Legislature(2005 - 2006)BUTROVICH 205

05/04/2005 03:30 PM RESOURCES

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Heard & Held
Heard & Held
Moved SCS HB 286(RES) Out of Committee
           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                                                                    
     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.                                                                                               

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