Legislature(2007 - 2008)CAPITOL 120

05/07/2007 01:00 PM JUDICIARY


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Meeting Postponed to 1:15 pm Today --
+ SB 121 CRUISE SHIP DISCHARGE & INFO TELECONFERENCED
Moved Out of Committee
*+ HB 245 ORGANIZED RETAIL THEFT/INTENT TO RESELL TELECONFERENCED
<Bill Hearing Canceled>
+ HB 128 OIL & GAS PRODUCTION TAX: EXPENDITURES TELECONFERENCED
Moved CSHB 128(RES) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 128 - OIL & GAS PRODUCTION TAX: EXPENDITURES                                                                               
                                                                                                                                
1:47:54 PM                                                                                                                    
                                                                                                                                
CHAIR RAMRAS announced that the  final order of business would be                                                               
HOUSE  BILL  NO.  128,  "An   Act  relating  to  allowable  lease                                                               
expenditures for  the purpose of  determining the  production tax                                                               
value  of  oil and  gas  for  the purposes  of  the  oil and  gas                                                               
production tax;  and providing for  an effective date."   [Before                                                               
the committee was CSHB 128(RES).]                                                                                               
                                                                                                                                
CHAIR RAMRAS  offered his understanding  that the need  for legal                                                               
definition of  the phrase "improper  maintenance" resulted  in HB                                                               
128 being referred to the House Judiciary Standing Committee.                                                                   
                                                                                                                                
1:49:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KURT OLSON,  Alaska  State Legislature,  sponsor,                                                               
concurred with Chair Ramras.                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG  inquired  whether  there  was  also  a                                                               
second issue concerning retroactivity.                                                                                          
                                                                                                                                
REPRESENTATIVE OLSON  explained that  HB 128 attempts  to address                                                               
the question  of who pays  for improper maintenance on  the North                                                               
Slope, either  the citizens of  Alaska or the  responsible party.                                                               
Last  year,  this  bill  was  offered  as  an  amendment  to  the                                                               
production profits  tax (PPT) legislation,  but didn't  reach the                                                               
Senate floor.  This bill is now  the companion bill to SB 80.  He                                                               
urged  support of  the  bill.   In  response  to  a question,  he                                                               
expressed  his   belief  that  the  retroactivity   question  was                                                               
addressed in the last committee.                                                                                                
                                                                                                                                
1:51:58 PM                                                                                                                    
                                                                                                                                
KONRAD JACKSON, Staff to Representative  Kurt Olson, Alaska State                                                               
Legislature,  explained   on  behalf  of   Representative  Olson,                                                               
sponsor, that  the issue of  retroactivity was  already addressed                                                               
by Legislative  Legal and  Research Services.   He said  that the                                                               
PPT legislation  was a  tax bill, the  retroactive clause  was an                                                               
amendment to  that bill, and that  such a clause is  not unusual.                                                               
In  reviewing HB  128 for  the  committee, he  recounted that  it                                                               
amends the  PPT by adding  another paragraph to  AS 43.55.165(e),                                                               
which   currently   lists   18   items   not   considered   lease                                                               
expenditures,  and  are  therefore   not  tax  deductible.    The                                                               
proposed paragraph  (19) will disallow as  lease expenditures any                                                               
expenses  for repair  or replacement  of facilities  or equipment                                                               
that weren't properly maintained.                                                                                               
                                                                                                                                
MR. JACKSON  went on to  further explain AS  43.55.165(e)(19) and                                                               
its three subparagraphs, (A), (B), and  (C).  If, for example, an                                                               
improperly   maintained  facility   "A"  results   in  diminished                                                               
capacity or a  shut down, this may cause  the downstream facility                                                               
"B" to  also be shut down  or have diminished capacity.   In that                                                               
case,  those expenses  incurred at  facility "B"  attributable to                                                               
the  shut down  in  facility "A"  would also  cease  to be  lease                                                               
expenditures.  He finished by  stating that "the people of Alaska                                                               
do not end up paying for someone else's mistake."                                                                               
                                                                                                                                
MR. JACKSON explained that the  proposed paragraph (20) refers to                                                               
the "lead person  for exercising oversight".  This  is a position                                                               
recently  created by  the governor  via Administrative  Order No.                                                               
234.    This new  position,  Petroleum  Systems Integrity  Office                                                               
Coordinator  (PSIOC), will  ensure  that  the infrastructure  and                                                               
production  facilities   in  the  state  are   maintained.    The                                                               
Petroleum  Systems Integrity  Office  (PSIO) will  be within  the                                                               
Department of Natural Resources (DNR).                                                                                          
                                                                                                                                
CHAIR RAMRAS recollected  that while attending a  joint House and                                                               
Senate Resources  Standing Committee meeting on  August 31, 2006,                                                               
the  committee  discussed  the  value of  lost  oil  revenue  and                                                               
whether that  would ever  be recaptured.   He offered  his belief                                                               
that HB  128 won't  address that loss,  but will  instead address                                                               
the cost from improper maintenance.                                                                                             
                                                                                                                                
MR. JACKSON concurred.                                                                                                          
                                                                                                                                
2:00:40 PM                                                                                                                    
                                                                                                                                
DON  BULLOCK, Attorney,  Legislative  Legal Counsel,  Legislative                                                               
Legal and  Research Services,  Legislative Affairs  Agency (LAA),                                                               
after confirming  that he  drafted HB 128,  explained that  as no                                                               
other  state gets  involved in  giving  upstream deductions  when                                                               
calculating the  value on  which the severance  tax is  based, he                                                               
was unable  to find any  other similar  standards to model.   The                                                               
production tax  value under  PPT is  calculated by  starting with                                                               
the gross value  at the point of production  and then subtracting                                                               
the  costs of  production.   As  a rule,  ordinary and  necessary                                                               
expenses are  allowed to  be deducted.   The  costs listed  in AS                                                               
43.55.165(e)  are  specifically  not   allowed  to  be  deducted.                                                               
Starting  with  the premise  that  this  is  a new  approach,  he                                                               
explained that he  looked at what the state is  giving up when it                                                               
gives a deduction.                                                                                                              
                                                                                                                                
MR.  BULLOCK, acknowledging  the costs  of deductions,  explained                                                               
that  the oil  companies are  not allowed  to deduct  any capital                                                               
expenditure costs  below the  value of 30  cents times  the total                                                               
annual production [of  BTU equivalent barrels of oil].   When oil                                                               
production  goes  down, this  "floor"  of  deduction limits  goes                                                               
down, and then more capital  expenditure costs would be allowable                                                               
deductions.   With  the  credits and  the  deductions, the  state                                                               
could share up to 42.5 percent of  the field costs.  He said they                                                               
tried  to define  in  HB 121,  what level  of  [indisc.] are  the                                                               
operators  expected to  meet in  return for  the deduction.   The                                                               
standard  in the  bill  is "good  oil field  practice."   If  the                                                               
operator's  performance does  not meet  this standard,  the state                                                               
will not give the deductions.                                                                                                   
                                                                                                                                
CHAIR RAMRAS raised the issue  of enforceability that he believed                                                               
was one of the concerns of the Department of Law (DOL).                                                                         
                                                                                                                                
MR.  BULLOCK  replied that  it  is  common auditing  practice  to                                                               
determine what  is "ordinary  and necessary."   The  standard for                                                               
general deductions  for oil field  production costs  is "ordinary                                                               
and necessary" and  this is the standard applied by  the state in                                                               
AS 43.55.165(a).  In response  to a question, Mr. Bullock replied                                                               
that  "ordinary and  necessary"  is the  normal terminology  also                                                               
used in tax law.                                                                                                                
                                                                                                                                
2:09:01 PM                                                                                                                    
                                                                                                                                
ETHAN  FALATKO, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section,  Civil  Division  (Juneau),  Department  of  Law  (DOL),                                                               
reflected that  the DOL was comfortable  with the bill.   He said                                                               
he could not  recall what question there may have  been as to the                                                               
issue of enforceability,  though he clarified that  he was "pinch                                                               
hitting" for a colleague as the spokesperson from the DOL.                                                                      
                                                                                                                                
REPRESENTATIVE  GRUENBERG  provided  that  he  did  not  want  to                                                               
include  language in  the bill  that will  promulgate litigation.                                                               
He  then  asked  for  a  clarification on  the  process  after  a                                                               
deduction is taken.                                                                                                             
                                                                                                                                
2:11:16 PM                                                                                                                    
                                                                                                                                
KEVIN BANKS, Acting  Director, Central Office, Division  of Oil &                                                               
Gas, Department  of Natural Resources  (DNR), explained  that the                                                               
Department  of Revenue  (DOR) has  responsibility for  collecting                                                               
taxes.    He  noted  that  HB 128  will  add  provisions  [to  AS                                                               
43.55.165(e)]  that  will  not allow  cost  [deductions]  due  to                                                               
"improper maintenance", with some definition  as to how that will                                                               
be accomplished.                                                                                                                
                                                                                                                                
CHAIR RAMRAS  asked that the  witnesses speak  specifically about                                                               
retroactivity.                                                                                                                  
                                                                                                                                
MR.  BULLOCK  opined  that  there  is  not  a  problem  with  the                                                               
retroactive provision [included  in Section 5].   He offered that                                                               
the PPT  legislation was already  retroactive.  The  U.S. Supreme                                                               
Court  in Welch  v.  Henry  ruled that  given  the importance  of                                                             
taxes,  the  state legislature  can  amend  a  tax and  apply  it                                                               
retroactively.  He  surmised that if other provisions  of the PPT                                                               
legislation  have resulted  in less  [revenue] than  anticipated,                                                               
then the  legislature would have  the power  to go back  and make                                                               
corrections.   He suggested  that this bill  is similar  to those                                                               
types  of adjustments  which  the  court has  allowed.   After  a                                                               
reasonable amount of time has  passed for the legislature to look                                                               
at  the effect  of the  law, it  does have  the power  to make  a                                                               
retroactive change in the law.                                                                                                  
                                                                                                                                
MR.  FALATKO   concurred  with  that   summation,  that   it  was                                                               
consistent with  his research.   Given  the current  timeline, he                                                               
said he did not believe this should be an issue.                                                                                
                                                                                                                                
MR. BULLOCK said there have  also been more recent Alaska Supreme                                                               
Court cases that have upheld  the retroactivity of production tax                                                               
regulations.                                                                                                                    
                                                                                                                                
2:16:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG indicated  that  all  of his  questions                                                               
have been answered.                                                                                                             
                                                                                                                                
MR.  BANKS,  in   response  to  a  question,  said   that  he  is                                                               
comfortable with  the legislation,  even should it  progress into                                                               
litigation.  He  went on to explain the  relationship between the                                                               
DNR and the DOR.   The DOR auditor may flag  a cost, believing it                                                               
to be  associated with  an improper maintenance  issue.   At that                                                               
point, the  DOR has  the option  to consult with  the DNR  or the                                                               
PSIO.  The  PSIO staff will be able to  offer consulting services                                                               
to the  DOR to help  determine whether  the cost is  improper, as                                                               
defined in this legislation.                                                                                                    
                                                                                                                                
MR. BANKS  further explained that the  purpose of the PSIO  is to                                                               
coordinate  the  oversight  of   those  oil  industry  activities                                                               
upstream of  the regulated pipelines.   He said the  PSIO intends                                                               
to coordinate the  regulatory authorities of:   the Department of                                                               
Environmental  Conservation (DEC)  for environmental  protection;                                                               
the DNR  for land  use, water use,  and coastal  zone management;                                                               
and the state according to  the stipulations that apply under its                                                               
leases and  unit agreements  with the lessees.   In  addition, he                                                               
said,  the  PSIO will  be  working  with some  federal  agencies,                                                               
including the DOT&PF.                                                                                                           
                                                                                                                                
MR.  BANKS clarified  that  the PSIO  will  provide oversight  to                                                               
ensure the  industry has  appropriate quality  assurance programs                                                               
in  place,  regardless  of  what  changes are  made  to  the  PPT                                                               
legislation.   The PSIO staff  will monitor  industry activities,                                                               
and provide consulting  services to the DOR  should any questions                                                               
arise concerning costs associated  with improper maintenance.  He                                                               
offered his belief that should  the legislation be litigated, the                                                               
PSIO would assist the DOR by providing expert witness testimony.                                                                
                                                                                                                                
REPRESENTATIVE  GRUENBERG  surmised  that HB  128  addresses  the                                                               
deductibility of  the cost of  correcting the damages.   He asked                                                               
whether, as  a company  would have been  failing to  maintain the                                                               
equipment, there would  be other tax issues from  prior tax years                                                               
that ought to be reviewed.                                                                                                      
                                                                                                                                
2:23:56 PM                                                                                                                    
                                                                                                                                
JONATHAN  IVERSEN,  Director,  Anchorage  Office,  Tax  Division,                                                               
Department of Revenue  (DOR), in response to  a question, offered                                                               
to explain  the process as  it was encountered during  the normal                                                               
audit cycle, which would begin in  the winter.  He explained that                                                               
the  auditors would  be looking  in  suspect areas  for large  or                                                               
unusual  expenses.    The auditor,  exercising  some  discretion,                                                               
would   pick  suspect   areas,  check   any  authorizations   for                                                               
expenditures   (AFE's),  and   ask  for   documentation  to   the                                                               
deductions  the  taxpayer  is   requesting.    He  suggested  the                                                               
auditors  would also  focus  on  areas that  make  the  news.   A                                                               
parallel track  to this  would be litigation,  whereby part  of a                                                               
claim could be  for lost taxes.  He concluded  by explaining that                                                               
the  DOR would  only  become aware  of any  tax  issues when  the                                                               
taxpayer has claimed the expenses.                                                                                              
                                                                                                                                
REPRESENTATIVE   GRUENBERG   surmised   that  the   state   would                                                               
potentially be proceeding on two  fronts:  litigation for damages                                                               
by the DOL, and correct tax filing  by the DOR.  He asked whether                                                               
the statute of limitations is long  enough with regard to the two                                                               
issues  of  damages and  back  taxes,  in  order to  protect  the                                                               
state's interests to the maximum extent possible.                                                                               
                                                                                                                                
MR. IVERSEN, in  response to the question, said that  the DOR has                                                               
three years  from the time  the return  is filed to  complete its                                                               
audits.   If HB 128 is  passed, amended returns would  need to be                                                               
filed by the taxpayers within 90 days of the bill's passage.                                                                    
                                                                                                                                
MR.  BULLOCK  added  that Section  4  contains  the  transitional                                                               
provisions, which describe what is  expected of the operators and                                                               
producers if  this bill passes.   He clarified that there  is, in                                                               
general, a three-year statute of  limitations.  The DOR has three                                                               
years  to  audit and  the  taxpayers  have  three years  to  file                                                               
amended  returns.   In response  to  a question,  he offered  his                                                               
belief that  there is a statute  of limitations for six  years on                                                               
[damages] claims that the state can file.                                                                                       
                                                                                                                                
REPRESENTATIVE  GRUENBERG,   referring  to  an   earlier  comment                                                               
regarding claims for taxes lost,  requested confirmation that the                                                               
state would not be barred by a statute of limitations.                                                                          
                                                                                                                                
2:32:41 PM                                                                                                                    
                                                                                                                                
JUDY BRADY,  Executive Director,  Alaska Oil and  Gas Association                                                               
(AOGA), said  that the  AOGA opposes  HB 128.   She  offered some                                                               
background context on the oil tax  history in Alaska.  Alaska had                                                               
a gross tax with the  Economic Limit Factor (ELF) production tax.                                                               
From 1987 to  2005, the average price of oil  per barrel was $18.                                                               
The tax  level for the oil  producers was 67 percent.   The state                                                               
of Alaska  had one of  the highest tax rates  in the world.   She                                                               
directed  attention to  the references  of the  higher tax  rates                                                               
(70-80 percent) by  other countries on oil producers.   She noted                                                               
that this  higher tax rate  package included an  allowable return                                                               
rate of  150 percent  on the  oil producers'  capital investments                                                               
within  the  first  five  years.   She  pointed  out  that  these                                                               
countries took the  risks along with the oil  producers, and then                                                               
the countries demanded a very high return.                                                                                      
                                                                                                                                
MS. BRADY  offered her belief  that the  state of Alaska  took no                                                               
risk with the companies and  [still] demanded a very high return.                                                               
She reported that the production of  oil is falling from the 1988                                                               
production rate  of 2.1  million barrels per  day to  the current                                                               
rate  of  700,000 barrels  per  day.    She suggested  that  with                                                               
maturing oil fields and higher  capital costs, if the state wants                                                               
a higher  tax rate  with higher  prices, the  state will  have to                                                               
take some of the risks.   She offered her belief that this higher                                                               
tax for higher  risk was what the  "PPT was all about."   The PPT                                                               
is a different system than any other state.                                                                                     
                                                                                                                                
[Chair Ramras turned the gavel over to Vice Chair Dahlstrom.]                                                                   
                                                                                                                                
MS. BRADY  continued, reiterating  that the  state needs  to take                                                               
part of  the risk in return  for receiving higher taxes  when oil                                                               
prices are higher.   She relayed that members  of the legislature                                                               
have   always  been   concerned  with   protecting  the   state's                                                               
interests;  they  did  not  want  the  state  to  pay  for  gross                                                               
negligence, willful misconduct, fraud,  or any costs incurred for                                                               
containment control, clean up, or  removal in connection with any                                                               
unpermitted release  of oil.   The state  has zero  tolerance for                                                               
spills.   Ms.  Brady continued  with  background of  the oil  tax                                                               
history  in  Alaska,  recounting  the  August  6,  2006,  British                                                               
Petroleum (BP)  oil leak  on the North  Slope and  the subsequent                                                               
August 9 meeting of the  Senate Special Committee [on Natural Gas                                                               
Development], at which time the  members expressed that the state                                                               
not  accept any  responsibility for  costs or  losses related  to                                                               
spills.    She  remarked  that two  prior  amendments  have  been                                                               
offered with regard  to improper maintenance, but  each was voted                                                               
down in committee.                                                                                                              
                                                                                                                                
MS.  BRADY  continued to  explain  that  when the  discussion  of                                                               
improper  maintenance came  up this  year as  HB 128,  there were                                                               
many  sponsors,  as members  were  concerned.   She  offered  her                                                               
belief  that  the   DEC,  DNR,  DOR,  and  Alaska   Oil  and  Gas                                                               
Conservation  Commission (AOGCC)  all had  problems with  how [HB                                                               
128]  was worded,  as  it contains  no  standards for  corrosion.                                                               
From AOGA's viewpoint, Alaska is  already protected.  She pointed                                                               
out  that during  November 2006,  the state  withdrew $8  million                                                               
from the [Oil and Hazardous  Substance Release Response Fund] for                                                               
a DOL  and DEC study  regarding the  recovery of all  state costs                                                               
and lost revenues  occasioned by the August 6 spill.   That study                                                               
is still ongoing.                                                                                                               
                                                                                                                                
MS. BRADY  commented that under  PPT the state has  already taken                                                               
action  to  separately  review all  the  issues  being  discussed                                                               
today.    This  review  is ongoing,  and  being  conducted  under                                                               
existing  authorizations.   She  referred  to  the [current  non-                                                               
deductions  to lease  expenditures  listed  in AS  43.55.165(e)],                                                               
noting that  she believes these [non-deductions]  already address                                                               
those issues that  HB 128 is intended to address.   Costs arising                                                               
from  fraud,   willful  misconduct,  gross  negligence,   or  for                                                               
containment  control,   clean  up,  and  removal   would  not  be                                                               
[allowable lease  expenditures].  Legislators last  year and this                                                               
year have made clear they don't  want the state to participate in                                                               
the cost for risks that were badly handled by the oil companies.                                                                
                                                                                                                                
2:41:44 PM                                                                                                                    
                                                                                                                                
MS. BRADY asked how an auditor  will make a decision every time a                                                               
capital cost  is shown as  a deduction.   She commented  that the                                                               
main  decisions would  be obvious.   She  suggested that  for the                                                               
other  less obvious  decisions, the  legislature include  a proxy                                                               
[based on  Dr. A Pedro  H. van  Meurs suggestion to  disallow the                                                               
first $0.30  per BTU equivalent barrel  as "lease expenditures"].                                                               
This would increase the taxes the  oil industry pays by about $45                                                               
million  each year,  a reasonable  maintenance requirement  for a                                                               
field of  this size.   This  would be paid  by the  oil producers                                                               
each year, whether  or not there is an incident  or a maintenance                                                               
issue.  She opined that HB  128 proposes to add amendments to the                                                               
PPT  which are  not required  because the  state's interests  are                                                               
already protected.   She warned that passage of HB  128 will make                                                               
the  implementation  of  the  PPT   very  difficult.    She  also                                                               
predicted that the  bill's passage could lead to a  return of the                                                               
problems  within the  ELF system,  when the  legislation did  not                                                               
present clear direction.                                                                                                        
                                                                                                                                
MS. BRADY predicted that should  this lead to billions of dollars                                                               
in tax  disputes, neither  the companies  nor the  state agencies                                                               
would  be able  to  progress,  as they  would  be concerned  with                                                               
influencing the  outcome of the  disputes.  If an  auditor begins                                                               
to red flag  items in the first  year of a three  year audit, and                                                               
allowing for  an additional three  years after the  completion of                                                               
the audit  for an  amended response, a  decision will  be unclear                                                               
for many  years.  She questioned  what would be the  red flag for                                                               
an auditor, as HB 128 does  not tie to a particular incident, but                                                               
instead to a capital expense requested as a deduction.                                                                          
                                                                                                                                
MS. BRADY  called attention to  the [PSIOC]  position, commenting                                                               
that  this   person  will  be   given  authority  equal   to  the                                                               
commissioners of the  DNR, the DOR, and the DEC,  yet this person                                                               
will not  have been subject  to confirmation by  the legislature.                                                               
She cited  two items that she  believes will be difficult  to tie                                                               
to  the  issue  of  improper maintenance:    related  incremental                                                               
operating expenses  and diminished capacity.   She reflected that                                                               
during  a  repair situation,  operators  should  not be  thinking                                                               
about curtailing capacity  and the resulting issues  of an audit;                                                               
instead,  they  should  be  focusing on  what  is  necessary  for                                                               
safety.                                                                                                                         
                                                                                                                                
MS.  BRADY also  expressed concerns  regarding the  retroactivity                                                               
provision in the bill.  She  summarized that the AOGA thinks this                                                               
may offset  the whole purpose of  the [PPT] which was  to combine                                                               
higher  risk with  higher taxes.   She  expressed concern  with a                                                               
[possible]  constant  legal struggle.    She  emphasized that  no                                                               
other   state    does   what   is   being    proposed   [via   AS                                                               
43.55.165(e)(19)] and the operators don't  require this degree of                                                               
"simple negligence issues" among themselves.                                                                                    
                                                                                                                                
2:47:14 PM                                                                                                                    
                                                                                                                                
CHAIR RAMRAS observed  that if the oil companies  didn't take the                                                               
deductions,  in this  instance  for a  level  of negligence,  the                                                               
legislature   wouldn't   have   had  to   contemplate   what   he                                                               
characterized as onerous  legislation.  He offered  an analogy of                                                               
auto  insurance  and  the  decision  after  an  accident  between                                                               
personal payment  or filing a  claim.   He stressed that  had the                                                               
producers assumed  responsibility for the  oil leak and  paid the                                                               
full cost  without using the  deductible formula  allowable under                                                               
PPT, there  would have not been  a need for  HB 128.  He  said he                                                               
lays the blame squarely at the  feet of the oil producers for not                                                               
handling the  situation properly,  and the  result has  been this                                                               
legislation.  He concluded by  stating that the responsibility of                                                               
the  House Judiciary  Standing Committee  is to  consider whether                                                               
the legal  tools in HB 128  are sufficient to defend  the state's                                                               
interests.                                                                                                                      
                                                                                                                                
MS. BRADY  offered that  it would  be good  for the  committee to                                                               
have  a   DOL  representative  involved  in   the  aforementioned                                                               
response fund study to determine  what cost the state believes it                                                               
deserves.   The additions proposed  via HB 128 are  already being                                                               
administered by the DEC and the DOL.                                                                                            
                                                                                                                                
MR. FALATKO  responded to a question  on the issue of  statute of                                                               
limitations that he had not yet reviewed them.                                                                                  
                                                                                                                                
MR. BULLOCK pointed out that HB 128  is a tax bill and deals with                                                               
qualifications  to  take  deductions  and credits.    The  issues                                                               
involving losses the state may  have are separate litigation.  If                                                               
those losses include  a loss of tax revenue, then  the loss would                                                               
be determined by the net amount  due after the application of the                                                               
deductions under  the current law  and those  deductions provided                                                               
by this tax bill.   He concluded that the bill  is subject to the                                                               
three-year statute of limitations.                                                                                              
                                                                                                                                
REPRESENTATIVE SAMUELS  asked whether,  if BP  chose not  to take                                                               
the  deductions, that  would become  an admission  in a  criminal                                                               
case, and, therefore, it has to take the deductions.                                                                            
                                                                                                                                
MR. BULLOCK  reminded the committee  of the confidentiality  of a                                                               
tax  return.   The DOR  would  be precluded  from disclosing  the                                                               
deduction and  whether or  not it  was taken on  the return.   He                                                               
added that  these tax records would  be difficult for the  FBI to                                                               
seize.                                                                                                                          
                                                                                                                                
REPRESENTATIVE   SAMUELS   asked   whether  the   definition   of                                                               
"improper" has been sufficiently determined.                                                                                    
                                                                                                                                
MR.  BANKS  relayed  that proposed  AS  43.55.165(j)  contains  a                                                               
definition of "good oil field  practice" that references industry                                                               
standards as  published by the  American Petroleum  Institute and                                                               
federal   regulations,   and    this   does   address   "improper                                                               
maintenance" by reference to those standards.                                                                                   
                                                                                                                                
REPRESENTATIVE SAMUELS  asked whether  the ongoing  criminal case                                                               
had been determined to be a federal or a state case.                                                                            
                                                                                                                                
MR.  FALATKO  offered that  he  was  not aware  whether  criminal                                                               
charges have been filed.                                                                                                        
                                                                                                                                
REPRESENTATIVE SAMUELS asked if  there is a federal investigation                                                               
of BP or any individuals.                                                                                                       
                                                                                                                                
REPRESENTATIVE OLSON responded that he had not heard.                                                                           
                                                                                                                                
MR. FALATKO allowed that he was not aware of an investigation.                                                                  
                                                                                                                                
2:55:53 PM                                                                                                                    
                                                                                                                                
MARY  JACKSON,  Staff  to  Senator   Tom  Wagoner,  Alaska  State                                                               
Legislature, conveyed  on behalf  of Senator Wagoner,  sponsor of                                                               
the  Senate companion  bill, that  federal congressional  offices                                                               
are  holding  hearings,  which are  currently  postponed  pending                                                               
receipt of materials promised from the company under question.                                                                  
                                                                                                                                
MR. JACKSON explained that members'  packets contain a memorandum                                                               
from  U.S. Representative  John Dingell,  Chairman, Committee  on                                                               
Energy and Commerce that reference the hearings.                                                                                
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked   again  whether  having  criminal                                                               
charges filed  against it  would affect  BP's coming  forward and                                                               
claiming the  deduction.  He  wanted to know  if BP not  filing a                                                               
deduction would be used against it as an admission of guilt.                                                                    
                                                                                                                                
MR. JACKSON replied that he did not know.                                                                                       
                                                                                                                                
REPRESENTATIVE SAMUELS offered his  recollection that the federal                                                               
government had  pondered filing criminal charges  against both BP                                                               
and specific company employees.                                                                                                 
                                                                                                                                
CHAIR  RAMRAS  relayed that  the  congressional  hearings on  the                                                               
Prudhoe Bay shutdown had been rescheduled  for May 16 and that BP                                                               
was scheduled to appear.                                                                                                        
                                                                                                                                
2:58:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG referred to  the language in proposed AS                                                               
43.55.165(j)(4) and asked why it doesn't include other gases.                                                                   
                                                                                                                                
CHAIR RAMRAS pointed out that gas is already broadly defined.                                                                   
                                                                                                                                
MR. BULLOCK offered that [the  wording in the proposed amendment]                                                               
relates  to  "good  oil  field   practice"  and  the  implication                                                               
includes good  gas field practice.   Generally gas  is associated                                                               
with  oil, but  the  committee  could add  to  the  bill to  more                                                               
directly address the gas issue.   The wording is simply trying to                                                               
establish standards that would be used as a basis.                                                                              
                                                                                                                                
CHAIR RAMRAS observed that it is a broad definition.                                                                            
                                                                                                                                
REPRESENTATIVE LYNN mentioned a  reference to "gas facilities" in                                                               
Section 2 of HB 128.                                                                                                            
                                                                                                                                
CHAIR RAMRAS  expressed satisfaction  that HB 128  is a  tax bill                                                               
with defensible  language that the DOL  can take into a  court of                                                               
law.                                                                                                                            
                                                                                                                                
MR. BANKS, in response to  an earlier question, relayed that most                                                               
engineers consider the movement of  all types of fluids, and that                                                               
gas is simply a different state of fluid.                                                                                       
                                                                                                                                
REPRESENTATIVE  GRUENBERG surmised  that this  would include  the                                                               
transportation of gases other than hydrocarbon gases.                                                                           
                                                                                                                                
MR. BANKS agreed that this would be possible.                                                                                   
                                                                                                                                
MR.   BULLOCK   added   that  the   language   in   proposed   AS                                                               
43.55.165(j)(4) simply  pertains to  the standards that  would be                                                               
expected in  an oil  field, whatever  they would  be transporting                                                               
through the  pipeline.   He allowed the  language was  to include                                                               
things other  than production  from the  wells and  this language                                                               
leaves that open.                                                                                                               
                                                                                                                                
CHAIR  RAMRAS  stated the  committee  members  did not  have  any                                                               
amendments  to  add, and  asked  if  the administration  had  any                                                               
amendments that would enhance HB 128.                                                                                           
                                                                                                                                
MR. IVERSEN responded that he had nothing to add.                                                                               
                                                                                                                                
CHAIR RAMRAS  concluded, then, that  the state, the  drafter, the                                                               
Department of Oil & Gas, and the DOR were all satisfied.                                                                        
                                                                                                                                
MR. BULLOCK concurred that the  bill provides a standard that can                                                               
be applied.                                                                                                                     
                                                                                                                                
3:04:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DAHLSTROM moved  to report  CSHB 128(RES)  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSHB  128(RES)  was                                                               
reported from the House Judiciary Standing Committee.                                                                           

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