Legislature(2005 - 2006)
04/30/2005 02:15 PM L&C
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HB 286-VALUE OF ROYALTY ON GAS PROD./ TAX CREDIT CHAIR ANDERSON announced that the next order of business would be HOUSE BILL NO. 286, "An Act amending the manner of determining the royalty received by the state on gas production by directing the commissioner of natural resources to accept, under certain circumstances, the transfer price of the gas if established by transfer price order of the Regulatory Commission of Alaska; and providing for an effective date." REPRESENTATIVE RALPH SAMUELS, Alaska State Legislature, sponsor, explained that HB 286 is housekeeping legislation that was brought forth by Municipal Light & Power (ML&P). The legislation addresses the method for determining the royalty received by the state [on gas production]. The Department of Natural Resources (DNR) calculates the royalty value based on a contract between ML&P and Shell. Then ML&P bought an interest in the Beluga River Field from Shell and DNR agreed to allow the rate as if the contract were still in place. The aforementioned contract expires in 2005. Therefore, HB 286 would allow DNR to use the gas transfer price set by the Regulatory Commission of Alaska (RCA) much like DNR used for the contract price for the gas. 2:55:45 PM JIM POSEY, General Manager, Municipal Light & Power, specified that HB 286 allows a matrix of calculations for the price that ML&P pays royalty on to be first done through the RCA. If that rate is sufficient for royalty purposes, then it passes muster for DNR. However, if DNR determines later that the royalty value is lower, then a second matrix through the DNR process is utilized in order to establish a royalty for the gas ML&P uses to run its turbines. Mr. Posey echoed Representative Samuels' earlier comment that HB 286 is a housekeeping measure that keeps two competing agencies from having concurrent jurisdiction. 2:57:37 PM KATE GIARD, Commissioner/Chair, Regulatory Commission of Alaska, Department of Commerce, Community, & Economic Development (DCCED), informed the committee that the RCA has reviewed the statutory revision, which is in keeping with the RCA's understanding of its responsibilities in terms of opining on the transfer price on an annual basis. There is no additional cost to the RCA for this legislation because it's part of the process ordered in U9636, the docket when ML&P purchased the Beluga Field; order 39 describes the methods for calculating. 2:58:22 PM MS. GIARD, in response to Representative Rokeberg, explained that the formula takes the actual cost of production less the sales, which is then multiplied by a margin. The margin for [ML&P] is 1.6, which is ML&P's debt service coverage ratio. Therefore, the calculations are based on the actual production costs. MARTIN SCHULTZ, Audit Section, Division of Oil and Gas, Department of Natural Resources, related DNR's support of HB 286. He informed the committee that when DNR determines royalty value under state leases, it reviews either the contract price the producer receives for the gas or what other producers in the same area receive. The aforementioned is referred to as "the higher of" comparison in which the state is entitled to the higher of those two values. He explained that AS 38.05.180(aa) allows a producer that sells to a gas or electric utility to have royalty value certainty. 3:00:00 PM MR. SCHULTZ said that HB 286 would expand the coverage of AS 38.05.180(aa) to include a transfer price that a producer receives on gas deliveries to an affiliated gas or electric utility. Therefore, it's consistent with the current statute and DNR supports the legislation. 3:00:37 PM ANDY LEIMAN, Municipal Light & Power, related ML&P's support of HB 286. 3:01:02 PM REPRESENTATIVE ROKEBERG moved to report HB 286 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered.