Legislature(1997 - 1998)

04/24/1997 08:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                     HOUSE FINANCE COMMITTEE                                   
                         APRIL 24, 1997                                        
                            8:10 A.M.                                          
                                                                               
  TAPE HFC 97 - 112, Side 1, #000 - end.                                       
  TAPE HFC 97 - 112, Side 2, #000 - #251.                                      
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair Gene Therriault called  the House Finance Committee                 
  meeting to order at 8:10 A.M.                                                
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Hanley               Representative Kelly                           
  Co-Chair Therriault           Representative Kohring                         
  Representative Davies         Representative Martin                          
  Representative Davis          Representative Moses                           
  Representative Foster         Representative Mulder                          
  Representative Grussendorf                                                   
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Senator Bert  Sharp; Representative Mark Hodgins;  Ken Boyd,                 
  (Testified via  teleconference), Director,  Division of  Oil                 
  and Gas,  Department of  Natural Resources;  Bill Van  Dyke,                 
  (Testified via  teleconference), Division  of  Oil and  Gas,                 
  Department of Natural  Resources; Randy Simmons,  (Testified                 
  via teleconference), Executive  Director, Alaska  Industrial                 
  Development Export Authority (AIDEA), Department of Commerce                 
  and Economic Development.                                                    
                                                                               
  SUMMARY                                                                      
                                                                               
  SB 13     An Act relating to taxes on cigarettes and tobacco                 
            products,  and to the use of the proceeds of those                 
            taxes; and providing for an effective date.                        
                                                                               
            HCS CS SB 13 (HES)  was reported out of  Committee                 
            with individual recommendations and  with a fiscal                 
            note by the Department of Revenue dated 4/07/97.                   
                                                                               
  HCR 16    Proposing recommendations concerning  the sale  of                 
            the Four Dam Pool hydroelectric facilities.                        
                                                                               
            CS HCR 16 (FIN) was reported out of Committee with                 
            a "do pass" recommendation and  with a fiscal note                 
            by  the   Department  of  Commerce   and  Economic                 
            Development.                                                       
                                                                               
  HB 242    An Act relating to unpaid, underpaid, and overpaid                 
            royalty  and  net  profit share  payments  due  on                 
                                                                               
                                1                                              
                                                                               
                                                                               
            leases of  state land  and to  the collection  and                 
            payment of interest on those payments.                             
                                                                               
            HB 242 was  reported out of  Committee with a  "do                 
            pass" recommendation  and with a zero  fiscal note                 
            by the Department of Natural Resources.                            
  SENATE BILL 13                                                               
                                                                               
       "An Act  relating to  taxes on  cigarettes and  tobacco                 
       products,  and to  the  use of  the  proceeds of  those                 
       taxes; and providing for an effective date."                            
                                                                               
  SENATOR BERT SHARP noted that SB 13 was an education bill, a                 
  health bill and  a revenue  bill.  He  provided a  sectional                 
  analysis of the bill.                                                        
                                                                               
  Senator  Sharp  stated  that  Section  #1 would  detail  the                 
  legislative intent and purpose of the bill.  This section of                 
  the  bill directs  the  cigarette tax  be  deposited to  the                 
  existing  "dedicated  school  fund"  and  only be  used  for                 
  rehabilitation,  construction  and  repair  of  the  State's                 
  school facilities.                                                           
                                                                               
  Section  #2,  #3  and #4  would  increase  the  tax on  each                 
  cigarette  by seventy-one cents per pack.   Section #5 would                 
  increase  the excise  tax on  tobacco  products from  25% of                 
  wholesale value to 75% of wholesale value.  Section #6 would                 
  amend  the  statutes to  change  the percentage  the license                 
  deducts to  cover accounting  and filing  expenses from  one                 
  percent to four-tenths of one percent.   Sections #7, #9 and                 
  depending on any possible court decisions.  Section #8 would                 
  allow for a retroactive fall-back  clause to accommodate any                 
  court ordered changes.                                                       
                                                                               
  Representative  J. Davies MOVED to  report HCS CSSB 13 (HES)                 
  out of  Committee with  individual recommendations  and with                 
  the  accompanying  fiscal   note.    Representative  Kohring                 
  OBJECTED.                                                                    
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      J.   Davies,   G.   Davis,  Grussendorf,                 
                      Martin, Hanley, Therriault                               
       OPPOSED:       Mulder, Foster, Kelly, Kohring, Moses                    
                                                                               
  The MOTION PASSED (6-5).                                                     
                                                                               
  HCS  CSSB 13  (HES)  was  reported  out  of  Committee  with                 
  individual recommendations  and with  a fiscal  note by  the                 
  Department of Revenue dated 4/07/97.                                         
                                                                               
                                2                                              
                                                                               
                                                                               
  HOUSE CONCURRENT RESOLUTION 16                                               
                                                                               
       Proposing recommendations  concerning the  sale of  the                 
       Four Dam Pool hydroelectric facilities.                                 
                                                                               
  Co-Chair Hanley MOVED  that work draft, 0-LS0755\B,  Cramer,                 
  4/18/97,  be the version before  the Committee.  There being                 
  NO OBJECTION, it was adopted.                                                
                                                                               
  Representative Grussendorf  MOVED  to  adopt  Amendment  #1.                 
  [Copy on file].  Co-Chair Therriault OBJECTED.                               
                                                                               
  Representative  Grussendorf  explained  that  the  amendment                 
  would allow  Alaska Industrial Development  Export Authority                 
  (AIDEA)  to  be  responsible  for  investments to  make  the                 
  determination what would  be in  the State's best  interest.                 
  He  reminded  members  that AIDEA  generates  a  $11 million                 
  dollar revenue stream each year.                                             
                                                                               
  Co-Chair  Hanley  pointed  out  that it  was  not  AIDEA who                 
  originally requested the sale; the Legislature placed intent                 
  language in a previous year's bill.  He added, whether it is                 
  a community process  or private enterprise, both  would need                 
  to come to the Legislature to debate the deal.  He  believed                 
  that if the  communities do  not come up  with a  reasonable                 
  offer, private sector bids should be placed.                                 
                                                                               
  Representative Grussendorf referenced a memo sent to Speaker                 
  Gail  Phillips by Randy  Simmons, Executive Director, AIDEA,                 
  stipulating that if no positive direction had been taken  by                 
  July  31,   1997,  it  was  AIDEA's  intent  to  seek  other                 
  proposals.  AIDEA has already  indicated that they will seek                 
  alternative measures.  He noted that  he had faith in AIDEA,                 
  while questioning the Legislative mandate.                                   
                                                                               
  Representative Martin commented that  the Legislature should                 
  be the  authority that makes  the "policy call"  whether the                 
  dams are to be sold.  At that time, AIDEA can guarantee that                 
  the State receive the best deal.                                             
                                                                               
  Co-Chair Therriault agreed with Co-Chair Hanley, elaborating                 
  that the State  needs a  definite answer.   If the  proposal                 
  comes back from the utilities and  AIDEA believes that it is                 
  not  an  acceptable  arrangement  for  the State,  then  the                 
  private  sector should be given  an opportunity.  AIDEA will                 
  have  the  authority  to  determine  if  the  proposals  are                 
  acceptable  and  whether  they should  be  submitted  to the                 
  Legislature for ratification.  The  Legislature will control                 
  the final decision.                                                          
                                                                               
  Representative J. Davies MOVED an amendment to Amendment #1.                 
                                                                               
                                3                                              
                                                                               
                                                                               
  He proposed to delete "that" and "the Four Dam Pool Projects                 
  should be  sold", and  insert "and  request for  proposal is                 
  appropriate  at  that time".    That language  would require                 
  AIDEA  to  decide  whether  or  not.      An  RFP  would  be                 
  appropriate at that point in time.  There being NO OBJECTION                 
  to   the   amended  language   to   Amendment  #1,   it  was                 
  incorporated.                                                                
                                                                               
  Representative  Grussendorf  commented  that  the  amendment                 
  change would allow AIDEA a little more time to evaluate what                 
  the next approach should be.                                                 
                                                                               
  A roll  call vote was  taken on the MOTION  to adopt amended                 
  Amendment #1.                                                                
                                                                               
       IN FAVOR:      J.   Davies,   G.   Davis,  Grussendorf,                 
                      Martin, Moses                                            
       OPPOSED:       Foster,    Kelly,    Kohring,    Mulder,                 
                      Therriault, Hanley                                       
                                                                               
  The MOTION FAILED (5-6).                                                     
                                                                               
  Representative Grussendorf  MOVED  to  adopt  Amendment  #2.                 
  [Copy on file].  Co-Chair Therriault OBJECTED.                               
                                                                               
  Representative Grussendorf  explained  that  at  this  time,                 
  AIDEA is operating with two ground rules:                                    
                                                                               
       *    The power sale agreement remain in tact; and                       
       *    The State  back  away and  assume no  greater                      
            risk.                                                              
                                                                               
  At this  time, negotiations  have begun  using these  ground                 
  rules.  He emphasized  that the Power Sales  Agreement (PSA)                 
  is the most important aspect of the negotiations  and should                 
  be guaranteed.                                                               
                                                                               
  Co-Chair Hanley asked  what restrictions had been  placed on                 
  the power sales agreement,  and if it would be  difficult to                 
  relieve the State of it's liability if there were no changes                 
  to that agreement.                                                           
  RANDY  SIMMONS,  EXECUTIVE   DIRECTION,  ALASKA   INDUSTRIAL                 
  DEVELOPMENT  EXPORT   AUTHORITY,  noted  that  it  would  be                 
  difficult   to   relieve   the   State   of  all   of   it's                 
  responsibilities.   The State  could be  relieved under  the                 
  contracts  by  selling the  facilities.   He  explained that                 
  Representative Grussendorf's language addressed if there was                 
  a major  disaster and the State had sold the dams, would the                 
  buyer come back to  the State requesting relief.  If a State                 
  entity  finances  the  sale  of  the  utilities,  the  State                 
  maintains some risk.                                                         
                                                                               
                                                                               
                                4                                              
                                                                               
                                                                               
  He   reiterated   the   two   most  important   requirements                 
  established by AIDEA are:                                                    
                                                                               
       *    The  power  sales  agreement  stays in  place                      
            until after the sale; and                                          
       *    The  State  be relieved  of  its risk  in the                      
            contract.                                                          
                                                                               
  Mr.  Simmons  stressed  that AIDEA  has  never  implied that                 
  should a party to the agreement want to amend or change that                 
  agreement, that they  could not do  it.  Instead, AIDEA  has                 
  maintained that they want to sell all  the dams as a package                 
  rather than selling the two best  dams and leaving the State                 
  with the two that  have problems.  He reiterated  that AIDEA                 
  has never said that  the private sector could not  work with                 
  the utilities to make changes in the PSA.                                    
                                                                               
  Co-Chair  Therriault  pointed out  that  if the  language of                 
  Amendment  #2 was adopted, the  private sector would have an                 
  unfair constraint.   Mr. Simmons noted  that a PSA could  be                 
  amended by all involved parties.                                             
                                                                               
  Representative J. Davies noted that  if the utilities agreed                 
  to a change in the PSA, there  would then be a new PSA or no                 
  PSA.  If a  private sector offer  comes in and relieves  the                 
  State of the PSA, they are picking up the State's obligation                 
  in the PSA.  After that transaction occurs, if the utilities                 
  and  private  entities agree  to  make  the  PSA  work,  the                 
  original contract would be preserved.   The State submitting                 
  an RFP suggests  that it  is not upholding  responsibilities                 
  under the PSA.   He argued that the State should  live up to                 
  their agreement.                                                             
                                                                               
  Representative  J.  Davies MOVED  to  amend Amendment  #2 by                 
  adding language "and  continue the State's obligation  under                 
  the  PSA".   That language  would  guarantee that  whom ever                 
  takes responsibility would need to maintain the terms of the                 
  agreement.  Co-Chair Therriault asked what the directive had                 
  been to the utilities.  Mr.  Simmons replied that the intent                 
  was that the agreement would remain in place until the point                 
  of sale.   AIDEA would request  that all contracts in  place                 
  now be fulfilled.                                                            
                                                                               
  Mr. Simmons suggested  adding language to Amendment  #2, "as                 
  in place today".  In  response to Representative Therriault,                 
  Mr. Simmons  noted that  the utilities  would not be  barred                 
  from  participating  in  an  open  RFP  process.    Co-Chair                 
  Therriault  suggested that  awareness would remove  the need                 
  for Amendment #2.  Mr. Simmons  testified that if the intent                 
  of the  Legislative body was  not to fulfill  the contracts,                 
  but  instead put an  RFP out to breech  it, then AIDEA needs                 
  direction regarding that intent.  If  that is not the intent                 
                                                                               
                                5                                              
                                                                               
                                                                               
  of the Legislature, that  should then be clarified.   If the                 
  Legislature  does  not  intent  for   the  contracts  to  be                 
  breached,  Mr.  Simmons agreed  the  amendment would  not be                 
  needed.   Co-Chair  Therriault replied that  it was  not his                 
  intent nor that of  the prime sponsor that the  contracts be                 
  breached.                                                                    
                                                                               
  Representative J. Davies WITHDREW the amendment to Amendment                 
                                                                               
  Representative Grussendorf MOVED additional  language change                 
  to Amendment #2, adding  the language previously recommended                 
  by Mr.  Simmons, "as in  place today".  He  pointed out that                 
  HCR 16  is a resolution and all important information should                 
  be indicated.                                                                
                                                                               
  Representative J. Davies  agreed that the amendment  was not                 
  technically necessary,  but noted that  concern exists among                 
  the  utilities  which   has  not   been  addressed  in   the                 
  resolution.  He  emphasized that it is  appropriate that the                 
  game rules are up front, which  they would be with inclusion                 
  of the amended  language.  There  being NO OBJECTION to  the                 
  amended language  to Amendment #2, it was adopted.  Co-Chair                 
  Therriault  OBJECTED  to  the  amended  Amendment  #2.    He                 
  believed that language was not needed.                                       
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      G. Davis, Grussendorf, Kelly,  Moses, J.                 
                      Davies                                                   
       OPPOSED:       Foster,    Kohring,    Martin,   Mulder,                 
                      Therriault, Hanley                                       
                                                                               
  The MOTION FAILED (5-6).                                                     
                                                                               
  Representative G.  Davis WITHDREW  Amendment #3.   [Copy  on                 
  file].  There being NO OBJECTION, it was withdrawn.                          
                                                                               
  Representative J. Davies MOVED to adopt Amendment #4.  [Copy                 
  on file].  Co-Chair Therriault OBJECTED.                                     
                                                                               
  Representative J. Davies explained that  the amendment would                 
  delete  the  "whereas"  section  which  addresses  what  the                 
  contracts are worth.  He suggested that it was inappropriate                 
  language and could  be harmful  to the State.   Mr.  Simmons                 
  advised that a hard and fast number could not be calculated.                 
  The  number  determined  by  the  sponsor corresponds  to  a                 
  specific  set of  circumstances  including current  repairs.                 
  There are a range of numbers  which could determine the sale                 
  price.                                                                       
                                                                               
  (Tape Change HFC 97-112, Side 2).                                            
                                                                               
                                6                                              
                                                                               
                                                                               
  Representative  Martin  suggested  that  AIDEA  be  given  a                 
  "bottom line"  expected price.   Co-Chair  Therriault agreed                 
  that depending on the parameters used in making the bid, the                 
  value could  change.  He WITHDREW his OBJECTION to Amendment                 
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      Grussendorf, Kelly, Moses, J. Davies, G.                 
                      Davis, Hanley, Therriault                                
       OPPOSED:       Foster, Kohring, Moses, Mulder                           
                                                                               
  The MOTION PASSED (7-4).                                                     
                                                                               
  Representative J. Davies MOVED to adopt Amendment #5.  [Copy                 
  on  file].   He  pointed  out  that the  amendment  had been                 
  amended by hand before it was submitted, with a new inserted                 
  date of August 31, 1997, as the drop-dead date.                              
                                                                               
  Co-Chair  Therriault  inquired if  AIDEA had  been operating                 
  under the direction of their Board to receive proposals from                 
  the  utilities.   Mr. Simmons  replied that the  Chairman of                 
  Board  has  directed  AIDEA  to show  that  there  has  been                 
  substantial progress in  reaching a sales agreement  by July                 
  31, 1997, although,  the full  extent of that  determination                 
  has not been  clarified.  Any  sales process will take  many                 
  months  to a  year  to complete.   At  this  time, AIDEA  is                 
  attempting to receive an agreement in principle.                             
                                                                               
  Co-Chair Therriault asked if the  language of the resolution                 
  stipulating that AIDEA  would need to receive  an acceptable                 
  proposal, covered an  agreement of  principle.  Mr.  Simmons                 
  understood that it would.  He was  not sure that he would be                 
  able  to get  to the Board  by July  31st, which would  be a                 
  definite concern if Board action was required.                               
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      Grussendorf, Moses, J. Davies, G. Davis                  
       OPPOSED:       Kelly,    Kohring,    Martin,    Mulder,                 
                      Therriault, Hanley                                       
                                                                               
  Representative Foster was not present for the vote.                          
                                                                               
  The MOTION FAILED (4-6).                                                     
                                                                               
  Co-Chair Therriault noted that the fiscal note would be $120                 
  thousand dollars funding  from AIDEA.   Mr. Simmons  advised                 
  that AIDEA  has not identified  how to fund  the legislation                 
  because it is not an  AIDEA project; it is an Alaska  Energy                 
  Authority (AEA) project and  they have no funding  for this.                 
                                                                               
                                7                                              
                                                                               
                                                                               
  He reiterated,  he did  not know  how to internally  address                 
  this concern.                                                                
                                                                               
  Representative Mulder MOVED to report CS HCR 16 (FIN) out of                 
  Committee  with  individual  recommendations  and  with  the                 
  accompanying fiscal note.  There  being NO OBJECTION, it was                 
  so ordered.                                                                  
                                                                               
  CS HCR  16 (FIN) was  reported out of  Committee with a  "do                 
  pass"  recommendation  and   with  a  fiscal  note   by  the                 
  Department of Commerce and Economic Development.                             
  HOUSE BILL 242                                                               
                                                                               
       "An  Act relating  to unpaid,  underpaid,  and overpaid                 
       royalty and net profit share payments  due on leases of                 
       state  land  and  to  the  collection  and  payment  of                 
       interest on those payments."                                            
                                                                               
  KEN BOYD, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION                 
  OF  OIL & GAS,  DEPARTMENT OF  NATURAL RESOURCES,  noted his                 
  appreciation for the proposed legislation.                                   
                                                                               
  WILLIAM VAN  DYKE, (TESTIFIED VIA  TELECONFERENCE), DIVISION                 
  OF OIL & GAS,  DEPARTMENT OF NATURAL RESOURCES,  stated that                 
  the bill would allow the  State and the lessees a  sixty day                 
  grace period on  computing interest and paying  interest for                 
  royalties.    The  legislation  would benefit  both  parties                 
  equally.  The grace period would  be parallel to current oil                 
  and gas laws.                                                                
                                                                               
  The  bill is  designed  to increase  efficiency  on how  the                 
  Department  of Natural  Resources operates  by amending  the                 
  interest statutes as it  pertains to oil and  gas royalties.                 
  He added that the bill was only a housekeeping issue.                        
                                                                               
  Representative  Martin  MOVED  to  report   HB  242  out  of                 
  Committee   with   individual   recommendations    and   the                 
  accompanying fiscal note.                                                    
                                                                               
  HB  242  was reported  out  of  Committee with  a  "do pass"                 
  recommendation and with a zero fiscal note by the Department                 
  of Natural Resources.                                                        
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 9:25 A.M.                                           
                                                                               
                                                                               
                                8                                              

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