Legislature(2013 - 2014)
04/19/2014 04:03 PM Senate FIN
| Audio | Topic |
|---|---|
| Start | |
| HB278 | |
| HB306 | |
| HB140 | |
| HB287 | |
| HJR10 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 287(RLS) am
"An Act relating to the determination of the royalty
received by the state on oil production refined or
processed in the state; providing tax credits for
qualified infrastructure expenditures for in-state
refineries and hydrocarbon processing facilities;
approving and ratifying the sale of royalty oil by the
State of Alaska to Tesoro Corporation and Tesoro
Refining and Marketing Company LLC; and providing for
an effective date."
6:23:41 PM
Co-Chair Meyer MOVED to ADOPT the proposed committee
substitute for HB 287, Work Draft 28-GH2862\O (Nauman,
4/19/14). There being NO OBJECTION, it was so ordered.
JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
explained the legislation and the changes to the bill:
New section 1 amends AS 38.05.180(cc) to include the
DNR commissioner's ability to accept payment on a
federal lease for the state's royalty share of oil
production. Current law is limited to gas production.
New section 2 adds new subsections (hh) under AS
38.05.180 to allow the DNR commissioner to enter into
an agreement with the lessee to use or accept as a
price for the royalty oil an amount not less than the
contract price between the lessee and an in-state
refiner. The price would not exceed the amount that
would otherwise be due under the lease. Before
entering into an agreement, the commissioner must make
a written finding that the agreement is in the state's
best interest; the in-state refiner meets certain
criteria; and the contract price or prospective
royalty receipts are balanced by employment
opportunities or other tangible benefits to the state.
The subsection defines how contract or purchase
parties are affiliated through influence, interest, or
action.
Subsection (ii) defines "in-state refiner", "price
established in the contract between lessee and an in-
state refiner", and "state's royalty share of oil
production".
New section 3 adds a new section AS 43.20.053, which
adds a new corporate income tax credit for a taxpayer
that owns an in-state refinery or hydrocarbon
processing facility and incurs "qualified
infrastructure expenditures". The credit may not
exceed the lesser of 40 percent of total qualifying
expenditures or $10 million per tax year and sunsets
in 5 years. The taxpayer is required to apply the
credit against any corporate income taxes owed to the
state, and any unused portion can be refunded by the
state.
New subsection (b) clarifies the credit may not be
applied to an expenditure for the installation,
modification, adjustment, or other alteration of
tangible personal property primarily used for the
manufacture or transport of liquefied natural gas,
compressed natural gas, or to convert natural gas to
liquids.
New subsection (h) defines "processed hydrocarbon
products", "qualified infrastructure expenditure",
"refined petroleum products" and "unpaid delinquent
tax".
New section 4 amends AS 43.55.028(a) to include the
qualified infrastructure expenditures as a credit that
can be paid from the oil and gas tax credit fund.
New section 5 amends AS 43.55.028(g) to allow the
Department of Revenue to adopt regulations to carry
out purposes of this section for refunds and payments
under the qualified infrastructure expenditure.
Section 6 (previously Section 1) provides legislative
approval of an amendment of a royalty oil contract
between the State of Alaska and Tesoro Corporation and
Tesoro Refining & Marketing Company LLC, attached as
Exhibit 1 to the final best interest finding and
determination executed January 9, 2014.
Section 7 provides an effective date of January 1,
2015 for Sections 1-5.
Section 8 provides an immediate effective date for
Section 6 related to the Tesoro royalty oil contract.
6:34:02 PM
DOUG CHAPADOS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PETRO
STAR INC., JUNEAU, spoke in support of HB 287. He stated
that there was a hard copy of a PowerPoint in the backup,
which provided some information on Petro Star.
Senator Olson noted that the bill was integral to the
survival of an important industry. He inquired about the
negative effects of bill not passing. Mr. Chapados replied
that the closure of the Petro Star would have ramifications
all across Alaska. Petro Star's biggest customers were the
airlines; it was also the sole supplier of military grade
jet fuel for the military bases in the state.
6:38:12 PM
AT EASE
6:38:32 PM
RECONVENED
Senator Olson asked many people and families would be
affected by closing the refinery. Mr. Chapados responded
that there was information in the backup, which outlined
the economic impacts of the refinery closure.
6:41:54 PM
MATT GILL, SENIOR MANAGER, EXTERNAL AFFAIRS, TESORO,
JUNEAU, spoke in support of HB 287. He stated that the
contract extension outlined in the legislation would
provide Tesoro with a stable supply of ANS crude oil, and
give the flexibility to accommodate seasonal fluctuations
in demand for refined products. The availability,
flexibility, and stability of the contract would have a
positive impact on Tesoro's ability to maintain ongoing
operations at its Kenai refinery.
Vice-Chair Fairclough CLOSED public testimony.
Senator Dunleavy wondered how many individual facilities
would qualify under the legislation. Commissioner Balash
responded that the qualifying facilities included the Flint
Hills facility in North Pole; the Petro Star facility in
North Pole; the Petro Star facility in Valdez; and the
Tesoro facility in Nikiski. He stated that the Petro Star
facility in North Pole was slated to close, so there would
only be three qualifying facilities once the credits become
available.
Senator Dunleavy wondered if Agrium facility was qualified.
Commissioner Balash replied in the affirmative.
Senator Dunleavy queried the total possible tax credit.
Commissioner Balash responded that, if all four refineries
plus the Agrium facility participated, it would be 50
multiplied by 5, which would equal $250 million. He
stressed that the facility provided a positive impact to
the state treasury.
6:47:10 PM
Senator Bishop wondered if the major oil companies were
still refining product on the North Slope. Commissioner
Balash responded in the affirmative.
Senator Bishop asked if those companies were excluded from
the legislation. Commissioner Balash replied that those
companies were excluded from the legislation.
Vice-Chair Fairclough wondered if there was an analysis of
the costs that were part of the advancement of the
proposal. Commissioner Balash replied that DNR had
conducted best interest findings, and DNR had conducted a
review of specific economics of the refining done in state.
Vice-Chair Fairclough queried whether there would be a
further examination of the structural problems of the
Alaskan refineries. Commissioner Balash stated that DNR did
not intend to pursue that type of investigation. The
department was aware of the impacts to the refineries costs
He explained that the quality bank and its charges were
decided at the federal level and that the state had little
ability in that regard to influence decision making. As
commissioner, he intended to watch those companies closely
as they were given the tax credits.
6:54:36 PM
Vice-Chair Fairclough wondered why the companies would not
be investigated first, followed by offering credits.
Commissioner Balash responded that there was an urgency to
maintaining the operations of the facilities. He stressed
that the revised legislation was much less generous than
its original version.
Senator Olson asked what the state would do if the
legislation failed. Commissioner Balash replied that Petro
Star had renewed its annual contract and that the state
expected. He stated that the impacts would be fairly
widespread.
Senator Olson queried what other financial issues committee
might should consider, if the legislation failed.
Commissioner Balash expressed concerns that additional
costs fuel prices would continue to increase.
7:02:36 PM
Senator Olson wondered if the airports would still need
refineries after the ten-year period. Commissioner Balash
replied that he was concerned that the number of landings
in Ted Stevens International Airport would decrease.
Senator Bishop expressed additional concern that the
availability of asphalt would be affected.
HB 287 was HEARD and HELD in committee for further
consideration.
7:05:35 PM
AT EASE
7:06:14 PM
RECONVENED
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