Legislature(2011 - 2012)BARNES 124

02/21/2011 05:15 PM RESOURCES

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05:22:17 PM Start
05:22:32 PM HB110
06:15:53 PM Adjourn
* first hearing in first committee of referral
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= bill was previously heard/scheduled
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Heard & Held
-- Public Testimony --
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              HB 110-PRODUCTION TAX ON OIL AND GAS                                                                          
5:22:32 PM                                                                                                                    
CO-CHAIR  FEIGE announced  that  the only  order  of business  is                                                               
HOUSE  BILL  NO. 110,  "An  Act  relating  to the  interest  rate                                                               
applicable to certain  amounts due for fees,  taxes, and payments                                                               
made  and  property  delivered  to  the  Department  of  Revenue;                                                               
relating  to the  oil and  gas production  tax rate;  relating to                                                               
monthly installment payments of  estimated oil and gas production                                                               
tax; relating to  oil and gas production tax  credits for certain                                                               
expenditures,   including    qualified   capital    credits   for                                                               
exploration,  development,   and  production;  relating   to  the                                                               
limitation  on  assessment  of  oil  and  gas  production  taxes;                                                               
relating  to the  determination  of oil  and  gas production  tax                                                               
values;  making  conforming  amendments;  and  providing  for  an                                                               
effective date."                                                                                                                
5:23:07 PM                                                                                                                    
RACHEL  PETRO,  President  and   CEO,  Alaska  State  Chamber  of                                                               
Commerce, began by informing the  committee that the Alaska State                                                               
Chamber   of  Commerce   represents  over   400  businesses   and                                                               
organizations throughout Alaska.   The mission of  the chamber is                                                               
to  promote  a  positive  business   environment  in  the  state.                                                               
Therefore,  the   Alaska  State  Chamber  of   Commerce  strongly                                                               
supports HB  110.  She  then informed  the committee that  a year                                                               
ago Alaska  ranked 117th out  of 129  in fiscal terms,  which she                                                               
opined  is unacceptable.   The  state  is competing  in a  global                                                               
world, and thus  she encouraged the [House] to  move quickly this                                                               
session to  reform tax  policy, the  chamber's top  priority this                                                               
session.    Ms.  Petro  pointed   out  that  tax  policy  impacts                                                               
investment, as  illustrated with  the recent  tax credits  to the                                                               
film industry.                                                                                                                  
5:24:44 PM                                                                                                                    
REPRESENTATIVE  GARDNER   recalled  that  another   report,  from                                                               
Frazier,  ranked  Alaska  68th  out of  133  in  overall  [fiscal                                                               
MS. PETRO said that she has not seen that report.                                                                               
REPRESENTATIVE  GARDNER remarked  that  the legislature  receives                                                               
reports from various organizations  that have different resources                                                               
and goals.                                                                                                                      
MS. PETRO commented that whether  Alaska is ranked 50th or 100th,                                                               
the Alaska  State Chamber of  Commerce remains  concerned because                                                               
it believes Alaska should be ranked in the top 10.                                                                              
5:26:14 PM                                                                                                                    
CO-CHAIR   SEATON  noted   that   the   committee  received   the                                                               
accumulated fiscal  note and if HB  110 passed, there would  be a                                                               
reduction  in revenue  to the  state in  the amount  of $1.7-$2.2                                                               
billion per  year.  Such  a reduction  would result in  the state                                                               
being  in  a  deficit  situation with  fewer  funds  for  capital                                                               
budgets.   He asked if  the Alaska  State Chamber of  Commerce is                                                               
concerned  about a  situation  in which  there  is a  significant                                                               
reduction in  capital budget  expenditures throughout  the state,                                                               
rather than funds only going to the North Slope.                                                                                
5:27:00 PM                                                                                                                    
MS. PETRO  related that the  Alaska State Chamber of  Commerce is                                                               
concerned  with  the  overall  fiscal  and  economic  climate  in                                                               
Alaska.    However, if  exploration  doesn't  begin and  Alaska's                                                               
pipeline isn't  filled, there won't  be anything to spend  in the                                                               
future.   Therefore, the chamber believes  the legislature should                                                               
act  soon  to  incentivize  exploration  in  order  to  fill  the                                                               
pipeline because  without doing  so there  won't be  resources to                                                               
appropriate.  Ms.  Petro clarified that the  Alaska State Chamber                                                               
of  Commerce  shares  the  concern,   but  also  supports  fiscal                                                               
5:28:33 PM                                                                                                                    
VINCE   BELTRAMI,  President,   Alaska   AFL-CIO,  informed   the                                                               
committee  that  the Alaska  AFL-CIO  is  comprised of  about  55                                                               
unions and  60,000 union members in  Alaska.  He then  recalled a                                                               
statement  by   Commissioner  Sullivan,  Department   of  Natural                                                               
Resources  (DNR), during  the meeting  earlier in  the day.   The                                                               
statement related that  no matter the position of  the state with                                                               
regard to exploration, the  governor's legislation doesn't really                                                               
provide  a  way  to  obtain commitments  from  the  producers  to                                                               
actually  explore, which  is cause  for  concern.   The state  is                                                               
reliant on  oil that flows  through the  pipeline as it  funds 90                                                               
percent of the state.  He  informed the committee that the Alaska                                                               
AFL-CIO and  several other union  leaders have been  working with                                                               
Shell on  its offshore  development.   A recent  report discusses                                                               
the amount  of jobs it  would produce,  which is all  the AFL-CIO                                                               
cares  about in  terms  of  making Alaska's  economy  viable.   A                                                               
commitment to jobs and to Alaska  hire are what the AFL-CIO wants                                                               
to see  happen, although currently  there's no  such commitments.                                                               
He then related  that for the most recent development  to come on                                                               
line,  the Nikiachuk  Field, he  received a  report that  related                                                               
that over 60  percent of the people working on  the site were not                                                               
residents  of Alaska.   Mr.  Beltrami pointed  out that  although                                                               
reports from the producers relate  improvements in resident hire,                                                               
there isn't  information with regard  to what's happening  in the                                                               
fields.   He recalled that  last week during a  committee hearing                                                               
there  was a  question regarding  the $4  billion in  tax credits                                                               
given to  the company  since Alaska's  Clear and  Equitable Share                                                               
(ACES) went  into effect and  for which no  one has been  able to                                                               
relate for  what the credits were  used.  Before the  AFL-CIO can                                                               
support reforming  oil taxes, there  has to be [a  commitment] to                                                               
developing, drilling, and exploring  in Alaska and knowledge that                                                               
the jobs  will go to  Alaskans not  to out-of-state people.   Mr.                                                               
Beltrami emphasized  that thus far  he hasn't seen  evidence that                                                               
HB 110  will produce  jobs for  Alaskans.   In the  meantime, the                                                               
state has had  large capital budgets due to the  tax revenue from                                                               
ACES  and those  jobs can  be identified  via the  larger capital                                                               
construction budgets.  "Are we ready  to give up ... $1.7 billion                                                               
a year in ... revenue to the  state, at this point, on a tradeoff                                                               
for the hope that we're going  to get those jobs," he questioned.                                                               
He opined  that the state  should have a better  expectation than                                                               
to hope there  will be more jobs; he suggested  that there should                                                               
be a commitment  for such and that the jobs  will go to Alaskans.                                                               
If and  when such commitments  are made,  he said that  the state                                                               
should definitely consider supporting  those.  In conclusion, Mr.                                                               
Beltrami  encouraged   being  shown  [the  commitment]   to  more                                                               
exploration and Alaskan jobs.                                                                                                   
5:33:46 PM                                                                                                                    
CO-CHAIR FEIGE  inquired as to  the percentage of union  jobs for                                                               
road  projects, building,  construction, and  carpentry that  are                                                               
included in the capital budget.                                                                                                 
MR. BELTRAMI  related that the union  density in the state  is 25                                                               
percent, which  is the second  highest in the country.   However,                                                               
that includes the  public sector as well.  He  told the committee                                                               
that about  85 percent of  the heavy and highway  construction is                                                               
performed  by   union  contractors.    With   regard  to  regular                                                               
commercial construction, one  could make a case  that about 40-50                                                               
percent  of that  is  union whereas  almost  none of  residential                                                               
construction  is  performed  by  union  workers.    Mr.  Beltrami                                                               
emphasized  that capital  construction projects  put Alaskans  to                                                               
work  whether  they're   union  members  or  not.     He  further                                                               
emphasized that  while he would  like to  see more union  jobs on                                                               
the North  Slope, he would like  to see more Alaskans  working on                                                               
the  North Slope.   In  further response  to Co-Chair  Feige, Mr.                                                               
Beltrami said that very little of  the work on the North Slope is                                                               
accomplished  by  union members.    Other  than the  Trans-Alaska                                                               
Pipeline System (TAPS) for which  there is a maintenance contract                                                               
and 400-500 [union] employees work,  he estimated that maybe only                                                               
a  few hundred  more are  union  employees in  the [North  Slope]                                                               
workforce of about 13,000.                                                                                                      
5:35:34 PM                                                                                                                    
CO-CHAIR FEIGE inquired  as to how Mr. Beltrami  would amend this                                                               
proposed legislation, were he able to do so.                                                                                    
MR.  BELTRAMI said  that  it's  hard to  force  the  hand of  the                                                               
companies with  regard to exploration.   Therefore,  he suggested                                                               
that the  tax credits  or any  credits should  be given  based on                                                               
exploration  that  the companies  are  going  to undertake.    He                                                               
suggested giving  the credit after  the exploration.   In further                                                               
response to Co-Chair Feige, Mr.  Beltrami opined that compared to                                                               
zero   exploration   it   wouldn't  be   difficult   to   measure                                                               
[exploration], new drilling activity.                                                                                           
5:37:01 PM                                                                                                                    
JERRY MCCUTCHEON, provided the following testimony:                                                                             
     The Parnell  Administration is  demanding that  ACES be                                                                    
     revised  so  that  when the  oil  companies  make  more                                                                    
     money, the oil  companies pay the State  of Alaska less                                                                    
     money.   How  profound.   Only in  Alaska would  such a                                                                    
     crackpot scheme be proffered.   Alaska does not have an                                                                    
     ACES problem,  it has a  Parnell problem.   The failure                                                                    
     to   enforce  the   lease,  case   law,  and   Alaska's                                                                    
     Constitution;  that's  all  you need,  you  don't  need                                                                    
     anything else.   You shouldn't  be offering  carrots to                                                                    
     people  to do  what  they're already  obligated to  do.                                                                    
     Representative  Gardner,   the  Parnell  Administration                                                                    
     lied to  you when  the Parnell Administration  said and                                                                    
     showed  that  the  oil  companies  are  paying  federal                                                                    
     taxes.   Not only  do the major  oil companies  not pay                                                                    
     federal  taxes,   but  also   the  oil   companies  are                                                                    
     subsidized by  the federal government.   That's kind of                                                                    
     different than what  you've got on that  piece of paper                                                                    
     that  they  handed  you.   The  Parnell  Administration                                                                    
     testifying and  showing there on their  graphs that Mr.                                                                    
     Parnell had submitted it to  the legislature that shows                                                                    
     the  oil companies  pay taxes  when, in  fact, the  oil                                                                    
     companies  do   not  pay   (indisc.)  taxes   is  false                                                                    
     testimony  and should  be referred  to the  appropriate                                                                    
     committee  for investigation  as  well  as the  federal                                                                    
     grand jury investigating political corruption.                                                                             
5:39:00 PM                                                                                                                    
MR. MCCUTCHEON continued:                                                                                                       
     Alaska's  taxes should  be compared  to  that of  other                                                                    
     nations  and more  deliberate misdirection  ... on  the                                                                    
     part  of Parnell  to favor  Parnell's former  employer.                                                                    
     As for enticing Exxon, BP,  and Conoco to look for more                                                                    
     oil,  Exxon,  BP,  and Conoco  are  reservoir  elephant                                                                    
     hunters.  There are no  more elephant oil reservoirs to                                                                    
     be found on the North  Slope.  Such large structures as                                                                    
     there were on  the Slope were drilled  over two decades                                                                    
     ago.  All  the Slope has left are rabbits,  maybe a few                                                                    
     moose will be found and  some caribou found in the next                                                                    
     50  years.   But  Exxon,  BP,  and Conoco  should  join                                                                    
     Chevron, sell  out and get  out.  Alaska's  future lays                                                                    
     with the small oil  companies and the legislature needs                                                                    
     to  address the  major obstruction  of the  smaller oil                                                                    
     companies trying to produce  their leases; that really,                                                                    
     really needs to  be addressed.  This  claptrap that the                                                                    
     oil companies are going to  abandon the oil line if the                                                                    
     oil line  flow gets  much lower reminds  me of  the oil                                                                    
     companies  were  arguing  with the  attorney  general's                                                                    
     office  over  the  life  of  the  pipeline  before  the                                                                    
     pipeline  was actually  finished.    The oil  companies                                                                    
     were saying that  the life of the pipeline  was only 20                                                                    
     years.  What the oil companies  did not say is the life                                                                    
     was only  20 years because  they were going to  gut and                                                                    
     run Prudhoe  Bay.  At only  a 100,000 barrels a  day at                                                                    
     $80 a  barrel, that's $3  billion a  year.  Are  any of                                                                    
     you legislators really that gullible  to think that the                                                                    
     oil companies  would abandon  $3 billion  a year.   For                                                                    
     those of you that are  new to the legislature, here are                                                                    
     some jewels  from the  legislative gasline  hearings in                                                                    
     2007.  Testimony from  the AOGCC,  Alaska  Oil and  Gas                                                                    
     Conservation Commission, to  the legislature during the                                                                    
     hearings in Anchorage that Prudhoe  Bay had produced an                                                                    
     additional 6 billion  barrels more oil as  of 2006 than                                                                    
     would  not have  been  produced had  the oil  companies                                                                    
     constructed  the   2  bcf/d   gasline  in   the  1980s.                                                                    
     Further, the  AOGCC testified that the  State of Alaska                                                                    
     would  be  broke today,  2007,  had  the oil  companies                                                                    
     constructed the gasline in the 1980s.                                                                                      
5:42:31 PM                                                                                                                    
MAYNARD  TAPP,  Hawk  Consultants, LLC;  Member,  Alaska  Support                                                               
Industry  Alliance, noted  that  he provided  the committee  with                                                               
information  regarding a  January  2011  API [American  Petroleum                                                               
Institute]  study  that  shows  the  amount  of  profit  the  oil                                                               
companies make in  comparison with other industries.   Though oil                                                               
companies make  a lot of  money, their  net income over  sales of                                                               
about 6  percent is pretty  standard and even below  the national                                                               
all-manufacturing  average.   He  noted that  it's difficult  and                                                               
expensive for  the oil companies to  do business in Alaska.   Mr.                                                               
Tapp characterized TAPS  as Alaska's lifeline and the  oil as its                                                               
blood.   The  state can  help provide  the nation's  energy needs                                                               
from one of  the best monitored and maintained  facilities in the                                                               
world.   He then guaranteed  that not  one dollar in  taxes under                                                               
ACES  will ever  go to  exploration for  Alaskans to  develop its                                                               
oil.  The  only change Mr. Tapp  said he would make to  HB 110 is                                                               
to make  it retroactive and return  some of the money  to the oil                                                               
companies to put it back in the ground.                                                                                         
5:44:48 PM                                                                                                                    
REPRESENTATIVE GARDNER asked if Mr.  Tapp was aware the state has                                                               
spent $3 billion in credits to  the oil industry.  Therefore, the                                                               
state   is  either   participating  in   their  exploration   and                                                               
development or  paying the oil  companies to  perform maintenance                                                               
and other work on their existing systems.                                                                                       
MR. TAPP acknowledged that he is  aware of that and the fact that                                                               
the oil companies  are constantly trying to  maintain and upgrade                                                               
their  facilities in  the likelihood  they  will be  able to  use                                                               
those facilities  to put  more oil through  the pipeline.   After                                                               
the pipeline  runs out there  won't be any  money to tax  and the                                                               
permanent  fund would  have to  fund  the state.   Therefore,  he                                                               
suggested that  the only  solution for  the next  20 years  is to                                                               
fill TAPS again.                                                                                                                
5:46:13 PM                                                                                                                    
REPRESENTATIVE GARDNER  asked then if  Mr. Tapp would  agree that                                                               
the incentives under ACES have worked,  at least to the extent of                                                               
a $3 billion investment to the system.                                                                                          
MR. TAPP  replied no.   He clarified  that the oil  companies are                                                               
trying to maintain  the facilities in a  safe and environmentally                                                               
conscious manner, for their best  interest and that of the state.                                                               
If there's  a 6-7  percent decline  over the  next 10  years, oil                                                               
production  drops  as  does  taxes.     Therefore,  the  loss  of                                                               
production doesn't  help the  tax base.   Mr.  Tapp said  that he                                                               
agrees with  Representative Gardner  to the  extent that  the oil                                                               
companies have  used the credit  to maintain the  facilities, but                                                               
he  questioned  how much  the  oil  companies  paid in  taxes  to                                                               
maintain the facilities.                                                                                                        
5:47:57 PM                                                                                                                    
AVES THOMPSON,  Executive Director, Alaska  Trucking Association,                                                               
provided the following testimony:                                                                                               
     I'm here  today to  testify on  behalf of  the [Alaska]                                                                    
     Trucking   Association  and   its  nearly   200  member                                                                    
     companies  in   support  of  HB  110,   the  governor's                                                                    
     production  tax on  oil and  gas bill.   Given  today's                                                                    
     investment  climate and  Alaska's competitive  position                                                                    
     in  the  world's  search for  additional  oil  and  gas                                                                    
     supplies,  now is  the time  to reevaluate  our current                                                                    
     oil and gas  production tax structure.   With an annual                                                                    
     production decline of about 7  percent, which the state                                                                    
     incurred   last  year,   TAPS   could   very  well   be                                                                    
     nonfunctional within  5-10 years.   How will  the state                                                                    
     pay for  essential public  services and  meet long-term                                                                    
     obligations  if  this  were  to  happen.    There's  no                                                                    
     denying that  lower taxes ...  could result  in reduced                                                                    
     revenue flowing  into state coffers in  the short term.                                                                    
     But it  is clear that  Alaska is competing in  a global                                                                    
     market and in  the long term, this  reduction will make                                                                    
     the  state  a more  desirable  place  to invest,  which                                                                    
     ultimately  will  lead  to higher  revenue.    Specific                                                                    
     examples  presented in  this  current  tax regime  have                                                                    
     included the  tax rate is  allowed to rise  too steeply                                                                    
     when oil prices  are high, and also has  been called an                                                                    
     unfair   tax  that   stifles   jobs   and  needed   oil                                                                    
     production.  Replacing  or revising the oil  tax was an                                                                    
     issue  during the  campaigns.   We  believe that  close                                                                    
     examination  has  found that  in  order  for Alaska  to                                                                    
     continue  to   be  a  leader   in  U.S.   domestic  oil                                                                    
     production,  we   need  to  create  a   more  favorable                                                                    
     investment climate  to clearly demonstrate  that Alaska                                                                    
     is open  for business.   Just look around us  today, in                                                                    
     today's world  political climate,  the cable  news will                                                                    
     make  you  crazy.   Future  oil  and gas  supplies  for                                                                    
     Alaska and  the U.S. are  not guaranteed.   We Alaskans                                                                    
     need to  do all we  can to provide energy  supplies for                                                                    
     Alaska  and the  United States.    With future  6 to  7                                                                    
     percent declines  projected, we  need to  take dramatic                                                                    
     action today.                                                                                                              
5:50:36 PM                                                                                                                    
JASON BRUNE, Executive Director, Resource Development Council                                                                   
(RDC), provided the following testimony:                                                                                        
     My testimony today is given in  support of HB 110.  RDC                                                                    
     is  an   Alaskan  business  association   comprised  of                                                                    
     individuals and  companies from  Alaska's oil  and gas,                                                                    
     mining,   forest  products,   tourism,  and   fisheries                                                                    
     industries.   Our membership also  includes all  of the                                                                    
     Alaska    Native     regional    corporations,    local                                                                    
     communities,  organized  labor,  and  industry  support                                                                    
     firms.    Based  on  a  survey  we  just  completed,  I                                                                    
     recently  learned that  we  have  members in  virtually                                                                    
     every legislative  district statewide.  Our  mission is                                                                    
     to  expand  the  state's   economic  base  through  the                                                                    
     responsible  development  of   our  natural  resources.                                                                    
     RDC's  top   legislative  priority  this  year   is  to                                                                    
     "advocate for  tax policy  and incentives  that enhance                                                                    
     the State of Alaska's  competiveness for all industry."                                                                    
     HB  110  does  this.   During  the  past  election  for                                                                    
     governor,  we  learned  that  fixing  ACES  was  not  a                                                                    
     Democratic issue, it wasn't a  Republican issue, it was                                                                    
     an  Alaskan issue.   Both  Governor Parnell  and former                                                                    
     Representative  Ethan Berkowitz  agreed ACES  needed to                                                                    
     be revised.   Another of  our top five  priorities this                                                                    
     year  is  to  "support  legislation  to  encourage  new                                                                    
     exploration  and development  of Alaska's  oil and  gas                                                                    
     deposits as  well as  enhance production  from existing                                                                    
     fields."   Again, HB  110 does this.   No  project that                                                                    
     I've ever heard of has  ever been taxed into existence.                                                                    
     Indeed,  Alaska cannot  tax  its  way into  prosperity.                                                                    
     We've seen this first hand,  since the passage of ACES.                                                                    
     This year only one exploration  well is projected to be                                                                    
     drilled.   With a continued TAPS  throughput decline of                                                                    
     6 to  8 percent per year,  as we've seen over  the last                                                                    
     several  years, TAPS  could  be  nonfunctional in  less                                                                    
     than a  decade.  How  will the state pay  for essential                                                                    
     public services and meet  long-term obligations or even                                                                    
     pay for the  large capital budgets we  continue to hear                                                                    
     about if TAPS goes away.   We couldn't.  HB 110 must be                                                                    
     passed  to  provide  for a  future  that  includes  any                                                                    
     capital budgets.   This leads  to another one  of RDC's                                                                    
     top five  priorities and that is  the implementation of                                                                    
     a  comprehensive,  responsible,  and  long-term  fiscal                                                                    
     plan.   Ninety percent of  our state budget  comes from                                                                    
     the oil industry, without a  pipeline we have no fiscal                                                                    
     plan.   My non oil and  gas members will then  bear the                                                                    
     brunt  of  new  taxes;  the  fishing  industry,  mining                                                                    
     industry,  tourism, and  others will  likely be  who we                                                                    
     look to  scare out  of the state  next.   The political                                                                    
     will to  tap the permanent  fund or implement  a broad-                                                                    
     based tax  does not exist  in Alaska.  The  only option                                                                    
     to make  sure the options  that I just  mentioned don't                                                                    
     come to  fruition is  to do our  best to  encourage new                                                                    
     investments in Alaska.  HB 110 does this.                                                                                  
     Finally,  I ...  served  as the  co-chair for  Governor                                                                    
     Parnell's Resources, Energy  and Environment Transition                                                                    
     team.   The nearly  30 members of  this team  came from                                                                    
     every  corner   of  this   state  and   every  resource                                                                    
     industry.    Much  of our  discussion  revolved  around                                                                    
     coming up  with ideas for  the governor to  reverse the                                                                    
     dramatic  production   decline  we've   seen;  specific                                                                    
     emphasis  was placed  by this  group on  addressing the                                                                    
     negative  investment climate  caused by  progressivity.                                                                    
     In conclusion, I'd like to urge  you to pass HB 110 out                                                                    
     of committee.                                                                                                              
5:55:03 PM                                                                                                                    
LAURA MAKETA,  offered her  strong support for  HB 110  and urged                                                               
the legislature  to continue  to create a  pro business,  pro job                                                               
growth  environment.   The aforementioned  requires planning  for                                                               
decades ahead rather than short-term  gains for current supplies.                                                               
She  then informed  the committee  that she  and her  husband are                                                               
entrepreneurs  who started  a family  construction business  with                                                               
little but  have been able, in  part, because of the  oil and gas                                                               
in Alaska,  to own  their own home  and cars, send  her son  to a                                                               
private school  that addresses  his special  learning challenges,                                                               
and  pay cash  for  her nursing  school.   She  related that  the                                                               
family construction  business now  employs up  to 40  Alaskans on                                                               
the North Slope and their  consulting business places her husband                                                               
in  various oil  and  gas, marine,  and  stakeholders' sphere  of                                                               
influence.  Ms. Maketa said:                                                                                                    
     The  consensus   of  the  current   federal  regulatory                                                                    
     barriers and state  tax structure is really  a doom and                                                                    
     gloom atmosphere regarding  future prospects in Alaska.                                                                    
     The  statistics  indicate  a  decline  in  exploration,                                                                    
     investment, and  morale.  The opposition  I've heard is                                                                    
     generally  touting  the  oil and  gas  industry  record                                                                    
     profits  this  year.   These  global  profits  are  not                                                                    
     because of Alaska  ... say it should  be, both offshore                                                                    
     and  onshore.     I've  observed  the   many  excellent                                                                    
     industry  presentations that  discuss how  Alaska ranks                                                                    
     extremely  low compared  to  the rest  of  the U.S.  in                                                                    
     global structures  ....  I  feel it is  imperative that                                                                    
     you understand that the oil  and gas industry, which is                                                                    
     85 percent of Alaska's economy,  is made up of ordinary                                                                    
     people  --  guys  like  my  amazing,  competent,  hard-                                                                    
     working husband,  myself, countless moms and  dads that                                                                    
     live in  this great  state; they  work here,  they have                                                                    
     families here,  they love Alaska,  and they want  to be                                                                    
     here  for the  long haul.   So,  I do  support Governor                                                                    
     Parnell   and   Lieutenant   Governor   Treadwell   and                                                                    
     Representative Hawker.                                                                                                     
MS.  MAKETA concluded  by relating  that this  is the  first time                                                               
she's gotten  involved in  politics, but she  did so  because she                                                               
refused to  remain complacent.   She further related  her respect                                                               
for the  members and their  efforts and  service.  She  urged the                                                               
committee  to  consider addressing  ACES  and  creating a  better                                                               
environment for  her family's small business  while incentivizing                                                               
investment in the state.                                                                                                        
5:59:32 PM                                                                                                                    
DAVID OTNESS informed  the committee that over the  course of his                                                               
60 years as  a third generation Alaskan, he has  been involved in                                                               
the oil industry  off and on over  the years.  He  opined, "As of                                                               
late,  I'm just  not seeing  this stacking  up to  the realities,                                                               
especially compared to  what's going on in the  Middle East right                                                               
now."   He  discussed  the unpredictability  of  the Middle  East                                                               
environment in  terms of  the potential  for interruption  of the                                                               
oil  supply versus  the  stable environment  Alaska  offers.   He                                                               
highlighted, "We  don't expropriate oil company  assets, we don't                                                               
nationalize them  like happened in  Libya, ... Sakhalin  Island a                                                               
number of years ago, ... Venezuela."   Mr. Otness related that he                                                               
was disturbed when Governor  Parnell highlighted Alaska's rating,                                                               
in terms  of a  business friendly  environment, from  the Frazier                                                               
Institute.   The  Frazier Institute  is funded  by Exxon  and the                                                               
Koch brothers.   He  charged that statistics  can be  "ginned up"                                                               
however  one  wants,  which  oil companies  are  masters  at,  he                                                               
further charged.   To counter Ms. Maketa's  testimony, Mr. Otness                                                               
related  that  ConocoPhillips  made  the majority  of  its  world                                                               
profits in Alaska  over the last several years.   He acknowledged                                                               
that the oil companies are needed,  but he emphasized that oil is                                                               
a "one-time" resource  that's running out and this may  be one of                                                               
the last  times the state  has a chance  at this type  of wealth.                                                               
Mr. Otness encouraged  the state to stand its  ground against the                                                               
oil  industry, which  he characterized  as  the "big  dog on  the                                                               
block."  In conclusion, Mr.  Otness expressed his desire to leave                                                               
[Alaska's tax regime on oil] as is.                                                                                             
6:03:29 PM                                                                                                                    
PAUL  D.  KENDALL  began  by   stating  that  it's  difficult  to                                                               
participate in energy discussions  because new energy designs are                                                               
moving so quickly.  He then  noted that the committee should have                                                               
received  a  Letter of  Understanding  that  was drafted  by  the                                                               
world's seven  largest automobile dealers, which  he considered a                                                               
historical  document.   The aforementioned  letter calls  for the                                                               
hydrogen highway to  be of sufficient density by 2015.   This, he                                                               
opined, is really  the launch of the hydrogen  economy.  Although                                                               
he  hadn't  foreseen  the simultaneous  launch  of  the  electric                                                               
automobile platform  and the hydrogen  fuel cell.   He attributed                                                               
the  aforementioned to  the fact  that many  small companies  are                                                               
preparing  to take  on the  electric  automobile platform,  which                                                               
will  experience major  expansion in  the production  of electric                                                               
vehicles  in the  next four  years.   Mr. Kendall  then expressed                                                               
concern  with lowering  any  tax revenues  from  TAPS because  of                                                               
various indicators, such  as the 23 percent  reduction in Japan's                                                               
largest refinery and  then opened the world's  largest solar cell                                                               
production plant.   The  evidence he's  seen indicates  that TAPS                                                               
will be  closed within  two to  four years.   He opined  that the                                                               
reason for the aforementioned is  that the legislature's realm of                                                               
influence no  longer impacts [the  oil companies].  For  [the oil                                                               
companies]  it's about  maintaining control.   He  suggested that                                                               
the  electric  automobile,  the   hydrogen  fuel  cell,  and  new                                                               
technologies   could  be   launched   very  quickly.     If   the                                                               
aforementioned  occurred within  the next  4-10 years,  he opined                                                               
that there  would be huge  amounts of  retraction in the  oil and                                                               
gas uses.  Concurrently, the  oil companies will lose revenue and                                                               
thus raise  their prices.   If the state misses  that accelerated                                                               
price,  the state  will  miss lots  of money.    However, if  the                                                               
pipeline  goes  down,  the  state  won't  receive  the  increased                                                               
revenue  as well  as any  additional flow.   Furthermore,  if the                                                               
economy shifts on  the dollar, the state will  lose the permanent                                                               
fund.  The aforementioned, he  emphasized, could result in Alaska                                                               
being  in one  of the  darkest places  overnight.   Therefore, he                                                               
encouraged  the committee  to have  these  discussions such  that                                                               
folks  can  be involved  in  a  slower,  unhurried manner.    Mr.                                                               
Kendall told  the committee  that Alaska is  no longer  a player,                                                               
and therefore he urged the  committee to prepare for a worst-case                                                               
scenario and look to develop  renewable energies because the rest                                                               
of  the world  is  trying  to create  new  economies to  generate                                                               
revenue.   Alaska  has  the  opportunity to  lead  the charge  in                                                               
creating new economies.                                                                                                         
6:09:01 PM                                                                                                                    
RICHARD  SCHOCK, Owner/Operator,  Flowline Alaska,  Inc., related                                                               
his support for HB 110.   He informed the committee that Flowline                                                               
Alaska, Inc., supplies  products and services to  the firms doing                                                               
business  on  the  North  Slope.    The  products  are  built  in                                                               
Fairbanks and  sent to the  North Slope.  Flowline  Alaska, Inc.,                                                               
employs local union  labor at its facility.  Since  2008 the firm                                                               
has  experienced a  dramatic decrease  in project  work from  the                                                               
firms up North.   In 2008, the company employed  roughly 70 full-                                                               
time equivalent union craft employees  which decreased to just 30                                                               
full-time equivalents in  2010.  The 2011  employment levels look                                                               
worse  than the  2010 level,  which he  mostly attributed  to the                                                               
taxation  from  ACES.    As taxes  increase,  investment  in  new                                                               
projects decrease, he opined.  In  fact, the only new projects he                                                               
foresees in  the near future are  projects that have been  in the                                                               
planning  stages  for some  time,  such  as  Point Thomson.    He                                                               
informed the  committee that typically Flowline  Alaska, Inc., is                                                               
involved with  studies, pre-engineering,  and engineering  on the                                                               
front-end with new projects.  He  said that there aren't a lot of                                                               
new projects  for the  future.  He  attributed the  Department of                                                               
Labor & Workforce Development's  (DLWD) statistics that there has                                                               
been  an increase  in  oil  field employment  since  2006 to  the                                                               
increased scrutiny brought about by  the spills and the increased                                                               
maintenance  since 2006.   Although  the increase  in maintenance                                                               
jobs is great,  Alaska requires an increase in the  amount of oil                                                               
flowing down  the pipeline.   "The only  way Alaska can  stem the                                                               
decline  is  to   get  more  investment  dollars   into  new  and                                                               
additional projects,"  he opined.   Mr. Schock  characterized the                                                               
tax credits  for drilling  as great,  but pointed  out that  as a                                                               
supplier he  isn't seeing these exploration  wells translate into                                                               
new development projects.   Therefore, the tax  system would seem                                                               
to work to initiate exploration  drilling, but not development or                                                               
production.   Furthermore, exploration  wells alone don't  add to                                                               
the production.   Exploration wells  only add to  production when                                                               
they're coupled  with a reasonable tax  structure for production.                                                               
In  conclusion,  Mr. Schock  said  until  the production  tax  is                                                               
revised,  the decline  will continue  and  much of  the oil  will                                                               
remain in the ground.                                                                                                           
6:13:06 PM                                                                                                                    
DEBORAH BROUILETTE(PH),  speaking as  a 35-year  Alaskan, related                                                               
her  support  for  HB  110.     She  expressed  concern  for  her                                                               
children's future.  She then  informed the committee that she was                                                               
laid off by  ARCO back in 1986.  After  Alaska's economy crashed,                                                               
she spent five  years foreclosing on homes.  In  fact, she closed                                                               
on 20  homes per week.   Ms. Brouilette predicted that  Alaska is                                                               
headed  for  that  same  "economic cliff."    Although  what  the                                                               
legislature decides impacts  her and her family,  she opined that                                                               
she will be fine because she will have a job foreclosing on                                                                     
6:15:09 PM                                                                                                                    
CO-CHAIR FEIGE, upon ascertaining no one else wished to testify,                                                                
closed public testimony on HB 110.                                                                                              
[HB 110 was held over.]                                                                                                         

Document Name Date/Time Subjects
HRES 2.21.11 HB 110 Walkthrough - Dept. of Revenue.pdf HRES 2/21/2011 5:15:00 PM
HB 110