Legislature(2013 - 2014)
04/08/2014 09:03 AM House RES
| 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-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
9:04:03 AM
CO-CHAIR FEIGE announced that the only order of business is 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 said the committee would continue to work on
amendments to CSSB 138(FIN) am.
9:04:25 AM
CO-CHAIR FEIGE moved to adopt Amendment 27, labeled 28-
GS2806\I.A.91, [text provided at the end of this document].
REPRESENTATIVE HAWKER objected for discussion purposes.
CO-CHAIR FEIGE explained that proposed Amendment 27 combines
several previous amendments. It requires the commissioner of
the Department of Revenue (DOR) to report to the legislature on
the full range of financing options regarding state acquisition
of an ownership interest and participation in the North Slope
natural gas project. He deferred to Representative Hawker to
explain the additional portion of the combined amendment.
REPRESENTATIVE HAWKER explained that Amendment 27 amends
proposed Section 60 of CSSB 138(FIN) am to include information
on development of the plan for public participation in ownership
of the pipeline project. He said the amendment merges two
concerns by inserting "buyer beware" provisions into proposed
Section 60. This would ensure that the public will have an
opportunity to review full disclosure of all the financial
risks, obligations, and burdens that the proposed gasline might
entail. He wanted to ensure that all the risks are highlighted
for any proposal brought forward since ownership entails risks.
CO-CHAIR FEIGE noted subsection (b) is language suggested by DOR
to require an interim draft report to the legislature due the
first day of the regular session of the legislature.
9:07:04 AM
REPRESENTATIVE HAWKER removed his objection.
REPRESENTATIVE TARR asked whether the administration wished to
comment.
MICHAEL PAWLOWSKI, Deputy Commissioner, Office of the
Commissioner, Department of Revenue, expressed his appreciation
for working with the committee on this language. He said
[Amendment 27] "works" for the department and includes important
clarification to enhance consumer protection in the second part
of the report. He said [Amendment 27] is a "good amendment."
REPRESENTATIVE TARR asked if the bill was amended to include
financial briefings and reports, which will "synch up" with the
[Municipal Advisory Gas Project Review Board] to ensure the
reports don't have overlapping or interfering timelines.
MR. PAWLOWSKI answered no and said DOR has a good progression of
reports from the [Municipal Advisory Gas Project Review Board]
ranging from an interim draft to a final plan as the contracts
are brought back. This amendment will provide a regular
updating of information from members as the contracts and
briefing occur.
9:08:41 AM
There being no further objection, Amendment 27 was adopted.
9:09:08 AM
CO-CHAIR FEIGE moved to adopt Amendment 28, labeled 28-
GS2806\I.A.97, Nauman/Bullock, 4/6/14 [text provided at the end
of this document].
REPRESENTATIVE HAWKER objected for the purpose of discussion.
CO-CHAIR FEIGE explained Amendment 28 combines two amendments.
Beginning on page 1, line 7 [of proposed Section 57], Amendment
28 would add language that lists duties of the Oil and Gas
Competitiveness Review Board, which was an element of SB 21 from
the last legislative session. Amendment 28, beginning on page
2, line 16, adds a requirement for an additional report due on
January 15, 2017, regarding the state's tax structure and rates
on oil and gas produced south of 68 degrees North latitude or
everything excluding the North Slope. He stated the purpose of
Amendment 28 is to address potential concerns about Cook Inlet
that will arise in about 2018.
9:10:57 AM
REPRESENTATIVE HAWKER referred to previous testimony on two
amendments [28-GS2806\I.A.18, Nauman/Bullock, 4/2/14] and [28-
GS2806\I.A.54, Nauman/Bullock, 4/2/14], which were merged [into
Amendment 28]. He said this provides an effective way forward
to ensure that other areas of the state are reviewed with an
appropriate lead time and direction by the administration to
provide necessary information. Thus, as [the state] reviews the
convergence of tax structures that will occur in 2022, the
[state] would have sufficient lead time to consider the effects
and ensure the [state] doesn't compromise the revitalization
accomplishments of Cook Inlet and the incentivizing of Middle
Earth between now and then.
MR. PAWLOWSKI said he appreciated Representative Hawker linking
back to the previous record of testimony that he believes
provides guidance to the department as it supports the Oil and
Gas Competitiveness Review Board in bringing back these
recommendations. He offered his belief the committee held a
healthy discussion and Amendment 28 reflects a good merger.
9:12:28 AM
REPRESENTATIVE SEATON referred to page 2, line 19 [of Amendment
28, sub-subparagraphs] (ii) and (iii) and the tax structure that
takes into account the gross value reduction (GVR) at the point
of production. He asked for clarification on whether this
analysis will include all options not limited to the gross value
at the point of production scenarios.
REPRESENTATIVE HAWKER answered that the point of the provisions
[of Amendment 28 and proposed Section 57] was that as [the
state] moves into a "SB 21 world" structured on a flat
production tax of 35 percent and considers creating production
incentives as appropriate through GVRs, that [sub-subparagraph
(ii) would recognize the unique circumstances of each of the
areas south of 68 degrees North latitude. [Sub-subparagraph]
(iii) specifies that the GVRs are taken into account and [under
sub-subparagraph] (iv) considers other incentives for oil and
gas. This language would give the department complete latitude
to consider other incentives, not only the GVR, in the written
findings and recommendations to the Alaska State Legislature on
January 15, 2017.
9:14:42 AM
REPRESENTATIVE TARR recalled the committee previously discussed
unique economic circumstances and requested further
clarification of unique economic circumstances.
MR. PAWLOWSKI said the aforementioned dialogue was multi-
faceted. At the primary level, DOR first described how the
department and the Oil and Gas Competitiveness Review Board
needs to examine clearly the in-state energy role that Middle
Earth and the Cook Inlet Basin play. Secondly, there are very
different circumstances within terms of access to infrastructure
underlying each of those producing regions. For example, Middle
Earth has numerous basins that will need to be reviewed, with
each one presenting different challenges and opportunities to
support development in those regions. However, as was discussed
the other day, it is really those two combinations that need to
be tailored for each specific place.
9:16:12 AM
REPRESENTATIVE KAWASAKI referred to [sub-subparagraph] (ii) that
highlights the unique economic circumstances for each oil and
gas producing area south of 68 degrees North latitude. He
related his understanding that these are not currently oil and
gas producing areas. He asked for clarification on whether that
recognizes the potential oil and gas areas.
CO-CHAIR FEIGE pointed to Cook Inlet.
REPRESENTATIVE KAWASAKI acknowledged work is being performed in
the Middle Earth such as in the Doyon Basin and near Copper
River Basin.
MR. PAWLOWSKI responded that the department hopes production
will occur given all the work by this committee and members. He
offered his belief the key is that those areas are subject to
the oil and gas production tax so [Amendment 28] is designed
around that concept. The department interprets it to apply to
all of them, he said.
9:17:14 AM
REPRESENTATIVE HAWKER removed his objection to Amendment 28.
There being no further objection, Amendment 28 was adopted.
9:17:44 AM
REPRESENTATIVE TARR moved to adopt Amendment 29, labeled 28-
GS2806\I.A.95, Bullock, 4/6/14, which read as follows:
Page 18, following line 17:
Insert a new bill section to read:
"* Sec. 19. AS 38.05.182(a) is amended to read:
(a) Any royalty provided for in AS 38.05.135 -
38.05.181 may be taken in kind rather than in money if
the commissioner determines that the taking in kind
would be in the best interest of the state. However,
royalties on oil and gas shall be taken in kind unless
the commissioner determines that the taking in money
would be in the best interest of the state. It is not
in the best interest of the state to take royalty on
gas in money from a lessee transporting gas in the
North Slope natural gas project if the lessee has
committed to dispose of or market the state's royalty
gas taken in kind on the same terms and conditions as
the lessee markets or disposes of the lessee's gas."
Renumber the following bill sections accordingly.
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 56, line 6:
Delete "23 - 27, 29, 30, 37, 39, and 55 - 61"
Insert "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 discussion purposes].
9:17:55 AM
REPRESENTATIVE TARR explained one concept brought up by Roger
Marks, [consultant to the Legislative Budget & Audit (LB&A)
committee], was characterized as the most favored nation. In
the event the state contracts with one of the project sponsors
to market and sell the state's gas, the state would want the
producers to sell its gas at the same price as the producers
sell their gas. She reported that she has worked with the
department on the language in Amendment 29 and offered her
belief that the department supports it. Amendment 29, which
falls in the bill section for royalty gas - proposed Section 19,
AS 38.05.182(a), provides a trigger on the commissioner's
finding that taking royalty-in-kind (RIK) would be in the
state's best interest. She pointed out that the language is
written in a double negative. The amendment states that it is
not in the best interest of the state to take the royalty on gas
in value if the producer has committed to dispose or market the
gas on the same terms and conditions as their own. She
acknowledged that the double negative creates some difficulty in
understanding the amendment, but that is conceptually what
Amendment 29 does and it falls in the section of the bill the
administration supports.
9:19:16 AM
REPRESENTATIVE HAWKER concurred the double negative creates an
affirmative; however, this affirmative also creates one case in
which an affirmative exists. That affirmative is that royalty-
in-kind can be used "if" the lessee agrees to dispose of the
state's royalty gas taken in-kind on the same terms and
conditions as the producer markets its own gas. However, as
written, this does not preclude the administration from making
other decisions. This would carve out one specific case that
makes an absolute certainty on the same terms and conditions;
however, this would not necessarily preclude reaching the same
conclusion through other means.
REPRESENTATIVE TARR agreed that is her understanding.
9:20:22 AM
JOE BALASH, Commissioner, Department of Natural Resources (DNR),
said Representative Tarr has related the concerns and positions
on Amendment 29 accurately. He said the concept is consistent
with the agreement in the Heads of Agreement (HOA) with the
other parties. He acknowledged that it has been a challenge to
engage each of the other parties on this particular topic since
everyone "freaks out" when pricing and marketing arrangements
are broached. He predicted that if Amendment 29 was adopted by
the committee he would expect further discussion with all the
parties, which might necessitate further refining the language
in the next committee of referral. He offered to keep members
apprised. He amplified Representative Hawker's remarks by
emphasizing the importance of maintaining the option. This
needs to be a decision that the department makes when deciding
whether or not to rely on the terms and conditions provided by
the lessees. He highlighted that there may be important
circumstances under which the state may wish to pursue an
arrangement independent of the producers and it would be a
disservice if the state does not have the necessary flexibility.
CO-CHAIR FEIGE asked whether Amendment 29 gives the department
the necessary flexibility.
COMMISSIONER BALASH said the administration believes it does.
9:22:22 AM
REPRESENTATIVE P. WILSON asked whether the committee needed to
do anything further.
COMMISSIONER BALASH said his attempt to convey that conversation
outside of committee with each producer in the HOA, specifically
ExxonMobil Corporation, BP Exploration Alaska, and
ConocoPhillips, has been a little bit of a "moving target." He
explained the committee first discussed [proposed amendment]
"A.61" on Friday and that [proposed amendment] "A.95" was just
distributed yesterday. He acknowledged that based on his
conversations with each company, the companies agree with the
concept, but the review process takes time to work through.
Although the language may need to be "wordsmithed" a little, the
concept is sound. It is consistent with the agreement that
everyone has come to understand with regard to each individual
lessee working with the state - individually, with no collusion.
9:23:55 AM
CO-CHAIR FEIGE requested that the commissioner keep the
committee informed of new developments since his preference is
to address the language before it moves out of committee
COMMISSIONER BALASH agreed he would do so.
REPRESENTATIVE TARR commented on the review process. She
indicated that originally she worked with Legislative Legal and
Research Services, but the amendment was redrafted after working
with the administration. She identified this as the "finessing"
process. She agreed that if the language needs a little more
work that it could also be accomplished.
9:24:44 AM
CO-CHAIR SADDLER removed his objection. There being no further
objection, Amendment 29 was adopted.
9:25:23 AM
REPRESENTATIVE HAWKER moved to adopt Amendment 30, labeled 28-
GS2806\I.A.98, Bullock, 4/6/14 [text provided at the end of this
document].
CO-CHAIR SADDLER objected for discussion purposes.
REPRESENTATIVE HAWKER related that Amendment 30 goes back to the
early discussions on CSSB 138(FIN) am, in which the department
acknowledged the apportioning of the state's corporate income
tax. He explained that Amendment 30 would make certain the tax
related to sales factors would need to be "tuned up." Amendment
30 would make certain that the "tax as gas" (TAG) is excluded
from the sales factor when taken in conjunction - necessarily
included in the extraction factor - but it would not include
[TAG] in the sales factor. The second part of Amendment 30
would clarify that inter-company sales and transfers are not
part of a tariff and thereby not part of a sale.
9:27:44 AM
MR. PALOWSKI complimented Representative Hawker's explanation of
the background, saying this has been worked on through several
iterations of the bill. Included in the original bill, he
explained, was the concept that "tax as gas" (TAG) needs to be
included in the extraction factor for calculating corporate
income tax, which includes the business activity conducted in
Alaska and also ensures that it is accurately reflected. He
referred to page 1, line 15, sub-subparagraph (ii), of Amendment
30 which provides that the department will not construct or deem
as sales the TAG delivered to the state; this gas is being given
to the state. Thus, Amendment 30 would clarify that neither an
auditor nor DOR can later consider the TAG a sale; it is a
payment of corporate income tax. This clarifies how [TAG] will
be treated in the sales factor since it was initially included
in the extraction factor. Sub-subparagraph (iii) provides that
fees on an intercompany basis are not subject as a sale, but a
regulated tariff is; however, there are conforming changes on
page 2, lines [9]-15 of Amendment 30. Sales factors include a
numerator and denominator and the language is consistent in
both. He said, "It's really meant to clarify as the result of
the specific designation of the tax gas in the extraction
factor, the limited inclusion in our apportionment factors for
corporate income tax."
9:29:55 AM
REPRESENTATIVE SEATON asked whether this affects the tariff
charged by the operator of the state's 25 percent [ownership] of
the pipeline or applies strictly to the corporate tax of the
parties producing gas.
MR. PAWLOWSKI replied this relates specifically to the corporate
income tax of the parties producing gas or their affiliates
within the midstream. It would clarify, consistent with the way
it is treated today. Thus, DOR would not change the way the
state conducts corporate income tax; however, it becomes
necessary since the previous section specifically called out
that the state is including TAG in the extraction factor, which
would increase corporate income tax liability to the state. The
state needs to be careful about "belts, suspenders, boots, and
waders" for the other portions in the apportionment factor to
protect against changes in interpretation down the road.
9:31:06 AM
REPRESENTATIVE KAWASAKI, regarding [sub-subparagraph] (ii),
requested discussion of the definitions of "constructive sales,"
"deemed sales," and "natural gas delivered to the state."
MR. PAWLOWSKI answered the "natural gas delivered to the state"
as payment of tax is the TAG or the gas the producer pays to the
state. "Constructive" or "deemed" is a term of art in the
corporate income tax world in which the state would look at the
transfer of that gas to the state as a payment. This means the
producer who paid tax with that gas is not actually selling the
gas because the value would then be included in their sales
factor. However, it is not a sale, it is a transfer as a
payment of tax to the state. He characterized Amendment 30 as a
clarifying amendment.
9:32:06 AM
CO-CHAIR SADDLER removed his objection. There being no further
objection, Amendment 30 was adopted.
The committee took a brief at-ease.
9:35:43 AM
REPRESENTATIVE SEATON moved to adopt Amendment 31, labeled 28-
GS2806\I.A.50, Bullock, 4/2/14, which read as follows:
Page 15, following line 30:
Insert a new bill section to read:
"* Sec. 16. AS 38.05 is amended by adding a new
section to read:
Sec. 38.05.023. Limitation on a provision related
to a payment in lieu of property tax. An agreement or
contract associated with a North Slope natural gas
project may not authorize a payment in lieu of a
property tax to a municipality before a final
investment decision is made for the project."
Renumber the following bill sections accordingly.
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 56, line 6:
Delete "16, 17, 23 - 27, 29, 30, 37, 39, and 55 -
61"
Insert "16 - 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 discussion purposes].
9:35:57 AM
REPRESENTATIVE SEATON explained Amendment 31. Municipalities
have indicated that the payment in lieu of tax (PILT) or the
reclassification restructure of property tax should not go into
effect unless the final investment decision (FID) is made.
Otherwise a change in taxes may impact municipalities although
the project may not be finished. Amendment 31 would ensure that
PILT would be in place once the FID is made and the project
moves forward.
9:37:09 AM
REPRESENTATIVE HAWKER appreciated the intent [of Amendment 31],
but expressed concern that it would constrain the negotiation
process with an artificial constraint that may or may not be
appropriate for the municipalities. He suggested that a PILT
will necessarily be the result of a negotiation among the
affected communities and the state, noting any PILT must come
back to the legislature for approval as part of this process.
He asked for the reason to constrain the negotiating process
when the [legislature] is holding "the absolute hammer" over any
outcome.
REPRESENTATIVE SEATON recalled this process was also taken under
the Alaska Stranded Gas Act Development Act (ASGDA), such that
if the contract was approved and the project did not go forward,
it would have changed the calculations and method of payment on
municipal property taxes without the project moving forward. He
reiterated that this ensures that what is negotiated is
negotiated on the basis of the project and if the project does
not happen, the municipal property tax is not being changed
based on something that does not occur.
9:38:54 AM
MR. PAWLOWSKI viewed the implication of this amendment - that
the state would have a contract that would affect municipal
taxes - as something that makes DOR very uncomfortable. A
deeper concern, he said, is that Amendment 31 could be construed
to mean the administration has the power to authorize a PILT in
a contract. As DOR previously has testified, the department
does not believe it has that power. According to the Alaska
Constitution changes to municipal taxation are provided by law.
Thus, it is a more fundamental implication that someone might
believe that DOR has the power to make those changes. The
property tax changes for the process will go through the
consensus working group with the municipalities and
municipalities will come back to the legislature for statutory
changes based on the consensus recommendation from the group.
Only then would there be the opportunity to authorize something
related to a municipality in its property tax. The idea that
the state, through contractual changes, could change municipal
tax rates is counter to the Alaska Constitution.
9:40:24 AM
REPRESENTATIVE SEATON argued that Legislative Legal and Research
Services does not agree that Amendment 31 would authorize DOR to
change taxes. That is a separate issue that is not raised here.
{Amendment 31] is a prohibition on coming back to the
legislature with a contract that would do this; however, [the
amendment] doesn't say that [DOR] can contract property taxes.
The restriction or "sideboard" does not mean everything outside
the "sideboard" is appropriate. He recalled that Mr. Don
Bullock testified several days ago to that effect on a different
amendment. He indicated it seems clear that the legislature
wants to receive a contract without the flaw that the Alaska
Stranded Gas Development Act had if the [legislature] approves
the contract. The [legislature] sets taxes on oil and gas and
the state allows municipalities to take a portion of that tax;
however, it is not directly the municipalities that do so, but
[the legislature] that does so.
9:42:05 AM
REPRESENTATIVE KAWASAKI said Amendment 31 addresses the concern
he had that taxes could be locked in and municipalities might
get shut out. He related his understanding that it is not the
administration's intent to do so. He referred to AS 30.50.023,
which bumps the discussions with the municipalities to the top,
such that the state agrees with municipalities on how taxation
should occur well before the contract is set. He said he
prefers it that way, but is unsure whether it is proper, but
believes it would protect municipalities.
9:43:01 AM
MR. PAWLOWSKI said he reads the language differently. He
acknowledged he could confer with the Department of Law on this.
He referred to page 1, lines 5-7, of the amendment which state
in part, "or contract associated with a North Slope natural gas
project may not authorize a payment in lieu of a property tax to
a municipality before a final investment decision is made for
the project." He viewed the implication as being that if the
department waits until the FID is made, then does the department
in a contract have the authorization to do a PILT to a
municipality? He suggested that this would be "bumping"
actually later in the process the engagement with the
municipality. The department has tried to "limit the table up
front" through an administrative order and recognize clearly and
consistently on the record that authorizing a PILT to a
municipality takes a change in law. Thus, it should not be
implied that it can be done through a contract.
9:44:03 AM
CO-CHAIR FEIGE asked for clarification regarding at what point
in the process that a change in law would be required.
MR. PAWLOWSKI replied [the administration's] intent is to work
with the [Municipal Advisory Gas Project Review Board]
established by administrative order. He said, "[DOR] would be
bringing changes or recommendations from that group to changes
to the property tax back to the next legislative session in 2015
prior to the finalization of contracts."
9:44:37 AM
REPRESENTATIVE HAWKER maintained that what happened in ASGDA is
totally and completely irrelevant to this conversation and any
contract that would be negotiated for a payment in lieu of taxes
(PILT) proposal and brought forward to the legislature. He
supposed that work is done with the Municipal Advisory Gas
Project Review Board. He acknowledged that the [legislature]
views final investment decision (FID) occurring in about 2019 in
the most optimistic light. As this project reaches the end of
Front-End Engineering and Design (FEED) and is going to FID, the
municipalities will want the PILT revenue to help them. He
offered his belief that if he was negotiating on behalf of the
municipalities, he would be asking for PILT that anticipates the
amount needed, with some PILT payments up-front that would
likely predate the FEED event. Thus, this [amendment] would be
telling the municipalities, "Sorry, guys. You can't do that."
He said, "And I'm looking up and down that pipeline looking at
those small communities. I'm looking at the bigger communities
as well. You're telling them that you don't get a shot at
anything until the boots are on the ground and the project's
begun. In fact, if I was them I'd be really disappointed in the
legislature shutting out that option to me."
9:46:27 AM
REPRESENTATIVE SEATON offered his belief that Amendment 31 does
not address impact payments since those are before construction
starts. Amendment 31 would address PILT for property taxes and
not impact payments. The question is whether the contract will
come back to [the legislature] with sideboards so the property
taxes do not change unless the project moves forward or if
something will come back to the legislature since it is the tax
setting body that will ensure that the property tax structure is
not being changed before the project is built and gas is
flowing, but until the project is sanctioned and the legislature
knows the project is moving forward. He offered his belief that
this is the appropriate time for the legislature to have a new
tax structure sanctioned once the project is going forward.
9:47:37 AM
REPRESENTATIVE KAWASAKI requested the Department of Law testify.
CHRISTOPHER POAG, Assistant Attorney General, Labor and State
Affairs Section, Civil Division, Department of Law (DOL), agreed
with Mr. Pawlowski that the Alaska Constitution vests the power
to tax and the legislature has allowed the power to tax be
shared with only one other group of entities, which is municipal
entities. He said Mr. Pawlowski [DOR] does not have the power
to set taxes through contract. The inference from the statute,
however, is that after a FID is made, [DOR] has that power. He
suggested that Mr. Bullock's testimony was that the power to tax
may not be surrendered. Thus, the DOL would read the statute in
light of the Alaska Constitution to say that it could not create
that power, but the inference drawn from the language is that it
does. He said his perspective, which is consistent with Mr.
Bullock's testimony, is that the power to tax cannot be
contracted by Mr. Pawlowski. It will need to be set by [the
legislature] with the municipal entities involved.
9:49:00 AM
REPRESENTATIVE SEATON argued that the [legislature] will get a
contract back containing the tax terms in it and will approve it
or not. He argued that DOR should not be able to bring the
[legislature] a contract if the legislature would follow the
DOL's advice since something within the contract will be related
to taxes. Amendment 31 simply says that DOR cannot propose to
the legislature tax terms that indicate the property taxes are
being changed on the gas project prior to project sanction. In
any case, DOR will come back to the legislature with a proposed
contract that is negotiated with [the administration], not yet
approved by the legislature, containing tax provisions. He
reiterated that Amendment 31 just indicates that one of the tax
terms cannot be that the property tax is changing now, whether
the state gets a project or not.
9:50:15 AM
MR. PAWLOWSKI stated he appreciates the intent [of Amendment
31]; however, the point is not that the contract may or may not
include tax terms. Those tax terms will be enacted by the
legislature and not be authorized by any administration. The
DOR would bring the terms to the legislature, just as the
administration is doing in the bill in terms of setting "tax as
gas" terms. The terms must be voted on by the legislature prior
to integration into a contract. He offered his belief that DOR
would be referencing terms enacted by the legislature. He said
he views the implication that any contract brought back should
not be effective unless a project is built as being different
than the implication in the way this language is written, which
is what makes him uncomfortable based on the advice from his
legal counsel. "I think that's a fair concept that makes a good
deal of sense," he said. "It's just based on my conversation
with my legal counsel; this implication makes us uncomfortable."
REPRESENTATIVE SEATON responded that Legislative Legal and
Research Services draws up the statutes and this is the way the
legal counsel drew up the statutes, such that the [legislature]
was restricting the terms that could be proposed back to the
legislature, that the terms could not go into effect until the
project was actually sanctioned. The legislative legal counsel
testified the other day that authorizing or taxing could not be
done; however, that is not what Amendment 31 does, even though
DOR or DOL might interpret it that way. Mr. Bullock was very
specific that "may not authorize" does not say that the
department is authorized. It simply limits what [DOR] could
propose in a contract to the [legislature]. He acknowledged it
is possible that the attorneys disagree, but this amendment is
Legislative Legal's way of saying that within the statutory
framework, this is the language to accomplish the intent.
9:52:52 AM
REPRESENTATIVE KAWASAKI, to provide an amicable resolution,
inquired about the possibility of adding some severability
language into the corpus of Amendment 31 that makes it clear
that the legislature is not giving away taxing authority to the
administration.
9:53:36 AM
REPRESENTATIVE SEATON moved to adopt Conceptual Amendment 1 to
Amendment 31, to add on page 1, line 6, after "not" and before
"authorize" to insert, "propose to". The language would then
read, "An agreement or contract associated with a North Slope
natural gas project may not propose to authorize a payment in
lieu of a property tax to a municipality before a final
investment decision is made for the project." Thus, the
contract may not propose to authorize would mean that there is
not any ability to authorize, but the proposal would come back
to the legislature. If this is acceptable, it could give the
legislature comfort to go forward.
REPRESENTATIVE P. WILSON objected to Conceptual Amendment 1 to
Amendment 31. She suggested this change still states that the
administration cannot propose [the PILT] until the FID, but the
[municipalities] want to [institute PILT] before then.
MR. PAWLOWSKI said it is a bit of a "chicken and egg" situation
since it comes back to the concern expressed by Representative
Hawker that impact payments are one side of a PILT arrangement.
It is not that they are divorced from each other.
Substantively, the committee may have that concern, but the
department and committee are having a little "back and forth" on
some of the language on the power of the executive branch
concept that causes DOR some concern. He did not disagree with
the substance of the intent that Representative Seaton is trying
to describe, outside of the issue that Representatives Hawker
and P. Wilson have just raised, which is the order of the
"chicken and egg" agreements.
9:56:25 AM
REPRESENTATIVE P. WILSON asked whether the agreements or
discussion should happen prior to the 2015 legislative session.
CO-CHAIR SADDLER said he does not think "proposed to" carries
with it the implication that the department has the authority.
REPRESENTATIVE TARR regarding Conceptual Amendment 1, referred
to page 1, line 6, saying what is being considered is that the
"project may not propose to authorize a payment in lieu of a
property tax to a municipality". She asked whether the language
"take effect before a final investment decision is made for the
project," could accomplish that no changes would be made to the
method for property tax calculations in the event a project does
not happen to avoid recalculating and calibrating the taxes.
She further asked whether inserting "take effect" would not
delay when negotiations can take place, but would change when
the actual tax would take place.
9:58:39 AM
CO-CHAIR FEIGE asked to first consider Conceptual Amendment 1 to
Amendment 31.
REPRESENTATIVE P. WILSON maintained her objection.
REPRESENTATIVE SEATON withdrew Conceptual Amendment 1.
9:59:16 AM
CO-CHAIR FEIGE drew attention to [previously adopted] Amendment
15, which takes the duties and responsibilities laid out in
Administrative Order 269 and inserts them into statute verbatim.
He referred to line 12 of the amendment. He said it was the
second duty assigned to the interim advisory board. It reads,
"Provide recommendations for changes to the oil and gas
exploration production and pipeline transportation property
taxes." He stated that the committee has asked the Municipal
Advisory Gas Project Review Board to discuss and report its
recommendations to the legislature. He said he understands the
intent of Amendment 31. The legislature is still the taxing
authority and must write the law, but said he thinks this has
been addressed.
10:00:59 AM
REPRESENTATIVE SEATON withdrew Amendment 31. He offered his
belief that, given the discussion, this is an issue that will be
well considered.
[End of discussion--bill was held over]
Following is the text for Amendments 27, 28, and 30:
Amendment 27, labeled 28-GS2806\I.A.91, Nauman/Bullock, 4/6/14
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 54, line 23:
Delete ". (a)"
Insert "; 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 an interim draft
of 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, and a final report at the time the
commissioner of natural resources submits the first
agreement or contract to the legislature for approval
under AS 38.05.020(b)(11), enacted by sec. 14 of this
Act."
Reletter the following subsections accordingly.
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" has the meaning given
in AS 01.10.060;"
Renumber the following paragraphs accordingly.
Amendment 28, labeled 28-GS2806\I.A.97, Nauman/Bullock, 4/6/14
Page 2, line 14, following "project;":
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;
(B) January 15, 2017, regarding
(i) the state's tax structure and rates on
oil and gas produced south of 68 degrees North
latitude;
(ii) a tax structure that takes into
account the unique economic circumstances for each oil
and gas producing area south of 68 degrees North
latitude;
(iii) a reduction in the gross value at the
point of production for oil and gas produced 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);
(iv) other incentives for oil and gas
production south of 68 degrees North latitude;
(C) 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."
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 30, labeled 28-GS2806\I.A.98, Nauman/Bullock, 4/6/14
Page 26, following line 24:
Insert a new bill section to read:
"* Sec. 33. AS 43.20.144(d) is amended to read:
(d) The sales factor of a taxpayer subject to
this section is a fraction,
(1) the numerator of which is the sum of
the following for the tax period:
(A) the tariffs allowed and received by or
for the taxpayer for transporting oil or gas by
pipeline in this state, regardless of whether the
tariffs are paid by third parties or by entities
within the taxpayer's consolidated business; and
(B) the total sales of the taxpayer in this
state, determined in accordance with AS 43.19
(Multistate Tax Compact), but excluding
(i) those sales already included in the
tariffs described in (A) of this paragraph;
(ii) constructive sales or deemed sales of
natural gas delivered to the state as payment of tax
under an election made by the taxpayer under
AS 43.55.014;
(iii) fees, allowed and received, that are
paid between entities within the consolidated business
of the taxpayer for transporting the taxpayer's
natural gas; and
(2) the denominator of which is the sum of
the following for the tax period:
(A) the tariffs allowed and received by or
for the taxpayer's consolidated business for
transporting oil or gas by pipeline everywhere,
regardless of whether the tariffs are paid by third
parties or by entities within the taxpayer's
consolidated business; and
(B) the total sales of the taxpayer's
consolidated business everywhere, determined in
accordance with AS 43.19 (Multistate Tax Compact), but
excluding
(i) those sales already included in the
tariffs described in (A) of this paragraph;
(ii) constructive sales or deemed sales of
natural gas delivered to the state as payment of tax
under an election made by the taxpayer under
AS 43.55.014 or delivered in another tax jurisdiction
under a law comparable to AS 43.55.014;
(iii) fees, allowed and received, that are
paid between entities within the consolidated business
of the taxpayer for transporting the taxpayer's
natural gas."
Renumber the following bill sections accordingly.
Page 31, line 18:
Delete "sec. 37"
Insert "sec. 38"
Page 56, line 6:
Delete "37, 39, and 55 - 61"
Insert "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"
[CSSB 138(FIN) am was held over.]
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