Legislature(2015 - 2016)BARNES 124

02/25/2016 08:30 AM RESOURCES

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Audio Topic
08:34:02 AM Start
08:34:59 AM HB247
09:55:13 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time Change --
+= HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
HB 247 Overview by Ken Alper, Director, Tax
Division, Dept. of Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                        
                                                                                                                                
8:34:59 AM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK announced  that the only order  of business would                                                               
be  HOUSE  BILL  NO.  247,   "An  Act  relating  to  confidential                                                               
information  status and  public record  status of  information in                                                               
the  possession  of  the  Department   of  Revenue;  relating  to                                                               
interest applicable to delinquent  tax; relating to disclosure of                                                               
oil  and  gas  production  tax credit  information;  relating  to                                                               
refunds for  the gas storage  facility tax credit,  the liquefied                                                               
natural gas  storage facility tax  credit, and the  qualified in-                                                               
state  oil  refinery   infrastructure  expenditures  tax  credit;                                                               
relating to the  minimum tax for certain oil  and gas production;                                                               
relating to  the minimum tax calculation  for monthly installment                                                               
payments  of  estimated  tax; relating  to  interest  on  monthly                                                               
installment payments  of estimated  tax; relating  to limitations                                                               
for  the application  of tax  credits;  relating to  oil and  gas                                                               
production  tax  credits  for certain  losses  and  expenditures;                                                               
relating  to   limitations  for   nontransferable  oil   and  gas                                                               
production  tax   credits  based   on  oil  production   and  the                                                               
alternative tax credit  for oil and gas  exploration; relating to                                                               
purchase  of tax  credit certificates  from the  oil and  gas tax                                                               
credit fund; relating  to a minimum for gross value  at the point                                                               
of  production; relating  to lease  expenditures and  tax credits                                                               
for  municipal  entities;  adding  a  definition  for  "qualified                                                               
capital  expenditure";  adding   a  definition  for  "outstanding                                                               
liability  to  the  state"; repealing  oil  and  gas  exploration                                                               
incentive credits;  repealing the  limitation on  the application                                                               
of credits against tax liability  for lease expenditures incurred                                                               
before  January  1, 2011;  repealing  provisions  related to  the                                                               
monthly installment  payments for estimated  tax for oil  and gas                                                               
produced  before  January 1,  2014;  repealing  the oil  and  gas                                                               
production  tax credit  for  qualified  capital expenditures  and                                                               
certain well expenditures; repealing  the calculation for certain                                                               
lease  expenditures applicable  before  January  1, 2011;  making                                                               
conforming amendments; and providing for an effective date."                                                                    
                                                                                                                                
8:35:28 AM                                                                                                                    
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
on behalf of  the governor, continued the  presentation, "Oil and                                                               
Gas Tax  Credit Reform- HB247,  Additional Modeling  and Scenario                                                               
Analysis -  Part 1a."   He advised  that the  presentation delves                                                               
into  the deep  sectional [analysis]  and reviewing  some of  the                                                               
more  complicated pieces  of the  bill and  how they  work.   The                                                               
presentation goes  into modeling of specific  new field scenarios                                                               
and the overall  economic impact of the bill.   He noted that the                                                               
last slide  of his previous  presentation was slide  44, "Section                                                               
17(c):  Strengthen the  Minimum Tax,"  which was  the end  of the                                                               
conversation of  "strengthening minimum tax by  moving per barrel                                                               
credits from month-to-month or preventing that from happening."                                                                 
                                                                                                                                
MR. ALPER  turned to slide 45,  "Section 18:  GVR  Can't Increase                                                               
Net  Operating Loss  (NOL)  Credit" and  said  the concept  would                                                               
prohibit a  producer operating  at loss who  is eligible  for the                                                               
gross value  reduction (GVR) for  the new oil benefit  from being                                                               
used to  increase the size of  net operating loss.   For example,                                                               
he said,  this scenario  is akin  to the current  day of  low oil                                                               
price/low cost.  In the event  a producer is losing money because                                                               
the prices are low, it earns  an operating loss credit based upon                                                               
its loss  but is allowed to  increase the size of  that credit by                                                               
taking   the  "so-called"   gross  value   reduction  (GVR)   and                                                               
subtracting it from  the loss to make it appear,  on paper, to be                                                               
a larger  loss.  He offered  that the result of  the change would                                                               
reduce the credit to 35 percent  of the actual net operating loss                                                               
rather than a calculated number  that is somewhat higher.  Within                                                               
the upcoming case,  he explained, was that  the state's liability                                                               
would be reduced  by approximately 50 percent, or  in the context                                                               
of a $10,000  taxable barrel per day field,  of approximately 7.6                                                               
million per year.                                                                                                               
                                                                                                                                
8:37:59 AM                                                                                                                    
                                                                                                                                
MR. ALPER moved to slide 46,  "Section 18: GVR Can't Increase Net                                                               
Operating Loss (NOL) Credit -  Current law allows GVR to increase                                                               
an NOL  credit."  He reviewed  the example depicted on  the table                                                               
in  a world  of $40  oil, and  pointed out  the following:   West                                                               
Coast price  $10 transportation - shipping  and pipeline tariffs;                                                               
the  well head  value,  which  is also  the  gross  value, $30  a                                                               
barrel; lease expenditures  - the lifting cost $36;  and the loss                                                               
is $6  a barrel.   He advised that the  model being looked  at is                                                               
based on a single barrel of  taxable oil, and for the purposes of                                                               
this example this  producer lost $6 a barrel  producing that oil.                                                               
The  way  the  GVR  works,  he explained,  is  to  determine  the                                                               
wellhead  value ($30  gross  value), and  take  20 percent  which                                                               
equals 6,  and subtract it from  the net value (negative  6), and                                                               
the resulting subtraction  equals negative $12.   For purposes of                                                               
the credit calculation, under current  law, although the producer                                                               
lost $6,  it appears as  though it lost  $12, and the  35 percent                                                               
credit (operating loss  credit) applied to that $12  results in a                                                               
$4.20 cash  rebate for the operating  loss credit.  The  $4.20 is                                                               
roughly  70  percent  of  the  $6   a  barrel  loss.    The  bill                                                               
contemplates  that  although  the   GVR  is  important,  for  the                                                               
purposes of reducing the tax  burden of profitable new producers,                                                               
"we don't  want that reduction  to be useable  in the event  of a                                                               
loss,"  and by  by-passing that  calculation only  the $6  actual                                                               
cash flow  loss would be eligible  for the credit, 35  percent of                                                               
$6 equals $2.10.   Therefore, the state's  credit liability would                                                               
be cut  in half -  $2.10 per  taxable barrel, or  when multiplied                                                               
across the year  with a 10,000 barrel field, $7.6  million a year                                                               
in credits instead of $15.3 [million].                                                                                          
                                                                                                                                
8:40:11 AM                                                                                                                    
                                                                                                                                
MR. ALPER addressed the second  example on slide 48, "Section 18:                                                               
GVR Can't Increase Net Operating  Loss (NOL) Credit - Current law                                                               
allows GVR  to increase  an NOL  credit."   He said  this example                                                               
looks at a slightly different type  of scenario with a higher oil                                                               
price, but the  company may still be losing money.   He described                                                               
it  as a  quite plausible  scenario  especially for  a new  field                                                               
because typically the producer drills  its first couple of wells,                                                               
it  begins  production and  has  oil  flowing, and  the  producer                                                               
continues  to drill  major wells  causing  additional costs  that                                                               
could  cause  cash flow  losses  over  the  course of  the  first                                                               
several  years of  production.   He explained  that the  scenario                                                               
depicts higher  costs based upon  field buildout and  also higher                                                               
prices, still generating a $10 per  barrel cash flow loss, and as                                                               
the example points  out the GVR could lead to  very high credits.                                                               
He then  explained that the  scenario started with $80  oil which                                                               
is now high priced oil, and  pointed out the following:  there is                                                               
the  same expense  of  transportation, wellhead  at  GVR of  $70,                                                               
lease expenditures at  $80 per barrel, and now  that company lost                                                               
$10  per barrel  last year.   Based  upon the  $10 barrel,  under                                                               
normal  circumstances the  company would  receive a  $3.50 credit                                                               
(35 percent  of the loss) except,  due to the application  of the                                                               
GVR, it  is necessary to  go back to  the $70 wellhead  value, 20                                                               
percent of that $70 equals $14.   The company would then subtract                                                               
the $14  from the negative $10  to get the red  circled number of                                                               
negative $24.   For  the purposes of  the credit  calculation and                                                               
only for  that purpose,  the company is  considered to  have lost                                                               
$24 a  barrel, and apply  the 35  percent credit to  that number,                                                               
which results  in an $8.40 credit,  or 84 percent of  its loss is                                                               
paid  by the  state's operating  loss credit.   He  said that  by                                                               
making the  change envisioned in  HB 247, the actual  credit paid                                                               
would be limited  to 35 percent of  the loss, or $3.50.   In this                                                               
circumstance,  based on  a 10,000  barrel  field, the  difference                                                               
would be  a savings to the  state, or a reduction  in the state's                                                               
credit liability, of $17.9 million.                                                                                             
                                                                                                                                
8:42:37 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  surmised   that  the   state  allows   a                                                               
calculation  of  net   operating  loss  at  35   percent  of  the                                                               
expenditure, and the  purpose is to say that  in the calculations                                                               
the net  loss is  carried forward  and could be  no more  than 35                                                               
percent of the company's loss.                                                                                                  
                                                                                                                                
MR.  ALPER clarified  that the  loss carry  forward credit  of 35                                                               
percent is 35  percent of the loss itself, statutorily.   He said                                                               
Representative Seaton was absolutely  correct because the bill is                                                               
saying that the amount the state  is paying isn't going to exceed                                                               
a number  greater than 35 percent  of the loss.   He posited that                                                               
the application  of the  GVR calculation  being used  to increase                                                               
the  size  of that  loss  was  an  unintended consequence  of  an                                                               
unforeseen circumstance that  was in the formula  of the previous                                                               
legislation that  lead to very high  credits.  Last year  and the                                                               
year before,  the operating  loss credit was  45 percent,  and he                                                               
said  he  has  seen  circumstances where  the  state  was  paying                                                               
credits of more than 100 percent of the loss.                                                                                   
                                                                                                                                
8:43:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  referred  to   paying  more  than  100                                                               
percent  of  the loss  and  asked  whether  a  model of  that  is                                                               
contained within the presentation.                                                                                              
                                                                                                                                
MR. ALPER replied  it isn't modeled in any of  the slides because                                                               
it's  looking going  forward  with a  35  percent operating  loss                                                               
credit.  He offered that when  getting to the $24 paper loss, the                                                               
calculated loss after  the application of GVR in  this status quo                                                               
scenario,  if a  person takes  45 percent  of that,  it would  be                                                               
another $2.40  on top  of the  $8.40 which would  be $10.80.   In                                                               
this case,  he pointed out,  it would be  108 percent of  the $10                                                               
cash  flow   loss  the  company   actually  experienced   in  its                                                               
operation,  if it  was  eligible  for 45  percent  credit if  the                                                               
example on slide 48 were a  2015 example instead of a future year                                                               
example.                                                                                                                        
                                                                                                                                
REPRESENTATIVE JOSEPHSON responded that  within that scenario for                                                               
purposes of  production tax only,  not property and  equipment or                                                               
royalty,  the   state  took  absolutely  nothing   -  there's  no                                                               
production tax in that scenario.                                                                                                
                                                                                                                                
MR. ALPER  answered that if  the company is losing  money, unless                                                               
it is  susceptible to the  minimum tax of  which new oil  is not,                                                               
the state  would generally take  nothing.  In  this circumstance,                                                               
the  discussion is  minimizing  the size  of  the operating  loss                                                               
credit  paid rather  than  any amount  of  take.   Representative                                                               
Josephson  is  correct,  he stated,  in  this  circumstance  that                                                               
company would not have paid any production tax.                                                                                 
                                                                                                                                
8:45:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  pointed  out that  during  yesterday's                                                               
meeting, Mr. Alper testified that  he had reviewed the minutes on                                                               
the question  regarding the  monthly calculation  of tax  and the                                                               
migration  issue, and  that he  saw  only an  exchange between  a                                                               
former deputy  commissioner and Representative  Seaton.   Now, he                                                               
pointed  out, Mr.  Alper is  saying  that relative  to this  "you                                                               
didn't say  an oversight, but  that was  the essence of  it," and                                                               
asked why that is so.                                                                                                           
                                                                                                                                
MR.  ALPER reiterated  that he  does not  believe there  was much                                                               
contemplation of  what happens  in a very  low cost  scenario and                                                               
how losses might be treated.   The GVR was specifically discussed                                                               
as a means  of reducing tax liability for qualified  new oil, and                                                               
there  have  been multiple  hearings  on  the debate  about  what                                                               
qualifies for  new oil, such as  new fields, how to  define that,                                                               
new participating  areas expanding,  expansions to  existing, and                                                               
will there be  a menial requirement.  The  regulatory process, he                                                               
pointed  out, was  regarding what  would qualify  but the  actual                                                               
calculation of  how the new oil  benefit would be treated  in the                                                               
event  of  a loss  was  never  contemplated.   In  speaking  with                                                               
several  professionals  within  and  outside  the  division,  the                                                               
department's  attorneys,  and  people   who  closely  follow  the                                                               
process, "I've  received something  like consensus that  this was                                                               
an  unforeseen circumstance  ... this  is not  something that  we                                                               
thought of  ourselves."   He reiterated that  when a  credit came                                                               
before [DOR]  with this  type of calculation,  it was  stopped in                                                               
its tracks and given to the  lawyers to be certain this was being                                                               
treated  correctly because  it appeared  intuitively wrong.   The                                                               
law is the  law and it was interpreted strictly,  he advised, and                                                               
a strict interpretation  led to these calculations.   Although it                                                               
will take  money out  of the pockets  of several  companies, that                                                               
money is greater than 100 percent  or very high loss credits that                                                               
[DOR] believes  was outside  the intent of  the legislature.   He                                                               
said he views  it as more of a technical  cleanup, although there                                                               
is a  material value  to the state  to prevent  this circumstance                                                               
from occurring in the future.                                                                                                   
                                                                                                                                
8:48:11 AM                                                                                                                    
                                                                                                                                
CHERYL  NIENHUIS,  Acting  Chief Economist,  Commercial  Analyst,                                                               
Anchorage  Office, Tax  Division,  Department  of Revenue  (DOR),                                                               
added that when "we were reviewing  this bill, it did come to our                                                               
attention that  a ...  net operating loss  could be  increased by                                                               
the GVR, and I believe that  the administration was made aware of                                                               
that."   Having  not been  part of  the legislative  process, she                                                               
said that she does not know what was communicated.                                                                              
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked who "we" represents,  and assumed                                                               
that if  there is a license  plate bill, the governor  is advised                                                               
by the license plate people whether to sign the bill.                                                                           
                                                                                                                                
MS.  NIENHUS   stated  "Yes,  I'm  talking   about  the  previous                                                               
administration  which could  explain why  Director Alper  may not                                                               
know that we had those conversations."                                                                                          
                                                                                                                                
8:49:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  related that  many of the  current members                                                               
of the House  Resources Standing Committee were  on the committee                                                               
during the previous  administration.  He remarked  that there was                                                               
quite  a bit  of  discussion as  to whether  the  45 percent  net                                                               
operating loss should be allowed  because the number was high and                                                               
it  was limited  to  two years  as  "kind of  a  ramp-down to  35                                                               
percent net operating loss credit."   He stressed there was never                                                               
an indication, that  the committee could be  discussing the state                                                               
picking  up  70  percent,  80  percent, over  100  percent  of  a                                                               
company's net operating  loss.  That would have risen  to a level                                                               
of high concern  and however the numbers are  calculated here, he                                                               
opined, that it was not the  intent of this committee at any time                                                               
to say that  the net operating loss would exceed  45 percent, and                                                               
that only for two years.   This calculation needs correction back                                                               
to the [prior] committee's intent, he emphasized.                                                                               
                                                                                                                                
8:50:37 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  concurred  with Representative  Seaton  and                                                               
noted  that the  materials  and modeling  the previous  committee                                                               
reviewed were  well above today's price  range and that it  was a                                                               
shortcoming on the  part of the committee.  She  then referred to                                                               
the  fiscal  note  from  Senate  Bill  21,  and  asked  what  the                                                               
anticipated fiscal  impact of  the provisions  of that  bill were                                                               
versus the  actual fiscal impact.   While the comparison  may not                                                               
be available today, it might  be a useful comparison to determine                                                               
whether  the committee  "over-shot/under-shot"  in  terms of  the                                                               
committee's expectations.                                                                                                       
                                                                                                                                
MR.  ALPER  described  the  Senate  Bill 21  fiscal  note  as  an                                                               
excellent  historic  document, with  a  table  breaking down  the                                                               
various  components of  that legislation  into its  sub-sections,                                                               
wherein  the department  tried  to  the best  of  its ability  to                                                               
calculate  the  fiscal impact  of  the  specific sections.    The                                                               
section  related  to  the  GVR  "bounced around  a  lot"  as  the                                                               
definitions of  GVR changed  as the bill  worked its  way through                                                               
the  legislative  process.    At  the end  of  the  day,  it  was                                                               
estimated in  the early years  to be approximately a  $25 million                                                               
fiscal impact, meaning a negative  revenue on the state, he said.                                                               
The  ability of  the GVR  to  effect refundable  credits was  not                                                               
contemplated within  the fiscal  note, which is  the circumstance                                                               
currently before the  committee.  The fiscal note  was based upon                                                               
the forecasted  price at  the time, he  reiterated, which  was in                                                               
the low one hundreds.                                                                                                           
                                                                                                                                
8:52:21 AM                                                                                                                    
                                                                                                                                
MR. ALPER  drew attention  to slide  49, "Sections  26-27: Credit                                                               
Refund Limitations -  Four New Limitations on  Cash Refunds," and                                                               
said  that   the  bill  discusses   restrictions  on   the  state                                                               
repurchase of  credits.  This  is different from  the elimination                                                               
or  the   disqualification  for  credits  because   it  envisions                                                               
circumstances where credits  will be earned but  the company will                                                               
not  be able  to  receive  cash for  those  credits.   Additional                                                               
requirements  where  companies  would  be forced  to  hold  those                                                               
credits and either  sell them to another company, or  use them in                                                               
some  future  year  when  they  owed  taxes  and  had  profitable                                                               
production, he  explained.   Under current  law, he  pointed out,                                                               
there  is  a restriction  that  only  one  set of  companies  can                                                               
attach; those are the companies  that produce greater than 50,000                                                               
barrel a day, the major producers.   He said that "the ability to                                                               
refund  open-endedly  might be  unaffordable  for  Alaska in  the                                                               
current  circumstances" and  depending  upon  the companies  that                                                               
might  be attracted  to  investing  in Alaska,  some  may have  a                                                               
greater ability than others to  hold credits on their own balance                                                               
sheets for  the future.   He  pointed out that  with some  of the                                                               
companies "we  do want to continue  to offer money to  because it                                                               
helps them with their financing and their ongoing operations."                                                                  
                                                                                                                                
8:53:31 AM                                                                                                                    
                                                                                                                                
MR. ALPER said  there are four different limits  that will affect                                                               
different  companies   differently,  as   follows:     The  first                                                               
restriction is that in addition to  this 50,000 barrel a day (the                                                               
three  major  producers  in  Alaska),  the  world's  other  major                                                               
producers don't  need cash for  their credits.  He  conveyed that                                                               
if  a company  has  gross  global revenues  of  greater than  $10                                                               
billion  in  the previous  year  and  should those  companies  be                                                               
investing in  Alaska, they have  the means and balance  sheets to                                                               
hold  their  credits until  a  future  date  when they  have  oil                                                               
production,  and those  credits will  retain their  value and  be                                                               
used against their taxes.                                                                                                       
                                                                                                                                
MR. ALPER explained  that the second restriction  is separate and                                                               
distinct,  and  is  for  those companies  smaller  than  the  $10                                                               
billion threshold.   For  these companies "we  are going  to say,                                                               
'here are your  credit certificates, we will cash them  out up to                                                               
the amount of $25 million per  company per year.'"  He noted that                                                               
that number was pulled from  the original credit buyback language                                                               
in the production profits tax  (PPT) bill (2006 House Bill 3001).                                                               
In 2007  it was removed and  HB 247 would restore  it to statute.                                                               
For  a company  in  Cook  Inlet, for  example,  if  the state  is                                                               
currently paying 50-60  percent of costs and the  company says it                                                               
is  investing $200  million this  year, "that  means we  would be                                                               
paying  $100-$120 million  of that  cost  through the  refundable                                                               
credit  program."   Under  HB 247,  he  continued, "We're  saying                                                               
we're only going to issue $25  million in cash, the rest of those                                                               
credits would be rolled forward,  used against the next year, and                                                               
it would be a first-in/first-out type of calculation."                                                                          
                                                                                                                                
8:55:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON offered that he  is not saying that it's                                                               
not  a good  policy, but  it seems  that the  fallout would  slow                                                               
development and suppress economic interest.                                                                                     
                                                                                                                                
MR.  ALPER  recognized  that any  change  improving  the  state's                                                               
fiscal picture by reducing the  producer's fiscal picture will in                                                               
some manner affect decision making.   He said he comes before the                                                               
committee mostly from the position  of affordability, in that the                                                               
state is  paying hundreds of millions  of dollars a year  that it                                                               
does not  have.  Therefore, in  looking to conform the  system to                                                               
the state's  abilities, to  ask "what  can we do  ... we  want to                                                               
help, we want to encourage  new development, we don't want anyone                                                               
leaving,  or  we don't  want  to  throw uncertainty  in  anyone's                                                               
financing."   He  said it  is  important to  get the  limitations                                                               
pinned down because  it creates even more  uncertainty if credits                                                               
are being issued  that the state can't afford to  buy back, which                                                               
is something that could be  occurring before too many more years.                                                               
There is  no particular magic  to $25 million, he  reiterated, as                                                               
it was the number  used in the PPT bill.  All  of the credits are                                                               
transferrable  and  can  be  sold,  there is  a  free  market  in                                                               
credits.  For  example, if a company has tax  liability it can go                                                               
to another company  that has extra credits  and purchase credits,                                                               
generally at  a discounted rate,  and the company  purchasing the                                                               
credits  would  be able  to  use  them  to  offset its  own  tax.                                                               
Although, he noted, there are  certain limits and restrictions on                                                               
that   in  existing   statute  but   that   is  another   certain                                                               
circumstance that occurs.                                                                                                       
                                                                                                                                
8:57:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  commented that the committee  has seen the                                                               
situation  where the  state has  a  large liability  for a  large                                                               
percentage of a  project which is used as  a financing mechanism,                                                               
and the  companies without  adequate balance  sheets come  in and                                                               
then  go bankrupt,  thereby leaving  people in  the state  on the                                                               
hook  through the  bankruptcy  court  going back  90  days.   The                                                               
bankruptcy court  then recovers  money from the  Alaskan supplier                                                               
because it was within 90 days  of the bankruptcy.  He pointed out                                                               
that the problem is being  stimulated by the excessive amounts of                                                               
credits  available for  people to  finance  operations when  they                                                               
don't  have balance  sheets to  support the  operation.   Then if                                                               
something  happens, as  has  happened  in Cook  Inlet,  all of  a                                                               
sudden the  citizens of the State  of Alaska who have  been doing                                                               
business  are left  on  the  hook for  that.    He stressed  that                                                               
something must  be done and  if the  limitation of $25  million a                                                               
year assists in the situation  of ascertaining that the state has                                                               
companies  with  reasonable  balance   sheets  to  support  their                                                               
activities, it would be helpful but it is not the whole answer.                                                                 
                                                                                                                                
8:58:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON pointed out  that the committee is looking                                                               
at  one  portion  of  the  tax.    He  said  he  appreciates  the                                                               
affordability aspect, but  asked whether the state  can afford to                                                               
potentially  lose the  royalties and  property taxes,  "basically                                                               
what's the total government take for  lack of a better term."  He                                                               
further asked how, if the  aforementioned is lost, that stacks up                                                               
against losing this particular one  segment of the tax structure.                                                               
As an overall picture, what happens  when a company decides it is                                                               
not going to  do anything, can the state afford  that in terms of                                                               
those other  taxes the state would  be missing out on?   He asked                                                               
that  that be  part of  the  calculation as  well, including  the                                                               
cities and  state, and  the total  government take,  because this                                                               
presentation is a small piece of a very large puzzle.                                                                           
                                                                                                                                
MR. ALPER  agreed and  said the  upcoming presentation  starts to                                                               
drill  into those  issues,  the total  government  take, how  the                                                               
royalty fits  in, the producers'  profitability, and  net present                                                               
value  calculations  reviewing  cash  flow,  which  is  important                                                               
because  the  royalties are  more  back-loaded  and these  credit                                                               
obligations  more front-loaded.   Without  question, the  royalty                                                               
does  compensate  the  state, even  in  circumstances  where  the                                                               
state's value from the production  tax might be zero or negative.                                                               
He noted  there is some  danger in  that there is  no restriction                                                               
that these  credits have  to be used  on state  lands; therefore,                                                               
the credits could also be going  to projects that do not generate                                                               
royalties to  the state.   He pointed  out that it  is not  a fix                                                               
contemplated in HB 247 but it is worthy of discussion.                                                                          
                                                                                                                                
9:00:56 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON said it is  important to keep in mind that                                                               
when it  is all  rolled together  the total take  is still  a net                                                               
profit  even though  the discussion  has been  that the  state is                                                               
paying 100-110  percent of this  tax.   There is no  scenario, he                                                               
opined, where  someone drills a  well, with  everything included,                                                               
that  the  state  loses  money.   The  state  loses  it  in  this                                                               
particular segment, but overall when  someone puts a straw in the                                                               
ground and starts producing oil  the state does generate revenue.                                                               
He asked whether there is a scenario where it wouldn't.                                                                         
                                                                                                                                
MR.  ALPER responded  that  if the  project  is unsuccessful  the                                                               
state could  be out the  credits and  then not have  the revenue.                                                               
If  the company  is drilling  on state  land there  may never  be                                                               
enough revenue  just in the  property or corporate income  tax to                                                               
compensate for  the negative cash  flow from the  production tax.                                                               
Frankly,  he pointed  out,  some of  the  smaller producers,  the                                                               
startup  companies that  Representative Seaton  referred to,  are                                                               
not necessarily  "so-called C Corporations,"  and are  not paying                                                               
the  state's corporate  income tax,  and then  the state  is left                                                               
with  the property  tax.   Property tax  issues are  different in                                                               
different parts of the state.   In the North Slope the state only                                                               
receives  7.5 percent  of the  property tax  and the  North Slope                                                               
Borough gets  the rest, in Kenai  it is a little  closer to 50-50                                                               
percent.    For the  most  part,  he  explained,  if there  is  a                                                               
successful project  the state  will have  positive cash  flow; if                                                               
the cash  flow is discounted  over time because of  the negatives                                                               
up front, the state may not make money.                                                                                         
                                                                                                                                
9:02:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON said he knows  that "we are a state entity                                                               
but we can't discount the money  that we're going to have to come                                                               
up with at some point for  schools and everything else, that that                                                               
property tax that  goes to those cities."  He  continued, "So, we                                                               
can't  discount  the fact  that  when  the  cities are  making  a                                                               
dollar, that's  a dollar we  don't necessarily have to  deal with                                                               
on a  state level.   So, I don't want  to discount the  fact that                                                               
50-50 or  17 percent,  it's all part  of that  total government."                                                               
At some point, he  said, he would like to see  how this fits into                                                               
that  and take  a big  picture  of a  realistic and  hypothetical                                                               
project and  determine what  is being jeopardized  if one  of the                                                               
plugs is  pulled.   He said he  wants to make  it clear  that the                                                               
total government take is an important issue as well.                                                                            
                                                                                                                                
MR. ALPER answered that his  current presentation jumps around in                                                               
the bill and  is drilling down at specific  provisions because at                                                               
the original  presentation of  the sectional there  was a  lot of                                                               
confusion in that it is a  big technically complex bill.  He said                                                               
it is his hope to  provide the committee members an understanding                                                               
of the  bill's intent and  vision.   The next presentation  has a                                                               
total  government  take analysis,  how  it  changes in  different                                                               
price scenarios  with or without  the bill, and how  the features                                                               
of the  bill affect the  project.  The next  presentation creates                                                               
some theoretical field  sizes, "what's a 50  million barrel field                                                               
look like, and  on the North Slope what's a  big field if someone                                                               
finds a 750  million barrel field, an Alpine plus  type field ...                                                               
how would  these credit changes  impact their development."   Now                                                               
that the model  exists it is quite robust and  can run additional                                                               
scenarios per any member's desire.                                                                                              
                                                                                                                                
9:05:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  referred to  Representative  Johnson's                                                               
point  and  said he  looks  forward  to  that presentation.    He                                                               
referred to  Middle Earth and  Doyon lands,  which he noted  is a                                                               
different thing in  that the state does not receive  royalty.  He                                                               
opined that  everyone is  a cheerleader  of that  project because                                                               
they are  the underdogs who are  trying to make this  happen.  He                                                               
surmised  that that  would be  an example  of no  positive income                                                               
there unless things turn, and Doyon says that things might turn.                                                                
                                                                                                                                
MR.  ALPER replied  that  the royalty  picture  varies wildly  in                                                               
different areas  of that state,  and Representative  Josephson is                                                               
correct  in  that Alaska  doesn't  have  a tremendous  amount  of                                                               
private land outside  of the urban areas.  The  various blocks of                                                               
federal  land  have  different revenue  sharing  formulas.    For                                                               
example,  on the  National Petroleum  Reserve-Alaska (NPR-A)  the                                                               
state receives  50 percent of  the federal  government's royalty,                                                               
although that  royalty is currently  somewhat restricted  in what                                                               
the money can  be used for.  The largest  private land owners are                                                               
the Native corporations and the state doesn't receive royalty.                                                                  
                                                                                                                                
9:06:38 AM                                                                                                                    
                                                                                                                                
MR. ALPER resumed his review  of the credit refund limitations on                                                               
slide 49 and  explained that the third restriction  is the Alaska                                                               
hire provision.   For example, if  a company is eligible  for $10                                                               
million in  a refunded credit,  the state looks to  the company's                                                               
labor statistics for the prior calendar  year and if they were 80                                                               
percent  Alaska hire,  only 80  percent of  that credit  would be                                                               
eligible for  refund.  The rest  would not be lost,  but would be                                                               
carried forward  into the next  year and usable against  the next                                                               
year's taxes.                                                                                                                   
                                                                                                                                
9:07:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  opined that he  had introduced a  bill on                                                               
oil  taxes  wherein this  was  a  key  portion  and he  was  told                                                               
repeatedly that it was unconstitutional.   He further opined that                                                               
other members  introduced a  stand-alone bill  that did  the same                                                               
thing, and legal opinions were  that it was unconstitutional.  He                                                               
asked whether Mr. Alper had a legal opinion on this.                                                                            
                                                                                                                                
MR. ALPER responded  that it is obviously  a highly controversial                                                               
concept and  it may  not survive court  challenge, and  should it                                                               
survive  through  final  legislation  will  almost  certainly  be                                                               
challenged.  Governor  Walker brought this idea forward  as it is                                                               
important  to  convey  the  message  that  the  state  wants  its                                                               
partners  in  the  oil  industry  to hire  as  many  Alaskans  as                                                               
possible.  In the event there  is a constitutional hook, if it is                                                               
a more  constitutional than some other  Alaska hire requirements,                                                               
it's  because no  one  is losing  value.   The  value remains,  a                                                               
company would  just have to carry  it forward into a  future year                                                               
rather than  be cashed out.   Structurally, he explained,  if the                                                               
attorneys leave "a  tell" behind in the bill --  all of the other                                                               
restrictions on  cash refunds are  in Sec.  26, and this  one was                                                               
carved  out   and  placed   separately  in   Sec.  27   with  the                                                               
understanding that it was a little bit more challengeable.                                                                      
                                                                                                                                
REPRESENTATIVE  JOHNSON offered  that if  the state  is going  to                                                               
fight a constitutional battle, local  hire is the ground he wants                                                               
to be on, and he is not opposed to it.                                                                                          
                                                                                                                                
MR. ALPER appreciated Representative  Johnson's moral support and                                                               
said he, too, believes  it is a fight worth fighting.   If HB 247                                                               
progresses with this language in it,  he said, it is important to                                                               
obtain written  legal opinions  on the  record.   Currently there                                                               
are verbal assurances from the attorneys that it is plausible.                                                                  
                                                                                                                                
9:09:57 AM                                                                                                                    
                                                                                                                                
MR.  ALPER  returned to  slide  49,  explaining that  the  fourth                                                               
restriction on credit  refunds is the sunset  of the certificates                                                               
themselves.  In the event anything  rolls forward a full 10 years                                                               
the credits would  start to expire and not be  useable.  He noted                                                               
that within most of [DOR's] modeling  scenarios it did not have a                                                               
material impact and  the credits started disappearing  in some of                                                               
the very  large fields and very  low priced scenarios.   The idea                                                               
is  to not  have  these credits  last forever  and  to make  sure                                                               
people  use them.   In  addition to  the economics  of new  field                                                               
development, he  noted, anecdotally there  is a handful  of older                                                               
credits  on DOR's  books that  DOR can't  seem to  get anyone  to                                                               
claim; but DOR can't make them  disappear either, so DOR would to                                                               
find a way to erase them.                                                                                                       
                                                                                                                                
MR. ALPER  stated that  Sections 26-27  have an  estimated fiscal                                                               
impact in the  aggregate of approximately $150  million per year.                                                               
When looking at the suite of  work ongoing today - how much money                                                               
is being spent and how much  will be refunded - [DOR] thinks that                                                               
about $150  million less will  be paid  out.  Those  $150 million                                                               
will roll  forward and will  be used against future  years' taxes                                                               
with the  expectation, frankly, that  there will be  future years                                                               
taxes, that  the price  of oil  will recover  to the  level where                                                               
companies  have  a tax  liability  and  could use  those  carried                                                               
forward credits  to offset their  taxes.  The numbers  for future                                                               
years will depend on the actual  project.  He reiterated that the                                                               
fiscal  note tends  to decline  in the  out years  simply because                                                               
DOR's forecasting  of the amount  of spending of  companies isn't                                                               
that precise two, three, or four years down the road.                                                                           
                                                                                                                                
9:11:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON referred to  the statement that the fiscal                                                               
note declines over  future years because DOR  just can't predict.                                                               
He asked  whether Mr. Alper  was sure it's not  declining because                                                               
"we think it's going to reduce production."                                                                                     
                                                                                                                                
MR. ALPER  replied that  the fiscal  note for HB  247, as  far as                                                               
savings in the future, is really  tied to the fiscal note for the                                                               
future credit  spend.  He said,  "What we're told we're  going to                                                               
be  refunded based  upon the  knowledge  that we  have, which  is                                                               
itself  based  on  our estimate  of  company  lease  expenditures                                                               
that's built  into our production  forecast.  Really,  that's our                                                               
core mission."   [The department's] production  forecast data set                                                               
comes  from  the producers  themselves,  they  have fairly  frank                                                               
conversations every fall,  they tell the state what  they plan to                                                               
do, but they themselves don't know  what they are doing more than                                                               
a  couple of  years  out and  everything gets  a  bit more  vague                                                               
moving deeper into the six year fiscal note.                                                                                    
                                                                                                                                
9:12:48 AM                                                                                                                    
                                                                                                                                
MR. ALPER  moved to slide 50,  "Section 31: Gross Value  can't go                                                               
below Zero."  He reminded  committee members that the gross value                                                               
and the tax  calculation is the market value, the  sales price of                                                               
the oil  minus the cost of  getting it there, it's  the so-called                                                               
wellhead value.   Historically, this has never been  an issue but                                                               
the current market price is  approximately $30 a barrel and could                                                               
possibly  be going  lower.   Under what  circumstances could  the                                                               
state see transportation  costs of more than $30  that would lead                                                               
to negative  gross values at  the point  of production?   He said                                                               
there  are  one or  two  properties  where  that could  start  to                                                               
approach  that,  if  prices  go  lower than  $20  a  barrel  more                                                               
properties could be affected.                                                                                                   
                                                                                                                                
MR. ALPER turned  to slide 51, "Section 31: Gross  Value can't go                                                               
below Zero  - Jan. 2016  TAPS and feeder pipeline  tariffs (these                                                               
are  before  adding  the  $3.37 marine  transport  costs)."    He                                                               
explained that this information is  for various properties on the                                                               
North  Slope.   The $6.13  number is  just from  the Trans-Alaska                                                               
Pipeline System  (TAPS) -  going from Pump  Station 1  to Valdez.                                                               
Additionally,  the oil  must  get to  Pump Station  1.   He  used                                                               
Kuparuk Pipeline as the biggest  example in that Kuparuk's feeder                                                               
pipeline is only  $0.32 per barrel because there is  a lot of oil                                                               
flowing from  Kuparuk, plus  it's a  depreciated pipeline  so the                                                               
cost of  operating it is  low enough that  it only costs  $0.32 a                                                               
barrel.  The  Endicott Pipeline coming from the  Duck Island Unit                                                               
costs  $2.22  simply because  there  is  a  lot less  oil  moving                                                               
through that  supply pipeline.   Before the  committee now  is an                                                               
unusual  circumstance with  Pt  Thomson which  is  about to  come                                                               
online,  in that  Pt. Thomson  has built  a very  robust pipeline                                                               
designed to carry  a larger amount of oil that  might be produced                                                               
in a full  field development circumstance related  to the natural                                                               
gas pipeline.   It  as a  new, very large  pipeline that  once it                                                               
begins  operating will  pump a  relatively small  volume of  oil.                                                               
Pt. Thomson filed  for an approximate $19 tariff to  move its oil                                                               
from the  Pt. Thomson  production facility  to the  connection to                                                               
the existing infrastructure at Badami.   From Badami it still has                                                               
to get  to Pump  Station 1  and then  finally the  TAPS pipeline,                                                               
leading to a total estimated  tariff of $28.49 per barrel, should                                                               
it be in production right now.                                                                                                  
                                                                                                                                
9:15:09 AM                                                                                                                    
                                                                                                                                
MR. ALPER  drew attention to  slide 52, "Section 31:  Gross Value                                                               
can't go  below Zero -  Example of gross value  potentially going                                                               
below zero."   Focusing on Pt. Thomson, he said  that if a person                                                               
presumes on  top of that number  the $3.37 average of  the marine                                                               
transportation  to get  the oil  from Valdez  to the  market, the                                                               
refinery  or  wherever  the  oil  is  being  sold,  it  leads  to                                                               
transportation  costs of  $31.86 against  a potential  West Coast                                                               
price of around  $30 today.  He explained that  if the $1.86 loss                                                               
on just the transportation is  multiplied by the estimated 10,000                                                               
barrel a day initial production,  there would be a negative gross                                                               
value  at  the point  of  production  of negative  $5.9  million.                                                               
While not a  massive amount of money by the  economics of much of                                                               
the North Slope, he continued, it  is still material and it would                                                               
typically  be used  to offset  positive gross  values from  other                                                               
fields,  resulting   in  the  state  losing   taxation  from  the                                                               
companies  who own  that production  at about  35 percent  of the                                                               
difference, which would  be a loss to the  state of approximately                                                               
$2  million.   Going back  to  the Alaska's  Clear and  Equitable                                                               
Share  (ACES) bill,  he said  there is  language inserted  in the                                                               
tariff  language that  says "in  the circumstance  ... where  the                                                               
actual  tariff  is  not  reasonable, we  use  a  reasonable  cost                                                               
calculation,  that reasonable  language  is  tied to  arms-length                                                               
relationships  and a  few other  factors."   Colloquially, it  is                                                               
being said that  "to have a tariff that's more  than the value of                                                               
the  oil itself  is  not reasonable,  that we  want  to make  the                                                               
maximum tariff equal the value of  the product itself so that the                                                               
gross value can't be reduced to less than zero."                                                                                
                                                                                                                                
9:16:49 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked how  solid the  number of  $19.17 is                                                               
for the Pt. Thomson pipeline tariff.                                                                                            
                                                                                                                                
MR. ALPER responded that it is  a filed tariff that the state has                                                               
protested so  it's in the process  of appeals and he  believes it                                                               
is before  the Regulatory Commission  of Alaska (RCA)  right now.                                                               
However, he noted, this is not his area of specific expertise.                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER advised  there are  protests on  that from                                                               
both sides and said the tariff on  a cash basis is probably a lot                                                               
more  than that  with the  very limited  production underway  and                                                               
foreseen there.   He asked who mandated that  the state establish                                                               
that limited production of 10,000 barrels of condensate.                                                                        
                                                                                                                                
MR. ALPER replied that the  2012 Pt. Thomson settlement agreement                                                               
requires that this initial production  and reinjection be created                                                               
in part as a  test and in part to get to  production, and also to                                                               
provide  the  infrastructure  in  expectation  of  a  full  field                                                               
development.   He  offered his  belief that  there is  a decision                                                               
point  in 2019  regarding Phase  Two and  whether to  expand full                                                               
cycling, whether  to commit to  a major  gas sale, or  whether to                                                               
ship more gas over to Prudhoe Bay for reinjection.                                                                              
                                                                                                                                
9:18:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER asked whether as  part of retaining the Pt.                                                               
Thomson  lease the  state  has demanded  and  insisted that  this                                                               
production be created  at a loss knowing the  billions of dollars                                                               
required to get a minuscule amount  of oil into the pipeline, and                                                               
now  the state  is  going to  deny the  company,  that the  state                                                               
demanded incur  this loss, the  benefit of  that loss as  part of                                                               
the company's overall  portfolio.  He expressed  his concern with                                                               
the state taking that heavy  handed approach with anyone.  "Quite                                                               
frankly," he added, "I don't  like ExxonMobil any better than you                                                               
do, but we have to be fair."                                                                                                    
                                                                                                                                
MR. ALPER answered  he does not dislike ExxonMobil, it  is one of                                                               
the  world's great  companies and  has done  a lot  of impressive                                                               
things over  the last  100-plus years.   He  said it's  not about                                                               
ExxonMobil  or about  any specific  company,  there are  multiple                                                               
partners there.   "I'm not  quite sure 'demanded' is  the exactly                                                               
correct  word,"  he said.    "There  was  a settlement,  a  legal                                                               
agreement, to  do that;  there was  conditional on  retaining the                                                               
leases,  the previous  versions  of the  Alaska state  government                                                               
fought to take those leases back  beginning and around 2005."  He                                                               
agreed  that [ExxonMobil]  would not  be  able to  earn the  full                                                               
benefit of  those losses should they  happen at a loss,  and once                                                               
again the state  is at a circumstance that  was never envisioned.                                                               
He pointed  out that  there are  a lot of  losses out  there that                                                               
were  not contemplated,  and minimum  tax calculations  that were                                                               
not contemplated.  The state is  in new territory with all of the                                                               
existing statutes  that were  passed and  is trying  to determine                                                               
how to adapt the statutes to the current reality.                                                                               
                                                                                                                                
9:19:43 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said that's his point exactly.  He added:                                                                 
                                                                                                                                
     We  the state  have got  to stop  changing the  playing                                                                    
     field on everybody when we're  asking them to make long                                                                    
     lead decisions  and every time something  comes up that                                                                    
     you don't like,  we end up sitting  here completely ...                                                                    
     very much  starting over and redefining  things so that                                                                    
     the  state gets  what  it wants,  but  we are  creating                                                                    
     absolutely  no certainty,  no  ability  to continue  to                                                                    
     attract people  to this state.   While we may  have ...                                                                    
     issues  that we  can  tighten up  here,  but again,  my                                                                    
     biggest  concern  and this  is  a  classic example,  we                                                                    
     incent  ...  we  tell  someone to  do  something  in  a                                                                    
     settlement and then  we literally want to  pull the rug                                                                    
     out  from under  them  when we  discover  that ...  the                                                                    
     world  has changed  around  us and  now  we don't  have                                                                    
     what,  as  you  said  yourself,  the  whole  motivation                                                                    
     behind this,  the state doesn't have  enough money from                                                                    
     our oil  fields to  continue to  operate at  the levels                                                                    
     we're looking.  Frankly, I'd  ask you guys at the state                                                                    
     to start figuring out some  ways we can reduce the size                                                                    
     of  government, rather  than trying  to chase  industry                                                                    
     out of the state.                                                                                                          
                                                                                                                                
9:20:50 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  pointed  to  the three  lines  at  the                                                               
bottom of slide 52, which read:                                                                                                 
                                                                                                                                
     This  negative GVPP  could be  used to  offset positive                                                                    
     values from elsewhere on the  North Slope, resulting in                                                                    
     a  tax reduction  of 35%  of the  difference (about  $2                                                                    
     million)                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON commented  that ConocoPhillips  Alaska,                                                               
has  an interest  in  Kuparuk  and Greater  Moose's  Tooth.   For                                                               
purposes of  the company's  final tax  payment, he  asked whether                                                               
the two are aggregated so that one can be offset by the other.                                                                  
                                                                                                                                
MR. ALPER responded yes, for  the purposes of taxation the entire                                                               
North Slope is called a segment,  all of the company's profits or                                                               
production tax value  are combined and aggregated.   The specific                                                               
change here  is that  it's a  multi-step calculation  as follows:                                                               
"First you get  to this thing called gross value  at the point of                                                               
production,   and  then   you   start   subtracting  your   lease                                                               
expenditures, your operating  and capital costs."   The change in                                                               
Section  31  would  make the  gross  value  calculation  somewhat                                                               
higher by  not allowing, in  this case, the $5  million deduction                                                               
for the loss from Pt. Thomson,  and therefore the net value would                                                               
be, likewise, $5.9  million higher.  The end result  is yes, it's                                                               
all a commingled tax for each producer across the North Slope.                                                                  
                                                                                                                                
9:22:17 AM                                                                                                                    
                                                                                                                                
MR.  ALPER moved  to  slide 53,  "Section  37: Municipal  Utility                                                               
Limitation," and  said it  is a  provision of  law that  [DOR] is                                                               
fairly certain was  also unforeseen and technical in  nature.  He                                                               
said there is language in the  section amended by Section 37 that                                                               
says "a municipal utility that is  a producer gets to the benefit                                                               
of their credits ... to the same extent as any other producer."                                                                 
                                                                                                                                
MR. ALPER advised that the  somewhat vague language says that the                                                               
municipal   utility  is   also  eligible   to  receive   credits.                                                               
Typically if  a municipal  utility owns a  gas production,  it is                                                               
for the  utility's own purposes  - it has turbines  somewhere and                                                               
wants to burn  that gas and generate power for  its citizens.  In                                                               
some cases,  if the municipal utility  happens in a given  day or                                                               
given month to produce more gas than  it needs to burn in its own                                                               
turbine, the municipal utility is as  free as anyone else to sell                                                               
that gas to a third party that might need more gas.                                                                             
                                                                                                                                
9:23:23 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON  said  it  appears  that  Pt.  Thomson  was                                                               
singled out and asked why.                                                                                                      
                                                                                                                                
MR. ALPER  responded that Pt. Thomson  was not singled out.   The                                                               
specific  economics  of  Pt.  Thomson made  this  issue  rise  to                                                               
[DOR's] attention,  but the impact would  affect possibly several                                                               
other developments, especially the  more remote developments that                                                               
might have  high tariffs associated with  them.  There are  a few                                                               
pending but  currently none  of the  state's fields  have tariffs                                                               
that would  approach $30, let's  say, except for Pt.  Thomson; so                                                               
it  was  used for  illustrative  purposes  and  was by  no  means                                                               
singling Pt. Thomson out.                                                                                                       
                                                                                                                                
REPRESENTATIVE OLSON asked Mr. Alper to name the other fields.                                                                  
                                                                                                                                
MR. ALPER said he has no  idea of the economics of ConocoPhillips                                                               
Alaska's "string  of pearls" as  they get deeper into  NPR-A, but                                                               
in moving  to Moose's  Tooth 1, 2,  and all the  way out  to Bear                                                               
Tooth, he  guesses that by the  time they get to  the last string                                                               
of that pearl  the tariffs are going to get  fairly high to bring                                                               
that  oil all  the way  back to  Pump Station  1.   Caelus Energy                                                               
Alaska is  investing in  its Smith Bay  project much  further out                                                               
along the  coast of NPR-A, and  he is certain that  should Caelus                                                               
find meaningful  amounts of oil and  try to ship it  back towards                                                               
Prudhoe Bay and  TAPS, it's going to be a  very expensive project                                                               
to get that pipeline built.   Offshore projects certainly will be                                                               
expensive.  This is something the  state would need to look at as                                                               
new projects  come on,  obviously.  But  the corollary  for these                                                               
remote projects and their tariffs  is that quite probably none of                                                               
them are going to  happen if the price of oil  stays at $30-$40 a                                                               
barrel anyway, so it's an academic conversation.                                                                                
                                                                                                                                
9:25:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON referred  to  the first  two and  commented                                                               
that conceivably they will be much higher than Pt. Thomson.                                                                     
                                                                                                                                
MR. ALPER  replied that he doesn't  know, they will be  built for                                                               
their  expected production.   There  is  an unusual  circumstance                                                               
that  Representative  Hawker spoke  correctly  to,  that the  Pt.                                                               
Thomson  pipeline   was  overbuilt,  it  was   built  for  future                                                               
production  that  might not  come  for  a substantial  number  of                                                               
years,  or whatever  feeder lines  they  build in  NPR-A will  be                                                               
sized for expected  levels in the near term.   He reiterated that                                                               
everyone  gets to  deduct  all of  their tariffs  so  long as  it                                                               
doesn't  bring them  below  zero, no  one is  going  to make  any                                                               
investment  if they  expect the  value to  be zero.   As  [DOR's]                                                               
modeling will show, nothing, including the status quo scenarios,                                                                
work at $40 oil, which is the current reality.                                                                                  
                                                                                                                                
9:26:14 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON asked whether that would be 42 inch or 48                                                                  
inch pipe.                                                                                                                      
                                                                                                                                
MR. ALPER responded he is happy to say that it is not his job.                                                                  
                                                                                                                                
MR. ALPER returned to slide 53, and said that these are, for the                                                                
most part, small dollar items, but they do add up.  He presented                                                                
a model of a basic scenario as follows:                                                                                         
                                                                                                                                
     Let's say  a company produces  20 million cubic  feet a                                                                    
     day  ... and  18 of  it goes  into their  own turbines.                                                                    
     Those  18 million  cubic feet  a day  are not  taxable,                                                                    
     that is  an internal transfer  that is not a  sale; the                                                                    
     Tax  Division of  the Department  of  Revenue does  not                                                                    
     interject  itself  into  that  part  of  the  equation.                                                                    
     However, if  they sell 2  of them to somebody  else, to                                                                    
     someone  else's  utility, that  2  of  them is  taxable                                                                    
     income and they are paying  the production tax like any                                                                    
     other producer  on that 2  million cubic feet  per day.                                                                    
     So, just  working that through the  equation, 2 million                                                                    
     cubic feet a day, $8 just  to pick a price, that's $5.8                                                                    
     million a  year in revenue  subject to taxation.   Now,                                                                    
     so, here's the interesting  part, let's say their lease                                                                    
     expenditures are $3  per thousand cubic feet.   The way                                                                    
     the current law is structured,  they get to take all of                                                                    
     their  lease  expenditures  on  the  whole  20  million                                                                    
     they've produced  and offset them against  ... only the                                                                    
     2 that they  sold.  So that leads to,  if you work your                                                                    
     way down  the left hand column,  $21.9 million dollars'                                                                    
     worth  of lease  expenditures against  $5.8 million  in                                                                    
     sales  -  they  show  on paper  a  $16  million  dollar                                                                    
     operating loss  and would be  eligible, using  the Cook                                                                    
     Inlet figure, the 25 percent  net operating loss credit                                                                    
     in Cook  Inlet, we  would be paying  this company  a $4                                                                    
     million  dollar  credit  in this  circumstance  because                                                                    
     they sold  a small amount  of their gas.   Usually this                                                                    
     is a  somewhat unreasonable and  unintended consequence                                                                    
     of a literal interpretation of  statute.  The change in                                                                    
     Section 37  is brief,  but it says,  colloquially, that                                                                    
     we are  pro-rating their expenses  to the share  of the                                                                    
     gas  that was  actually  sold.   So,  if  they sell  10                                                                    
     percent of the gas they get  to claim 10 percent of the                                                                    
     lease expenditures, if they sell  99 percent of the gas                                                                    
     they   get   to  claim   99   percent   of  the   lease                                                                    
     expenditures.  And in the  example before us here where                                                                    
     10  percent of  their gas  was  sold and  they had  $21                                                                    
     million in  lease expenditures, 10  percent of  that is                                                                    
     $2.1 million, that gets reduced  from their revenue and                                                                    
     now instead of  getting a big operating  loss they have                                                                    
     a small profit that would  be subject to the production                                                                    
     tax, although the numbers are  small enough that in the                                                                    
     current  circumstance, small  producer credits  and the                                                                    
     like, they would not be  likely to be paying any actual                                                                    
     taxes  and that's  fine at  this scale.   The  issue is                                                                    
     that we the  state don't feel that we  should be paying                                                                    
     a  large  operating loss  credit  to  a company  simply                                                                    
     because  they're selling  a small  amount of  their gas                                                                    
     ... to a third party.                                                                                                      
                                                                                                                                
9:29:09 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON   asked  whether   this  is   limited  to                                                               
municipalities or would include a  co-op such as Chugach Electric                                                               
Association.   He further asked  whether it means that  because a                                                               
municipality sells  gas to  Chugach Electric it  is going  to get                                                               
this tax credit.                                                                                                                
                                                                                                                                
MR. ALPER answered  it doesn't matter who  the municipality sells                                                               
it to.  The idea is that  by selling it, a transaction with money                                                               
is involved, [that  is a taxable] event.   Regarding whether this                                                               
would apply  if, for  example, Chugach Electric  had its  own gas                                                               
field,  production, and  turbines, he  said his  understanding is                                                               
that yes,  a co-op would be  treated like a municipality  in this                                                               
change.   The co-op would  be eligible for the  oversize credits.                                                               
To  his  knowledge,  Chugach  Electric  does  not  currently  own                                                               
production, but he  knows it is buying some and  so this is going                                                               
to be  an issue.  If  Chugach Electric owns more  production than                                                               
it needs  and sells some  of it, [the administration]  would like                                                               
to  prevent  the  circumstance   where  the  co-op  is  receiving                                                               
disproportionate credits.                                                                                                       
                                                                                                                                
9:30:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether, if  the state  does this,                                                               
that would  make that acquisition impractical,  and further asked                                                               
whether  it  is  marginal  enough that  this  is  the  difference                                                               
between Chugach Electric Association  becoming partners which, in                                                               
theory,  would lower  the cost  for all  consumers.   He said  he                                                               
wonders if  by doing this, it  would take that off  the table and                                                               
possibly  cost consumers  in his  hometown more  money.   He said                                                               
that this is something to look into.                                                                                            
                                                                                                                                
MR.  ALPER   responded  that  he  cannot   answer  regarding  the                                                               
economics  of a  project.   He said  it is  worth asking  Chugach                                                               
Electric  and  the  other  potentially  impacted  players.    The                                                               
credits are out of scale with  the sales because of the nature of                                                               
the conversation.   These are issues that have  been appealed and                                                               
have   been   adjudicated.      "We're   dealing   with   literal                                                               
interpretation  of law  issues," he  said.   "We certainly  don't                                                               
want to harm the economics of  your constituents to get gas, this                                                               
one was perceived as somewhat excessive  and ... I'd like to hear                                                               
from the individual players how this might impact them."                                                                        
                                                                                                                                
9:31:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  surmised that  this particular  instance has                                                               
not occurred  to date, but that  Mr. Alper wants to  prevent this                                                               
from happening.                                                                                                                 
                                                                                                                                
MR. ALPER answered he cannot  actually say that because he cannot                                                               
talk about specific credits earned by specific companies.                                                                       
                                                                                                                                
9:32:16 AM                                                                                                                    
                                                                                                                                
MR. ALPER  resumed his presentation,  advising that  slides 55-58                                                               
were put together  by the Department of  Natural Resources (DNR).                                                               
The issue  was raised about  Cook Inlet  gas supply.   Because HB                                                               
247 looks  to sunset or  repeal some  of the capstone  Cook Inlet                                                               
credits  and reduce  the state's  support of  ongoing development                                                               
from roughly 50-60  percent to 25 percent, the  question arose as                                                               
whether that is going  to affect gas supply.  That  is one of the                                                               
more important questions before the committee.  He continued:                                                                   
                                                                                                                                
     So the  first question  we asked is,  How long  can the                                                                    
     known supplies  meet the regional  demand?  And  as ...                                                                    
     DNR  are the  resource people,  they understand  rocks,                                                                    
     they  understand  pipes,  they understand  things  like                                                                    
     that  much better  than  any of  us at  [DOR]  do.   We                                                                    
     mostly understand  dollars.   And so  they said  ... it                                                                    
     depends  on  how  fast  the  known  supply  can  remain                                                                    
     available and  by extension how  much new  supply comes                                                                    
     on.   So,  they looked  at ...  rapid response,  that's                                                                    
     them  saying  we gave  them  a  couple days  to  please                                                                    
     answer  these questions  for  us.   We  have the  known                                                                    
     ready to pump reserves of  a bit less than 1.2 trillion                                                                    
     cubic feet  ... that's  what they  call 2P  (proven and                                                                    
     probable), all  you need to  do is drill the  well, you                                                                    
     know it's  there, the infrastructure  is in  place, all                                                                    
     of  that.     And   then  there   are  two   new  field                                                                    
     developments, and  the two  new field  developments ...                                                                    
     their  names  you're  all familiar  with  -  the  Cosmo                                                                    
     development  from   BlueCrest  and  Furie's   at  least                                                                    
     [indisc.-technical  difficulties]  Kitchen Lights  Unit                                                                    
     in  the  deep  water  in   the  middle  of  the  inlet.                                                                    
     Building  those ...  in round  numbers without  getting                                                                    
     into  anyone's confidential  data they  can comfortably                                                                    
     say  we have  about 1.6  billion cubic  feet available,                                                                    
     numbers that  can go up dramatically  depending on full                                                                    
     delineation of  those fields  and how  much development                                                                    
     they do,  and future work  that would have to....   But                                                                    
     with known information we could say that.                                                                                  
                                                                                                                                
9:34:27 AM                                                                                                                    
                                                                                                                                
MR. ALPER continued his discussion of slides 55-58:                                                                             
                                                                                                                                
     And  then they're  looking  at  three different  demand                                                                    
     cases.  Now a good number  to have in our mind is, What                                                                    
     is  the  actual utility  demand  in  Cook Inlet  in  an                                                                    
     average year?   That number  is about 80  billion cubic                                                                    
     feet ...  per year or  a little over 200  million cubic                                                                    
     feet per day.  That's the  utility and field use and so                                                                    
     on  that then  ... goes  into the  existing facilities.                                                                    
     The high end  of that would be 140  billion cubic feet,                                                                    
     that  would  be what  we  have,  and plus  the  limited                                                                    
     amount of export from the  Conoco export facility, plus                                                                    
     the  Donlin  Gold  which   would  require  a  dedicated                                                                    
     pipeline  from  Cook  Inlet heading  out  to  Southwest                                                                    
     Alaska where  that gold mine  is, and then a  two train                                                                    
     full development of the Agrium  plant restart.  That at                                                                    
     the high end,  at least with the medium  terms of about                                                                    
     140 billion  cubic feet  per year.   And then  you say,                                                                    
     well if we know what we  have and we know what we might                                                                    
     need,  how many  years  do we  have  and recreate  some                                                                    
     lifespan scenarios.                                                                                                        
                                                                                                                                
9:35:25 AM                                                                                                                    
                                                                                                                                
     So, Supply  Case 1  ... 1.2  trillion or  1,100 billion                                                                    
     cubic feet  in the  legacy field  from the  Division of                                                                    
     Oil  and   Gas,  1.6   with  the   additional  ballpark                                                                    
     estimates for Kitchen Lights and Cosmopolitan.                                                                             
                                                                                                                                
     Demand Case  2 is  sort of  the middle.   That  was the                                                                    
     addition  of  Donlin and  the  one-train  Agrium.   The                                                                    
     second-train Agrium brought it  from 116 to 140 billion                                                                    
     cubic feet  per year.  And  just to put the  numbers in                                                                    
     perspective too, the flow from  the AK LNG Project is a                                                                    
     bit less  than 3 billion cubic  feet per day.   So even                                                                    
     at the  full demand  level, we're  talking less  than 2                                                                    
     months production from the North  Slope should that ...                                                                    
     proceed to construction and development.                                                                                   
                                                                                                                                
     So, how much  gas do we have behind pipe?   The current                                                                    
     circumstance, we have  15 years of life span.   ... And                                                                    
     that's 15  years with high  deliverability.   That's an                                                                    
     important distinction from where  we were five or eight                                                                    
     years ago  when there wasn't the  storage capacity, the                                                                    
     ability to put gas in in  the summer when there is less                                                                    
     demand, pull  it out in  the winter when there  is high                                                                    
     demand.   So they're telling  us that we have  about 15                                                                    
     years'  worth of  current demand.    If the  additional                                                                    
     production  continues  on and  comes  on  line that  is                                                                    
     under development,  or about  to be  under development,                                                                    
     hopefully in  Kitchen Lights and Cosmo,  that increases                                                                    
     to 15 years.  Knowing  that, what happens if the demand                                                                    
     increases  - if  Agrium restarts  with a  single train,                                                                    
     Donlin Creek moves  forward with what they  think is 12                                                                    
     billion  cubic feet  per year  - that  reduces what  we                                                                    
     have to 14  years.  The full development  of Agrium and                                                                    
     Donlin brings  it down  to 11 years.   If  those things                                                                    
     are happening,  we're all confident, DNR  would agree I                                                                    
     hope, that that  would encourage substantial additional                                                                    
     development  of those  and  additional  fields to  make                                                                    
     sure  that the  supply stays  on line.   But  even with                                                                    
     full  development,  which   obviously  isn't  happening                                                                    
     overnight, they're looking at 11 years of supply.                                                                          
                                                                                                                                
9:37:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER requested Mr. Alper to explain the                                                                        
disclosure in the box under the title of Slide 57, which read:                                                                  
                                                                                                                                
     These supply  "lifespan" estimates  require significant                                                                    
     continued investment to  ensure reserves and discovered                                                                    
     resources will be produced in time to meet demand.                                                                         
                                                                                                                                
MR ALPER  explained that even  when a producer  has a gas  or oil                                                               
field,  the  company must  continue  drilling  wells due  to  the                                                               
nature of the geology.  For  example, when drinking a Slurpee and                                                               
begin sucking air  it is necessary to pick up  the straw and move                                                               
it over one-half  inch to get more Slurpee.   He related that the                                                               
expectation  is  that ongoing  investment  happens,  but that  is                                                               
among the  least risky investment  in the industry  because there                                                               
is a known  proven reserve with a market, and  the cost is known,                                                               
and it  is known the gas  or oil is  down there because it  is in                                                               
between two producing wells.   Continuing ongoing investment will                                                               
absolutely be  required because if everyone  stopped drilling the                                                               
decline curves are inherently more rapid.                                                                                       
                                                                                                                                
9:38:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said:                                                                                                     
                                                                                                                                
     You  keep saying  that it's  a  very attractive  basin,                                                                    
     don't  worry your  pretty little  head Mike.   Well,  I                                                                    
     worry  about  my  community.   If  it's  such  a  great                                                                    
     opportunity  why  ... three  years  ago  where we  were                                                                    
     having  blackout  drills  in my  community,  literally,                                                                    
     because we  were trying to  train our public  with what                                                                    
     to  do  because they  had  no  heat  or lights  on  the                                                                    
     coldest  days  of  winter.     If  it's  such  a  great                                                                    
     attractive prospect, why were we doing that?                                                                               
                                                                                                                                
MR.  ALPER  stressed  that  he   was  by  no  means  saying  that                                                               
Representative Hawker should not worry  about his community as it                                                               
is his job  to worry about his community.   Representative Hawker                                                               
has done many great things for  the energy security in Cook Inlet                                                               
through the  credits he  helped work  through the  system several                                                               
years  ago.   Probably the  most  important one  was the  storage                                                               
credit.   "That  storage  credit has  created essential  seasonal                                                               
deliverability  security that  didn't  used to  exist," he  said,                                                               
"especially in the absence of  the flexible users like the export                                                               
facility,  say,  that isn't  operating  at  full capacity."    He                                                               
offered his  understanding that  many of  the issues  behind that                                                               
blackout drill  were because of deliverability  more than supply.                                                               
Also,  he continued,  additional  supplies  have been  discovered                                                               
that are more easily developable and  there is a very high price.                                                               
There were  regulatory issues  in the years  leading up  to those                                                               
blackout  drills where  gas supply  contracts were  being denied.                                                               
He said  he doesn't want to  delve into the history  and politics                                                               
behind those....                                                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER  interjected that  those were fixed  in the                                                               
Cook Inlet Recovery Act.                                                                                                        
                                                                                                                                
MR.  ALPER agreed  and acknowledged  that there  was language  in                                                               
that bill discussing the RCA having  to show its work at the very                                                               
least  and  explain  its  reasons.    Suddenly  now,  gas  supply                                                               
contracts  are coming  at higher  levels,  higher dollar  values,                                                               
that support  drilling.  He  said he  has heard from  others that                                                               
Cook Inlet has among the most  generous fiscal regimes and one of                                                               
the  highest gas  prices in  the world.   That  doesn't say  it's                                                               
extremely attractive, just  that maybe it doesn't  quite need the                                                               
same  level of  ongoing cash  support that  it currently  enjoys,                                                               
which  is  the   state  paying  50-60  percent   of  a  company's                                                               
development costs.                                                                                                              
                                                                                                                                
9:40:54 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER noted that  Mr. Alper acknowledged that the                                                               
economic  situation created  in Cook  Inlet attracted  sufficient                                                               
investment  to increase  production.   He posed  the question  of                                                               
significantly  taking  away, as  HB  247  proposes, some  of  the                                                               
incentives  in  the  basin  and  how  it  will  affect  continued                                                               
investment  - how  much reduction  in investment  Cook Inlet  can                                                               
expect - and how that will affect these lifespan calculations.                                                                  
                                                                                                                                
MR.   ALPER  responded   that  the   type   of  decision   making                                                               
contemplated in the question relates  to new supplies in addition                                                               
to the  supplies stated  in this  slide.   He explained  that the                                                               
supplies in  this slide  are, for the  most part,  discovered and                                                               
should the price support it, "we  believe will continue."  If the                                                               
discussion is regarding  the next tranche of  supply beyond this,                                                               
"we  will  come  to  the  committee  with  field  analysis,  with                                                               
economics."   It's  tricky to  look  at field  economics in  Cook                                                               
Inlet because  a tax regime  kicks in in  2022 that is  very high                                                               
and unstable.   It has been  discussed that a new  Cook Inlet tax                                                               
system is needed.   He said he cannot say  with certainty whether                                                               
a  new project  will or  won't happen,  with or  without the  tax                                                               
change envisioned in this bill.                                                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER stated  that Mr. Alper just  said that it's                                                               
going to  be all these new  discoveries that are going  to be the                                                               
things  that are  affected by  continued investments.   He  asked                                                               
whether  it doesn't  also take  continued investment  to maintain                                                               
the level of production from the known and proven reserves.                                                                     
                                                                                                                                
MR. ALPER replied  that it takes continued  investment but that's                                                               
a much less riskier investment  in a proven developed field where                                                               
it is  known what is  there.  If  there is  a market and  a sales                                                               
price, he  explained, that  is a far  less risky  investment than                                                               
going out and looking for new gas.                                                                                              
                                                                                                                                
9:43:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER recited the adage,  "The best place to find                                                               
oil is  in an oil field."   Yet, he  argued, there is the  law of                                                               
diminishing   returns,  too,   where   it  becomes   increasingly                                                               
expensive to  extract those final resources,  the more-difficult-                                                               
to-achieve resources in the fields.   He reiterated that he would                                                               
like Mr.  Alper to  be able to  stand up in  front of  his entire                                                               
community and tell  them that his proposal is not  going to place                                                               
them at  risk of having  insufficient energy to meet  their needs                                                               
in the foreseeable future.                                                                                                      
                                                                                                                                
MR.  ALPER  responded that  a  hearing  or two  ago  Commissioner                                                               
Hoffbeck  said something  along  the  lines of,  "Is  it time  to                                                               
declare at least partial victory?"   Should the state find itself                                                               
in a  circumstance where  supplies are becoming  risky to  get in                                                               
Cook Inlet, he said:                                                                                                            
                                                                                                                                
     We believe we have  sufficient lead time to reinstitute                                                                    
     certain  benefits, certain  incentives to  go and  find                                                                    
     more gas.   Right now there is enough  gas, we believe,                                                                    
     that  given the  state's  fiscal  situation, we  cannot                                                                    
     afford to  continue to  support ongoing  development to                                                                    
     the rate  that we have been.   We want to  continue to,                                                                    
     to the  extent that we  can, to the maximum  benefit of                                                                    
     the  community, within  what  is  reasonable given  the                                                                    
     state's fiscal limitations.                                                                                                
                                                                                                                                
REPRESENTATIVE  HAWKER  stated  that  what Mr.  Alper  just  said                                                               
scares him and makes him pity the people in his community.                                                                      
                                                                                                                                
9:44:25 AM                                                                                                                    
                                                                                                                                
MR.  ALPER  referred  to  slide   58,  "Cook  Inlet  Undiscovered                                                               
Resources (USGS  resource assessment, 2011)."   He explained that                                                               
the map on  this slide shows the extent of  the Cook Inlet basin,                                                               
which has  an estimated nearly 600  million barrels of oil.   The                                                               
green line  represents roughly where  the oil is believed  to be.                                                               
The conventional  gas is  almost 14 trillion  cubic feet  and the                                                               
unconventional gas is  another 5.3 trillion cubic feet  on top of                                                               
that.   In the context of  the current annual use  consumption in                                                               
Cook  Inlet, as  currently  fully developed  with  both heat  and                                                               
electric  utilities   almost  entirely  dependent  upon   gas,  a                                                               
trillion cubic  feet will last about  12 years.  If  there are in                                                               
fact  13 trillion  feet of  undiscovered technically  recoverable                                                               
gas,  there is  approximately 150  years'  worth of  gas in  Cook                                                               
Inlet  currently, and  "obviously that  is much  more speculative                                                               
and will  require far more additional  work to bring any  of that                                                               
sort of gas to market, but you are  living on top of a robust gas                                                               
basin, or at least so the professionals in that field believe."                                                                 
                                                                                                                                
9:46:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON referred  back to  his previous  question                                                               
regarding the utilities and said:                                                                                               
                                                                                                                                
     I want to throw Fairbanks in  the mix.  What does it do                                                                    
     to  Fairbanks  gas   deliverability  because  they  are                                                                    
     involved   in  the   trucking  now   and  ...   there's                                                                    
     challenged projects  both ways  north or south  on that                                                                    
     one.   And right now I  think the plan is  to truck gas                                                                    
     to   the  north.     What   does  that   do  to   their                                                                    
     deliverability  if  these  credits....   So  maybe  you                                                                    
     can't answer these ... we're  outside the realm of some                                                                    
     of the state,  but we're very heavily  invested in that                                                                    
     Fairbanks gas utility  as a state.  So ...  I just want                                                                    
     to   focus   on   some  of   things   that   unintended                                                                    
     consequences ...  I want  to make  sure that  we're not                                                                    
     burying Fairbanks  or Anchorage or anyone  in this, and                                                                    
     all of a sudden we've got  great ideas and no gas.  So,                                                                    
     I want to make sure  that we're dealing with those kind                                                                    
     of  aspects.   ...  I  don't  know  where they  fit  in                                                                    
     because  I  don't  know  if  they're  even  a  utility,                                                                    
     they're not  regulated, they may  have to pay  the full                                                                    
     taxes.  I mean there's a  lot of moving pieces in that.                                                                    
     They could  end up  a lot  of difference  ways.   ... I                                                                    
     certainly  understand  that if  you  want  to beg  this                                                                    
     question for a  later time, but I want to  at least put                                                                    
     it on the table.                                                                                                           
                                                                                                                                
9:47:34 AM                                                                                                                    
                                                                                                                                
MR.  ALPER offered  to take  a first  crack at  understanding the                                                               
transactions   embedded  in   the   aforementioned  scenario   by                                                               
Representative Johnson.   He said  that the Fairbanks  utility is                                                               
not a  producer, it's  a consumer,  and will  be buying  gas from                                                               
someone.    He   said  he  thinks  the  issue   being  raised  by                                                               
Representative Johnson  is more  an issue  of gross  values being                                                               
less than zero;  that whoever is selling that gas  and the market                                                               
price is low  and the cost of  trucking it up there  is high, the                                                               
circumstances could  be that the  gross value is less  than zero.                                                               
Although, he  advised, he is  not certain how trucking  fits into                                                               
the calculation of allowable transportation.                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  advised that he  does not need  an answer                                                               
now, but wants  it on the table  because it is an  issue that the                                                               
committee has spent  a lot of time  on, and he would  hate to see                                                               
all of those  investments go to the wayside for  lack of at least                                                               
talking  about them.   The  committee has  not talked  about some                                                               
things that have come up - low  oil prices, high oil prices - and                                                               
he would like to get everything on the table this time.                                                                         
                                                                                                                                
MR. ALPER agreed and said:                                                                                                      
                                                                                                                                
     We don't want to keep doing  this.  We want to envision                                                                    
     all  of the  possible  circumstances.   ...  I like  to                                                                    
     think  we're   spiraling  in  towards  the   center  of                                                                    
     something  rather than  zigging  and  zagging back  and                                                                    
     forth.   But  I don't  have  a nuanced  answer to  give                                                                    
     Representative Johnson's question.   It is important to                                                                    
     contemplate  how both  the Section  31  and Section  37                                                                    
     changes  might impact  the  Fairbanks  utility, and  we                                                                    
     will look into that, absolutely.                                                                                           
                                                                                                                                
9:49:45 AM                                                                                                                    
                                                                                                                                
The committee took an at-ease from  9:49 to 9:53 a.m. and another                                                               
from 9:53 to 9:54 a.m.                                                                                                          
                                                                                                                                
9:54:19 AM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK advised that the next  meetings on HB 247 will be                                                               
at 1:00 p.m. today, and 10:00 [a.m.] tomorrow, 2/26/16.                                                                         
                                                                                                                                
[HB 247 was held over.]                                                                                                         

Document Name Date/Time Subjects
HSE RES - 2.24.16 HB 247 2nd Presentation- fiscal details part 1a.pdf HRES 2/25/2016 8:30:00 AM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247