to the DNR fiscal note
analysis, page 2, paragraph 3, which read:
Finally, this bill contemplates the use of staff
resources to participate in a legislative working
group. This additional work would require backfilling
of other assignments by those employees. For the
reasons stated above, the department is unable to
determine the fiscal impact of this legislation at
this time; therefore, a[n] indeterminate fiscal note
is submitted.
CO-CHAIR TARR opined that the bulk of the aforementioned working
group's tasks would be done through the legislature, with
participation from DNR and DOR; however, this work would take
place during interim and the departments will be under fewer
time constraints and more available to assist the legislature.
3:41:59 PM
The committee took an at-ease from 3:41 p.m. to 3:43 p.m.
3:43:27 PM
CO-CHAIR TARR said committee members have received an e-mail
regarding the "confidentiality provision" in the bill.
3:43:45 PM
The committee took an at-ease from 3:43 p.m. to 3:53 p.m.
3:53:09 PM
CO-CHAIR TARR referred to the confidentiality provision of the
bill related to legislators' access to confidential tax
information and stated that the committee had received an e-mail
advising that the confidentiality provision is new language. In
explanation, she said the language was taken from Amendment 45
[labeled 29-GH2609\P.57, Nauman/Shutts, 3/21/16, that failed to
be adopted during the House Resources Standing Committee meeting
of 3/22/16] to the committee substitute for House Bill 247
[passed in the Twenty-Ninth Alaska State Legislature], and
advised that she submitted the language to Legislative Legal and
Research Services to be incorporated into the CS for HB 111,
Version N. She then directed the committee to the bill on page
3, lines 26-31, and continuing to page 4, lines 1-20, which
read:
Sec. 5. AS 43.05.230 is amended by adding a new
subsection to read:
(m) The department may disclose confidential tax
information, documents, or other materials related to
a credit for oil and gas investment, exploration,
production, delivery, storage, or use against a tax
imposed under AS 43.20 or AS 43.55 to a legislator, an
agent of a legislator or a legislative committee, or a
contractor of a legislator or a legislative committee
if
(1) the information is disclosed during an
executive session of a committee hearing or an
executive session of a meeting of one house of the
legislature as a committee of the whole;
(2) only legislators, agents, and
contractors complying with the remainder of this
subsection are in attendance at the committee meeting;
(3) written information, documents, or other
materials are clearly labeled as confidential tax
information;
(4) the legislator, agent, or contractor has
executed an agreement with the department
(A) that acknowledges that tax
information, documents, and materials received under
this subsection are confidential by law;
(B) that acknowledges that it is
illegal to publicly disclose confidential tax
information, documents, or materials received under
this subsection unless the information is otherwise
publicly available; and
(C) in which the legislator, agent, or
contractor agrees not to
(i) disclose the information
received during the meeting or the contents of
documents or materials viewed during a committee
meeting under this section; and
ii) remove any written
information, documents, or materials from the physical
location of the committee meeting
CO-CHAIR TARR related that this is the exact language which she
drafted last year, with the support of the Alaska Oil and Gas
Association (AOGA). Co-Chair Tarr posited AOGA may have changed
its stance on the provisions, but the language is unchanged.
REPRESENTATIVE RAUSCHER questioned the legality of the language.
CO-CHAIR TARR remarked:
It's confidential tax information, which is why I
think the provisions here are so strict, in terms of
who has access - that no information can leave the
room, that there [are] IRS rules, for example, that
would require a background check and fingerprinting,
so people could choose not to participate - there's no
requirement. Similar to right now, for example,
they're working on the confidentiality agreement
related to [the Alaska LNG Project (AKLNG)]
information, and you know, someone has to read that
and agree to the very tough restrictions available.
And this would be situated very similar to that, so
that ... no information could be shared, no
information could be removed from the room. There are
criminal penalties actually associated with this,
because it's privileged tax information, so ... from
my perspective, that, that would be sort of
restrictive enough and challenging enough that people
would really think about it.
CO-CHAIR TARR added that although it is unknown how many people
would want to see the information, Mr. Ruggiero advised that one
of the challenges legislators face as policymakers is not having
access to enough information in order to understand "what's
working or what's not working." She recalled a statement by Ken
Alper, Director, Tax Division, DOR, that hundreds of millions of
dollars have been spent on credits. She said this was
determined by the division from aggregate [income tax]
information, and his conclusion was [50 percent of the credits
led to production and 50 percent did not].
CO-CHAIR TARR expressed her concern that hundreds of millions of
dollars were spent that didn't lead to production, and she
suggested that [confidential tax information] "is the type of
information that might help us understand it better."
Furthermore, the goal is for the legislature to improve [oil and
gas tax] policy, and the policy would work better as a result of
having certain information. She acknowledged this is a
sensitive issue, which is why it was important to work with
industry representatives last year to draft the language found
in the bill; in fact, she said she thought the concerns had been
resolved and was surprised by the e-mail, but in the interest of
full disclosure, she wanted to discuss the source of the
language in the bill.
3:57:02 PM
REPRESENTATIVE RAUSCHER said he was unsure how strict a
provision is that states "legislators, agents of legislators,
contractors of legislators, [and] legislative committees" and is
prefaced by: the department may disclose confidential tax
information [to]. He again questioned the legality of the
provision and advised that [confidential information] may
include well depth, viscosity, static line, what control is
needed, other moving parts involved, and the exact location of
the oilfield. Representative Rauscher opined the provision is
too broad, which is a problem.
3:58:18 PM
REPRESENTATIVE BIRCH stated he did not want to move the bill out
of committee. He read in part from the aforementioned fiscal
note analysis, on page 2, paragraph 1 [text previously
provided], and then directed attention to the following:
1. Version N on page 28, line 15, which read:
RETROACTIVITY. Section 2 of this Act is
retroactive to January 1, 2017.
2. Version N on page 28, line 18, which read:
Sec. 35. Except as provided in sec. 34 of
this Act, this Act takes effect January 1, 2018.
3. Fiscal note analysis on page 1, which read:
ASSOCIATED REGULATIONS
Does the bill direct, or will the bill result in,
regulation changes adopted by your agency? Yes.
If yes, by what date are the regulations to be
adopted, amended, or repealed? 01/01/19.
REPRESENTATIVE BIRCH inquired as to how someone will be able to
comport to regulations that are not written until 01/01/19 and
which the legislature expects to take effect one year earlier.
Although the regulations are key, the department has until 2019
to develop the regulations, while the bill has a retroactivity
provision in effect January 2017. He indicated that the timing
is not in sync.
CO-CHAIR TARR noted that Representative Birch brought up three
different components of the bill, which is confusing. The
component that is retroactive to January 1, [2017], is related
to the interest on delinquent taxes for expenditures that have
already occurred; the January 1, 2017, date is set to "sync up
with the existing statute on interest on delinquent taxes. And
so, there wouldn't be a gap in ... there being one period where
one portion of law applied, and then you'd have a year gap, and
then you'd have another statute. So, that syncs up those two
sections. So, that's why there's retroactivity just on that one
part of the bill - that's the interest rate on delinquent
taxes."
CO-CHAIR TARR, turning to other provisions in the bill, advised
that because all the taxes are done on a calendar year basis and
this is all prospective - it changes neither expenditures that
are occurring in the current calendar year nor any of the
accumulation of credits that have certificates due - thus "the
rest of the bill doesn't apply until January 1, 2018, so that's
the effective date for that." Once the bill takes effect [DNR]
starts drafting the regulations, and because there are
requirements through the regulatory process to provide public
comment periods and opportunities for stakeholder engagement,
the producers would not be subject to the provisions of the
regulatory process for preapproval until such time as the
regulations are completed. She concluded, "And so, that's [why]
... there's three different parts there with those dates."
REPRESENTATIVE BIRCH argued that it appears backwards that the
bill will impose legislation on the industry, but the
regulations with which they are supposed to conform are provided
a year later.
CO-CHAIR TARR responded that unfortunately that's how it always
works; for example, the audits from Alaska's Clear and Equitable
Share (ACES) tax policy [passed in the Twenty-Fifth Alaska State
Legislature] were delayed because of the amount of time taken to
draft regulations. She pointed out that regulations are
specific to the law that is taking effect and therefore are not
drafted until the law is enacted. Co-Chair Tarr added, "And on
that particular provision, that's only the one part of it - the
preapproval part of it - so the regulations are specific to that
preapproval process. You know, the other provisions of the law
that could take effect on January 1, 2018, would [take effect]."
Furthermore, the delay in regulations includes a 30-day public
comment period, during which all the producers may want to weigh
in, and after which the comments are considered and may result
in a second draft of the regulations, followed by further public
comment; hopefully, this process strengthens the work product by
allowing time for the producers and DNR to work together.
Although this is not the first time someone has criticized the
length of time it takes to put regulations in place, companies
are not subject to the provisions of the legislation until
regulations are adopted, she said.
4:04:45 PM
REPRESENTATIVE BIRCH asserted it is wrong to enact legislation
effective January 1, 2018, but not formulate regulations during
the intervening eight or nine months, and thus wait a full year
for regulations to be in place. He cautioned the legislature
should be wary of the uncertainty it is creating, not only by
this action, but with other efforts that "sow confusion and
uncertainty"; for example, a $300 million tax increase and the
question of whether an initial investment can be recovered.
CO-CHAIR TARR stated that allowing the department to follow
regulatory procedures would lead to a stronger review process,
because the regulatory procedure would engage the industry more
intimately than during legislative hearings. For example, she
said the committee may hear a department budget overview, but
during the regulatory procedure stakeholders are directly
engaged with the department and its divisions. She restated the
value of public comment and industry engagement to all aspects
of legislation.
REPRESENTATIVE BIRCH, on the topic of public comment, pointed
out public comment has been overwhelmingly opposed to HB 111 and
in support of continuing with the tax policy enacted by Senate
Bill 21 [passed in the Twenty-Eighth Alaska State Legislature]
and House Bill 247. He restated his concern related to the
delay in writing regulations.
REPRESENTATIVE JOHNSON expressed her belief the committee is
feeling pressured to move the bill out of committee, an action
which she does not support; furthermore, discussion of the bill
has raised many issues that are unknown, unintended,
unsubstantiated, and illogical, and she questioned the sense of
turning over the legislature's responsibility to a regulatory
agency. In fact, doing so may indicate that the legislature has
not "written clear law, [and] that you don't have a clear
understanding of where you want to go." Representative Johnson
suggested oversight happens when the producers oversee their
business and the state protects its own interests. She recalled
experts said that HB 111 could "put us at the bottom" of
companies that are producing oil, in terms of their
profitability, and their interest in exploration and production.
Many of her constituents have testified against HB 111, and
across the state testimony has been about two to one against the
bill; further, key constituents from the North Slope, NANA
Regional Corporation, and the Arctic Slope Regional Corporation
have almost consistently testified against the bill.
4:10:39 PM
CO-CHAIR TARR pointed out a motion has not been made to move the
bill, and, at this time, the committee is invited to make
comments about issues that have been raised. In the event a
motion is made, there will be an opportunity for closing
comments.
REPRESENTATIVE RAUSCHER suggested many of the duties the bill
charges to DNR fall under the purview of the Alaska Oil and Gas
Conservation Commission (AOGCC). He restated his belief that it
is illegal for DOR to release [confidential information], thus
the bill seeks to subvert law and obtain said information from
DNR instead. Furthermore, he questioned whether legislators
have the ability to keep secrets as required by the
confidentiality provision in the legislation. Representative
Rauscher also expressed concern about tripling the work of some
departments and reiterated his caution about obtaining
information through other means and entrusting it to
legislators.
CO-CHAIR TARR shared Representative Rauscher's concern; however,
criminal penalties for disclosure would be enough to persuade
people to follow the law. She recalled that the Alaska Stranded
Gas Development Act (SGDA) [passed in the Twentieth Alaska State
Legislature and updated in 2003] was a circumstance in which
legislators had to sign a confidentiality agreement to see
certain information, which will be the same for AKLNG. She
acknowledged the industry's perspective is that when in
competition with other companies, [confidentiality] is their
biggest concern. Co-Chair Tarr stressed the separation of
powers between DNR, the agency that is acting as the actual
resource manager, and DOR, the agency that is reviewing taxes.
CO-CHAIR TARR observed that the committee has held 17 hearings
of HB 111, received over 104 written comments, and heard over 5
hours of public testimony from approximately 125 individuals.
She said the written comments were not overwhelmingly in
opposition. Also heard were 4 hours of industry testimony
during the overview of [Alaska's oil and gas tax system] and 4
hours of industry testimony related to the proposed bill, as
well as multiple presentations from DOR and the legislative
consultant, Mr. Ruggiero, thus the co-chairs feel the committee
has thoroughly vetted the bill.
4:15:02 PM
CO-CHAIR JOSEPHSON moved to report CSHB 111, Version 30-
LS0450\N, Nauman, 3/10/17, out of committee with individual
recommendations and the accompanying two fiscal notes.
4:15:14 PM
REPRESENTATIVE JOHNSON objected. She disagreed that the final
version of the bill has been thoroughly vetted; the first
hearings were focused on modeling and discussion, which were
characterized as "educational," and therefore, the committee has
not had sufficient time to review the bill. Furthermore, much
of the debate has not been specific as to the consequences of
the legislation, and the committee does not "have a good sense
of where this will take us." Representative Johnson said she
was reluctant to vote on legislation without complete - not
indeterminate - fiscal notes. She concluded that the
legislation contains too many unknowns which cause her to vote
against the bill.
REPRESENTATIVE PARISH commented that HB 111 is a small step in
the right direction. He said Mr. Ruggiero advised that Alaska
was near the bottom in the world in terms of information
transparency, and he agreed with the consultant that before the
state makes a 35 percent investment in a project, the
legislature should know in what it is investing the people's
money; however, the legislature doesn't have a right to that
information under current law, which is an overwhelming problem.
Representative Parish expressed appreciation for the work on HB
111, and although it is somewhat more generous toward industry,
said he is content with the proposed bill; in fact, HB 111 would
eliminate paying "the people's money" to industry. He
reemphasized that currently the state does not have the ability
to determine its investment because producers do not choose to
disclose pertinent information. In fact, Alaska has been lax
and irresponsible, failing in its responsibility to the people
of the state to getting the information necessary to be
responsible investors. Furthermore, he said the legislature has
sunk billions of dollars into projects from which, hopefully,
the state will see substantial returns, but he urged for the
legislature to be better informed, and he expressed support
specific to the dry hole credit and uplift.
4:19:42 PM
REPRESENTATIVE TALERICO stated that the committee has a
responsibility to look at actual trends and data that are
currently available, for example, the increase in throughput in
the Trans-Alaska Pipeline System (TAPS). Testimony from Alyeska
Pipeline Service Company was compelling in that more oil is
needed in TAPS. He said the existing oil and gas tax system,
and the adjustments thereto, have garnered enthusiasm and
promise on the producers' part to go ahead and produce more oil
and get more oil in the pipeline, as shown by data from the
first two months of this year. Referring to the stability of
the system, he pointed out the legislation adopted last year has
not been put in place, yet HB 111 would bring more change.
Turning to DNR's preapproval of lease expenditures, he assured
the committee DOR follows criteria to determine what it
considers to be a legitimate lease expenditure, and he asked,
"Does [HB 111] have a blanket policy where the criteria is
established so the people know well ahead of time - prior to
bidding on a lease and paying the State of Alaska for it - what
that expense might be, or regulatory-wise would this be
individual cases to be looked at?" He cautioned the [provision
for review] regulatory structure would cause a lot of questions
from the industry, because DNR would be looking at lease
expenditures, but another department would handle the money. He
urged for DOR to continue in its responsibility, as DOR staff
"are our money experts, there's no question about that";
conversely, DNR staff are the state's land experts, and could
develop a regulatory system that is "a blanket with a full list
of ... what those approvals might be."
REPRESENTATIVE TALERICO acknowledged that there are a lot of
different attitudes and opinions in the room, creating some
disagreement. He remarked:
When we talk about multi-nationals and writing them
checks, I'm not sure that happens. And I think [there
are] people [who] have produced more than 50,000
barrels a day and never get any money - I'm pretty
sure that's what happens. And I think the cashable
credits were really designed for the mid-major type
and smaller explorers and operators that would come
in, and ... the history of that was to encourage those
people to come up here and produce more. So, those
are ... the biggest concerns that I have.
REPRESENTATIVE TALERICO recalled a presentation related to
another bill, noting his previous concern about programs
affecting other areas of the state that were providing enormous
incentives without much return; these incentives were addressed
with great difficulty two years ago, and he urged for the
adjustments to be given the chance to take effect.
Representative Talerico acknowledged the legislature will never
come up with a perfect tax scenario for the state, the
producers, and others, and said he would not support the
proposed legislation.
4:24:55 PM
REPRESENTATIVE BIRCH opined that the committee, the legislature
and the state "can do better." He remarked on the history of
the development of the state's resources and said predecessors
serving on the House Resources Standing Committee had the vision
and wisdom to realize that to be really successful, Alaska needs
to develop a collaborative partnership [with business] in
building Alaska's future. Although the proposed legislation is
focused on raising revenue, the state needs to attract
investment and to keep oil flowing through TAPS. He said the
existing tax structure - which should be allowed to remain in
place - has met with success in that there have been promising
finds in the oilfields, and the state must remain competitive
from an investment standpoint. Representative Birch urged the
committee to be embracing and supporting the oil and gas,
mining, timber, and fishing industries - "not throwing
roadblocks and striking fear and putting uncertainty and
instability in front of ... everybody," which is what he opined
this legislation does.
CO-CHAIR JOSEPHSON agreed in part with Representative Johnson
that some of the early presentations on the bill were meant to
be educational; however, the proposed legislation has existed
for almost 45 days. He said the intent of the co-chairs is to
focus the bill on the unfinished work in House Bill 247;
although House Bill 247 mostly affected Cook Inlet, it placed a
cap on the eligibility for cash for non-producers [statewide].
Many of the features of Version N are consistent with House Bill
247 and are not far from the original version of HB 111, such as
increasing the gross floor to assure the state a hard floor
minimum. For example, prior to House Bill 247, and even today,
many credits can penetrate the [percentage of interest] floor,
so the 4 percent [interest rate} within Senate Bill 21 is not
guaranteed. He acknowledged industry is suffering at this time;
however, Senate Bill 21 provided a very generous portfolio of
credits that were affordable when the state received $9 billion
a year, but that are not affordable when the state brings in $1
billion a year - much of which is royalty - as in fiscal year
2017 (FY 17).
CO-CHAIR JOSEPHSON said adjusting the per barrel credit that
impacts the $70 to $120 range in oil price per barrel is
appropriate. He restated that one thing that was not understood
in Senate Bill 21 was that the effective tax rate was not going
to match the operating loss credit - except at $170 a barrel,
thus it is reasonable to change the interest rate. Although
there is criticism that the state's auditors are slow to get
their work done, and there are efforts to increase the number of
auditors, the elimination of compounding interest after three
years may instigate litigation and more dispute over tax
returns.
4:30:56 PM
CO-CHAIR JOSEPHSON, in response to Representative Rauscher's
concern about taxpayer confidentiality, pointed out the
legislation gives 60 legislators, and certain others, the option
of using their own discretion in a manner similar to the
restraint required when convening in executive session. In
addition, constituents may rightly question why legislators are
privy to information and they are not. Although there is now
some dispute with the Alaska Oil and Gas Association (AOGA) on
confidentiality, he assured the committee a compromise could be
reached. Turning to the projections of billions of dollars in
return on state investment from oilfields such as Smith Bay, he
reminded the committee Colleen Glover, Tax Division, DOR, [in
testimony before the committee on 2/22/17], pointed out the
project's net present value (NPV) greatly reduced the projected
return and suggested there were other options for what to do
with the state's money. He stated his support for independent
[oil and gas companies], for the uplift feature in the bill, and
for the state to begin to substantially pay down the amount of
"owed" tax credits, contingent on a fiscal plan.
4:33:08 PM
CO-CHAIR JOSEPHSON remarked that HB 111 would also provide that
the gross value at the point of production could never be
beneath zero, because "one would think that if you're standing
at the wellhead, the oil is always going to have some value; if
it's not, it probably shouldn't be drilled." In comparison to
other proposed oil and gas tax legislation, and proposals by
Robin O. Brena [in testimony before the committee on 2/3/17], HB
111 is a very moderate bill that attempts to establish the
state's reasonable share during periods of both low prices and
moderate to high prices; under existing law, the state gets
nowhere near the 33 percent target set by former Governor Jay
Hammond. He concluded that HB 111 may have its imperfections,
but it is a reasonable improvement, and he stated his support.
4:34:23 PM
CO-CHAIR TARR thanked the committee for its work; the diversity
of background and points of view is what makes the work by the
committee stronger. She recalled, as the only member of the
House Resources Standing Committee who was a member during the
contemplation of Senate Bill 21, oil was $94 a barrel; the
committee did not study the effects of $40 to $50 oil prices,
because over the prior 10 years, the price of oil had remained
between $60 and $100, except for one spike to $147. She offered
her view that the committee at that time did not consider that a
lower price environment [could become] the new normal.
CO-CHAIR TARR said she heard previous testimony that at the
current lower oil prices, more credits will be earned than the
state receives in production taxes, which is a problem
considering the legislature must determine how to fund all the
state's responsibilities including providing public safety,
education, resource management, the University of Alaska, and
health care services. Furthermore, in response to industry
testimony of the strains the lower price environment has put on
the industry, more modest adjustments were made to the minimum
tax and to the per barrel credit in the bill, and the windfall
provision was added.
CO-CHAIR TARR said the information gathering component of the
bill will help legislators be good policymakers and to build
trust with the public in light of the public awareness of the
build-up of credits and the resulting pressure on the
legislature to address this issue. She reviewed the
recommendations made by the consultant that are included in the
bill: carry forward losses, uplift, dry hole credit, and access
to information. Co-Chair Tarr said she hopes that if the bill
is passed out of committee, members would continue to work with
the sponsors and bring ideas forward. She closed as follows:
Our goal is stability for the industry and ... to get
more oil into the pipeline. And I heard Admiral
Barrett [president, Alyeska Pipeline Service Company]
loud and clear like all of you, that that's got to be
a priority for both, you know, our revenue and what's
necessary to maintain that critical infrastructure.
... We have, I think, similar goals, coming at them
from a little bit different ways, but, again, I feel,
just really fortunate to have worked with all of you
to work through the process and all the good ideas you
brought along, and all the challenges, and so we could
try and get it right.
4:38:42 PM
REPRESENTATIVE JOHNSON [maintained her objection].
4:38:44 PM
A roll call vote was taken. Representatives Parish, Westlake,
Drummond, Josephson, and Tarr voted in favor of the motion to
report CSHB 111, Version 30-LS0450\N, Nauman, 3/10/17, out of
committee with individual recommendations and the accompanying
fiscal notes. Representatives Birch, Johnson, Rauscher, and
Talerico voted against it. Therefore, CSHB 111(RES) was
reported out of the House Resources Standing Committee by a vote
of 5-4.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB087 Sponsor Statement 2.7.17.pdf |
HFSH 2/9/2017 10:00:00 AM HRES 3/14/2017 3:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Sponsor Statement ver R 3.10.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Supporting Document APHA 3.13.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Supporting Document - Letter of Support UFA 3.13.17.pdf |
HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 ver R H FSH CS 3.12.17.PDF |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Support Lynch.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Oppose RHAK.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Support CDFU.pdf |
HFSH 2/14/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Support ATA.pdf |
HFSH 2/9/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Support SEAFA.pdf |
HFSH 2/9/2017 10:00:00 AM HRES 3/14/2017 3:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB087 Support SPC.pdf |
HFSH 2/14/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HB 87 |
| HB111 DOR Fiscal Note Back-Up for CSHB111(RES).pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HB111 Version N 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HB 111- CS Ver N Comparison 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HJR012 Sponsor Statement 2.22.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 ver A 2.22.17.PDF |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Fiscal Note LEG-SESS-02-23-17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Support - Alaska Trollers Association 2.27.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Support - Southeast Alaska Fishermen's Alliance 2.27.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Support - Petersburg Vessel Owners Association 2.27.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Support - Southeast Alaska Seiners Association 2.27.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Support - United Southeast Alaska Gillnetters 2.27.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document-Alaska Dispatch News Article 2.22.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document-Reps. Young and Defazio 2.22.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document-Sen. Murkowski 2.22.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM |
HJR 12 |
| HJR012 Support - United Fishermen of Alaska.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document - Presentation House Resources Committee 3.12.17.pdf |
HFSH 2/28/2017 10:00:00 AM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Version D (FSH) 3.12.17.PDF |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document - Letter of Support from SalmonState.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HJR012 Supporting Document - Letter of Support Nelson 3.13.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HB032 Supporting Document - Sponsor Statement.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB032 version A 3.12.17.PDF |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB032 Fiscal Note - DEC 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - GMO Q & A 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB032 Supporting Document - Letter of Support UFA 3.13.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - NY Times Article 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - HB 92 - AK Trollers Association Letter of Support.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - HB 92 Consolidated Letters of Support 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - Info Graphic 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - Letter of Support for HB 92 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - News Article #2 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - News Article #3 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - News Article #4 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB32 Supporting Document - News Article #5 3.12.17.pdf |
HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HB 32 |
| HB111 Opposing Document - AOGA Reaction to CS 03.14.17.pdf |
HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HJR012 Supporting Document - Letter of Support from Trojan 3.14.17_Redacted.pdf |
HRES 3/14/2017 3:00:00 PM HRES 3/15/2017 1:00:00 PM HRES 3/20/2017 7:00:00 PM HRES 3/22/2017 6:00:00 PM |
HJR 12 |
| HB111 Fiscal Note DNR-DOG 3.14.17.pdf |
HRES 3/14/2017 3:00:00 PM |
HB 111 |