Legislature(2005 - 2006)BUTROVICH 205
05/04/2005 03:30 PM RESOURCES
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HB 286-VALUE OF ROYALTY ON GAS PRODUCTION CHAIR WAGONER announced HB 286 to be up for consideration. SARAH NEILSON, staff to Representative Samuels, explained that HB 286 is a housekeeping bill that was brought forward by Municipal Light and Power (ML&P) that used to contract with Shell and then bought Shell's interest in the field. The Department of Natural Resources (DNR) agreed to let ML&P continue to receive the current statute treatment based on the ML&P Shell contract even after ML&P bought Shell's interest. That contract expires at the end of this year and this bill simply amends current statute by adding language that allows DNR to use the gas transfer price set by the Regulatory Commission of Alaska (RCA), much like DNR uses the contract price for gas. The transfer price is the rate the ML&P is required to charge itself for the gas that it uses. The proposed change is consistent with the purpose of the original law and will help insure that Anchorage electric consumers have certainty in their electric rates. 5:01:38 PM JIM POSEY, Municipal Light and Power, supported HB 286. It will make sure there is a process for the RCA to determine price and it's a simple change. 5:02:31 PM KATHY GIARD, Chair, Regulatory Commission of Alaska, explained: I have looked at this bill and also have looked at our recent orders that we issued regarding the setting and the establishment of the transfer price. And the process that I wanted to talk to you about, which normally occurs annually - ML&P will come before the RCA and will provide their proposed transfer price to us; we will evaluate it; we will put it out for public notice. If the public advocate, which is represented in the Attorney General's office, has any questions, they will come in and look at it. We'll hold a hearing. So, there's a pretty good public process for this transfer price to be set. I wanted to come and tell you that and give you the confidence that I don't believe the DNR will have a challenge with the results of the transfer price being too low. I think that it's calculated; it's well laid out in an order that we issued - U 97.35, which I can make available to you. 5:04:59 PM SENATOR GUESS moved to adopt SCS HB 286(RES), version F. There were no objections and it was so ordered. MARY JACKSON, staff to Senator Wagoner, explained that the SCS to HB 286 now contains the oil and gas exploration credits. Most of the incentives have already been before the committee in the form of SB 53, but there are some changes. It extends the exploration credits adopted in 2003 to every place in Alaska south of the Brooks Range through 2010. The reason is that the Nenana Basin, Red Dog, Healy and finally Cook Inlet were added and so the issue was that as each one was added, the title got larger and there finally came a point where they said let's just make it "south of." Cook Inlet is still in the title, however, and the reason is because there are specific standards for Cook Inlet and those were talked about before this committee in SB 163. The Cook Inlet standards were within three miles and 10 miles rather than outside of three miles and outside of 25 miles. The credits in this bill are different than the HB 71 credits in three other areas. One clarifies a situation that arose with exploration credits that were passed in. A regulation was adopted and there was some confusion about where and when those credits applied. This bill says exploration credits from the original piece of legislation are effective through 2007, but exploration credits that will be effective in this piece of legislation are under the different standards.... The intent of the Legislature was that this was exploration incentive credits. It was not the intent of the Legislature that these credits be extended forever, a, and, b, that it only be for exploration. It was not intended that they be for, like, delineation wells, as an example....That clarification is one that has been agreed to by both the Department of Natural Resources and the Department of Revenue. The other thing that we've done is HB 71 excluded ANWR (Arctic National Wildlife Refuge). ANWR was in the original exploration credits that are still going through to 2007. So, this bill deletes the provision that deleted ANWR. So, ANWR is still in as it was always in. It's important to recognize that those credits expire in two years - the original credits - and that there is at least one company that has stepped to the plate, so to speak, and is undergoing some work on the slope in anticipation of ANWR and were prepared to use the credits. The credits were extended; this bill keeps them in ANWR. 5:09:11 PM The other thing that this HB 286 does is that it does delete sections 1 and 2 of HB 71 that was in front of you. Now sections 1 and 2 are, of course, the sections that referenced the findings and determined the seven years and the rate of return that Ms. Robson spoke to previously. It's important to note [that] that House bill is still in the possession of this committee. 5:10:21 PM SENATOR ELTON asked if this means that ANWR is eligible until 2007 or another date. MS. JACKSON answered that ANWR is eligible until 2007 as it was eligible in the original legislation. CHAIR WAGONER expressed that was always the purpose. The Governor has always said this is to do two things - increase exploration and fill up the pipeline with oil and create jobs. It was misunderstood, because it also applied at the time to the National Petroleum Reserve - Alaska (NPR-A) - even though those were federal lands. 5:11:41 PM SENATOR GUESS asked Ms. Jackson to comment on credits in Healy and Red Dog. 5:12:13 PM At ease 5:15:01 PM MS. JACKSON replied that she had just passed out information on the Usibelli Coal Mine, which is in the Healy Basin, and information on the Red Dog Mine. Both entities had an interest. The discussion for these is similar to those other regions - they had an interest and let's do what we can to get these explorers going and offer them the credits as well. SENATOR GUESS asked if the purpose is first for gas development for the Red Dog Mine or gas development for the region. MS. JACKSON replied that she didn't want to speak for industry, but understood it to be for both. SENATOR GUESS asked if the state would have its same portion of royalty gas in those situations so if the state wanted to use the gas it could, even if the Red Dog decided not to. CHAIR WAGONER replied that depends on whose gas it is and whose land it's on. If it's on state land, yes; if it's on private land, no. 5:18:50 PM SENATOR GUESS said she supported the tax credits, but was a little worried at the breadth of language on page 3, lines 22 through 23. She said she was comfortable with Nenana, Healy, Red Dog and Cook Inlet, but asked if anything else falls under this, like coalbed methane. MS. JACKSON replied no. She has asked if there might be anything in Southeast and the answer was that there might be in some old wells that were drilled off of Yakutat. "The whole point of the legislation is to try to get things going - to develop." 5:20:23 PM SENATOR GUESS said the current SCS has an immediate effective date and SB 53 had a contingency effective date and the other bill had a no effective date. She asked if the effective dates in the SCS CSHB 286(RES) were all correct. MS. JACKSON replied yes. She explained that the reason it has an immediate effective date is because the original HB 286 had an immediate effective date. SENATOR GUESS wanted to make sure a contingency effective date wasn't needed, because HB 53 had one. MS. JACKSON reassured her that it wasn't needed in this bill. 5:21:28 PM SENATOR SEEKINS moved to pass SCS HB 286(RES) with individual recommendations and the attached fiscal note. There were no objections and it was so ordered.