Legislature(2005 - 2006)SENATE FINANCE 532

05/06/2005 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
Moved CSSB 73(FIN) Out of Committee
Scheduled But Not Heard
Heard & Held
Moved SCS CSHB 147(FIN) Out of Committee
Moved CSHB 54(FIN) Out of Committee
Moved SCS CSHB 286(RES) Out of Committee
Heard & Held
Scheduled But Not Heard
<Pending Referral>
Bills Previously Heard/Scheduled
Moved CSSB 46(FIN) Out of Committee
     SENATE CS FOR HOUSE BILL NO. 286(RES)                                                                                      
     "An  Act  amending  the  manner  of  determining   the  royalty                                                            
     received  by  the state  on  gas production  by  directing  the                                                            
     commissioner  of  natural resources  to accept,  under  certain                                                            
     circumstances, the  transfer price of the gas if established by                                                            
     transfer  price order of the  Regulatory Commission  of Alaska;                                                            
     extending  and  amending  the requirements  applicable  to  the                                                            
     credit that may be  claimed for certain oil and gas exploration                                                            
     expenses incurred  in Cook Inlet against oil and gas properties                                                            
     production  (severance) taxes, and amending the  credit against                                                            
     those  taxes for certain exploration  expenditures from  leases                                                            
     or  properties in  the state;  and providing  for an  effective                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
REPRESENTATIVE  RALPH  SAMUELS,  the bill's  sponsor,  informed  the                                                            
Committee  that one component  of this bill  would address  an issue                                                            
brought forward by Anchorage  Municipal Light and Power (ML&P). That                                                            
issue involves  how the Department of Natural Resources  (DNR) would                                                            
value ML&P  gas royalty prices. Currently,  DNR would establish  the                                                            
royalty price based upon  "the value of a contract that Shell had at                                                            
the Beluga  River Field  with Municipal Light  and Power.  Municipal                                                            
Light & Power then bought  Shell's interest in the field itself. DNR                                                            
agreed to  use the contract  price until  the contract expired.  The                                                            
contract expires  in 2005 and the  language in the bill would  allow                                                            
DNR to use  the transfer price now  since there is no longer  a sale                                                            
going on they own the gas  in the field. They are transferring it to                                                            
themselves. The transfer  price is set by" the Regulatory Commission                                                            
of Alaska (RCA).  He noted that RCA has voiced its  support for this                                                            
Co-Chair Green  understood that the bill's sponsor  would appreciate                                                            
testimony being presented  by the RCA in regards to Section 1, which                                                            
is the section that pertains to ML&P.                                                                                           
Representative Samuels affirmed.                                                                                                
10:45:28 AM                                                                                                                   
MARY JACKSON,  Staff to Senator Tom  Wagoner and Aide to  the Senate                                                            
Resources  Committee,   stated  that  her  comments   would  address                                                            
Sections  2  through  9 of  the  Senate  Resources  (RES)  Committee                                                            
committee  substitute  before   the Committee.   The  RES  Committee                                                            
decided to  include in this bill the  Exploration Incentives  Credit                                                            
program that  originated in  HB 71. That bill  would, at this  time,                                                            
remain "in the possession of the Senate Resources Committee".                                                                   
Ms.  Jackson continued  that  this bill  therefore  would extend  to                                                            
Bristol Bay and  other areas such as the Healy, Red  Dog, and Nenana                                                            
Basin, the incentive  credits that were initially  developed for the                                                            
Alaska Peninsula.  A different  set of  incentives, mirroring  those                                                            
specified in SB 163, would apply to Cook Inlet.                                                                                 
10:46:53 AM                                                                                                                   
Co-Chair Green  ascertained therefore  that the provisions  included                                                            
in this bill are "all recent" events.                                                                                           
Ms. Jackson  affirmed. Therefore,  this bill  would establish  a new                                                            
set of  exploration credits,  modeled after  the exploration  credit                                                            
program authorized  in the  year 2003 in SB  185. She remarked  that                                                            
the Senate Finance  Committee at that time was the  first to conduct                                                            
hearings on that credit program too.                                                                                            
Ms.  Jackson noted  that  this  bill would  extend  the exploration                                                             
credits  program to  all areas  of the  State "south  of the  Brooks                                                            
Range".  Specific standards  and rules  for the  exploration  credit                                                            
program would apply to  the Cook Inlet Basin because that area "is a                                                            
more mature basin." The  Senate Resources Committee also altered two                                                            
other provisions  that were included  in the original version  of HB
286:  they  "eliminated  the  clause  that  eliminated"  the  Arctic                                                            
National Wildlife Refuge  (ANWR). While ANWR had been included in SB
185 in the  year 2003, it had been  eliminated from the exploration                                                             
credit program  included in the original  version of this  bill. The                                                            
RES  Committee  also addressed  "some  concern"  in regards  to  the                                                            
regulation timeline  that had been written in regards  to SB 185. As                                                            
a result, a  new set of regulations  would be implemented  after the                                                            
regulations enacted by SB 185 expire in 2007.                                                                                   
Ms.  Jackson   informed  the  Committee   that  there  has   been  a                                                            
substantial  amount of  support for  all areas  of this legislation                                                             
throughout its development.                                                                                                     
Co-Chair Green asked whether  the Legislature might receive negative                                                            
feedback and be  accused of "giving away the farm"  were it to adopt                                                            
this bill.                                                                                                                      
Ms. Jackson  responded  that such  feedback would  be unlikely.  The                                                            
purpose  of  the legislation   would be  "to  put  some oil  in  the                                                            
Co-Chair  Green  agreed  that  an  increase  in  oil  production  is                                                            
"absolutely needed" to refill the pipeline.                                                                                     
Co-Chair  Green asked  Kate Giard  of the Regulatory  Commission  of                                                            
Alaska to comment  in regards to the inclusion of  the ML&P transfer                                                            
price specified in Section 1 of the bill.                                                                                       
KATE GIARD,  Chairman, Regulatory  Commission of Alaska,  Department                                                            
of Commerce, Community  and Economic Development, shared that due to                                                            
the fact  that ML&P  is a regulated  utility,  RCA had reviewed  the                                                            
issue  and  via  an   [unspecified]  RCA  order  had   conveyed  the                                                            
methodology  that would be acceptable  to the RCA in regards  to the                                                            
transfer  price. RCA "has  fully vetted"  the calculation  mechanism                                                            
regarding  ML&P's  transfer  price  and is  "comfortable  with  this                                                            
10:50:08 AM                                                                                                                   
Ms. Giard specified  that ML&P would  file, on an annual  basis, the                                                            
transfer price  calculation. RCA would review that  information and,                                                            
were a question  or concern to arise, a 30-day comment  period would                                                            
be established  in  which people  could  comment in  regards to  the                                                            
transfer   price.   In   addition,   were   the   Attorney   General                                                            
"representing the public  advocate" concerned about the calculation,                                                            
he or  she would  intervene  in the  process. This  would allow  the                                                            
public to have  an opportunity to get involved in  process involving                                                            
the calculation  of the transfer price.  She assured that  a process                                                            
was  in place,  the  transfer price  would  be calculated,  and  the                                                            
Department of  Natural Resources should not experience  any problems                                                            
with it. In summary, RCA "fully supports" the legislation.                                                                      
Senator Dyson  noted, for the record,  that he had been a  member of                                                            
the Municipality  of  Anchorage Assembly  during  the time that  the                                                            
original  transfer price  negotiations  had been  conducted, and  as                                                            
such had played  a significant but  strictly public process  role in                                                            
the endeavor.                                                                                                                   
Senator  Olson questioned  the reason  that a  specific latitude  is                                                            
identified  in Sec. 3, page three  line 23 of the bill. The  area in                                                            
question is in his election district.                                                                                           
10:51:57 AM                                                                                                                   
Ms. Jackson  responded that the original  tax that became  effective                                                            
with the 2003  legislation is in place in regards  to this area. The                                                            
language  in questions  would  allow the  existing tax  codes to  be                                                            
extended  out to the  year 2010  for areas south  of the  identified                                                            
Senator  Olson  asked  for  confirmation  that  the  tax  codes  are                                                            
currently in place.                                                                                                             
Ms. Jackson affirmed.  The 2003 legislation had established  a four-                                                            
year incentive  program that would  be in effect from 2003  to 2007.                                                            
ANWR was included in this  legislation in order to allow exploration                                                            
in that area to qualify.  She understood there to be one entity that                                                            
is considering conducting seismic studies there.                                                                                
In response  to a question from Co-Chair  Green, Ms. Jackson  stated                                                            
that the  new credits  provided in  this bill  would apply to  areas                                                            
"south of the Brooks Range".                                                                                                    
Co-Chair  Wilken  moved  to  report the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There being  no objection,  SCS HB 286(RES),  accompanied by  Senate                                                            
Concurrent  Resolution #16,  was REPORTED  from Committee with  zero                                                            
fiscal  note #2 dated  May 5, 2005  from the  Department of  Natural                                                            
Resources; indeterminate  fiscal note #3 dated May  5, 2005 from the                                                            
Department  of Revenue; and  zero fiscal note  #4 dated May  5, 2005                                                            
from   the  Department   of   Commerce,   Community   and   Economic                                                            
10:53:21 AM 10:54:27 AM                                                                                                     

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