Legislature(2009 - 2010)BARNES 124
03/15/2010 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| HB280 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 229 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 280 | TELECONFERENCED | |
HB 280-NATURAL GAS: STORAGE/ TAX CREDITS
5:40:41 PM
CO-CHAIR JOHNSON announced that the next order of business is
HOUSE BILL NO. 280, "An Act relating to natural gas; relating to
a gas storage facility; relating to the Regulatory Commission of
Alaska; relating to the participation by the attorney general in
a matter involving the approval of a rate or a gas supply
contract; relating to an income tax credit for a gas storage
facility; relating to oil and gas production tax credits;
relating to the powers and duties of the Alaska Oil and Gas
Conservation Commission; relating to production tax credits for
certain losses and expenditures, including exploration
expenditures; relating to the powers and duties of the director
of the division of lands and to lease fees for the storage of
gas on state land; and providing for an effective date."
[Before the committee was the proposed committee substitute (CS)
for HB 280, Version 26-LS1185\C, Bullock, 3/9/10, adopted as a
work draft on 3/12/10.]
5:41:06 PM
REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, sponsor of
HB 280, addressed two questions he was unable to answer at the
3/12/10 committee hearing. In regard to the bill's provision
for recovery of tax credits when a storage facility stops
cycling gas, Representative Guttenberg had asked what would
happen if an operator failed to meet the requirement to cycle at
least 100 million cubic feet of gas per year for reasons beyond
the facility owner's control. Representative Hawker said he
thinks the bill provides adequate protection in this regard
because the threshold of cycling 100 million cubic feet per year
for maintenance of commercial operation is relatively low. To
provide a reference for just how small this amount is, he noted
that 400 million cubic feet can be used on one peak day in the
winter. In regard to Representative Tuck's question about how
gas storage would inter-relate with either the closing or
continued operation of the liquefied natural gas (LNG) export
facility in Nikiski, Representative Hawker explained that
storage would be needed either way: if the facility closed, a
large amount of storage would be needed to meet peak demands; if
the facility continued, a lesser amount of storage would be
needed.
5:43:49 PM
CO-CHAIR JOHNSON opened public testimony.
STACEY SCHUBERT, Intergovernmental Affairs Director, Mayor's
Office, Municipality of Anchorage, spoke as follows on behalf of
Dan Sullivan, Mayor of Anchorage:
The Municipality of Anchorage is concerned about the
declining production of natural gas in the Cook Inlet,
specifically as it relates to decreased deliverability
through the gas system. Exploration in Cook Inlet is
declining, which has prompted concern among the
administration and others in the community. Railbelt
utilities have been working with us on the Energy
Watch Program, the green, yellow, and red system that
implores customers to adjust their behavior in the
event of an impending energy crisis. Last winter we
nearly experienced a catastrophic event. This year we
have been stable, but we cannot rely on the stability
of the past to guide our future.
The timeline for action is growing shorter. As a
result, I am testifying in support of the concepts
proposed in the [committee substitute] version of HB
280 to encourage gas storage and exploration in the
Cook Inlet and, therefore, stability for Railbelt
energy consumers.
Specific features of the bill supported by the mayor
are: the strong requirement that financial benefits
flow through the utilities that contract for gas to
the benefit of their customers; the provision for 40
percent credit for exploration expenses in Cook Inlet
against production taxes that we hope will result in
increased exploration; and the direction to the
Department of Law to consider the impact to consumers
in the event the [Regulatory Commission of Alaska
(RCA)] rejects the utilities' gas supply contract. We
concur with the bill sponsors that this encourages the
RCA to take a long-term view and provides a long-term
benefit to consumers.
The mayor is committed to monitoring the bill as it
continues to work its way through the legislative
process.
CO-CHAIR JOHNSON closed public testimony after ascertaining that
no one else wished to testify.
5:47:28 PM
REPRESENTATIVE SEATON inquired whether HB 280 would give the RCA
the appropriate statutory authority to regulate gas storage in
the Cook Inlet basin.
STUART GOERING, Assistant Attorney General, Commercial/Fair
Business Section, Civil Division (Anchorage), Department of Law,
first noted that he is the representative for the RCA. He said
Version C does contain sufficient language to clarify RCA's
jurisdiction over natural gas storage to the extent that would
be necessary at this time. Version C addresses all of the
concerns raised by the RCA in its recent decision. Version C
clarifies the RCA's jurisdiction over third party natural gas
storage and also clarifies its lack of jurisdiction over
proprietary storage, which is existing storage that is owned and
operated by natural gas producers for their own benefit and to
assure that they can meet their contractual obligations under
their gas supply agreements with the utilities.
5:49:45 PM
REPRESENTATIVE SEATON asked whether the provision giving
direction to the RCA to consider failure to approve a contract
is adequate.
REPRESENTATIVE HAWKER pointed out that this guidance is provided
to Regulatory Affairs & Public Advocacy (RAPA) under Section 20
and to the Regulatory Commission of Alaska under Section 5.
MR. GOERING replied that this provision would require the RCA to
consider certain things which, based upon an assessment of past
RCA orders, have already been at the forefront of the
commission's consideration. However, it would help the RCA's
consideration in that it would allow parties to specifically
address those criteria when making presentations to the
commission either in favor of or in opposition to a gas sales
agreement. The provision would not really result in the RCA
considering anything new, but it would draw to the parties'
attention the need to address that in their presentations to the
commission.
5:52:18 PM
REPRESENTATIVE SEATON requested Ms. Robynn Wilson to address the
interactions that would result from the language in [Section 16,
paragraph (1)] on page 14, lines 20-27.
ROBYNN WILSON, Income Audit Manager, Tax Division-Income Audit
Group, Department of Revenue, answered that AS 43.20.043 is the
gas development credit. She said her reading of this paragraph
is that the taxpayer can take a credit under AS 43.55 but not
under AS 43.20.043. She asked Mr. Larry Ostrovsky whether he
has a different reading than hers.
LARRY OSTROVSKY, Petroleum Land Manager, Division of Oil & Gas,
Department of Natural Resources, said he did not.
5:54:47 PM
REPRESENTATIVE HAWKER said he believes Ms. Robynn Wilson is 100
percent correct in her answer. He requested that his staff
member, Mr. Larry Persily, be able to further address
Representative Seaton's question.
LARRY PERSILY, Staff, Representative Mike Hawker, Alaska State
Legislature, explained that Section 16 takes the 30 or 40
percent exploration credit, depending on distance from the
existing hole in the ground, that is currently in statute and
makes it 40 percent for Cook Inlet. Additionally, it expands
the definition of allowable expenses for that credit to include
all well-related lease expenditures.
5:55:59 PM
REPRESENTATIVE SEATON noted that provisions under paragraph (1),
page 14, would allow a producer or explorer to also elect to
apply a tax credit against AS 43.55.011(e). He inquired whether
this provision would allow lease expenditure to count as credits
in multiple sections of the law.
MR. PERSILY replied a taxpayer can only take a credit once,
depending upon where there is a tax liability. In further
response, he explained that AS 43.55.011(e) is the oil and gas
production tax.
MS. ROBYNN WILSON recalled that under revisions of that statute
in 2006 and 2007, the credit could be given even though the
expenditure was deductible in calculating the production tax
value.
5:58:26 PM
REPRESENTATIVE HAWKER interpreted Representative Seaton's
question as asking whether double dipping would be allowed for
the credit by applying the same credit against two different
taxes. He said the answer is no and pointed out that line 22 in
paragraph (1) contains the prefacing language, "unless a credit
for that expenditure is taken under" someplace else, then a
producer or explorer "may also elect to apply" it against the
production tax.
REPRESENTATIVE SEATON stated he will be fine if the state's tax
lawyers agree with Representative Hawker's answer.
MS. ROBYNN WILSON said a person cannot take two different
credits for the same expenditure; they can, however, take a
deduction for the expenditure in addition to a credit. The
value of a deduction generally is a lot less than the value of a
credit. So, although this section says a deduction and a credit
may be taken, it also says that two different credits cannot be
received for the same expenditure.
6:00:23 PM
REPRESENTATIVE HAWKER expressed his willingness for the word
"also" to be deleted if it would make members more comfortable.
REPRESENTATIVE SEATON said this would help his comfort level.
He moved to adopt Conceptual Amendment 1 as follows:
Page 14, line 24:
Delete "also"
There being no objection, Conceptual Amendment 1 was passed.
6:02:10 PM
REPRESENTATIVE P. WILSON understood that [paragraph (1)], lines
20-27, page 14, would provide that an expense may be deducted
and also applied as a tax credit in the amount of 40 percent of
that expenditure.
REPRESENTATIVE HAWKER replied yes. He said this provision
parrots the language and methodology that was established in the
petroleum production tax (PPT) and Alaska's Clear and Equitable
Share (ACES) debates in the legislature previously. By adding
new subsections, no new concepts and no new credits are created;
it sets aside a separate section of statute for specifically the
activities within the Cook Inlet.
REPRESENTATIVE P. WILSON posed a scenario in which a taxpayer
has a cost of $10,000 that can be deducted. She surmised that
under HB 280, Version C, the taxpayer could also receive a tax
credit of 40 percent for this $10,000 expenditure.
MS. ROBYNN WILSON answered correct.
6:04:04 PM
REPRESENTATIVE SEATON asked whether AS 43.20.043 also allows a
10 percent deduction or credit on the corporate income tax.
MS. ROBYNN WILSON responded no, that would not be a duplicative
credit. She cited AS 43.20.043(g), the gas exploration and
development tax credit that is creditable against the corporate
income tax, which reads as follows:
A taxpayer who obtains a credit under this section may
not claim a tax credit or royalty modification
provided for under any other title.
MS. ROBYNN WILSON said the department's reading of this statute
is that the same expenses that would generate the credit under
AS 43.20.043 cannot then be used for another credit under the
production tax or any other chapter within the title.
6:05:35 PM
REPRESENTATIVE SEATON inquired whether a taxpayer could receive
the 40 percent credit and royalty modification as well.
MS. ROBYNN WILSON said her reading of 43.20.043(g) is that there
would not be a credit against royalties; however, she deferred
to the Department of Natural Resources because royalties are not
her area.
MR. OSTROVSKY allowed he is not an expert in regard to this
particular question, but noted that AS 43.20.043(g) says, "A
taxpayer who obtains a credit under this section may not claim a
tax credit or royalty modification provided for under any other
title."
6:06:44 PM
REPRESENTATIVE SEATON asked whether the provision in HB 280,
Version C, would allow a taxpayer to receive the 40 percent tax
credit under 43.55.011(e) as well as a royalty modification.
MR. OSTROVSKY replied he will have to get back with that answer.
6:07:48 PM
REPRESENTATIVE HAWKER understood the question to be whether a
taxpayer receiving the credits under Section 16 would be
prevented from pursuing and receiving a royalty modification
under the royalty modification statutes. He noted that it was
the other reference that says if a deduction is taken under this
section, then royalty modifications cannot be pursued. But, he
pointed out, there is nothing in Section 16 that would preclude
a taxpayer from pursuing royalty modification under the royalty
modification statutes.
6:08:42 PM
REPRESENTATIVE SEATON inquired whether it is the sponsor's
intent to allow the taking of a 40 percent tax credit against
production tax as well as royalty modification.
REPRESENTATIVE HAWKER answered an application for royalty
modification would still be available to a taxpayer that availed
itself of deductions and credits under Section 16. However,
royalty modification requirements have a very high bar. In
making its decision the state would consider the deductions and
credits available to that same taxpayer under Section 16.
6:10:26 PM
REPRESENTATIVE SEATON asked if this 40 percent tax credit would
be one of the things available for consideration when the
Department of Natural Resources was making its decision on
whether to grant the royalty modification.
MR. OSTROVSKY responded yes, he believes the department takes
all the tax credits into account when considering royalty
modification.
6:11:08 PM
REPRESENTATIVE SEATON said he would like to have a discussion on
the record regarding how Section 11 would allow the tax credit
generated from activity in Cook Inlet, which is ring fenced at a
very low tax rate, to be applied without the deduction of
considering that very low tax rate to the higher tax rate
production taxes across the state.
REPRESENTATIVE HAWKER said he appreciates this discussion
because it is potentially the most significant change in tax
regime components as they relate to maximizing Cook Inlet's
attractiveness for capital investment in the exploration arena.
He explained that when the PPT/ACES structure was passed it was
focused primarily on North Slope activities. It was realized
late in the debate that if the PPT/ACES structure was applied on
a statewide basis it would result in a very significant increase
in taxes in the Cook Inlet, just as it did on the North Slope.
If those tax increases were applied to the Cook Inlet, the taxes
would be recognized as legitimate expenses and would therefore
be paid by Southcentral consumers through the energy pricing
process. Because a massive increase in consumer energy prices
was an undesirable outcome, the Cook Inlet was ring-fenced to
remain at the economic limit factor (ELF) tax rate. Other
legislation has extended this same treatment to other in-state
locations where gas is produced and consumed in-state.
6:14:59 PM
REPRESENTATIVE HAWKER explained that the PPT/ACES debates were
truly focused on the North Slope. At the time, it was
recognized that some producers worked in both the North Slope
and the Cook Inlet, and a policy call was made that those
producers would not be allowed to use a credit generated in the
Cook Inlet on the North Slope or anywhere else in the state.
While working on HB 280, he realized that the Cook Inlet is
effectively being disadvantaged by this policy; a dollar
invested in the Cook Inlet results in a lesser benefit to the
investor than investing the same dollar elsewhere in the state,
particularly on the North Slope. This provision in HB 280 says
that investment in Alaska is good and that the state does not
want to disadvantage the Cook Inlet as an attractive investment
climate. This change allows investors the ability to take those
credits/deductions anywhere they may be operating in the state,
even if those credits/deductions were incurred in the Cook Inlet
with a lesser tax structure. The outcome of this change should
be to maximize the attractiveness and competitiveness of the
Cook Inlet within the borders of Alaska to develop the gas that
everyone hopes is there. He said HB 280 takes a multi-tiered
approach to meeting Southcentral Alaska's energy security by
providing storage capacity as well as improving production in
the Cook Inlet.
6:17:54 PM
REPRESENTATIVE SEATON stated that both the legislature and the
public need to realize that areas are being ring-fenced with
zero tax or tax rates that are so low they are effectively zero.
This essentially gives 100 percent tax credit because whatever
is done, it does not have to be offset against the tax because
there is no tax being charged. When those expenses are allowed
to offset the areas with a high tax, additional state
participation is received with that reduction. Neither a low
gross tax, nor an interaction of gross and net tax through ring-
fencing, has yielded the exploration incentive that was desired.
Now a 40 percent tax credit on investments on top of these
extremely low tax rates is being proposed to provide that
incentive. He said he is bringing this up because there are a
number of other initiatives proposing to give big tax breaks to
gas or oil if it takes place in a certain place. Every time
this is done, the legislature gets in the situation where it is
changing the entire theory of unified tax on profits that are
made across the entire state. He said he thinks that if this is
done, some companies will be significantly advantaged that have
operations in both the low tax Cook Inlet and the high tax North
Slope; whereas, those companies concentrating in a low tax area
will not gain the benefit of being able to write these tax
credits off against the high tax rates of elsewhere. When
making these special rules for specific areas, the legislature
may not be fully recognizing the impacts.
6:22:00 PM
REPRESENTATIVE HAWKER responded that when coming forward with HB
280, the challenge identified by Representative Seaton was
recognized. It is not the sponsors' desire to have a tax
structure that is prejudiced against any individual explorer or
investor in a region. In the aggregate, that is resolved here
by making the credits refundable for small producers.
REPRESENTATIVE OLSON moved to report HB 280, Version 26-
LS1185\C, Bullock, 3/9/10, as amended, from committee with
individual recommendations and attached fiscal notes. There
being no objection, CSHB 280(RES) was reported from the House
Resources Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CS HB 229 v. E.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |
| CS HB 229 v. E Sectional.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |
| HB 229 Additional Information.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |
| HB 229 Fiscal Note.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |
| HB 229 Report from DOR 3.15.10.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |
| HB229 Testimony 3.15.10.pdf |
HRES 3/15/2010 1:00:00 PM |
HB 229 |