Legislature(2013 - 2014)BUTROVICH 205
02/07/2013 03:30 PM Senate SENATE SPECIAL COMM ON TAPS THROUGHPUT
| Audio | Topic |
|---|---|
| Start | |
| SB21 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
SB 21-OIL AND GAS PRODUCTION TAX
3:37:10 PM
CO-CHAIR MICCICHE announced that the purpose of the meeting was
to offer a letter of intent to SB 21, version A, and to discuss
SB 21 further. He reminded the committee that amendments should
be specific to TAPS throughput.
SENATOR GARDNER moved to adopt Amendment 1, labeled 28-
GS1647\A.1:
AMENDMENT 1
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SENATOR FAIRCLOUGH objected for discussion purposes.
SENATOR GARDNER stated that she understood it was Chair
Micciche's desire to move the Letter of Intent, in which many of
her concerns are addressed. However, she opined that it was
important to discuss the bill as a committee and to talk
specifically, on the record, about areas of improvement.
CO-CHAIR MICCICHE asked Senator Gardner if she would like to
speak to her amendment.
SENATOR GARDNER explained the purpose of Amendment 1. She said
the intent of existing credits under ACES is to boost
production, create jobs and help fill the pipeline by rewarding
investment. She related that the Governor's proposal removes
that incentive, paving the way for investment elsewhere. It
rolls back taxes enabling profits to be spent as companies wish.
SENATOR GARDNER reported that she received a response to
questions she sent to the Department of Revenue that would
further explain her reasoning. She said the progressive net
profits tax encourages reinvestment. She concluded that
eliminating progressivity and the 20 percent capital credit
creates a "double whammy" and is a mistake.
SENATOR GARDNER explained that she is trying to show how capital
credits incentivize capital investment in Alaska. She stressed
that tax credits are an important part of the tax system.
3:42:14 PM
MICHAEL PAWLOWSKI, Special Assistant, Oil and Gas Project
Manager, Department of Revenue, explained how the capital
credits act in SB 21. He said the Governor's bill is built
around four core principles. The capital credits, which are
proposed to be eliminated in the bill, are being done to balance
the exposure the state has through several systems of growth.
Under low price environments, as prices drop, the revenues the
state receives go down. At the same time, the level of credit
exposure is based purely on the capital spending of the company.
The balance between those two falls out of balance to the state.
He said the best example of how that works is found on page 3 of
the fiscal note, looking at the relationship between the
revenues that come in and the credits that come out. Line 1
shows that revenue impacts of the elimination of the production
tax is subsequently balanced by the limitation of the credits
for qualified capital expenditures. The qualified capital
expenditures credit is purely based on capital spending. In that
process there is no ability to tie it directly to new
production.
SENATOR FAIRCLOUGH stated that Amendment 1 is a complicated
amendment and a complicated conversation about progressivity and
the interaction between the credits proposed in SB 21. She
pointed out that she is very interested in what happens at the
intersection between realigning the credit structure and
progressivity. She said it remains a consideration. She said she
cannot determine how the amendment affects that consideration so
she will vote against the amendment.
3:45:44 PM
CO-CHAIR MICCICHE believed that Amendment 1 was specifically
credit related and another proposed amendment was about
progressivity.
SENATOR GARDNER explained that Amendment 1 seeks to eliminate
the portions of SB 21 that delete capital credits.
CO-CHAIR MICCICHE noted that the letter of intent requests that
the next committee "Evaluate specific production-related credits
allowed under ACES for inclusion in SB 21 as a direct incentive
for costs that deliver production. Require that credits are
charged against actual production to eliminate currently-
existing negative revenue liability to the state."
MR. PAWLOWSKI pointed out that the Governor's bill seeks to
eliminate the qualified capital expenditure credit, but maintain
the 25 percent loss carry forward credit. However, the treatment
of the loss carry forward credit is changed so that the credit
is truly taken against production revenues. He said that
Amendment 1, page 2 lines 17 - 19 - the treatment of Section 23
- would upend that relationship of tying the credits to when
there is tax revenue to pay for them.
CO-CHAIR MICCICHE commented that there are members that share an
interest in investigating the carry forward credits. He believed
that would occur in the Senate Resources Committee.
SENATOR FAIRCLOUGH maintained her objection.
A roll call vote was taken. Senator Gardner voted in favor of
the motion to adopt Amendment 1 and Senators Fairclough,
McGuire, Dunleavy, and Micciche voted against it. Therefore,
Amendment 1 failed by a 1:4 vote.
3:48:41 PM
SENATOR GARDNER moved to adopt Amendment 2, labeled 28-
GS1647\A.4:
AMENDMENT 2
Page 23, line 3, following "section,":
Insert "for the first seven years immediately
following the commencement of production subject to
tax under AS 43.55.011(e),"
SENATOR FAIRCLOUGH objected for discussion purposes.
SENATOR GARDNER explained that she supports having a lower tax
rate to encourage new production and to help smaller companies
"get off the ground." She did not think the provision needed to
pertain to the entire lifetime of a field, just long enough to
enable companies to recover their investments. She proposed a
seven-year timeline for the 20 percent exclusion.
MR. PAWLOWSKI said the evolution of the provision is a good
indication of the joint work between the Department of Natural
Resources and the Department of Revenue. He requested Mr. Balash
address the reason for the long duration of the 20 percent
exclusion.
3:49:41 PM
JOE BALASH, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources, commented on the rates of
production in specific fields and the pace of development. He
said for a new field like Oooguruk or Nikaitchuq, there is a
small initial amount of production in the first year, followed
by an increase as more wells are brought into production over
the course of years. He suggested that limiting the time to
seven years would cut off the impact and value of the GRE too
early in the life of some of those wells. He said DNR looked at
life cycle economics and long-term incentives and the tradeoffs
between tax credits, tax rates, and the GRE. They came to the
conclusion that there is so much variability in the way fields
are developed, that having an artificial cut off for the GRE
would affect decision making in a negative way.
SENATOR FAIRCLOUGH asked why seven years was selected.
SENATOR GARDNER said it was modeled after the Middle Earth
provision of seven years.
CO-CHAIR MICCICHE pointed that every member of the committee is
representing Alaskans. He noted that the recommendation in
Amendment 2 is referred to in the Letter of Intent for
consideration in Senate Resources. It says, "Evaluate a time
limit into the future for the 20 percent Gross Revenue
Exclusion." He said that the committee did not state a specific
time limit, but requests that it is considered with the best
number possible.
3:52:52 PM
SENATOR FAIRCLOUGH maintained her objection.
A roll call vote was taken. Senator Gardner voted in favor of
Amendment 2 and Senators Fairclough, McGuire, Dunleavy, and
Micciche voted against it. Therefore, Amendment 2 failed by a
1:4 vote.
3:53:25 PM
SENATOR GARDNER moved to adopt Amendment 3, labeled 28-
GS1647\A.5:
AMENDMENT 3
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SENATOR FAIRCLOUGH objected for discussion purposes.
SENATOR GARDNER explained that the 25 percent net operating loss
credit levels the playing field between the producers and the
small independents still in a development phase. Whereas, the
producers can deduct development costs from their taxable
income, those still in a development phase cannot. The net
operating loss credit (NOL) compensates for the discrepancy and
helps get the development project off the ground by boosting
project economics early on before revenue is being generated. It
is one of the ways the state can really help support newcomers
to the fields. While some developers have sufficient cash to
make it through the costly and risky development phase, others
don't. The change in SB 21 will particularly harm those seeking
to develop costly oil and the more remote and challenged fields.
She said, in addition, the 15 percent interest rate proposed in
SB 21 on the deferred net operating loss credits is too high,
creating an unnecessary liability for Alaskans. It will double
in five years with the 15 percent compounded interest rate
applied - the envy of any investor.
CO-CHAIR MICCICHE said Deputy Commissioner Bruce Tangeman from
the Tax Division of the Department of Revenue was available to
answer questions.
3:55:22 PM
MR. PAWLOWSKI emphasized that it was important to distinguish
between the benefit given to an investor by the net loss carry
forward versus the deductions available under progressivity. He
referred to previous presentations by Econ One and PFC Energy,
which showed that the current system for a new entrant is
dramatically worse in terms of government take, internal rate of
return, and net present value than it is for an incumbent
producer. The reason for that is because of the deductibility
around progressivity - the extra ability to buy down the tax
rate. The net operating loss credit, which Amendment 3 refers
to, mimics the base rate power that a spending by an incumbent
has in the current system. Both an incumbent and a new entrant
each have the 25 percent base rate; however, in that a new
entrant does not have a tax rate yet, they don't get the same
benefit of the 25 percent deduction. The net operating loss
carry forward was created to make an equal playing ground for
both the incumbent and the new entrant.
He related that the Governor's treatment of the bill is to carry
those credits forward and apply them when there is production
and the state has the revenues from that production to pay for
the credit obligation. To protect the new entrant, the interest
or increase in the value of the credit of 15 percent was chosen
because it is very similar to the cost of capital for the
opportunity the company would have had under ACES, if the state
had just handed them a check. The balance of the 15 percent
number was chosen because under SB 21 the state would no longer
be writing a check for the credit, but rather, requiring that
the company carry the credit forward against production.
He pointed out that Amendment 3 would de-link the relationship
of the proposal of taking credits against revenues and move it
back to the cash payment. He stated that the issue Senator
Gardner pointed out is an important one. There are instances
where the credit payment from the state is important to
companies that don't have the access to capital to pursue the
high cost development challenges in Alaska. For companies that
do have the cash, the improvement in the life cycle economics of
SB 21 is what drives development decisions. The administration
saw that it was important to improve the overall economic
viability of the project itself so that natural forces in the
market place can start to work.
3:59:21 PM
CO-CHAIR MICCICHE inquired if a company without financial
backing would be as likely to stem the decline of throughput as
a company with "pockets," with the changes proposed in SB 21.
MR. PAWLOWSKI emphasized that all companies have an important
role. The administration is concerned with small entrants that
have found reasonable reserves of oil and tried to obtain
capital, but have not been able to. The current credit system is
not overcoming that problem. The administration is seeking to
improve the lifecycle economics in the life of projects so that
small companies can participate in their efforts to explore and
develop in Alaska. He did not want to identify winners and
losers in the conversation.
4:01:20 PM
CO-CHAIR MICCICHE asked if the changes were primarily guarding
against "the check" having a liability for a smaller company as
opposed to enjoying the revenue benefits of the company that is
making it on its own.
MR. PAWLOWSKI said from the Department of Revenue's perspective,
the point was to match up when the state was giving a benefit,
to when the state was receiving the revenues to pay for the
benefit, especially when looking at expansionist spending.
Matching up the cash flows is really important for the long term
durability of the system.
MR. BALASH emphasized the second of the Governor's principles -
incentives are geared to encouraging new production. The
Department of Natural Resources sees the credit system today as
it operates, both through the QCE and the NOL system, as an
incentive that rewards spending. Spending is a necessary part of
getting to production, but it is not the direct link. The
department's treatment of the NOL credit, in providing the
interest mechanism and restricting its applicability to future
production tax liabilities, ensures that the company can only
take advantage of that credit once they've gotten to point of
producing oil.
CO-CHAIR MICCICHE pointed out that the idea in Amendment 3 is
contained in the Letter of Intent. It says, "Evaluate removing
the Net Operating Loss provision in SB 21."
4:03:47 PM
SENATOR FAIRCLOUGH maintained her objection to Amendment 3.
A roll call vote was taken. Senator Gardner voted in favor of
Amendment 3 and Senators Fairclough, McGuire, Dunleavy, and
Micciche voted against it. Therefore, Amendment 3 failed by a
1:4 vote.
4:04:33 PM
SENATOR GARDNER moved to adopt Amendment 4, labeled 28-
GS1647\A.6:
AMENDMENT 4
Page 1, line 2, following "rate;":
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gas production;"
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"* Sec. 3. AS 43.55.011(f) is repealed and
reenacted to read:
(f) Except for oil and gas subject to (i) of
this section and gas subject to (o) of this section,
the provisions of this subsection apply to oil and gas
produced from each lease or property within a unit or
nonunitized reservoir that has cumulatively produced
1,000,000,000 BTU equivalent barrels of oil or gas by
the close of the most recent calendar year and from
which the average daily oil and gas production from
the unit or nonunitized reservoir during the most
recent calendar year exceeded 100,000 BTU equivalent
barrels. Notwithstanding any contrary provision of
law, a producer may not apply tax credits to reduce
its total tax liability under (e) of this section for
oil and gas produced from all leases or properties
within the unit or nonunitized reservoir below 10
percent of the total gross value at the point of
production of that oil and gas. If the amount of tax
calculated by multiplying the tax rate in (e) of this
section by the total production tax value of the oil
and gas taxable under (e) of this section produced
from all of the producer's leases or properties within
the unit or nonunitized reservoir is less than 10
percent of the total gross value at the point of
production of that oil and gas, the tax levied by (e)
of this section for that oil and gas is equal to 10
percent of the total gross value at the point of
production of that oil and gas. In this subsection,
"total gross value at the point of production" means
the gross value at the point of production as adjusted
by AS 43.55.160(f), if applicable."
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"(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), 10 percent of
the gross value at the point of production of that oil
and gas [THE GREATEST OF
(i) ZERO;
(ii) ZERO PERCENT, ONE PERCENT, TWO
PERCENT, THREE PERCENT, OR FOUR PERCENT, AS
APPLICABLE, OF THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE OIL AND GAS PRODUCED FROM THE LEASES
OR PROPERTIES DURING THE MONTH FOR WHICH THE
INSTALLMENT PAYMENT IS CALCULATED; OR
(iii) THE SUM OF 25 PERCENT AND THE TAX
RATE CALCULATED FOR THE MONTH UNDER AS 43.55.011(g)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION UNDER AS 43.55.165 AND
43.55.170 THAT ARE DEDUCTIBLE FOR THE OIL AND GAS
UNDER AS 43.55.160 FROM THE GROSS VALUE AT THE POINT
OF PRODUCTION OF THE OIL AND GAS PRODUCED FROM THOSE
LEASES OR PROPERTIES DURING THE MONTH FOR WHICH THE
INSTALLMENT PAYMENT IS CALCULATED];"
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SENATOR FAIRCLOUGH objected for discussion purposes.
SENATOR GARDNER opined that a goal of ACES, and also of SB 21,
is to provide a balance between encouraging investment and
production and protecting the interest of the state. She related
that Amendment [4] provides an alternative minimum tax of 10
percent of the gross value at the point of production as a
protection against low oil prices. It is applied after the 20
percent reduction SB 21 creates for new oil - the gross revenue
exclusion. It specifies that producers many not apply tax
credits to reduce their production taxes below the 10 percent
floor. The floor would apply only to fields that have already
produced a billion barrels of oil and are still producing
100,000 barrels per day, on average - essentially Prudhoe and
Kuparuk. The floor would kick in under $70 per barrel. Oil
prices have been much lower in the past. If the state takes less
from profits when oil prices are higher, it needs to protect
itself when oil prices are low.
CO-CHAIR DUNLEAVY clarified that Amendment 4 was before the
committee.
SENATOR GARDNER said that was correct.
4:06:27 PM
MR. PAWLOWSKI commented that in considering Amendment 4 it is
important to reach back to the Governor's principles. There has
been some discussion of progressive versus regressive systems.
Under the Governor's proposal, the fairness principle is what
Senator Gardner has spoken to in that, at low prices, the state
takes a higher share of the revenue. He said that principle
exists under SB 21 naturally because of the repeal of the
credits and the combination of the fixed base rate that has not
been reduced. Amendment 4 would move that regressivity by
putting a 10 percent gross floor in, perhaps even higher than it
would exist under SB 21. It would have the effect of taking a
bill that is already slightly regressive and potentially making
it more regressive.
SENATOR GARDNER responded "with the limited application to the
two biggest fields in North America, only."
A roll call vote was taken. Senator Gardner voted in favor of
Amendment 4 and Senators Fairclough, McGuire, Dunleavy, and
Micciche voted against it. Therefore, Amendment 4 failed by a
1:4 vote.
SENATOR GARDNER said she would not offer Amendment 5, but she
believes that progressivity needs to be retained.
4:08:58 PM
CO-CHAIR MICCICHE referred to the Letter of Intent and read the
section that applies to progressivity. It says, "Evaluating
employing progressivity as a tool to level the proportion of
take for Alaskans across the various oil price environments." He
concluded that everyone agrees there may be a place to "flatten
the tax."
He asked Senator Gardner if the statement, "Consider bracketing
progressivity at varying rates as the price of oil varies,"
should be eliminated from the Letter of Intent.
SENATOR GARDNER suggested amending the statement by removing the
words "bracketing" and "at varying rates."
CO-CHAIR MICCICHE asked if there were any further amendments. He
asked if the administration wished to make closing comments.
MR. PAWLOWSKI voiced appreciation for the committee's work.
CO-CHAIR MICCICHE commented that the administration is not
finished with its work on the bill. He praised the departments
for their work. He said he appreciates Senator Gardner's
comments.
SENATOR GARDNER appreciated Co-Chair Micciche's efforts at
keeping the dialogue open and getting questions answered.
SENATOR GARDNER noted that she received answers from DOR in
response to questions she submitted, some of which relate to the
Letter of Intent. She read item 7 in the letter from DOR:
The higher IRR's for ACES incumbents result entirely
from the "buy-down' effect. Additional investment
under ACES allows an incumbent to 'buy-down' its tax
rate on existing production. Under the ACES system a
producer can earn those higher IRR's, but only if it
reinvests in Alaska to buy down its tax rate. It
cannot earn those returns if it chooses to distribute
its profits to shareholders, which is vitally
important to management, not to mention shareholders.
She said this was exactly the information she wanted.
SENATOR GARDNER said the quote is on page 3, slide 7.
SENATOR GARDNER remarked about how the additional investment
under ACES allows the company to buy down its existing tax rate
on production. Under ACES, a producer earns those high IRR's
only if it re-invests in Alaska to buy down its rate. That is
exactly the intent of ACES, and SB 21 lacks this provision.
4:14:15 PM
MR. PAWLOWSKI pointed out that some of the questions were
specific to the administration's consultant, Econ One. The
consultant's opinion continues in that sentence, "In this sense,
the profits (and associated higher IRR's) are somewhat 'captive'
and may not be viewed as being of same quality (i.e.,
comparable) to profits earned in other jurisdictions where no
such strings are attached." He said the administration looks
forward to talking through the efficiencies of the incentives.
CO-CHAIR MICCICHE thought it was important to consider the
entire answer. It implies that the IRR is one factor and should
not be viewed in isolation. He summarized that IRR calculations
that vary greatly from most other opportunities should be taken
with "a grain of salt."
SENATOR FAIRCLOUGH asked that the response from DOR be included
in the public record.
CO-CHAIR MICCICHE expressed appreciation to the administration.
4:16:19 PM
SENATOR GARDNER stated that she can't sign on to the Letter of
Intent at this time, but she does not object to the committee's
moving it forward.
4:16:43 PM
SENATOR FAIRCLOUGH said she appreciates the complexity of the
tax structure that both industry and the administration face
every day. She noted that she believes in the principles the
Governor has brought forward. She stated that she believes that
Alaska is not competitive for a variety of reasons and the state
needs to make some changes to make sure that industry can
flourish and Alaskans can have confidence in their tax system to
know that it is in place to benefit all Alaskans. The process of
changing the tax system should be bicameral and bipartisan in
efforts to make sure Alaskans' future is secure.
She said she agrees that there is a correlation between a
regressive nature and when progressivity is removed. She wants
Alaskans to share in the benefits as the price of oil increases.
She said this committee has not been able to see how the credits
proposals will affect the bottom line and she looks forward to
that future discussion. She wished for a conversation with the
administration about why simplicity is better than
progressivity.
She did not want the record to reflect that she is in total
agreement about progressivity, because the current rate is too
high. She said she is trying to understand the issue on behalf
of her constituents. She spoke of a goal to see new explorers in
Alaska, as well as new exploration in the legacy fields. She
stated support for the committee's Letter of Intent and
appreciation for all positions. She hoped that in the future
amendments could be viewed sooner. She said she appreciates that
the chair was able to provide an opportunity for Alaskans to
have a say. She also voiced appreciation for Co-Chair Micciche's
leadership and for Senator Gardner's contributions.
CO-CHAIR MICCICHE reminded the public that this is not an oil
tax committee.
CO-CHAIR DUNLEAVY said looking at ACES and SB 21 has been an
enlightening experience, as has taking a look at Alaska and its
future. He hoped Alaska was not at the end of the golden age for
oil. He said the goal is to find a way to continue oil
production. This process has been one of turning over stones and
will continue to be so. He said although the current topic is
focused on oil, it will morph from oil into business investment
in Alaska and personal spending policies. He said many non-oil
industries are watching the tax process and Alaska's future. The
question is whether Alaska will become a destination for
investment and job growth. Alaska's fiscal policy will continue
to be discussed in the future.
4:23:46 PM
CO-CHAIR DUNLEAVY moved to report SB 21, labeled [28-GS1647\A],
from committee with individual recommendations and the
accompanying fiscal notes.
SENATOR GARDNER objected.
A roll call vote was taken. Senators Fairclough, McGuire,
Dunleavy, and Micciche voted in favor of reporting SB 21 and
Senator Gardner voted against it. Therefore, the motion to
report SB 21 was passed by a 4:1 vote.
CO-CHAIR DUNLEAVY moved to report the Letter of Intent. No one
stated objection.
CO-CHAIR MICCICHE read the Letter of Intent:
The Senate Special Committee on Trans Alaska Pipeline
System (TAPS) Throughput was formed specifically to
evaluate solutions designed to reverse or
significantly reduce the historical decline in the
quantity of oil produced from leases or properties
north of 68 degrees North latitude and shipped through
the Trans Alaska Pipeline System. The Committee
recognizes that oil revenue is extremely important to
the State of Alaska and currently funding over 90% of
Alaska's essential services and critical
infrastructure including education, public safety,
health and social services and transportation. The
Committee is also aware that projected declines in the
Trans Alaska Pipeline System throughput may compound
the operational and cost issues that could jeopardize
the viability and safe operation of the Trans Alaska
Pipeline System.
The Committee was the first to consider SENATE BILL 21
"An Act relating to appropriations from taxes paid
under the Alaska Net Income Tax Act; relating to the
oil and gas production tax rate; relating to gas used
in the state; relating to monthly installment payments
of the oil and gas production tax; relating to oil and
gas production tax credits for certain losses and
expenditures; relating to oil and gas production tax
credit certificates; relating to nontransferable tax
credits based on production; relating to the oil and
gas tax credit fund; relating to annual statements by
producers and explorers; relating to the determination
of annual oil and gas production tax values including
adjustments based on a percentage of gross value at
the point of production from certain leases or
properties; making conforming amendments; and
providing for an effective date."
The Committee held six meetings with the intent of
framing the discussion around SB 21 through a lens of
evaluating direct impacts to the TAPS production
decline. The Committee process was designed for
fairness and equal participation by majority and
minority members. The Committee included expert
consultant, agency, the Alaskan public and industry
testimony in the process through many productive hours
and publicly-available meetings evaluating the
potential positive and negative effects on production
through revised Alaska oil tax policy. Most
importantly, the Committee provided over five hours of
Committee time for public testimony from every LIO in
the state, as well as telephonically from any
location. Every Alaskan that chose to address the
Committee was warmly welcomed and given the
opportunity to share their support and/or concerns.
The Committee has arrived at several key findings
after completing the process of evaluating SB 21 and
the effects of oil tax on production. They include:
· Regarding oil revenue that funds the vast majority of
governmental functions for the people of Alaska, there
are many factors in which the State has little
control, including the price of North Slope oil.
Total government take through oil taxation is the only
lever under the control of the people of Alaska.
· The ACES tax structure has likely contributed to
advancing the decline of oil production and throughput
in TAPS, primarily due to a lack of competitiveness
with other OEDC producing regions.
· When evaluating with increased production as a primary
objective, ACES credits should have been more
specifically directed toward projects resulting in
production and less toward general spending.
· Specific incentives and a competitive oil tax regime
in Alaska will likely result in additional production-
related spending.
· There has been a direct correlation in other OEDC
producing regions between production-related spending
and increased production.
· Current fiscal spending policies appear to have an
adverse effect on the business climate and willingness
to invest in the State of Alaska. Policies must
deliver the clear message to the business community
that Alaska will not continue taxing to fund
unsustainable levels of government spending.
· Although SB 21 is an adequate platform from which a
respectful dialogue can begin, in the current form the
bill may not adequately provide production credit
incentives and opportunities; a level revenue
proportion for Alaskans; and protections for Alaska
hire and re-investment.
The Committee's intent to pass the bill to the Senate
Resources Committee in the original form for further
processing is in no way an expression of support by
Committee members for SB 21 in current form. In fact,
most members have expressed concern for key concepts
that would require revision prior to supporting the
bill as it moves through the legislative process.
Key concerns being passed through this letter with an
expectation of consideration moving forward will be
communicated in two sections. The first section below
includes throughput-related Committee recommendations:
· Evaluate providing a guarantee of investment in
Alaska and a further incentive for stemming production
decline from leases or properties north of 68 degrees
North latitude by fixing the amount of production used
in determining the reasonable transportation costs to
determine transportation deduction costs for pipelines
and gas treatment plants under the Oil and Gas
Production Tax and Oil Surcharge, AS 43.55, so that
producers receive a benefit for increased oil
production and throughput in the Trans Alaska Pipeline
System but incur a corresponding limitation on
deductions due to throughput declines after December
31, 2015.
· Evaluate expanding the application of the Gross
Revenue Exclusion in units formed before 2003 (Legacy
Areas). The Senate Resources Committee should
specifically inquire about expansions of existing
Participating Areas, increasing recovery factors in
existing Participating Areas, and Participating Areas
that contain oil with an API gravity of 20 degrees or
less.
· Evaluate specific production-related credits allowed
under ACES for inclusion in SB 21 as a direct
incentive for costs that deliver production. Require
that credits are charged against actual production to
eliminate currently-existing negative revenue
liability to the State.
The Committee is united in several philosophies that
are also recommendations to be considered in SB 21,
not related to throughput, including:
· Firm incentives for Alaska Hire and Alaska Purchase,
4:31:14 PM
CO-CHAIR MICCICHE commented that Senator Dunleavy and he are
interested in evaluating a program for incentivizing Alaska hire
and Alaska purchase.
· Evaluating significant and specific incentives for
unconventional and heavy oil,
· Evaluating a production credit system for producers
willing to provide propane fuels for the people of
rural Alaska in areas unlikely to receive natural gas
distribution if/when a natural gas pipeline is
constructed, and
· Evaluating employing progressivity as a tool to level
the proportion of take for Alaskans across the various
oil price environments.
Although not supported unanimously by the Committee,
yet in the spirit of fairness for all Committee
members, the Minority Committee member has requested
the following considerations to be passed onto the
Senate Resources Committee:
· Evaluate a time limit into the future for the 20%
Gross Revenue Exclusion.
· Evaluate removing the Net Operating Loss provision in
SB 21.
· Evaluate adding a 10% minimum gross tax at the gross
value at the point of production.
· Consider progressivity as the price of oil varies.
The Senate Special Committee on Trans Alaska Pipeline
System (TAPS) Throughput will continue to convene to
identify and evaluate additional mitigation solutions
for operational and regulatory TAPS production-related
obstacles in the future. The Committee looks forward
to the constructive dialogue and additional processing
that will occur within the Legislature related to SB
21 the remainder of this session.
4:32:53 PM
CO-CHAIR MICCICHE said the letter would be respectively
submitted to the Senate Resources Committee on February 7, 2013.
CO-CHAIR MICCICHE called for a vote on the accompanying Letter
of Intent.
A roll call vote was taken. Senators Fairclough, McGuire,
Dunleavy, and Micciche voted in favor of adopting the Letter of
Intent and Senator Gardner voted against it. Therefore, the
motion was passed by a 4:1 vote.
CO-CHAIR MICCICHE summarized that both the Letter of Intent and
SB 21 have passed from committee. He noted that all committee
members see room for improvement for SB 21 as it moves through
the process. He said SB 21 passes with individual
recommendations, attached fiscal notes, and the accompanying
Letter of Intent.
He thanked the committee members, the administration, and staff
for their hard work on SB 21.
SENATOR GARDNER reiterated that Co-chair Micciche has done a
good job leading the committee. She said her vote against the
letter was due to being unfamiliar with the content.
CO-CHAIR MICCICHE stressed that the most important
accomplishment was to begin a dialogue on a bill that will
require further hard work. He thanked the public for their
testimony.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 21 DOR Responses to Sen. Gardner's questions 2-7-13.PDF |
STTP 2/7/2013 3:30:00 PM |
SB 21 |
| SB 21 amendments 2-7-13.PDF |
STTP 2/7/2013 3:30:00 PM |
SB 21 |
| SB 21 Letter of Intent.PDF |
STTP 2/7/2013 3:30:00 PM |
SB 21 |