Legislature(2009 - 2010)BARNES 124
03/31/2010 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB267 | |
| HB365 | |
| HB414 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 414 | TELECONFERENCED | |
| + | HB 267 | TELECONFERENCED | |
| + | HB 365 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 337 | TELECONFERENCED | |
HB 414-SEPARATE OIL & GAS PRODUCTION TAX
[Contains discussion of SB 305]
1:22:18 PM
CO-CHAIR JOHNSON announced that the next order of business is
HOUSE BILL NO. 414, "An Act relating to the tax on oil and gas
production; and providing for an effective date." He noted that
a committee substitute (CS) had been drafted that is identical
to the bill version recently passed by the Senate Finance
Committee.
REPRESENTATIVE OLSON moved to adopt the proposed committee
substitute for HB 414, labeled 26-LS1592\E, Bullock, 3/31/10
("Version E"), as a working document. There being no objection,
Version E was before the committee.
CO-CHAIR JOHNSON, in response to Representative Seaton,
confirmed the forthcoming presentation is on Version E.
1:24:15 PM
CHUCK LOGSDON, Ph.D., Energy Economist, Logsdon and Associates,
Consultant to the Legislative Budget and Audit Committee,
introduced himself and deferred to Mr. Roger Marks to begin
their presentation on HB 414, Version E.
ROGER MARKS, Economist, Consultant to the Legislative Budget and
Audit Committee, began the presentation by reviewing the
rationale for HB 414 [slide 2]. He said oil and gas are taxed
together under current law. Oil is presently worth much more
than gas and, while that could change, the values of oil and gas
can diverge quite a bit. Because of the way oil and gas are
currently priced, the combining mechanism in the tax has the
potential to materially reduce oil taxes and undermine the
state's interests with a major gas sale, even though oil
operations are unaffected by a major gas sale. The premise of
HB 414 is to address that problem.
1:26:50 PM
MR. MARKS explained that while oil and gas are produced
together, their values are quite different due to issues on both
the supply side and the demand side [slide 3]. On the supply
side, oil is more geographically concentrated than gas, which
means fewer sellers, which makes the value higher. Oil has been
used for a much longer time so oil supplies are more depleted.
Relatively more lower-cost gas is available in the world than
oil. On the demand side, oil has fewer substitutes. In the
foreseeable future, most automobiles will run on gasoline which
can only come from crude oil, which will make its price higher.
Gas is mainly used for powering power plants or providing space
heat and there are many substitutes for that. The result is
that oil is worth more than gas. While the future is unknown,
there are reasons to believe that this will continue being the
case.
1:28:01 PM
MR. MARKS compared North Slope oil and North Slope gas to
provide an example of how the values are different [slide 4].
Alaska North Slope (ANS) oil delivered to the West Coast has a
current market price of $80 per barrel. After subtracting
shipping costs of $2.07 and the Trans-Alaska Pipeline System
tariff of $4.18, the gross value at the point of production for
this oil is $73.75. Each barrel represents about 6 million
British Thermal Units (MMBTU), making the oil worth $12.29 per
MMBTU. For North Slope gas, Mr. Marks provided an example using
a Lower 48 value of $6 per MMBTU. He noted, however, that the
current value is about half that. In response to Co-Chair
Johnson, he said today's Lower 48 gas price is just under $4
[per MMBTU], so if [North Slope] gas was being sold today it
would lose money because its gross value would be negative.
1:29:53 PM
REPRESENTATIVE GUTTENBERG commented that historically the gaps
in the equivalents change quite a bit. He asked whether the
presentation will include a history of prices and the
equivalents and/or the coupling effect.
MR. MARKS responded no. He added that there have been periods
where the prices were closer than they are now and periods where
they were farther apart than now. He said the presentation is
not representing that this relationship or prices will be going
on forever. Rather, the point is that since there is the
potential for divergence of value, it creates additional risk
for both the state and producers.
1:31:36 PM
REPRESENTATIVE GUTTENBERG inquired as to what the sweet spot is
or the relationship that the state is trying to be in.
DR. LOGSDON replied he has that material, but did not bring it
with him for today. He said it takes about 8 MMBTU of gas to
give the same energy as one barrel of oil, so that is a little
bigger than energy equivalence which is about 6 million. Since
1994, the highest monthly price for gas over that same 16 year
period was $12 per MMBTU, the highest price for oil was about
$120. The point is not so much about the averaging, but the
variability, and there is a great deal of variability. The
presentation will not focus on particular prices, but the risk
the state faces that prices can vary a lot and when they vary in
certain ways they can have adverse effects on state revenues.
MR. MARKS added that he and Dr. Logsdon would characterize
future prices as unknowable. The reason to be concerned about
this issue is because of potential given that future prices are
unknowable.
CO-CHAIR JOHNSON asked that the information requested by
Representative Guttenberg be provided to members.
1:34:37 PM
MR. MARKS continued his comparison of North Slope oil and gas
values [slide 4]. He assumed a Lower 48 price for North Slope
gas of $6 per MMBTU, an estimated tariff from Alaska to Alberta
of $3.54 per MMBTU, a cost of 24 cents per MMBTU to move the gas
into and out of the Alberta Hub, and a tariff of 85 cents per
MMBTU to move the gas from the hub to the Lower 48. Subtracting
the transportation costs results in a gross value at the
wellhead of $1.37 per MMBTU. Thus, on a straight BTU:BTU
comparison, $12.29:$1.37, oil is worth 9 times as much as gas,
which demonstrates that the two values can diverge by a fairly
large amount.
MR. MARKS pointed out that many things have BTUs: oil, gas,
coal, wood, asphalt, shoe leather, rubber, coffee grounds,
citrus rinds, corn cobs, and dung [slide 5]. The point being
that just because some things have BTUs does not mean they
should be coupled together for taxation, and coupling oil and
gas together for taxation is a very similar thing.
1:36:44 PM
REPRESENTATIVE SEATON inquired whether the presentation will
address what the carbon tax currently being considered [by
Congress] would do to the comparison values between oil and gas.
MR. MARKS answered this was not done because there is much
uncertainty as to whether there will be a carbon tax, what form
it would take, and how it would affect these relative values.
1:37:45 PM
MR. MARKS reviewed the mechanics of how the current production
tax works [slide 6]: first, the oil gross value is determined
(market price less transport cost), as is the gas gross value
(market price less transport cost); the two are added together
to arrive at the combined gross value; the upstream costs of
[lease] capital and operating costs are then subtracted from the
combined gross value to arrive at the combined oil and gas net
value, which in the tax code is called the production tax value;
the combined oil and gas net value is then divided by the total
oil and gas barrel of oil equivalents (BOEs) to arrive at the
per barrel of oil equivalent net value.
1:39:14 PM
MR. MARKS described how to put oil and gas on an apples-to-
apples basis by using barrel of oil equivalents [slide 7]. To
provide an example of how to do this, he assumed a production of
4.5 billion cubic feet per day (BCF/D) of North Slope gas.
Because North Slope gas is rich with natural gas liquids, such
as butane, propane, ethane, and other heavier hydrocarbons, it
has an elevated BTU content of about 1,100 BTUs per MCF
[thousand cubic feet], as compared to 1,000 BTUs per MCF for
Cook Inlet gas. Natural gas is measured and sold in millions of
BTUs (MMBTUs). The 4.5 billion cubic feet per day of gas would
have 4.95 million MMBTUs (4.5 times 1,100). A barrel of oil has
about 6 MMBTUs. When converting gas to BOEs, Alaska statute
specifies the use of 6 MMBTUs of gas to a barrel of oil. Thus,
4.5 BCF/D of North Slope gas would have 825,000 barrel of oil
equivalents (BOEs) (4,950,000 divided by 6). If 500,000 barrels
of oil was produced along with the 4.5 BCF/D of gas, the total
BOEs would be 1,325,000 (500,000 plus 825,000).
1:41:40 PM
MR. MARKS returned to slide 6 and reiterated that the combined
oil and gas net value divided by the total oil and gas BOEs
equals the per BOE net value. The progressivity factor is
determined by subtracting $30 from the per BOE net value and
paying 0.4 percent per dollar on the amount remaining. The
progressivity factor is then added to the 25 percent base rate
to arrive at the single tax rate. That single tax rate is then
applied to the combined oil and gas net value.
1:42:45 PM
MR. MARKS, in response to Representative Seaton, said slide 7
illustrates how to get oil and gas on a common denominator so
the per BOE net value amount can be determined. In further
response, he returned to slide 6 and reiterated that the
combined oil and gas net value is determined by subtracting the
lease capital and operating costs from the combined gross value.
The combined oil and gas net value is then divided by the total
oil and gas BOEs to arrive at the per BOE net value.
1:45:04 PM
MR. MARKS reviewed the mechanics of how the progressivity
calculation works [slide 8]. The "trigger" equals $30 net
divided by BOE value. The "slope" is how much the progressivity
goes up as the net value goes up [the 0.4 percent slope changes
to 0.1 percent after $92.50 net per BOE value]. The
progressivity surcharge is determined by subtracting $30 from
the net per BOE value and this figure is then multiplied by
.004. For example, if the combined oil and gas net value is $50
the progressivity is determined by subtracting $30 from $50, and
the resulting $20 is multiplied by .004 to arrive at 8 percent.
The 8 percent progressivity is then added to the 25 percent base
tax rate for a total tax of 33 percent on the combined oil and
gas net value.
1:46:01 PM
REPRESENTATIVE SEATON presumed that all of the lease costs have
been subtracted before getting to the trigger.
MR. MARKS replied correct. In further response, he said three
different values can be thought about: the market price in the
Lower 48; the gross value at the point of production, which is
where the oil or gas leaves the lease and before any operating
and capital costs are subtracted; and the net value or
production tax value, which is where all the capital and
operating costs have been subtracted out.
1:47:15 PM
MR. MARKS discussed how gas could impact oil under Alaska's
current tax system [slide 9]. To provide an example, he first
assumed a West Coast market price of $80 per barrel for Alaska
North Slope (ANS) oil with shipping and tariff costs of $5, for
a gross value at the point of production of $75. Assuming
upstream operating and capital costs of $20, the net value [per
barrel or per MMBTU] is $55. Progressivity is determined by
subtracting $30 from the $55, which equals $25. The $25 is
multiplied by .4 percent to arrive at a 10 percent progressivity
surcharge. The 10 percent progressivity is added to the 25
percent base rate for a total tax rate of 35 percent. He then
assumed 500,000 barrels of daily oil production [slide 10],
which is 500,000 barrels of oil equivalent (BOE), since 1 barrel
of oil is 1 BOE. Multiplying [500,000 barrels] times 365 days
results in an annual production of 183 million barrels of oil or
183 million BOEs of oil.
MR. MARKS next assumed a Lower 48 market price of $6 for gas
with a transportation cost of $4.50, for a gross value of $1.50.
Assuming an upstream cost for gas of $.50 per MMBTU, the net
value of the gas is $1 [per barrel or per MMBTU]. At an assumed
daily gas production of 4.5 BCF, the MMBTUS per day equals 4.95
million; dividing that by 6 equals 825,000 BOEs of gas per day.
Multiplying 825,000 BOEs times 365 equals 301 million BOEs of
gas per year.
1:49:54 PM
MR. MARKS next combined the oil and gas [slide 11]. For oil, he
noted that multiplying the net value of $55 times 183 million
BOES per year yields a total annual net value of $10.038
billion. For gas, a $1 net value times 1.807 million MMBTUs
results in a total annual net value of $1.807 billion. Adding
together the $10.038 billion for oil and the $1.807 billion for
gas equals a total annual oil and gas net value of $11.844
billion. Adding together 183 million annual BOEs for oil and
301 million for gas, the combined annual total is 484 million
BOEs. Dividing the total oil and gas net value of $11.844
billion by the 484 million BOEs equals a net value of $24.49.
Thus, combining the oil and gas results in the net value
decreasing from $55 for oil alone to $24.49 for oil and gas
combined [slide 12]. The progressivity goes from 10 percent for
oil alone to 0, because progressivity starts at $30. Bringing
in gas with oil dilutes the net value and dilutes the
progressivity, and this dilution effect is critical to
understanding the rational for HB 414.
1:51:37 PM
MR. MARKS outlined the magnitude of this dilution in terms of
taxation [slide 13]. In general, the greater the divergence
between oil and gas, the greater their net values will diverge,
the greater the progressivity rate will drop when gas is added
to oil, the greater the reduction in tax. He related that
several weeks ago, the Senate Finance Committee brought in
several folks to explain this issue, and all came up with much
the same conclusion and numbers given the same assumptions. He
said he will use the same numbers as did the Department of
Revenue in its presentation to that committee: three scenarios
of oil prices at $75, $100, and $120, with all scenarios at a
gas price of $8. For each scenario the department assumed an
oil production of 500,000 barrels per day, a transportation cost
deduction of $6.50 per barrel, upstream capital costs of $2
billion [per year], and upstream operating costs of $2 billion
[per year].
1:52:51 PM
CO-CHAIR JOHNSON inquired whether it is a reasonable assumption
that if oil went to $120, gas would stay at $8. He understood
there used to be some correlation between the ups and downs.
MR. MARKS answered there is probably some correlation, but there
is also some independence for the reasons mentioned earlier.
1:53:19 PM
CO-CHAIR JOHNSON, for purposes of discussion, asked whether it
is reasonable to use in a formula consistent gas price when oil
has nearly doubled.
MR. MARKS responded this is for illustration. Oil is currently
priced at $80 and gas at $4, and it is not being said that any
one of those scenarios is the norm because any one of them could
be the norm. In general, there are reasons to believe that
prices move together, but no one can say which one of those is
the norm.
CO-CHAIR JOHNSON said he wants to ensure that when making
assumptions and plugging in numbers, members are getting a
realistic look at the back end, because what is really being
dealt with is that progressivity factor at the end and it is an
algebraic equation.
DR. LOGSDON advised the presentation will get to the examination
of progressivity, as well. The current exercise is specifically
designed to examine downside risk. There is upside risk and
that gets towards how to deal with progressivity.
1:54:47 PM
MR. MARKS returned to outlining the magnitude of this dilution
in terms of taxation [slide 13]. For its gas assumptions, the
Department of Revenue assumed a gas production of 4.5 BCF/D, a
transportation cost to the Lower 48 of $4.50 per MMBTU, upstream
capital costs of $200 million per year, and upstream operating
costs of $200 million per year. In response to Representative
Seaton, he said the Department of Revenue used about the same
transportation costs as did Logsdon and Associates. [As shown
on slide 4], Logsdon and Associates used a transportation tariff
to Alberta of $3.54, plus the Alberta Hub cost [of $0.24], and
the [tariff] from Alberta to the Lower 48 [of $0.85], which adds
up to [$4.63] as compared to the department's transportation
cost of $4.50 to the Lower 48.
1:55:57 PM
MR. MARKS reviewed what happens to the progressivity factor
under each of these three scenarios [slide 13]. At a price of
$75, the progressivity factor for oil by itself is 5.38 percent
and at a price of $120 the progressivity factor is 23.38
percent. When oil and gas are combined, the progressivity
factor at an oil price of $75 is 0 percent; at an oil price of
$120 the progressivity factor is 6.79 percent, for a drop in the
progressivity factor of 5.38 percent and 16.59 percent,
respectively. Taxing oil alone, the production tax at an oil
price of $75 would be $1.7 billion per year; at a price of $120
the production tax would be $6.4 billion per year. Taxing gas
alone, the production tax at a price of $8 would be $1.1 billion
per year. If oil and gas were taxed separately, the total tax
at an oil price of $75 and a gas price of $8 would be $2.8
billion; at $120 for oil and $8 for gas the total tax would be
$7.5 billion. If oil and gas tax is combined, the tax at a $75
oil price and $8 gas price would be $2.5 billion; at $120 for
oil and $8 for gas that tax would be $5.5 billion. Thus, the
annual tax reduction from combining oil and gas would be $0.3
billion and $2.0 billion, respectively. The context for dealing
with this issue now is the Alaska Gasline Inducement Act (AGIA).
If the AGIA provisions that lock in taxes are manifested and
this issue presents itself, there could be a loss of $2 billion
per year in production tax for 10 years, which would be a total
of $20 billion. The AGIA provisions begin May 1 when the open
season begins, so the rationale for dealing with this issue now
is to avoid this possible outcome, in-so-far as the provisions
are airtight. In response to Co-Chair Johnson, Mr. Marks
clarified he said "in-so-far" as the provisions are airtight
because there are questions about whether they are.
1:59:03 PM
MR. MARKS continued, saying there is no way to be sure about
future prices [slide 14]. Different price relationships would
produce different outcomes. If gas prices went very high
relative to oil, the inverse dilution effect would occur, and
the dilution effect of combining oil and gas would drag the oil
progressivity up rather than down. In that situation, the
producer/taxpayer would lose money under the current tax
statutes. Since the potential for these outcomes exist, the
current tax structure adds another level of risk to an already
large amount of uncertainty. Not only is there the worry about
the price risk itself, there is the worry about the relationship
between prices. If the current price relationship endures,
there is the risk of undermining the state's finances.
2:00:22 PM
REPRESENTATIVE SEATON recalled conversations at the time [AGIA
was being considered] about trying to build a robust system that
would self-correct as prices changed and that some risk would be
absorbed so the state would get a project to go forward. As he
sees these numbers, what is really being talked about is that if
gas is taxed alone it would not be taxed at the current rates
because a pipeline would not be built due to too much risk on
the downside. If oil and gas remain combined, there is a risk
of this dilution effect if the gas price is relatively low, but
that absorbs some of the risk of the development of a gas field.
He asked whether the presentation will look at what would happen
if there is not a large-diameter pipeline and the exploration
for gas, along with the additional oil that would come with new
gas fields. He maintained that if a tax system is put in place
that does not absorb some of the downside or low-price risk, the
state would be pulling the plug on North Slope development.
2:03:20 PM
REPRESENTATIVE SEATON, to clarify his question for Mr. Marks,
said he is asking whether the current system of combined tax
does not mitigate the risk of building a pipeline for low-price
gas. He offered his opinion that if there is not something to
mitigate that risk, the state would have to negotiate a much
lower tax rate on the gas because otherwise it would be
difficult to finance and build the project.
MR. MARKS surmised the question is whether the tax system should
provide some cushion for low-price gas.
REPRESENTATIVE SEATON said yes, and further asked whether Mr.
Marks does not believe that the current system is self-
correcting and robust so that it works at a variety of prices.
2:05:23 PM
MR. MARKS responded that, first, he thinks having taxation based
on net is one way to address the low cost issue; there will be
no tax if the company is not making money. Second, one
advantage of separating oil and gas is that down the road the
state can deal with gas by itself and determine the taxation for
gas without having oil affect things. Third, at face value it
is easy to say that a taxpayer could save $2 billion in oil
taxes by undertaking this gas project if oil is priced at $120
and gas at $8. However, there are other considerations, one of
which is uncertainty and investors dislike uncertainty more than
anything else. Taxpayers understand that a tax system has to
work for both sides. An outcome of the legislature's rejection
of the stranded gas development contract advanced by the
Murkowski Administration is that it displayed the state has a
bar it is setting for what it is expecting.
2:07:59 PM
MR. MARKS said these conversations and this bill are occurring
because, as he has shown, it is crystal clear that there is what
he would call a big crack in the tax system, which is the $2
billion revenue loss. Notwithstanding any provisions for fiscal
certainty in AGIA, which may or may not be airtight, he
cautioned that taxpayers will look at this crack as an issue of
much volatility, given it is unknown who will be governor or who
will be in the legislature in 10 years. While solving this
problem now would not reduce all fiscal uncertainty, he said his
personal opinion is that it would take a big piece out of it.
2:09:34 PM
REPRESENTATIVE GUTTENBERG understood Mr. Marks to be saying that
the $2 billion less in tax revenue that would be collected under
the current combined tax system, as compared with a separated
tax system, creates volatility for the state which creates
uncertainty for industry so that industry does not know what to
do. He said many people believe that if there are fiscal terms
on a gasline, industry will come back to the state to address
fiscal certainty. In his opinion, to "decouple" now is to put
the state's hand on the table, so it would be better for the
state to wait for industry to put its proposals forward first.
2:11:31 PM
MR. MARKS responded he thinks there is a general expectation
that there will be some discussion down the road between the
state and the producers about fiscal terms. If fiscal certainty
is essential, it is unclear whether the constitution would have
to be changed to achieve that, so it is unclear what the outcome
of a negotiation would be. This bill would not preclude future
discussions; rather, it is a measure to protect the state from
the scenario where the current tax system is locked in place for
the first 10 years of production under the AGIA provisions.
Even if the fiscal certainty proves not to be airtight, a future
legislature may feel committed to upholding the terms that were
in place on May 1, 2010. However, the question is what should
be upheld and whether today's legislators would want the current
tax system upheld knowing what would happen to the state's
finances if those prices materialized.
2:14:14 PM
REPRESENTATIVE GUTTENBERG proffered that the producers may come
back to the state with fiscal terms that are considerably
different than those in HB 414. He said that since this issue
is not new and is something being dealt with around the world,
the state has the obligation to find out whether there are other
possible scenarios, even though the scenario being presented is
very legitimate and appreciated. He recognized producers may
not come to the table at all with fiscal terms and right now the
state is risking whether producers may even want any changes.
MR. MARKS replied there are millions of scenarios out there. He
said the issue is not what will happen, but what has the
potential to happen, and that is what needs to be thought about.
2:16:24 PM
REPRESENTATIVE P. WILSON understood Mr. Marks to have said that
producers do not like uncertainty and the more things can be
locked in, the better. She asked whether Mr. Marks is saying
that if taxes were separated there would be more participation
in an open season because producers would have more certainty,
even though they would be paying more in tax.
MR. MARKS answered he believes the producers would love to
proceed on a gasline under the current system and have their oil
tax bill reduced by $2 billion. However, when producers think
about committing gas at an open season, there are numerous
considerations, one of which is the tax side. Under AGIA
provisions the current tax system would be locked in, but there
are a lot of reasons to think those provisions are not airtight.
If people are concerned now about what will be happening in 10
years, they will be even more concerned on that first shipping
day. Additionally, it is unknown what the state's finances will
be then. Even if HB 414 passes, a tax system is not being
nailed down, but having a problem will make producers nervous
and having that problem fixed means the range of outcomes
narrows, which could make them feel more comfortable. He said
this same kind of effect can be seen when a corporation is sued.
Even when a large judgment is handed down, the corporation's
share price will generally go up after the judgment because now
investors know the result and the uncertainty has been removed.
2:20:07 PM
REPRESENTATIVE OLSON inquired whether any models were run that
showed the current system appears to be working and looks more
favorable than what is being seen right now.
MR. MARKS responded that Department of Revenue modeling showed
that if the oil and gas are flip-flopped so that the gas value
is very high relative to oil, a reverse dilution effect would
happen with a major gas sale that would drag the oil
progressivity factor up rather than down. In further response,
he said the past three years have had relationships where the
BTU value of oil has been much higher than the BTU value of gas.
DR. LOGSDON added that the highest monthly average price for oil
over the last 16 years has been a shade over $120 per barrel,
and the highest monthly average price of gas has been just over
$12 per MMBTU. On the low side over this same 16-year period,
gas has been as low as $2 per MMBTU and oil has been as low as
about $30 per barrel. The average oil price over that 16 years
is about $40 per barrel and gas is about $5-$6 per MMBTU. The
statistical analysis shows the one thing that is consistent is
the volatility in oil prices. In 2004, oil was about $30 per
barrel and recently it was as high as $145 per barrel on a daily
basis. If looked at statistically there will be an average, but
the standard deviation, or the measure of average volatility, is
extremely high.
2:23:35 PM
DR. LOGSDON continued, saying that from his and Mr. Rogers'
perspective what can be done now before the lock-in period is to
put into effect a kind of insurance policy against this type of
thing happening in the future. He agreed it is unknown how this
would be viewed by industry and how it would affect
negotiations. He said he and Mr. Marks chose these particular
numbers to show some of the down side the state may be facing as
the open season approaches. A $120 oil price and $8 gas price
are plausible scenarios, he stressed, although he is not saying
there is a 100 percent chance this would be the scenario for 10
years. However, it is one reason why he and Mr. Marks think
that separating oil and gas might be something that would ensure
safe financial stability for the state in the future.
2:25:18 PM
REPRESENTATIVE OLSON asked whether over the past three years the
ratio of oil to gas numbers has stayed relatively close.
DR. LOGSDON replied the average ratio has been 8.8. Right now,
at prices of $4 and $80, it is a catastrophic ratio of 20. Over
the last 16 years, it has been below 6 in a couple of months,
but not very often. It actually averaged close to 6 in 2005 or
2006. He said Senator Paskvan distributed a graph in this
regard and most of the time the ratio has been above 6 over a
fairly long period of time. Generally speaking, 6 is the amount
of energy it takes to equal the BTUs in a barrel of oil.
2:26:52 PM
REPRESENTATIVE TUCK inquired what ratio is the point of the
reverse dilution effect.
DR. LOGSDON answered the ratio is important, but what is really
important is the taxable value of the gas. At a fairly low net
taxable value for gas and oil prices somewhat higher than that,
there will be dilution because a low-value substance is being
added together with a high-value substance.
2:28:09 PM
REPRESENTATIVE TUCK asked what the ratio would be to trigger the
reverse dilution effect, based on all things being equal and the
tax structure of today.
DR. LOGSDON responded he will have to get back to members in
this regard. However, once the net taxable value of gas gets
into the teens, the pipeline would begin spinning off a lot of
gas revenue.
[CO-CHAIR JOHNSON passed the gavel to Representative Olson.]
REPRESENTATIVE TUCK surmised that at gas prices of $4-$5 per
MMBTU there would be more than a $2 billion giveaway.
MR. MARKS nodded yes.
2:29:59 PM
REPRESENTATIVE TUCK proffered that the tax incentive/giveaway
might be needed to get the pipeline built if gas drops to $4
because at that price it may not be worthwhile for any company.
DR. LOGSDON replied that once a gas pipeline is built, the
investment is fixed. He said the scenario Mr. Marks was laying
out is that a company or investor wants fiscal certainty so it
knows that once $40 billion has been spent on building a
pipeline the state will not come back and demand the $2-$4
billion it is losing by changing the fiscal system.
2:31:53 PM
REPRESENTATIVE TUCK argued that would be true of any scenario,
not just this one. Given that oil and gas are produced together
on the North Slope, he said he does not have a problem with
allowing industry to take advantage of the combined tax system
as a way to incentivize getting the gas to market. He asked
whether gas is always valued in BTUs compared to oil.
[Representative Olson returned the gavel to Co-Chair Johnson.]
MR. MARKS answered not that he is aware of; gas is universally
valued on a BTU basis.
2:32:45 PM
DR. LOGSDON explained that gas is valued and bought and sold in
BTUs throughout the world market. If, going forward, members
want to focus on how to make the gas pipeline robust, looking at
gas separately is one way to seriously have a policy discussion
about how to do that. He recognized that Representative Seaton
considers the combined system to be robust and said that is a
decision committee members will have to make. He said any
scenario presumes there is a pipeline, and he and Mr. Marks are
trying to show this potential downside that could happen in the
future that could be avoided by splitting apart gas and oil.
REPRESENTATIVE TUCK commented that the dilution effect is to the
benefit of industry, but the reverse dilution effect would be of
concern to industry and that is why he wants to know where that
ratio is going to be under the current structure. He would like
to know what the possibility is of that happening and how often
it might happen.
2:36:17 PM
REPRESENTATIVE P. WILSON proffered that gas prices are currently
low because of the current oversupply, but this oversupply could
change if hydraulic fracturing is disallowed. Therefore, her
opinion is that gas is also volatile, which makes it hard to
decide what to do.
MR. MARKS agreed there is uncertainty now over gas, but said
there will always be uncertainty over gas and oil. He added
there is another consideration besides the market. Returning to
slide [4] he pointed out that the transportation cost for
getting oil to market is about $6, or about $1 per MMBTU as
compared to about $4.50 per MMBTU for gas. The reason for this
difference is physics. The BTUs in crude oil are very dense and
lots of BTUs can be wrapped in a little bit of metal. The BTUs
in gas are dispersed and less dense, so it takes a lot more
metal to wrap around the same number of BTUs. Therefore, no
matter the ratio or market price, the transportation cost for
gas will always unequivocally be much higher on a BTU basis than
the transportation for oil, which will exacerbate this issue of
the difference between oil and gas even if the market price of
gas comes up relative to oil.
DR. LOGSDON interjected that it is the cost overrun risk.
2:40:08 PM
REPRESENTATIVE GUTTENBERG understood the [5/1/10] lock-in to be
for gas only, not oil.
MR. MARKS responded correct, it is the gas tax that gets locked
in.
2:40:22 PM
REPRESENTATIVE TUCK asked whether there is some part of
transportation that needs to be considered that is not being
shown in slide 4.
MR. MARKS replied the [$6.25] shown for oil transportation
includes the current Trans-Alaska Pipeline System and shipping
infrastructure. To line up the transportation cost on an
apples-to-apples basis, this cost would be divided by 6 to come
up with a cost of $1 per MMBTU for oil; the MMBTU cost for gas
is about $4. In further response, he confirmed that this is a
9:1 ratio, all considered.
CO-CHAIR JOHNSON pointed out that the tariff for the Trans-
Alaska Pipeline System (TAPS) is known, but the gas tariff is an
estimate and could be more if there are cost overruns.
2:42:07 PM
REPRESENTATIVE SEATON said he is certain that if gas was taxed
alone using the calculations shown in the presentation, the
gasline would never be built because there needs to be some
absorbing of the downside risk with the oil tax. According to
what he has heard, gas taxes structured under the current base
rate and progressivity would be a non-starter. He surmised Mr.
Marks and Dr. Logsdon are talking about an inflexible, gross tax
rate on gas and said he thinks those would have to be at a
pretty low rate to get agreement for taxing gas separately. He
inquired whether Mr. Marks thinks a gasline would be built if
gas was taxed separately.
2:45:49 PM
MR. MARKS answered that regardless of whether HB 414 passes,
most people think there needs to be a deliberative discussion on
gas taxes down the road. This bill will not and should not
supersede that. This bill is being proposed as a backstop
measure in case of a lock-in of AGIA tax provisions. Members
need to decide whether the current system creates incentive for
the industry and so HB 414 should not pass, or that the current
system undermines the state's financial picture and the bill
should pass. He and Dr. Logsdon are laying out the options and
it is the legislature's decision. He said even if HB 414
passes, the state will be far from a perfect tax system on gas,
which is why further deliberation in this regard is needed. The
intent of HB 414 is to guard against what the sponsor saw as an
unfavorable outcome under a certain scenario, and it is up to
other members to decide whether that is unfavorable or not.
2:47:51 PM
CO-CHAIR JOHNSON said he does not want anyone to leave the room
thinking that if HB 414 does not pass the state is going to lose
$2 billion in revenue; although that could be the case, it is an
unknown at this point. This scenario may or may not happen, he
continued, and different consultants may come up with different
outcomes. There are a lot of scenarios out there that would not
fit this. In response to Representative Seaton, he clarified
that this possible scenario would not be until there is a
pipeline and gas is flowing down it. He added the committee
needs to look at whether there is a risk and, if there is a
risk, whether separating the taxes is the solution to that risk.
He urged members to focus on that rather than the numbers in the
charts that are being presented as facts, because he does not
think they are facts. He understood Representative Seaton's
point that keeping the current tax system may be incentivizing.
2:50:26 PM
REPRESENTATIVE GUTTENBERG appreciated Co-Chair Johnson's comment
because he thinks in many ways it boils down to what is in front
of the members in the bill and the bill plays out in these
charts. Regardless of what the legislature does now, there are
other things that will be happening, such as elections and what
producers put on the table.
CO-CHAIR JOHNSON said that is his point. He does not want to
get wrapped around the numbers or lock in the next generations
of legislators; rather, he wants to look at whether this road
should even be taken.
2:52:24 PM
REPRESENTATIVE P. WILSON, should HB 414 be passed, asked whether
the only thing that would be provided between April 30 and May 1
is certainty for the gas producers.
MR. MARKS responded that a section in AGIA provides upstream
resource inducements. On the royalty side, the section spells
out how the royalty oil is to be valued, along with some
provisions for switching between in-kind and in-value. On the
tax side, the section provides that anyone committing gas in the
first binding open season, which is May 1, 2010, will be
entitled to a tax exemption for the first 10 years of commercial
production. That tax exemption is equal to the difference
between what the actual tax would be for that first 10 years and
the tax that is on the books at the time of the open season.
For example, if the AGIA project started flowing on 1/1/20 and
taxes had been increased between now and then, anyone committing
gas at this summer's first open season would be entitled to a
tax exemption of the difference between what the tax code is on
1/1/20 and what it was on 5/1/10. He reiterated there are
numerous issues as to how airtight the AGIA inducement provision
is.
2:55:04 PM
REPRESENTATIVE P. WILSON asked whether a producer might sue if
the state takes the position that the provision is not airtight.
MR. MARKS replied that while he is not a lawyer, he can explain
two of the several issues that have surfaced regarding whether
that provision is airtight. First, the state constitution
prohibits one legislature from binding a future legislature; the
power to tax cannot be contracted away. Second, the early
versions of AGIA stated the royalty and tax resource inducement
provisions are contractual. However, some legislators were
concerned about the constitutionality of that, so the term
"contractual" was removed from AGIA. Thus, there is the stark
difference of one inducement saying it is contractual and one
that does not. According to lawyers he has talked to, this
leaves open the door that this inducement is not airtight. He
allowed, however, that it may be a moral commitment that future
legislatures are reluctant to change. He said he cannot say
whether producers would argue that the provisions are airtight
and sue.
2:57:46 PM
REPRESENTATIVE P. WILSON understood Mr. Marks to be saying that
the gas of any company signing up for the AGIA open season will
be tax free for 10 years, regardless of whether the state raises
the tax during that 10-year period.
MR. MARKS answered that if taxes are raised during the first 10
years, those companies would pay the lower of the tax on May 1,
2010, or the tax at the end of those 10 years. If that lower of
includes a $2 billion reduction because of this effect, that is
what would be in there.
CO-CHAIR JOHNSON interjected that that scenario would be
accurate if everyone bid the 4.5 BCF/D on day one. However,
this AGIA provision applies only to those that bid in the first
open season; the provision does not apply to anyone coming in at
a later time. This would therefore reduce the loss number that
is being presented.
2:59:38 PM
REPRESENTATIVE GUTTENBERG inquired how long the first binding
open season is, how definitive the length of that season is, and
whether the length is defined in statute or determined by
TransCanada's negotiation with the Federal Energy Regulatory
Commission (FERC). For example, could someone claim the binding
open season is not actually closed until all conditions are met
for the firm transportation (FT) commitments.
DR. LOGSDON responded that according to TransCanada documents,
the open season runs from May 1, 2010, to July 31, 2010.
However, he said he does not know if that could be amended.
CO-CHAIR JOHNSON offered his belief that FERC can drive that
timeline somewhat.
REPRESENTATIVE GUTTENBERG said that was part of his point - many
of these hard and fast lines are not hard and fast.
3:02:24 PM
MR. MARKS, in response to Representative Guttenberg, confirmed
that [the original version of] HB 414 would remove progressivity
on gas, but the Senate committee substitute (CS) [SB 305] would
not [slide 15]. In response to Representative Seaton, he
explained that while the presentation addresses the original
version of the bill, he will be talking about Version E. He
said that the Senate CS and Version E would separate out the
progressivity calculation for oil and gas and would include
progressivity on both oil and gas.
3:04:07 PM
MR. MARKS related that as the bill evolved in the Senate, two
issues presented themselves: [cost allocation and tax
neutrality on current activity]. Regarding the cost allocation
issue, he said oil and gas are currently combined and the costs
are subtracted to determine the net value [slide 16]. To
separate them, costs would need to be allocated between oil and
gas. Right now, Prudhoe Bay produces about 275,000 barrels of
oil a day, and this oil comes up with gas. The gas is separated
and re-injected into the ground. By 2020, when a gas pipeline
starts, Prudhoe Bay may be producing about 200,000 barrels of
oil a day, and out of 4.5 BCF/D of gas, about 3.0 BCF/D would
come out of Prudhoe Bay. Thus, Prudhoe Bay would truly be an
oil and gas field, as would most other fields, and the costs to
produce oil and gas are truly joint costs.
3:06:04 PM
MR. MARKS pointed out that industry separates these costs all
the time and there are many methods for doing so. The state's
current tax code has certain situations where costs must be
allocated between oil and gas - in Cook Inlet and in leases
producing gas that is sold in-state. Alaska Statute
43.55.165(h) gives the Department of Revenue the authority to
adopt regulations for allocating costs between oil and gas, and
the Senate Finance Committee determined it should stay this way.
He explained that the allocation method adopted by the
Department of Revenue uses the barrel of oil equivalent (BOE)
approach. The rational for using this approach is that the same
costs that produce oil produce gas and, since produced together,
the costs are allocated based on the amounts produced. The BOE
method puts oil and gas on an apples-to-apples basis in terms of
relative produced volumes, which he and Dr. Logsdon agree is the
most reasonable approach.
3:08:18 PM
MR. MARKS related it was the Senate Finance Committee's feeling
that some instruction should be given to the department on
allocating costs. Thus, the committee's CS provides authority
to the Department of Revenue to develop regulations to allocate
costs and the CS states that, at a minimum, the department
should consider the same BOE approach, but that the department
is free to look at other methods as time goes on. This same
language is included in HB 414, Version E.
3:09:01 PM
CO-CHAIR JOHNSON noted oil is more valuable than gas, but a well
is a well. Someone exploring for gas would have a lower profit
margin than someone exploring for oil, yet the two are being
compared. He inquired whether this would be a disincentive to
someone exploring just for gas.
MR. MARKS replied that when allocating the costs, the costs are
independent of the value. The BOE approach looks at the costs
of producing the substances and the costs are allocated based on
the relative amounts produced. The problem with allocating
costs based on value is that world events could cause the value
of oil to skyrocket even though the costs to produce the oil did
not change. This is why he and Dr. Logsdon do not believe that
value is the way to allocate costs, and that the reasonable way
to allocate is by BTU content independent of the value. He
reiterated that the proposed statute would give the Department
of Revenue the authority to consider the BTU approach, but would
not require that approach to be adopted.
CO-CHAIR JOHNSON repeated he does not want to create a
disincentive.
3:11:38 PM
REPRESENTATIVE SEATON observed that no gas would be produced
during the 10 years of constructing the gas pipeline. He
presumed that if gas is now segregated and taxed at base and
progressivity rates different than oil, everything for gas would
be written off against oil and oil progressivity until the start
of gas flow because gas would not be considered produced until
it is flowing down the pipeline, given that the provision in
Version E is for produced oil and produced gas.
MR. MARKS agreed that that is how it would work. One of the
cornerstones of the petroleum production profits tax (PPT) and
Alaska's Clear and Equitable Share (ACES) was that instead of
depreciating costs or deferring the recovery of costs, the
producer receives instantaneous deduction, and the whole credit
rate and tax rate were designed around that instantaneous
deduction.
3:14:13 PM
REPRESENTATIVE SEATON understood the current instantaneous
write-off is a write-off of costs at oil and oil progressivity
instead of gas tax rate and gas progressivity because the gas is
not yet flowing.
MR. MARKS agreed that is how it would work.
3:14:55 PM
MR. MARKS discussed the second issue that presented itself
during Senate deliberations [slide 17]. Some producers are
currently producing both oil and gas. If the oil and gas were
separated for calculating progressivity, the oil progressivity
would be undiluted by gas so the oil progressivity would go up
and taxes would increase for these producers. While the
progressivity would go up by a fairly small amount, the tax
increase would be notable when applied to the large volumes
produced at today's relatively high prices. However, it was not
the intent of this bill to raise the taxes on current activity;
it was to deal with what would happen with a major gas sale.
So, the proposed progressivity structure in the Senate CS was
designed to not increase taxes on current activity. This is
done by providing one progressivity on oil, Cook Inlet gas, and
other in-state gas, like what is currently going on in the
state. A second progressivity would be applied to export gas.
This would replicate the current situation so there would be no
increase in taxes on current activity, while at the same time
preventing the major gas sale gas from diluting the oil
progressivity.
3:17:53 PM
REPRESENTATIVE SEATON commented it seems the proposal is to
protect the state now by splitting apart oil and gas so one does
not dilute the other; but, in 10 years, the effect of separating
oil and gas taxes to protect the state would be cancelled out.
MR. MARKS responded a mini-dilution effect is going on right
now. Some producers have North Slope oil and Cook Inlet gas,
and if oil and gas progressivity was separated, the oil would
not be diluted and taxes would go up for those producers. It
was the sense of the Senate Finance Committee in developing this
CS that the intent of this bill was not to increase taxes on
current activity, but to protect the state on the long-term
scenario what would happen with a major gas sale, and that is
why this is structured the way it is.
CO-CHAIR JOHNSON said he thinks Representative Seaton is right.
3:19:33 PM
REPRESENTATIVE GUTTENBERG understood the bill's intent is not to
raise taxes on current activity, or lower gas taxes; the bill
would separate oil from gas and would have progressivity and a
tax rate; and would lock-in gas, but not oil. He asked what is
changed if after May 1, 2010, something happens.
MR. MARKS replied that if there is a major gas sale, the
progressivity on export gas would be calculated by itself and
would not dilute the progressivity of the oil.
REPRESENTATIVE GUTTENBERG surmised that separating oil and gas
changes the economics, but said he must be missing something.
3:21:31 PM
REPRESENTATIVE SEATON referenced charts previously shown to the
committee that depicted progressivity and the marginal tax rate.
He said he thinks what is being said is that the effect of the
current system of combined oil and gas taxes is that gas moves
the progressivity down for certain companies. The objective of
HB 414 is to make it so gas will not lower the progressivity of
oil. However, the Senate CS proposes keeping oil and gas
progressivity together for those companies already doing this,
so that an oil company can lower progressivity with its current
gas production.
MR. MARKS confirmed that that is basically correct and suggested
this may become clearer once Dr. Logsdon explains the bill.
3:23:01 PM
DR. LOGSDON noted that in the CS for SB 305, Version T, the
title has been tightened to focus the bill's scope [slide 23].
He explained that, under ACES, Cook Inlet gas and non-Cook Inlet
gas used in-state are subject to the economic limit factor (ELF)
tax that was in effect in March 2006 [slide 24]. These two
elements of the tax system result in the current mini-dilution.
The notion behind HB 414 is to separate the gas that is exported
out of state, which would primarily be the gas feeding the
gasline off the North Slope, and it is this separation that
would get rid of the big dilution.
3:25:45 PM
REPRESENTATIVE SEATON inquired whether Dr. Logsdon has
confidence in Alaska being able to maintain a differential tax
rate on producers between the gas that is used in-state and the
gas that is shipped to another state under the commerce clause.
DR. LOGSDON said he does not know the answer to that question.
REPRESENTATIVE SEATON suggested that if the commerce clause is
ruled by the courts to prevail and the tax rate is going to be
the Cook Inlet Sedimentary Basin and the in-state tax rate, then
perhaps the thing to do right now is to remove the in-state tax
rate as being the same as the Cook Inlet rate because then all
the North Slope sales would be at the same rate whether in-state
or out of state.
3:27:48 PM
CO-CHAIR JOHNSON noted that another option would be to do away
with the North Slope rate and use the Cook Inlet rate.
REPRESENTATIVE SEATON agreed.
DR. LOGSDON said the mini-dilution he has described is what is
in statute right now and was established by ACES. Cook Inlet
gas and any non-Cook Inlet gas, or oil, that is sold for use in-
state, would pay the combined oil/gas progressivity rate because
that is how it works today. By separating out just the export
gas from the North Slope, as proposed by the Senate CS, the
state would preserve the combined oil and gas rate for
progressivity for Cook Inlet and in-state gas use. The separate
gas progressivity rate would only be applied to North Slope
exports.
3:29:26 PM
MR. MARKS added that right now every producer computes a
statewide progressivity factor with all its activity. Cook
Inlet gas activity goes into computing a producer's statewide
progressivity factor, but the tax that Cook Inlet oil and gas
pay is based on ELF and not the progressivity factor. The
progressivity factor that is derived from the Cook Inlet oil,
Cook Inlet gas, North Slope oil, and North Slope gas is the
producer's statewide progressivity factor for when the producer
pays tax on progressivity. So, the "bucket" with oil, Cook
Inlet gas, and other in-state gas, is the activity the state
currently has. Under HB 414, that bucket would still operate
the way it operates now - that activity will go into computing a
producer's progressivity for where progressivity applies, and
the tax paid on Cook Inlet oil and gas will be based on ELF.
3:31:43 PM
REPRESENTATIVE GUTTENBERG recollected there was a case that went
to court regarding tariffs for oil used in-state versus tariffs
for oil going all the way to the West Coast.
MR. MARKS replied that that was a tariff issue.
MR. MARKS, in response to Representative P. Wilson, further
explained that the tax paid on Cook Inlet oil and gas is the
lower of the ELF tax or the ACES tax. The ELF tax is so low
that the producer almost always pays on ELF; however, the
producer must still go through the exercise of calculating what
its tax would be using the ACES progressivity and what its tax
would be using ELF.
DR. LOGSDON added that a producer may not pay tax based on the
taxable value of oil and taxable value of gas because of the ELF
limit. However, there is still some dilution of the North Slope
oil tax because the progressive rate is calculated using the
taxable gas from the Cook Inlet along with the taxable oil from
the North Slope.
3:35:01 PM
DR. LOGSDON explained that under HB 414 there would be two
"buckets" for progressivity. In the first bucket, the payment
of taxes would be the same as it is now in that one
progressivity is calculated on oil, Cook Inlet gas, and other
in-state gas, so there would be no increase in taxes [slide 25].
The second bucket is for a major gas sale, and would
specifically carve out export gas for separate tax treatment.
He noted that a pipeline moving gas for in-state use would
result in a bigger dilution effect than there is right now,
which may be a good thing.
DR. LOGSDON pointed out there is upside risk as well as downside
risk [slide 26]. If gas prices went high under the flat rate,
the state would leave money on the table, which is why HB 414
includes progressivity on exported gas. The bill would
establish the rates exactly like they are currently calculated
for the combined substance: every dollar above $30 per barrel
net taxable value would increase the tax rate by 0.4 percent and
anything over $92.50 would increase it by 0.1 percent.
3:37:15 PM
DR. LOGSDON said the other element of HB 414 is the requirement
that BTU equivalent barrels be considered as a method for
allocating lease costs between oil and gas [slide 27]. The
Department of Revenue already has regulations that use this
method for allocating joint production. This method is
straightforward, knowable, and relatively stable, and is based
on production activity. However, the bill recognizes it is the
Department of Revenue that has the resources, time, procedures,
public processes, and confidential information, and the
department may ultimately determine that another method is
preferable.
3:38:37 PM
REPRESENTATIVE SEATON asked whether Dr. Logsdon is confident the
state will be allowed to have different tax rates for gas that
is used in-state and gas that is exported to the Lower 48.
DR. LOGSDON responded his answer as an economist is that the
value of the substance being taxed is not a pass forward. The
market will determine the price, and the costs of getting it to
market and of producing it will determine the tax base. The
state's taxes have no influence on the price that someone in the
Lower 48 is going to pay. He allowed there is another aspect,
however, which is whether this is a violation of equal treatment
among taxpayers and he does not have an answer to that.
CO-CHAIR JOHNSON said it is an answer that the committee needs
to get.
3:40:48 PM
REPRESENTATIVE P. WILSON observed that HB 414 would require the
Department of Revenue to consider the BTU equivalent method.
She inquired whether the department could jump back and forth
between methods.
DR. LOGSDON replied the language is what it says. The
department is being seeded the ability to determine what the
appropriate method is, but it is a recommendation that the BTU
equivalent method be considered.
MR. MARKS, in response to a further question from Representative
P. Wilson, said this language is in Section 8, page 11, of
Version E.
3:42:31 PM
REPRESENTATIVE P. WILSON surmised from reading the language that
the bill really does not tell the Department of Revenue which
method to use.
DR. LOGSDON clarified that the specific language is on page 12,
lines 1-2. In further response, he confirmed the language does
not say the department has to use the BTU equivalent method,
just that it must consider it.
REPRESENTATIVE P. WILSON asked whether the department must
decide on one method or another and then stick to that.
MR. MARKS answered the current statute says the Department of
Revenue shall adopt regulations on how to allocate costs. All
the amendment in HB 414 says is that when doing that, the
department should consider this BTU/BOE equivalent method; it
does not compel the department to use it. Whatever the
department does, it must go through the regulatory process and
if over time the department decides that it does not like how a
method is performing, it would have the freedom to alter it.
3:44:26 PM
REPRESENTATIVE GUTTENBERG said the provision seems ambiguous as
far as which method to use and that the method used could be
changed.
MR. MARKS responded the Department of Revenue is not compelled
to use the BOE method, which is the method the department came
up with when it had the authority to adopt regulations to
address pretty much the same question. It was simply the sense
of the Senate Finance Committee that it would be useful to give
the department some guidance as to how to address this issue.
3:45:58 PM
REPRESENTATIVE SEATON said he is a bit stuck because it seems
the purpose of HB 414 is the worry about the May 1, 2010, date
and that the binding open season might be something that is
problematic for the state. He said it seems to him that a far
greater liability than separating oil and gas is that the in-
state usage and ELF system could become the required tax system
should the state be sued for commerce clause reasons, and this
tax is essentially near zero.
MR. MARKS replied those are two different problems that are not
related; solving one does not solve the other. The belief that
the current tax structure for Cook Inlet gas is defective is an
independent issue of what HB 414 is addressing and could be
rectified by other means.
3:48:12 PM
REPRESENTATIVE SEATON said he would agree if it was Cook Inlet
Sedimentary Basin that was being talked about. However, that
tax framework has been expanded to North Slope gas that is used
in-state; so, it really is the state's current tax rate for the
North Slope. He said it seems an argument could be made in a
court of law that that was the tax structure in place on May 1,
2010. While he also worries about progressivity, he sees this
as a greater concern.
3:49:32 PM
CO-CHAIR JOHNSON, in reference to the title, asked whether the
bill would change the way revenue sharing is done [page 1, lines
5-6, Version E].
MR. MARKS answered that when the progressivity provisions were
adopted this community revenue sharing fund was established and
funded by a proportion of the progressivity revenues. The
"bucket one" progressivity would be under AS 43.55.011(g) and
the "bucket two" progressivity would be under AS 43.55.011(p).
Section 1 of Version E would provide that a share of the new
progressivity go into the community revenue sharing fund as
well. That fund is up and running and has been receiving a
share of the progressivity revenue since 2006. In further
response, he said the only amendment is that which is on page 1,
line 12.
CO-CHAIR JOHNSON said he wants to make sure that revenue sharing
is not being codified.
3:51:30 PM
CO-CHAIR JOHNSON stated that HB 414 is a policy call and it is
incumbent upon committee members to exercise due diligence by
going through the bill with a fine-tooth comb.
[HB 414 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 337 Amendment R.2 3.30.10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 337 |
| HB 337 Amend conceptual E 3.30.10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 337 |
| HB 267 Bill Packet 3.31.10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 267 |
| HB 365 Bill Packet 3.31.10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 365 |
| HB 365 Letters of Support.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 365 |
| HB 414 HRES for 3.22.10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 414 |
| CS HB267(TRA)-DOT-CO-03-26-10.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 267 |
| Signed SRA-Trident-Ocean Beauty MOU re HB365 SB255.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 365 SB 255 |
| HB 414 work draft v.E.pdf |
HRES 3/31/2010 1:00:00 PM |
HB 414 |