Legislature(2013 - 2014)BARNES 124
04/04/2014 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
1:12:54 PM
CO-CHAIR FEIGE announced that the only order of business would
be CS FOR SENATE BILL NO. 138(FIN) am, "An Act relating to the
purposes, powers, and duties of the Alaska Gasline Development
Corporation; relating to an in-state natural gas pipeline, an
Alaska liquefied natural gas project, and associated funds;
requiring state agencies and other entities to expedite reviews
and actions related to natural gas pipelines and projects;
relating to the authorities and duties of the commissioner of
natural resources relating to a North Slope natural gas project,
oil and gas and gas only leases, and royalty gas and other gas
received by the state including gas received as payment for the
production tax on gas; relating to the tax on oil and gas
production, on oil production, and on gas production; relating
to the duties of the commissioner of revenue relating to a North
Slope natural gas project and gas received as payment for tax;
relating to confidential information and public record status of
information provided to or in the custody of the Department of
Natural Resources and the Department of Revenue; relating to
apportionment factors of the Alaska Net Income Tax Act; amending
the definition of gross value at the 'point of production' for
gas for purposes of the oil and gas production tax; clarifying
that the exploration incentive credit, the oil or gas producer
education credit, and the film production tax credit may not be
taken against the gas production tax paid in gas; relating to
the oil or gas producer education credit; requesting the
governor to establish an interim advisory board to advise the
governor on municipal involvement in a North Slope natural gas
project; relating to the development of a plan by the Alaska
Energy Authority for developing infrastructure to deliver
affordable energy to areas of the state that will not have
direct access to a North Slope natural gas pipeline and a
recommendation of a funding source for energy infrastructure
development; establishing the Alaska affordable energy fund;
requiring the commissioner of revenue to develop a plan and
suggest legislation for municipalities, regional corporations,
and residents of the state to acquire ownership interests in a
North Slope natural gas pipeline project; making conforming
amendments; and providing for an effective date."
CO-CHAIR FEIGE stated today would be the beginning of amendments
to CSSB 138(FIN) am. He offered appreciation to Mr. Bullock and
Ms. Nauman of Legislative Legal and Research Services for their
work drafting the many amendments.
1:15:20 PM
CO-CHAIR FEIGE moved to adopt Amendment 1, labeled 28-
GS2806\I.A.29, Nauman/Bullock, 4/2/14, which read:
Page 1, line 1:
Delete "purposes, powers, and duties of the"
Page 4, following line 11:
Insert a new bill section to read:
"* Sec. 3. AS 31.25.020(a) is amended to read:
(a) The corporation shall be governed by a board
of directors consisting of
(1) five public members; and
(2) two individuals designated by the
governor that are each the head of a principal
department of the state, except that the commissioner
of natural resources and the commissioner of revenue
may not be designated to serve on the board [UNLESS
THE PROJECT FOR WHICH A LICENSE IS ISSUED UNDER
AS 43.90 HAS BEEN ABANDONED OR IS NO LONGER RECEIVING
THE INDUCEMENTS IN AS 43.90.110(a) OR THE COMMISSIONER
OF NATURAL RESOURCES AND THE COMMISSIONER OF REVENUE
ARE NO LONGER SIGNATORIES ON A VALID CONTRACT UNDER
AS 43.90]."
Renumber the following bill sections accordingly.
Page 14, line 3:
Delete "sec. 14"
Insert "sec. 15"
Page 17, line 24:
Delete "sec. 17"
Insert "sec. 18"
Page 21, line 16:
Delete "sec. 27"
Insert "sec. 28"
Page 25, line 9:
Delete "sec. 30"
Insert "sec. 31"
Page 31, line 18:
Delete "sec. 37"
Insert "sec. 38"
Page 53, lines 24 - 25:
Delete "sec. 23"
Insert "sec. 24"
Page 54, line 25:
Delete "sec. 14"
Insert "sec. 15"
Page 56, line 6:
Delete "Sections 1 - 14, 16, 17, 23 - 27, 29, 30,
37, 39, and 55 - 61"
Insert "Sections 1 - 15, 17, 18, 24 - 28, 30, 31,
38, 40, and 56 - 62"
Page 56, line 8:
Delete "Section 38"
Insert "Section 39"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
CO-CHAIR SADDLER objected [for purposes of discussion].
CO-CHAIR FEIGE explained Amendment 1 would delete the section in
existing law, AS 31.25.020(a), which allows the commissioners of
natural resources and revenue to come back on the board after
those events have occurred. He requested the administration to
comment on the proposed amendment.
1:16:14 PM
MICHAEL PAWLOWSKI, Deputy Commissioner, Office of the
Commissioner, Department of Revenue (DOR), said Amendment 1
provides clarity that, regardless of whether the project license
under the Alaska Gasline Inducement Act (AGIA) is abandoned, the
commissioners of revenue and natural resources are prohibited
from serving on the board of the Alaska Gasline Development
Corporation (AGDC). The administration conditionally supports
Amendment 1 and that support looks forward to other actions that
retain the caliber of professionalism that is had on the AGDC
board today. The caliber of the AGDC board, which is appointed
by the governor, is extremely important to the administration
and the administration is interested in seeing those members
continue to serve there.
1:17:23 PM
REPRESENTATIVE KAWASAKI inquired whether the commissioners of
revenue and natural resources would be the best people for
serving on the AGDC board, and he further inquired whether an
appropriate designee would be an equal.
MR. PAWLOWSKI replied that when looking at this project and the
interrelated roles of the departments, there are very good
policy benefits to having a diversity of the cabinet represented
on the board in conjunction with the private sector expertise
that also sits on the board. If a diminishment is seen in the
private sector expertise on the board, the administration might
view it differently, but, today, the commissioners of labor and
commerce are other important voices of the administration, given
that this project will have broad impacts across the state's
workforce, communities, and economy. Other sections in the
legislation create consultation processes between the agencies
as the resource owner; therefore, the administration thinks the
interests of the Department of Revenue (DOR) and the Department
of Natural Resources (DNR) are protected in standing up as
custodians of the people's resource. The way the bill is
currently constructed, the administration does not see that same
concern, but if some of those were to change the administration
would take a different view. The administration is comfortable
with the way it is constructed now.
1:19:19 PM
REPRESENTATIVE P. WILSON observed Amendment 1 would add a new
[bill] section. She asked where in the bill it is said how many
members are on the board.
MR. PAWLOWSKI confirmed Amendment 1 creates a new section and
explained that existing statute from HB 4 established the
membership of the board, which is five public members and two
individuals that are the head of a principal department of the
state, designated by the governor.
1:20:16 PM
REPRESENTATIVE SEATON noted it is often the commissioner or the
designee of the commissioner. He inquired whether it would be
valuable here to include the term that it could be a designee of
the commissioner.
MR. PAWLOWSKI responded that the administration would prefer not
to see a designee available on this board. He understood that
when HB 4 was drafted, the intent was that there are certain
boards within the state where the level of engagement is
appropriate to reside in a commissioner; for example, the
commissioner of revenue does not have the opportunity to appoint
a designee to the board of the Alaska Permanent Fund
Corporation. The Alaska Gasline Development Corporation is a
critical piece of the state's effort in advancing gas
development in Alaska. To that end, it makes sense to retain
the commissioner and not enable a designee.
1:22:01 PM
CO-CHAIR FEIGE related that as an entity of the state, AGDC is
subject to regulation by the departments of revenue and natural
resources. He asked whether it is fair to say that by keeping
those two commissioners off of the board, a very bright line is
kept between the regulators and the regulated.
MR. PAWLOWSKI answered it is a policy concern that the
departments deal with across multiple boards or multiple
agencies. The degree to which it is relevant is up to the
committee members. The administration sees the professionalism
of the current AGDC board as the key, and the diversity of voice
within the state administration being involved in this project
is important. The departments of labor and commerce each bring
an important perspective to the AGDC board, so the
administration sees it as a bigger group working on gas
development in Alaska rather than a narrower group.
1:23:25 PM
REPRESENTATIVE HAWKER, speaking as a prime sponsor of HB 4,
which put the AGDC board into statute, assured committee members
that Amendment 1 accomplishes the objectives involved in
crafting HB 4. The objective is to preserve a very bright line
between the regulators and the regulated. Other provisions in
CSSB 138(FIN) am involve cross-communications between AGDC and
the departments of revenue and natural resources, and those
provisions give the proper direction for a business relationship
rather than a conflicted management relationship. He offered
his strong support for Amendment 1.
1:24:30 PM
CO-CHAIR SADDLER removed his objection. There being no further
objection, Amendment 1 was adopted.
1:25:12 PM
CO-CHAIR FEIGE moved to adopt Amendment 2, labeled 28-
GS2806\I.A.17, Nauman/Bullock, 4/2/14, which read:
Page 55, following line 30:
Insert a new bill section to read:
"* Sec. 61. The uncodified law of the State of
Alaska is amended by adding a new section to read:
PRIVATE LETTER RULING. Before the final
investment decision enabling a natural gas project
under this Act, the Alaska Gasline Development
Corporation (AS 31.25) shall obtain a private letter
ruling from chief counsel of the federal Internal
Revenue Service regarding taxability of the
corporation and its activities related to a natural
gas project developed under this Act in the state."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE HAWKER objected.
CO-CHAIR FEIGE explained Amendment 2 would require that before
final investment decision (FID) for a natural gas project
developed under the act, AGDC must get a private letter ruling
(PLR) from the Internal Revenue Service (IRS) regarding the
taxability of the corporation. It is prudent to make absolutely
sure that when becoming part of a business entity the state
knows exactly what the tax status of that entity is.
1:26:19 PM
REPRESENTATIVE OLSON understood that even a routine IRS private
letter ruling takes 18-24 months for something of this size. He
inquired as to the approximate timeframe for such a ruling on
this project.
CO-CHAIR FEIGE said the requirement would be that a private
letter ruling be obtained before the final investment decision,
and, right now, the timeline for FID is four to five years.
1:27:00 PM
CO-CHAIR SADDLER asked about the cost of private letter rulings.
CO-CHAIR FEIGE replied he is unsure what the cost is, but one of
the original ideas during the course of committee testimony was
to have it due before Front-end Engineering and Design (FEED).
It was stated by the tax folks in testimony that more and more
information is acquired as the project goes through the process
of Pre-Front-End Engineering and Design (Pre-FEED) and FEED.
Typically, a considerable amount of information must be included
in the application; the more accurate and well defined the
information in the application, the greater the likelihood of
success on the private letter ruling. Therefore, it makes sense
to delay it as long as possible, which would be until FID.
1:28:12 PM
REPRESENTATIVE HAWKER strongly opposed Amendment 2, pointing out
that all facts and circumstances must be known and detailed as
best as possible when going forward with a private letter ruling
request. A private letter ruling takes an extraordinary amount
of time that involves a legion of lawyers, consultants, and
accountants. This mandate is to obtain -- not ask for, but
obtain. It is unknown when all the facts and circumstances
necessary will be had for having the strongest position going
forward to obtain that letter. As was stated by counsel the
other evening, the IRS is not obligated to respond to requests
for private letter rulings. Every year the IRS issues a revenue
procedure, and the first one always talks about the types of
private letter ruling requests that the IRS will be accepting.
So, it is not even known if the IRS would accept a private
letter ruling request on behalf of AGDC or this project. To put
this mandate in the bill at this time has a potential of
compromising forward momentum on this project by introducing a
degree of uncertainty. He offered his belief that the state's
agencies and AGDC will seek such a letter ruling if and when it
is appropriate and at the most appropriate time. This level of
micromanagement has the ability to unintentionally compromise
forward motion on the project, rather than providing clarity and
certainty to the project.
1:31:07 PM
CO-CHAIR FEIGE requested the administration to comment.
MR. PAWLOWSKI replied Amendment 2 can be read in multiple ways
and one concern identified by the administration is use of the
words "taxability of the corporation and" on line 8. There are
multiple nuances to private letter rulings, and there might
actually be private letter rulings relating to different
activities within a project. So, taxability of the corporation,
and calling that out specifically, rather than the broadest
possible directive, raises a concern. The administration has
previously testified that this is going to be done and is a
necessary piece of the puzzle to move this project forward.
1:32:20 PM
REPRESENTATIVE KAWASAKI recalled it being said in testimony that
private letter rulings take a long time and are rarely rescinded
once made, and asking for a ruling requires that all ducks be in
a row. He inquired whether the state will have all its ducks in
a row as anticipated under Amendment 2.
MR. PAWLOWSKI answered all of the appropriate information will
have to be in place to make that final investment decision. The
administration believes these issues will need to be clarified,
if there are any issues. There may not be any issues depending
upon the ultimate corporate structure, which is one of the
administration's concerns because a ruling may not need to be
sought because it may be clear that a ruling is unnecessary.
The issue with taxability is that often private letter rulings
are needed related to financing and the administration believes
that all of these things will be in place to make a final
investment decision.
REPRESENTATIVE KAWASAKI asked what the harm of Amendment 2 is if
the ruling can be had at any time before the final investment
decision is made.
MR. PAWLOWSKI responded he is not talking about harm but is
trying to identify unintentional consequences as was described
by Representative Hawker. The administration's concern is that
the calling out of taxability sends a message potentially in the
organization that may, today, be unproductive.
REPRESENTATIVE KAWASAKI posed a scenario in which a private
letter ruling is requested for this project for AGDC to prove
that it is an integral part of the state, but the project does
not go forward. He asked whether that would then hamper AGDC if
it were to do something different or would the private letter
ruling be specific to the project and the scope of the project
that is defined.
MR. PAWLOWSKI allowed the aforementioned is a good point. He
said the impact of a private letter ruling sought on one issue
that may have impacts on another project is something he is not
equipped to describe today, but it is a potential issue.
1:35:33 PM
REPRESENTATIVE SEATON understood the problem with "shall obtain"
is that there are timelines that might not occur. The committee
has had a lot of discussion about financing and whether tax-
exempt bonds can be done, he said, which is something the state
needs to know, and Amendment 2 would put on sideboards or
requirements of something that is very basic to the project.
The ramifications of taxable/nontaxable status might well impact
what the legislature has to consider in future contracts. He
said he is less worried about finding out the taxable/nontaxable
status than the portion where it says to obtain. He therefore
offered Amendment 1 to Amendment 2: page 1, line 7, before
"obtain", insert "attempt to". He said it is unknown for sure
what the application is with the IRS, but this way there is an
attempt to find out that status before key decisions have to be
made. He clarified that under Amendment 1 to Amendment 2, lines
6 and 7 would read "the Alaska Gasline Development Corporation
(AS 31.25) shall attempt to obtain a private letter ruling ...."
CO-CHAIR SADDLER objected for discussion purposes.
1:38:08 PM
CO-CHAIR SADDLER recalled the administration had previously
indicated that the information that would be developed in a
private letter ruling would be developed by the state anyway.
He inquired at what point in the process the administration
would do this and further inquired whether there is some other
way outside of a formal application to obtain the information
that would be gotten through a private letter ruling.
MR. PAWLOWSKI deferred to Chris Poag of the Department of Law.
1:38:59 PM
CHRISTOPHER POAG, Assistant Attorney General, Labor and State
Affairs Section, Civil Division (Juneau), Department of Law
(DOL), noted that while he is not tax counsel he has been around
tax issues for the work he does for the Alaska Retirement
Management Board and the Alaska Permanent Fund Corporation. He
recommended consideration be given to Representative Hawker's
concern that if a point in time is reached where the IRS is not
equipped to, or offering, private letter rulings, the state may
seek through tax counsel an alternative letter, a device that
has been used by the state in other instances. This is a policy
call, he said, and he is not attempting to curtail how the
committee decides whether a private letter ruling should or
should not be obtained; however, providing some flexibility that
would allow AGDC to just get the assurances it needs to ensure
that there is not a tax consequence is probably more appropriate
at this point in time, given the lack of clarity on where and
how the state is headed. He recommended that if the committee
wants to make a clear point that it would like to direct AGDC to
give strong consideration to seeking a private letter ruling,
the word "shall" be deleted and the words "may if appropriate"
be inserted. He added that "private letter ruling or advice
from tax counsel" could also be said. Alternatively, he
continued, the amendment could be withdrawn and a clear
acknowledgement be made on the record that AGDC probably already
understands that the tax consequences are an incredibly
important issue to this investment. He clarified that these are
his thoughts and they are not legally driven.
1:40:50 PM
CO-CHAIR SADDLER asked how the information developed through a
private letter ruling or advice from tax counsel would affect
AGDC's ability to participate and would taxability be a deal
breaker for the state.
MR. POAG replied no, it would mean that if AGDC sought a private
letter ruling and the IRS said AGDC is not an integral part of
the state or not a political subdivision and does not qualify
for Section 115, then the income that was earned on that
investment would be taxable and taxable at a corporate rate. In
further response, he said the same thing would go with tax-
exempt bonding - [AGDC] would still want to issue bonds, but it
would pay a slightly different rate.
1:41:58 PM
REPRESENTATIVE KAWASAKI inquired whether the private letter
ruling for AGDC is project specific. He further inquired
whether it would be problematic for AGDC to move forward on a
different project if a private letter ruling finds AGDC not to
be an integral part of the state.
MR. POAG said he is unsure what is meant by problematic, but it
would mean that [AGDC] would pay tax on the income it earned.
1:42:39 PM
REPRESENTATIVE HAWKER posed a scenario in which AGDC as an
entity is challenged by the IRS as being a taxable entity. He
said he believes this possibility remote, but asked whether the
state would vigorously defend that position and believe it to be
completely mistaken.
MR. POAG responded absolutely. State tax immunity has its core
in the constitution and [DOL] feels strongly about that tax
exemption that applies to the state and its public corporations.
Income earned by the state, whether from a proprietary or
government function, is immune from taxation. Congress, since
the beginning, has not taxed state entities, so [DOL] would
vigorously defend that.
1:43:45 PM
REPRESENTATIVE TARR commented that the suggested language change
to "may" or "advice from tax counsel" is more permissive in
terms of the information that the state might request. She said
she is trying to feel comfortable with the idea that the state
would not make a decision until such time that it had that
information and knew whether its revenue potential would be
compromised. She inquired whether, without any of that
language, Mr. Poag would feel comfortable that that will happen
before getting to final investment decision.
MR. POAG answered he does, saying those issues are already being
focused on, as can be seen. The taxation of the entity is an
important part of any investment. As the facts start to get
concrete and the state knows which direction it is headed, tax
counsel will be engaged to look at the issues and to highlight
if and when and how it is appropriate to seek a private letter
ruling if that is the right way to go.
1:44:50 PM
CO-CHAIR SADDLER removed his objection. There being no further
objection, Amendment 1 to Amendment 2 was adopted.
CO-CHAIR FEIGE set aside Amendment 2, as amended, saying it will
be worked on further and will perhaps be brought back later.
1:45:44 PM
CO-CHAIR FEIGE moved to adopt Amendment 3, labeled 28-
GS2806\I.A.11, Bullock, 4/1/14, which read:
Page 4, following line 11:
Insert a new bill section to read:
"* Sec. 3. AS 31.25.020 is amended by adding a new
subsection to read:
(e) A public member appointed by the governor
under (b) of this section shall be a citizen of the
United States. Notwithstanding AS 39.05.100, a person
appointed under (b) of this section is not required to
be or have been a registered voter in the state and is
not required to reside in the state."
Renumber the following bill sections accordingly.
Page 14, line 3:
Delete "sec. 14"
Insert "sec. 15"
Page 17, line 24:
Delete "sec. 17"
Insert "sec. 18"
Page 21, line 16:
Delete "sec. 27"
Insert "sec. 28"
Page 25, line 9:
Delete "sec. 30"
Insert "sec. 31"
Page 31, line 18:
Delete "sec. 37"
Insert "sec. 38"
Page 53, lines 24 - 25:
Delete "sec. 23"
Insert "sec. 24"
Page 54, line 25:
Delete "sec. 14"
Insert "sec. 15"
Page 56, line 6:
Delete "Sections 1 - 14, 16, 17, 23 - 27, 29, 30,
37, 39, and 55 - 61"
Insert "Sections 1 - 15, 17, 18, 24 - 28, 30, 31,
38, 40, and 56 - 62"
Page 56, line 8:
Delete "Section 38"
Insert "Section 39"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE TARR objected.
CO-CHAIR FEIGE addressed Amendment 3, stating much attention has
been paid to who sits on the board of AGDC. He said the
amendment clarifies that any U.S. citizen may sit on the AGDC
board. This significant investment by the state requires the
absolute very best minds and people that can be put on the
board. Requiring that members of the AGDC board be Alaska
residents exclusively limits the pool of expertise.
REPRESENTATIVE TARR said her objection to Amendment 3 at this
time is because a separate piece of legislation was introduced
today to address this matter, the issue is time sensitive, and
not wanting to put pressure on the rest of the legislation given
the confirmation hearings coming up next week.
1:48:00 PM
REPRESENTATIVE P. WILSON supported Amendment 3, noting it is
very important for this project to have the best that can be
had. The people in Alaska are wonderful, but if they are not
the best for this situation then the state must get the best
that it possibly can.
CO-CHAIR SADDLER supported Amendment 3, pointing out the
governor would still have the option to appoint an Alaskan.
State law requires it be Alaska citizens for the most continual
ordinary run of business, but construction of a $40-$60 billion
natural gas pipeline project is not the normal run of business
and it is important the state open itself to the broadest
possible realm of potential candidates throughout the nation.
REPRESENTATIVE HAWKER supported Amendment 3, saying it is a very
workable fix to what was an oversight in the passage of last
year's HB 4, which he sponsored. The amendment would provide
statutory clarification for the sponsors' intent in HB 4, which
was stated in testimony in one committee.
1:50:15 PM
REPRESENTATIVE KAWASAKI opposed Amendment 3, stating he
understands the need for getting the best expertise to move
forward a project, especially one as large as this, and having
good staff at AGDC means something. However, he said, it is
known that this is because of one person and one issue, and it
is insulting to think that the experience is not had in the
state and that the state must shop around outside. If that same
logic were used for members of the legislature, some members
would not be here. This person could be hired as a consultant.
When it comes to high level decisions on policy, Alaskans would
do a better job of representing Alaskans' interest at the table.
A degree in engineering is not needed to do that; the person
needs to be qualified and have talents and there are people in
the state who have those talents. This person will potentially
be negotiating such things as eminent domain and state takings
of public lands and an outsider should not be making those
decisions. If a person is counsel or staff to AGDC on contract,
that person's advice should be taken and heeded, but it is up to
the policy board of AGDC to make those final decisions.
REPRESENTATIVE OLSON supported Amendment 3, recounting that he
made the argument yesterday in another committee that the state
has been using the best and brightest all the way through this
process and some of those people, such as the consultants in the
room today, are world class but not from Alaska. The gentleman
being talked about is world class and will be reimbursed $400 a
day for his time, so this gentleman is truly offering to do
public service. To the best of his knowledge no one with
experience comparable to this gentleman's has put forth his or
her name, so in addition to supporting this amendment he will
support this particular gentleman next week.
1:53:33 PM
REPRESENTATIVE SEATON said he supported Amendment 3, noting his
comments are not related to any specific person and he agrees
that a broad field is needed. The appointment by the governor
for this particular expertise is broader than, say, the normal
commissioner who is dealing specifically with Alaskan issues all
the time. While a piece of legislation containing this
provision was introduced in the House, he has been assured by
the sponsor of that legislation and the person that makes the
assignments that there is agreement to offer that same idea here
in this legislation and the bill will not be pulled from another
committee, as that is not done without concurrence of both the
committee chair and the sponsor.
CO-CHAIR FEIGE stated there is no effort to pull the bill from
another committee; it is an amendment that stands alone.
1:55:19 PM
REPRESENTATIVE P. WILSON said eminent domain is another reason
she supports Amendment 3 as she would rather have an unbiased
person helping make those decisions than an Alaskan because many
times Alaskans are a bit biased depending on where they live.
Someone from outside the state would have a refreshing and
unclouded view.
REPRESENTATIVE TARR said she thinks the other piece of
legislation will have to be dealt with because legislators would
be prohibited from appointing this individual next Friday since
the bill before the committee will not have become law by then.
CO-CHAIR SADDLER commented that this is a law of general
applicability, a law for any individual, and he is uncomfortable
with talking about an individual.
REPRESENTATIVE KAWASAKI continued his opposition to Amendment 3,
remarking that if the best is wanted then why is the amendment
restricting the public member to being a U.S. citizen. He
pointed out that the legislature's consultants are not U.S.
citizens.
CO-CHAIR FEIGE responded it would require a change to the
state's constitution.
1:57:37 PM
REPRESENTATIVE TARR maintained her objection to Amendment 3.
A roll call vote was taken. Representatives Hawker, Olson,
Seaton, P. Wilson, Saddler, and Feige voted in favor of
Amendment 3. Representatives Tarr and Kawasaki voted against
it. Therefore, Amendment 3 was adopted by a vote of 6-2.
1:58:54 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 4, labeled 28-
GS2806\I.A.48, Nauman/Bullock, 4/2/14, which read:
Page 9, line 2, following "fund":
Insert "of the state"
CO-CHAIR SADDLER objected.
The committee took a brief at-ease.
2:00:19 PM
REPRESENTATIVE HAWKER explained Amendment 4 addresses a response
he received to the question asked of tax counsel, Manley &
Brautigam, [on 4/1/14] about how the state could posture itself
in statute to give the greatest possible advantage if and when a
private letter ruling is pursued. The section of statute where
"of the state" would be added provides that the commissioner of
revenue direct where the net revenue received from the
corporation is to go. He allowed that saying "fund of the
state" rather than just an open-ended fund is a tax geek nit,
but said it is exactly as recommended by tax counsel.
CO-CHAIR FEIGE requested the administration's comments on the
amendment.
MR. PAWLOWSKI supported Amendment 4, saying the administration
thinks the amendment is an important one.
2:02:23 PM
CO-CHAIR SADDLER removed his objection. There being no further
objection, Amendment 4 was adopted.
2:03:20 PM
CO-CHAIR FEIGE moved to adopt Amendment 5, labeled 28-
GS2806\I.A.13, Nauman/Bullock, 4/2/14, which read:
Page 13, line 14, following "revenue":
Insert "and the Alaska Gasline Development
Corporation (AS 31.25)"
Page 15, line 8, following "revenue":
Insert "and the Alaska Gasline Development
Corporation (AS 31.25)"
CO-CHAIR SADDLER objected.
CO-CHAIR FEIGE explained that under Amendment 5, the language in
the bill on page 13, line 14, would in part read, "in
consultation with the commissioner of revenue and the Alaska
Gasline Development Corporation (AS 31.25), participate". This
would ensure there is plenty of consultation between DNR and DOR
as well as between AGDC and the departments of the state, he
said. It also seeks to clarify that the consultation will go in
both directions in the production of the agreements that will
come back at some point towards the end of Pre-FEED.
2:05:23 PM
REPRESENTATIVE SEATON inquired whether the intent of the
language on lines 17-18, "a North Slope natural gas project",
means any project and does not specifically relate to [the
Alaska LNG Project].
CO-CHAIR FEIGE believed the way "North Slope natural gas
project" is defined includes both the [Alaska LNG Project] and
the Alaska Stand-Alone Pipeline (ASAP).
CO-CHAIR FEIGE, responding to Representative Kawasaki, confirmed
that Section 14 deals with the powers and duties of the
commissioner of revenue.
2:06:38 PM
REPRESENTATIVE HAWKER endorsed having cross communications
between all of the agencies and that it is spelled out clearly
in statute, but requested comment on Amendment 5 from the
administration.
JOE BALASH, Commissioner, Department of Natural Resources (DNR),
offered the administration's support for the spirit of the
amendment, but said the administration has crafted a similar
amendment that is more narrowly tailored to achieve the
objective that is appropriate here. The burden of consultation
on AGDC with the two departments is narrow and AGDC is not
obligated to consult with [the administration] on all contracts
or activities that AGDC engages in or enters into. Engaging in
consultation with AGDC needs to be for the appropriate
contracts, and basically that is for the infrastructure, the
midstream services, liquefaction services, and potentially
marketing if AGDC engages in marketing activities for the LNG.
The administration prefers the amendment that it has provided to
the committee because it is more prescriptive and more specific.
2:08:39 PM
CO-CHAIR FEIGE responded that [the administration's] language
has not yet come back from the drafter.
MR. PAWLOWSKI said the administration believes the intent
underlying the conversation about consultation is important.
The committee took a brief at-ease.
CO-CHAIR FEIGE set aside Amendment 5, reserving the right to
bring it back or to offer the administration's amendment that
deals with a similar problem.
The committee took another brief at-ease.
2:11:45 PM
CO-CHAIR FEIGE drew attention to the amendments labeled 28-
GS2806\I.A.49, Nauman/Bullock, 4/2/14, and 28-GS2806\I.A.79,
Nauman/Bullock, 4/4/14 [text provided at the end of this
document]. He requested Mr. Pawlowski to relate the concern had
by the commissioner of revenue.
MR. PAWLOWSKI turned to page 54 of CSSB 138(FIN) am, explaining
that Section 60 requires the Department of Revenue to develop a
plan for municipalities, regional corporations, and residents to
participate in the ownership of a North Slope natural gas
pipeline. Regarding 28-GS2806\I.A.49 (.49), he said DOR sees
some good additions to the study that would be called for in
this section; they could be characterized as buyer-beware
options. The amendment captures potentially significant issues
to individual Alaskans, municipalities, and other investors in a
natural gas project; for example, the income tax consequences to
the holder of that investment. Amendment 28-GS2806\I.A.79 (.79)
would require a study to be done on the financing options. For
the efficiency of needing only a single contract, he said the
department would encourage the committee to consider combining
amendments .49 and .79 and put them under Section 60 such that
it is one report delivered to the legislature, rather than a
series. This way, DOR is not looking at multiple contracts with
multiple engagements all around the concepts of financing, be if
for the state, individuals, municipalities, or corporations.
Regarding the reporting requirements proposed in amendment .79,
he said the commissioner of revenue would request that an
interim report come back to the legislature in January 2015 and
a subsequent follow-up report when the contracts are submitted.
This recognizes that more information will be developed over
time and the full range and suite of options, as called for in
the amendments, need to be delivered to the legislature so that
members have information and DOR continues to do work. The
department is trying to consolidate the efficient use of
resources to do the study, but the increased [work] will add
something to DOR's fiscal note, which is currently being
analyzed.
2:15:45 PM
REPRESENTATIVE HAWKER, sponsor of amendment .49, said he is very
amenable to DOR's proposal.
CO-CHAIR FEIGE, responding to Representative Seaton, confirmed
amendments .49 and .79 will be sent back to Legislative Legal
and Research Services to be combined into one new amendment.
REPRESENTATIVE TARR inquired whether 28-GS2806\I.A.32, by Co-
Chair Saddler and about legislative briefings, is something the
committee may also want to consider at this time.
CO-CHAIR FEIGE replied he will bring it up separately because
amendments .49 and .79 are both about financial analysis by the
Department of Revenue so it makes sense to combine them.
CO-CHAIR SADDLER, regarding amendments .49 and .79, said the
idea is intriguing, but comes with challenges and questions. It
is appropriate to ask and answer these questions before people
get their expectations up and their checkbooks out. Given the
complexity, the idea of an interim report followed by a more
detailed report is appropriate.
CO-CHAIR FEIGE inquired whether DOR has an idea on a timeframe
for the interim and final reports.
MR. PAWLOWSKI drew attention to amendment .79, page 1, line 18,
which provides the expectation that "the report described in (a)
of this section" is "available to the legislature on the first
day of the First Regular Session of the Twenty-Ninth Alaska
State Legislature." He said that seems appropriate for an
interim report that is starting to identify the range of options
so that members can start to consider the suite of opportunities
available to the state on a financing side. The report
currently existing in Section 60, and in which DOR would ask to
put both amendments .49 and .79, is for when the contracts are
submitted to the legislature, which would be the latter part of
2015. That would be the more appropriate place for the final
report, recognizing that a final report in this stage would be
an identification of the range of financing options. During the
FEED process, those will narrow as options get taken off the
table in this Pre-FEED stage. So, it is methodical steps
towards resolution as DOR does more detailed due diligence.
CO-CHAIR FEIGE set aside amendments .49 and .79.
2:19:37 PM
CO-CHAIR FEIGE, for discussion purposes, brought attention to
the amendments labeled 28-GS2806\I.A.18, Nauman, 4/2/14 (.18)
and 28-GS2806\I.A.54, Nauman/Bullock, 4/2/14 (.54) [text for
both amendments provided at the end of this document]. In
reviewing CSSB 138(FIN) am, he explained, it was determined that
some of the proposed changes would have impacts on other parts
of the state besides the North Slope. Under current statute,
certain exemptions on Cook Inlet oil and gas expire at the end
of 2021. Under CSSB 138(FIN) am, the new provisions would begin
at the start of 2022. Thus, there is a question as to the exact
issues and how best to resolve them. He asked Mr. Pawlowski to
provide suggestions.
2:21:09 PM
MR. PAWLOWSKI noted amendment 28-GS2806\I.A.18 (.18), page 2,
line 1, lays out two reports for the Oil and Gas Competitiveness
Review Board, which was established last session by SB 21 and is
located within the Department of Revenue. The board would be
charged with making written findings and recommendations in
subparagraph (A) before the date of January 31, 2015 and in
subparagraph (B) before the date of January 31, 2021.
Subparagraph (B), sub-subparagraph (iii), describes "a review of
the current effectiveness and future value of any provisions of
the state's oil and gas tax laws that are expiring in the next
five years." He said looking ahead to the expiration of some of
the incentives and ceilings that currently exist in Cook Inlet
is good guidance and DOR sees this as an opportunity to come
back to the legislature with comprehensive review of the issues
related to the Cook Inlet oil and gas tax regime. Amendment .54
identifies the important issues of competitiveness, tax regime,
and incentive regime within Cook Inlet, which are broader than
the Oil and Gas Competitiveness Review Board. For example, page
1, lines 16-18, talks about unique economic circumstances,
clearly identifies the reduction in gross value at the point of
production as a mechanism to achieve the replacement of the tax
ceilings, and looks at the effect specifically in the area of
Cook Inlet. Amendments .18 and .54 are seen by DOR as
complementary, with some valuable language in.54, as well as the
date. Being conscious of the reports and burdens that DOR is
looking at, DOR likes the date in amendment .54 of January 15,
2017, whereas the date in amendment .18 of January 31, 2015,
does not provide enough time to do a credible review and bring
forth recommendations to the legislature, public, and interested
parties. Mr. Pawlowski requested that the committee consider
combining amendments .18 and .54 into one amendment, saying .54
gives the Oil and Gas Competitiveness Review Board appropriate
direction with which to advance this issue.
2:24:40 PM
CO-CHAIR FEIGE understood Mr. Pawlowski to be saying January
2017 is the preferred date for the additional report requirement
for the review board.
MR. PAWLOWSKI confirmed the aforementioned as correct, but added
also with the unique language that is included in amendment .54
because there are unique circumstances in the Cook Inlet basin
that need to be considered.
2:25:12 PM
REPRESENTATIVE HAWKER inquired whether the Oil and Gas
Competitiveness Review Board has yet been constituted.
MR. PAWLOWSKI responded it has not yet been appointed.
REPRESENTATIVE HAWKER said he is a bit uncomfortable commending
a very important study and very important issue when, if it is
unaddressed, will result in a likely massive increase in taxes
and utility rates and a very chilling effect on the successful
enhancement that has been achieved in Cook Inlet development and
production without having a better feeling as to who, what, how,
and why that review board might be constituted. He queried
whether Mr. Pawlowski can allay his anxiety in this regard.
MR. PAWLOWSKI replied the composition of the Oil and Gas
Competitiveness Review Board, as developed last year, provides
the opportunity for the right type of people to be appointed.
While he has not been engaged with the governor's office around
specific appointments to this board, other people have been.
The important thing is the 2017 date of the report called for in
amendment .54. The review board with the broad perspective is
an appropriate place for this, he said, adding he understands
the concern that the board has not yet been appointed. The
expiring tax ceilings and maintenance of positive momentum in
Cook Inlet are seen by DOR as a critical issue that must be
dealt with in the longer term and done in a deliberative way.
2:27:56 PM
REPRESENTATIVE SEATON drew attention to the language in
amendment .54, line 18, which states "could be achieved by
authorizing a reduction in gross value at the point of
production." Noting the state is currently using tax rates and
royalty modifications, he asked what would be looked at by the
report in regard to authorizing a reduction in the gross value
at the point of production.
MR. PAWLOWSKI answered the gross value reduction (GVR) is a
mechanism of taking a unified system and mathematically reducing
that effective tax rate and the curve, while maintaining the
shape of the curve. A useful tool in differentiating between
specific tax treatments of resources, this was done in SB 21
around specifically new geologic oil and also an additional
differentiation around units with a higher royalty rate. The
same mechanism could be used in Cook Inlet, or any basin, with
just a very simple gross value reduction built into the
architecture of the existing system. It is seen by DOR as
mathematically a good approach to look at and provide a
recommendation.
2:29:36 PM
REPRESENTATIVE SEATON understood the report would have the other
components and would look at it from other aspects as well. He
inquired whether reduction of gross value at the point of
production would be an additional component or the only thing
that is analyzed.
MR. PAWLOWSKI deferred to the sponsor of amendment .54, but said
his reading is that the study must also take into account, as
written on page 1, lines 16-17, "the unique economic
circumstance of each producing area south of 68 degrees North
latitude" and focus on the gross value reduction as a tool to
achieve the type of differentiation within the basins that is
now done with tax ceilings.
2:30:36 PM
REPRESENTATIVE SEATON believed it is talking about these two in
combination and said he wants to ensure that what DOR is
anticipating is not supplanting amendment .18, which looks at
tax rates and other things, with only a report based on the
reduction of gross value at the point of production.
CO-CHAIR FEIGE responded amendment .18 only adds one particular
paragraph at the end. It basically adds to the subjects of the
report due at the end of January 2015.
REPRESENTATIVE SEATON understood that is a review of the tax
structure and rates.
CO-CHAIR FEIGE replied correct.
REPRESENTATIVE SEATON reiterated he wants to ensure that when
the amendments are combined those tax structures and rates are
not totally being supplanted by only looking at reduction in the
gross value at the point of production.
CO-CHAIR FEIGE answered he plans to set aside amendments .18 and
.54 so the combination language can be worked on.
2:31:57 PM
CO-CHAIR FEIGE related that a number of utility contracts are
expiring in 2018 and what is trying to be done is give certainty
to those explorers and utility companies as to what their tax
situation is going to be in the years beyond 2018. He asked
whether getting a report by January 15, 2017, is enough time to
give them certainty.
MR. PAWLOWSKI responded the tax ceilings in the Cook Inlet basin
expire in 2022; so, DOR believes January 15 2017, gives an
appropriate amount of time to pass recommendations to the
legislature. These would just be recommendations because it is
the legislature's role to enact tax policy, and there would be
suitable time for the legislature to act.
2:33:15 PM
REPRESENTATIVE KAWASAKI asked how DOR would take the definition
for unique economic circumstance.
MR. PAWLOWSKI deferred to the sponsor of the amendment for
clarification, but he said his initial interpretation is that
there are unique economic circumstances in, for example, Middle
Earth, which has a very different producing economic situation
because there is no infrastructure at this point for some of the
basins. While the tax ceilings in Middle Earth were extended
beyond 2022, it would be important to consider any work in Cook
Inlet as a potential model to fit into those. The direction in
amendment .54 is for areas south of 68 degrees North latitude,
which he read as inclusive, so when he thinks of unique economic
circumstances he is thinking about different infrastructure
support in producing basins.
REPRESENTATIVE KAWASAKI understood Mr. Pawlowski to be
qualifying unique as unique in the state, not compared with
other producing basins or similarly situated producing areas.
MR. PAWLOWSKI answered DOR engages with consultants to look at
multiple different producing basins. Every basin is different,
but there are similarities that DOR will draw from. He said he
does not want to put it that DOR will not look at other
analogous basins around the world, but DOR will look at what is
unique about each place. Interesting about Middle Earth is the
lack of infrastructure and very little investment in pipe. The
area where the Chair is from may be very different than the area
where another representative is from. He said he takes unique
to mean DOR should pay special attention to what is very
different and specific about the location being worked on and
will look broadly at other analogous areas.
2:35:57 PM
REPRESENTATIVE KAWASAKI observed amendment .54 includes the
language "the department shall deliver a report to the
legislature that includes the results of the study and a
proposal" [page 1, lines 19-20]. He inquired what "a proposal"
means to Mr. Pawlowski.
MR. PAWLOWSKI responded it is solely the legislature's power to
set tax rates. He said he reads this language as being a
requirement for the Department of Revenue to commission a study
and to then bring a proposal forward, either through legislation
or recommendations in a report, using the tool of a gross value
reduction. In that proposal would be a number, but without the
study he cannot predict today what that number would be.
REPRESENTATIVE KAWASAKI queried whether "a proposal" potentially
means legislation in the future.
MR. PAWLOWSKI believed it would be either legislation or a
recommendation in a report that a member of any legislative body
could pick up and choose to introduce on his or her own. No
change to the tax rate, extension of the ceilings, or actual
change can be done without legislation, so what is done with
that study and report is up to future members, or future
governor, or department head.
REPRESENTATIVE KAWASAKI said he shares [Representative Tarr's]
concern about dealing specifically with using the gross value at
the point of production as a means to potentially increase
production of oil. He expressed his hope that it is part of the
matrix and not limited to only that.
2:38:03 PM
CO-CHAIR FEIGE set aside amendments .18 and .54 so they can be
combined into one amendment.
2:38:57 PM
CO-CHAIR SADDLER moved to adopt Amendment 6, labeled 28-
GS2806\I.A.32, Nauman/Bullock, 4/2/14, which read:
Page 55, following line 30:
Insert a new bill section to read:
"* Sec. 61. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE BRIEFINGS. Before the first flow of
gas in an Alaska liquefied natural gas project
developed under this Act, the parties to the project
shall, at least once each calendar quarter, provide
briefings to interested legislators, legislative
staff, and legislative consultants on the progress of
an Alaska liquefied natural gas project developed
under the authority of this Act. A briefing under
this section must be accompanied by a written report
of the amount of money the state may be liable to pay
a third party if an Alaska liquefied natural gas
project is terminated before the first flow of gas in
the project."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
CO-CHAIR FEIGE objected.
2:39:05 PM
CO-CHAIR SADDLER explained the Heads of Agreement promises that
during Pre-FEED the project parties shall provide regular Alaska
LNG Project briefings and updates to the administration, the
legislature, and the public. He said he hopes alignment with
this is sufficiently strong to enshrine it in statute. It needs
to be ensured that the public is informed, transparency is
maintained, and that TransCanada's development costs are kept up
with, given the state may at some point be liable to reimburse
these costs. The Heads of Agreement only covers the Pre-FEED,
and there are going to be certain times in this project timeline
where, if the agreement is terminated, the state is going to be
required to reimburse TransCanada [for its costs] plus the 7.1
percent allowance for funds used during construction (AFUDC).
Amendment 6 would ensure that at least quarterly the legislature
and the public are updated on how the tab is running for
development costs and the amount of money the state could be on
the hook for should the project falter or should TransCanada
terminate its involvement. Amendment 6 does not require
disclosure of any proprietary information or information that
would interfere with or supplant the ability of legislatures to
meet to be privy to certain information under a signed
confidentiality agreement or an executive session. Responding
to Representative Seaton, Co-Chair Saddler confirmed the report
to the legislature would not need to be given when the
legislature is in session.
2:40:54 PM
CO-CHAIR FEIGE asked whether the language on line 6 of the
amendment, "the parties to the project shall," implies that DNR
or that all of the parties must give a briefing.
COMMISSIONER BALASH replied DNR reads "the parties" as being all
of the parties, not a singular entity. Depending upon the
particular phase the project is in, and whether it is talking
about the project sponsors per se, DNR and DOR will not be
necessarily signatories to the equity agreements directly.
Those would be signed by the private parties as well as AGDC.
So, this would be imposing on those private parties, but that is
appropriate as they will be the project sponsors and able to
inform the legislature and the public of the activities.
2:42:05 PM
CO-CHAIR FEIGE inquired whether the aforementioned is the
sponsor's intention.
CO-CHAIR SADDLER answered that, to the extent DNR and DOR are
going to be involved, he would like to have the reports from
them. He requested Mr. Balash to restate his point.
COMMISSIONER BALASH responded "the parties" generally were all
of the parties to the Heads of Agreement, including private
parties as well as the agencies. As things move forward and the
venture agreements are signed and executed, DNR and DOR will not
likely be parties to those agreements. As the joint venture
organization comes together, DNR or DOR staff will not be
seconded to that organization, but employees of each of the
other parties will be. If the intent is for the agencies to
report, then he would recommend stating it in that manner.
CO-CHAIR SADDLER understood that at a certain point the interest
of the state will be picked up by AGDC and AGDC will become a
party for that purpose. It would be his intention, after DNR
and DOR step back, to have the responsibilities seconded to AGDC
so AGDC would become one of the parties that must report.
COMMISSIONER BALASH said that is correct.
2:43:43 PM
REPRESENTATIVE HAWKER asked whether Amendment 6 would restrict
the ability of any legislative committee from at-will convening
a committee and requesting the same sort of briefings as is
attempted to be codified in the amendment.
CO-CHAIR SADDLER replied no, that is not his reading or intent.
He further said it is envisioned that there might be other
confidential briefings to legislative committees.
REPRESENTATIVE SEATON inquired whether TransCanada would be
considered one of the parties on behalf of the state or as an
entity making expenditures. He said he wants to ensure the
report will be inclusive of the information that is desired.
MR. PAWLOWSKI allowed that is a good point and said direction of
who does the written report is important. He said he looks at
the amendment as having two separate concepts -- the project
providing updates and a written report being provided about the
amount of money the state may be obligated to pay. He
recommended that DNR be the one developing the report for the
legislature, given it would be the lead in this negotiation of
contracts. Given that the agreement between DNR and TransCanada
would be that of shipper/transporter developed under AS
38.05.020(b)(10) and (11), it may be appropriate to get specific
about exactly the relationship and the expenses that are
obligated under those contracts. He offered to work with the
amendment sponsor to come up with additional language.
2:46:39 PM
CO-CHAIR FEIGE asked whether the sponsor is asking for the
quarterly reports to be delivered from the unified project with
all parties as signatories or individual reports from each
party.
CO-CHAIR SADDLER answered his intent is for a collective report.
REPRESENTATIVE TARR inquired whether amendments to Amendment 6
will be made now.
CO-CHAIR SADDLER responded he will take the amendment back and
work on the changes.
REPRESENTATIVE HAWKER drew attention to the language on [line 7]
of "interested" legislators, legislative staff, and legislative
consultants. He asked whether the intent is for public
briefings or for executive session confidential briefings.
CO-CHAIR SADDLER replied the briefings would be public.
REPRESENTATIVE HAWKER commented the amendment seems redundant to
the power that legislative committees already have.
2:48:49 PM
CO-CHAIR FEIGE set aside Amendment 6.
2:49:54 PM
CO-CHAIR SADDLER moved to adopt Amendment 7, labeled 28-
GS2806\I.A.46, Bullock, 4/2/14, which read:
Page 53, following line 14:
Insert a new bill section to read:
"* Sec. 58. The uncodified law of the State of
Alaska is amended by adding a new section to read:
AGREEMENTS AND CONTRACTS RELATING TO THE
TRANSPORTATION OF NATURAL GAS. (a) An agreement or
contract entered into by the state or an agency of the
state for the transportation of natural gas may not
allow the transporter to have an option to participate
in an in-state natural gas pipeline project as
described in AS 31.25.005(4).
(b) In this section,
(1) "Alaska liquefied natural gas project"
has the meaning given in AS 31.25.390(7), enacted by
sec. 12 of this Act;
(2) "transporter" means a person providing
gas treatment plant processing and natural gas
transportation services in natural gas pipelines and
gas transmission lines that are components of an
Alaska liquefied natural gas project."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
CO-CHAIR FEIGE objected.
2:50:04 PM
CO-CHAIR SADDLER, to address Amendment 7, explained that Section
9 of the MOU provides TransCanada with what he calls the "back
in provision" or what has been termed the right of first
refusal. Under this provision, if the state's agreement with
TransCanada is terminated and the state pursues a substantially
similar project within five years, TransCanada must be offered
the opportunity to come back into the deal. The MOU states that
this "back in provision" would only apply to something that is
substantially similar to the full-bore Alaska LNG Project, he
said, but there is not a clear definition of "substantially
similar." The committee has heard that there is no bright line
definition that delineates what is a small diameter ASAP line
and what is a substantially similar Alaska LNG Project,
particularly if the constraints of AGIA are lost as is proposed
in the bill. While optimistic that a large diameter line will
be built, and that the Heads of Agreement and Memorandum of
Understanding provide a good shot at getting there, he said it
must be ensured that the clear backup plan will not get hung up
or confused. However, should the Alaska LNG Project falter,
there needs to be a way to go forward with a smaller diameter
plan, a backup option, that includes a clean break between what
TransCanada would or would not be allowed to back into.
2:51:30 PM
REPRESENTATIVE KAWASAKI requested clarification of "codified"
and "uncodified" law and the full impacts of the bill.
MR. PAWLOWSKI deferred to the Department of Law for an answer.
SUSAN POLLARD, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division (Juneau), Department of Law (DOL), spoke
to the difference between uncodified law and something that is
in statute, noting that quite a few amendments here are being
placed in uncodified law. She explained that when something is
of short-term duration, such as one contract that will happen
and that will not be a law of general applicability, the drafter
will put it in uncodified law because it is not going to need to
be adhered to five years from now when the situation has
changed. Sometimes there is the belief that uncodified law does
not have to be complied with, but that is not necessarily
accurate. It will still be in the statute books and it must be
paid attention to. When it is there, but there for a limited
duration, it is not like it can just be ignored.
2:53:50 PM
REPRESENTATIVE P. WILSON requested a restatement of Amendment 7.
CO-CHAIR SADDLER explained Amendment 7 would prohibit
TransCanada from exercising its right of first refusal, or "back
in provision" as he terms it, to a project described as ASAP,
the smaller in-state line, should the large diameter line be
terminated.
CO-CHAIR FEIGE surmised the sponsor's reasoning is that ASAP is
not a substantially similar project to the Alaska LNG Project.
CO-CHAIR SADDLER responded the reason for Amendment 7 is that it
is not clearly delineated whether ASAP is substantially similar
and it is not clear when it might change from one or the other.
Amendment 7 would establish a bright line that TransCanada would
not have the right to join the ASAP line as described under AS
31.25.005(4); it would keep the state's backup plan clean.
The committee took a brief at-ease.
2:55:59 PM
CO-CHAIR FEIGE clarified that AS 31.25.005(4) is new and is
included in CSSB 138(FIN) am, page 3, line 4.
REPRESENTATIVE HAWKER understood Amendment 7 would deny, in any
one of the contracts that would be executed under passage of the
bill, the five-year period in which TransCanada can come back in
and participate in another project in the state of Alaska that
is substantially similar. In the amendment, page 1, lines 7-8,
state that the transporter, TransCanada in this case, would not
be allowed to have an option to participate in an in-state
natural gas pipeline project as described in AS 31.25.005(4).
Directing attention to the bill, page 3, lines 4-11, he pointed
out that the language is carryover language from HB 4, last
year's original AGDC legislation, which talks about moving
forward a natural gas pipeline in accordance with the project
plan under House Bill 369 while AGDC was a subsidiary
corporation of Alaska Housing Finance Corporation (AHFC). The
words "with modifications" allowed AGDC to move forward but
modify that original project plan as determined by AGDC to be
appropriate. Some of those modifications came into fruition
under the 7/1/11 project plan as AGDC moved into its own Pre-
FEED process; a project is modified as it evolves into what it
is going to become. Bringing attention to subsection (b) of
Amendment 7, Representative Hawker noted it defines an Alaska
liquefied natural gas project and asked where the language is
that is relevant to this section. The prohibition is against an
in-state natural gas pipeline project defined in AS
31.25.005(4), but the words "Alaska liquefied natural gas
project" are not seen in that paragraph or in the paragraph
describing the prohibition.
CO-CHAIR SADDLER responded it is an artifact of bill drafting
requiring a definition of transporter. It is easier understood
if (b)(2) of the amendment is taken first. It is necessary to
define transporter as done in the amendment, page 1, line 7, and
then go to (b)(1). The transporter is defined as a party in the
Alaska liquefied natural gas project and the project in (b)(1)
is defined as AS 31.25.390(7).
3:01:51 PM
COMMISSIONER BALASH said he would appreciate further explanation
of intent from the sponsor in regard to line 8 of the amendment,
which describes the ASAP project as originally planned in 2011
but then modified. He asked whether modified is up to the
present date or as it continues to be modified over time. He
said he is concerned that the AGDC board in the future might
further modify the ASAP plan to be substantially similar;
therefore, he is trying to get his arms around this particular
reference and what is being said. Is the legislature saying
that [the state's] agreements cannot include options on them?
[The administration] has had conversations with TransCanada and
AGDC, and AGDC and TransCanada have had conversations, that
TransCanada is not particularly interested in participating in
ASAP. TransCanada is not part of the builder, owner, operator
process that has been going on. If a stake could be driven in
the ground on this reference in AS 31.25.005(4) to ASAP today,
it is an easy no-harm no-foul approach.
CO-CHAIR SADDLER replied there seems to be a lingering trail in
the bill on page 3, line 6, and the word "modifications" such
that what he is trying to address here could continue to
transmogrify over time. Therefore, at this time, he does not
know how to re-craft the amendment to cut off that line of
development.
3:04:19 PM
The committee took a brief at-ease.
CO-CHAIR FEIGE said discussion of Amendment 7 will be continued
on April 5, 2014.
[CSSB 138(FIN) am was held over.]
3:05:24 PM
ADJOURNMENT
The House Resources Standing Committee was recessed at 3:05 p.m.
to be continued at 10:00 a.m. on 4/5/14.
Following is the text for amendments labeled 28-GS2806\I.A.49,
28-GS2806\I.A.79, 28-GS2806\I.A.18, and 28-GS2806\I.A.54:
Amendment [by Representative Hawker], labeled 28-GS2806\I.A.49,
Nauman/Bullock, 4/2/14
Page 54, line 28:
Delete "of"
Insert "and analysis by"
Page 55, line 21:
Delete "and"
Page 55, line 23, following "interest":
Insert ";
(8) whether the ownership interest held by
a municipality, regional corporation, or resident
would be subject to project assessments;
(9) how cash calls for the project and the
expansion of the project would be managed;
(10) the income tax consequences to the
holder of an ownership interest, including the timing
and recognition of income related to the ownership
interest, including differentiating income related to
the ownership interest from the receipt of dividends
or other distributions;
(11) the risk that the receipt of a benefit
from the project by a person other than the state
would make income received from the project by the
state subject to federal income tax; and
(12) constitutional issues that may be
implicated by restricting ownership interests under
the plan to residents and municipalities in the state"
Page 55, following line 24:
Insert a new paragraph to read:
"(1) "municipality" means a municipality in
the state;"
Renumber the following paragraphs accordingly.
Amendment by Representative Feige, labeled 28-GS2806\I.A.79,
Nauman/Bullock, 4/4/14
Page 2, line 5, following "credit;":
Insert "requiring the commissioner of revenue to
provide a report to the legislature on financing
options for state ownership and participation in a
North Slope natural gas project;"
Page 53, following line 14:
Insert a new bill section to read:
"* Sec. 58. The uncodified law of the State of
Alaska is amended by adding a new section to read:
IDENTIFICATION OF AND REPORT ON FINANCING OPTIONS
FOR STATE OWNERSHIP AND PARTICIPATION IN A NORTH SLOPE
NATURAL GAS PROJECT. (a) The commissioner of revenue
shall identify and report to the legislature on a
range of financing options for state acquisition of an
ownership interest and participation in a North Slope
natural gas project. The report must include a
description of the risk associated with each option
and the effect of each option on the bonding capacity
and bond rating of the state. In this subsection,
"North Slope natural gas project" has the meaning
given in AS 38.05.965, as amended by sec. 23 of this
Act.
(b) The commissioner shall make the report
described in (a) of this section available to the
legislature on the first day of the First Regular
Session of the Twenty-Ninth Alaska State Legislature."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
Amendment by Representative Feige, labeled 28-GS2806\I.A.18,
Nauman, 4/2/14
Page 2, line 14, following "projects;":
Insert "relating to the duties of the Oil and Gas
Competitiveness Review Board;"
Page 53, following line 13:
Insert a new bill section to read:
"* Sec. 57. AS 43.98.050 is amended to read:
Sec. 43.98.050. Duties. The duties of the board
include the following:
(1) establish and maintain a salient
collection of information related to oil and gas
exploration, development, and production in the state
and related to tax structures, rates, and credits in
other regions with oil and gas resources;
(2) review historical, current, and
potential levels of investment in the state's oil and
gas sector;
(3) identify factors that affect investment
in oil and gas exploration, development, and
production in the state, including tax structure,
rates, and credits; royalty requirements;
infrastructure; workforce availability; and regulatory
requirements;
(4) review the competitive position of the
state to attract and maintain investment in the oil
and gas sector in the state as compared to the
competitive position of other regions with oil and gas
resources;
(5) in order to facilitate the work of the
board, establish procedures to accept and keep
confidential information that is beneficial to the
work of the board, including the creation of a secure
data room and confidentiality agreements to be signed
by individuals having access to confidential
information;
(6) make written findings and
recommendations to the Alaska State Legislature before
(A) January 31, 2015, or as soon thereafter
as practicable, regarding
(i) changes to the state's regulatory
environment and permitting structure that would be
conducive to encouraging increased investment while
protecting the interests of the people of the state
and the environment;
(ii) the status of the oil and gas industry
labor pool in the state and the effectiveness of
workforce development efforts by the state;
(iii) the status of the oil-and-gas-related
infrastructure of the state, including a description
of infrastructure deficiencies; [AND]
(iv) the competitiveness of the state's
fiscal oil and gas tax regime when compared to other
regions of the world; and
(v) a review of the state's tax structure
and rates on oil and gas produced from deposits south
of 68 degrees North latitude;
(B) January 31, 2021, or as soon thereafter
as practicable, regarding
(i) changes to the state's fiscal regime
that would be conducive to increased and ongoing long-
term investment in and development of the state's oil
and gas resources;
(ii) alternative means for increasing the
state's ability to attract and maintain investment in
and development of the state's oil and gas resources;
and
(iii) a review of the current effectiveness
and future value of any provisions of the state's oil
and gas tax laws that are expiring in the next five
years."
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
Amendment by Representative Hawker, labeled 28-GS2806\I.A.54,
Nauman/Bullock, 4/2/14
Page 2, line 14, following "project;":
Insert "requiring the Department of Revenue to
deliver a report and recommendations relating to a
reduction in gross value at the point of production or
creation of other incentives for production of oil and
gas in the state south of the North Slope;"
Page 55, following line 30:
Insert a new bill section to read:
"* Sec. 61. The uncodified law of the State of
Alaska is amended by adding a new section to read:
STUDY AND REPORT ON OIL AND GAS PRODUCTION
INCENTIVES. The Department of Revenue shall study the
effect of providing a reduction in the gross value at
the point of production for oil and gas produced in
the state south of 68 degrees North latitude that is
similar to the reduction in gross value at the point
of production in AS 43.55.160(f) and (g), as amended
by secs. 48 and 49 of this Act, for certain areas
north of 68 degrees North latitude. The study must
take into account the unique economic circumstance of
each producing area south of 68 degrees North
latitude, and estimate the additional production that
could be achieved by authorizing a reduction in gross
value at the point of production. Before January 15,
2017, the department shall deliver a report to the
legislature that includes the results of the study and
a proposal to create an incentive for oil and gas
production south of 68 degrees North latitude in the
form of a reduction in the gross value at the point of
production or by other means."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
| Document Name | Date/Time | Subjects |
|---|---|---|
| I.A.3 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.7 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.11.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.13.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.17.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.18Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.22Wilson 1DOC.PDF |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.25.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.27.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.28.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.29 Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.31.Saddler.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.32.Saddler.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.37.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.38.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.39.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.40.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.41.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.42.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.44TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.45.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.46.Saddler.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.48Hawker Amendment-Fund of State.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.49Hawker Amendment-AK Ownership.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.50 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.51 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.52 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.54Hawker Amendment-Cook Inlet Plan.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.55.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.56 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.58Wilson 2 DOC.PDF |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.61.TARR.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.62 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.63.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.64.KAWASAKI.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.65 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.66 SEATON.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.67.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.69.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |
| I.A.79.Feige.pdf |
HRES 4/4/2014 1:00:00 PM |
SB 138 |