Legislature(2013 - 2014)HOUSE FINANCE 519

04/14/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
+ Presentation by Dept. of Transportation & Public TELECONFERENCED
Facilities, David Bloom, P.E., Gasline Liaison &
Jeff Ottesen, Division Director, Program
Development
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 287 APPROVE TESORO ROYALTY OIL SALE TELECONFERENCED
Moved CSHB 287(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 14, 2014                                                                                            
                         8:42 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
8:42:53 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 8:42 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Joe Balash,  Commissioner, Department of  Natural Resources;                                                                    
Jeff  Ottesen, Director,  Division  of Program  Development,                                                                    
Department  of Transportation  and Public  Facilities; David                                                                    
Bloom, P.E.,  Gasline Liaison, Department  of Transportation                                                                    
and  Public Facilities;  Pat Kemp,  Commissioner, Department                                                                    
of Transportation and Public Facilities.                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 287    APPROVE TESORO ROYALTY OIL SALE                                                                                       
                                                                                                                                
          CSHB 287 (FIN) was  REPORTED out of committee with                                                                    
          no recommendation  and with one  new indeterminate                                                                    
          fiscal  note   from  the  Department   of  Natural                                                                    
          Resources and one new indeterminate fiscal note                                                                       
          from the Department of Revenue.                                                                                       
                                                                                                                                
CSSB 138(FIN) am                                                                                                                
          GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
                                                                                                                                
          CSSB 138(FIN) am was HEARD and HELD in committee                                                                      
          for further consideration.                                                                                            
                                                                                                                                
HOUSE BILL NO. 287                                                                                                            
                                                                                                                                
     "An  Act approving  and ratifying  the sale  of royalty                                                                    
     oil by  the State of  Alaska to Tesoro  Corporation and                                                                    
     Tesoro   Refining  and   Marketing  Company   LLC;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
8:43:12 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze noted that amendment 1 was withdrawn and                                                                       
amendment 3 was an amended version.                                                                                             
                                                                                                                                
Representative Wilson MOVED to ADOPT Amendment 3, 28-                                                                           
GH2862\A.11, Gardner/Nauman, 4/13/14 (copy on file), by                                                                         
Representative Wilson and Representative Thompson.                                                                              
                                                                                                                                
     Page 1, line 1, following "Act":                                                                                           
     Insert "relating  to the  determination of  the royalty                                                                    
     received  by the  state on  oil  production refined  or                                                                    
     processed  in  the  state; providing  tax  credits  for                                                                    
     qualified  infrastructure   expenditures  for  in-state                                                                    
     refineries;"                                                                                                               
                                                                                                                                
     Page 1, following line 4:                                                                                                  
     Insert new bill sections to read:                                                                                          
        "* Section 1. AS 38.05.180(cc) is amended to read:                                                                      
     (cc)  The  provisions of (aa), [AND] (ee),  and (hh) of                                                                    
     this  section do  not  prohibit  the commissioner  from                                                                    
     accepting any  payment on a  federal lease  tendered by                                                                    
     the  federal agency  responsible for  determination and                                                                    
     transmittal  of  the  payment to  the  state  under  30                                                                    
     U.S.C. 191  or otherwise due  the state as  the state's                                                                    
     royalty share of gas production  or the state's royalty                                                                    
     share  of oil  production irrespective  of the  state's                                                                    
     acceptance  of an  amount that  is  different than  the                                                                    
     amount due under the lease  for purposes of determining                                                                    
     royalty  share on  oil and  gas  production under  that                                                                    
     subsection.                                                                                                                
        *  Sec. 2.  AS 38.05.180  is amended  by adding  new                                                                    
     subsections to read:                                                                                                       
     (hh)   Upon  written request  of  a lessee  of a  lease                                                                    
     issued under  this section  or of  a lessee  of federal                                                                    
     land  from which  the state  is entitled  to receive  a                                                                    
     share   of  the   royalty   on   oil  production,   the                                                                    
     commissioner  may  enter  into an  agreement  with  the                                                                    
     lessee to  accept, as a  value for the  state's royalty                                                                    
     share of  oil production  sold to an  in-state refiner,                                                                    
     an amount that  is not less than  the price established                                                                    
     in  a  contract between  the  lessee  and the  in-state                                                                    
     refiner  but  not  exceeding   the  amount  that  would                                                                    
     otherwise  be  due  under the  lease.  This  subsection                                                                    
     applies to  a contract entered into  after December 31,                                                                    
     2014.  The  commissioner  shall respond  to  a  request                                                                    
     received under  this section within  90 days  after the                                                                    
     receipt  of   the  request   by  the   department.  The                                                                    
     commissioner  may enter  into an  agreement under  this                                                                    
     section if                                                                                                                 
    (1)  the commissioner issues a written finding that                                                                         
     (A)   the  agreement is  in  the best  interest of  the                                                                    
     state;                                                                                                                     
     (B)   the parties  to the  contract between  the lessee                                                                    
     and the  in-state refiner are not  affiliated under (2)                                                                    
     of this subsection; and                                                                                                    
     (C)  based on clear and convincing evidence,                                                                               
     (i)  the contract price is not unreasonably low; and                                                                       
     (ii)   the  prospective reduction  in royalty  receipts                                                                    
     will be  balanced by employment opportunities  or other                                                                    
     tangible benefits to the state; and                                                                                        
     (2)   the  primary function  of the  in-state refiner's                                                                    
     contracting  with  the  lessee  is  to  engage  in  the                                                                    
     manufacture  of  refined   petroleum  products  in  the                                                                    
     state, and the in-state  refiner is not affiliated with                                                                    
     the lessee or with a  subsequent purchaser of more than                                                                    
     10  percent  of  the in-state  refiner's  product;  the                                                                    
     parties to  a contract  or purchase are  affiliated if,                                                                    
     in  the  judgment  of  the  commissioner,  one  of  the                                                                    
     parties   to  the   contract   or  purchase   exercises                                                                    
     substantial influence over the  policies and actions of                                                                    
     the  other  as evidenced  by  a  relationship based  on                                                                    
     common ownership or family interest  or by action taken                                                                    
     in concert  whether or not  that influence is  based on                                                                    
     stockholdings, stockholders, officers, or directors.                                                                       
     (ii)  In (cc) and (hh) of this section,                                                                                    
     (1)  "in-state  refiner" means a person  engaged in the                                                                    
     manufacture  of  refined   petroleum  products  in  the                                                                    
     state;                                                                                                                     
     (2)   "price  established in  the contract  between the                                                                    
     lessee   and  the   in-state   refiner"  includes   tax                                                                    
     reimbursement   amounts,   deliverability   and   other                                                                    
     charges, and  other forms of consideration  paid by the                                                                    
     in-state refiner, as appropriate, under the contract;                                                                      
     (3)     "state's  royalty  share  of   oil  production"                                                                    
     includes payments  on federal leases made  to the state                                                                    
     under 30 U.S.C. 191.                                                                                                       
        *  Sec. 3.  AS  43.20  is amended  by  adding a  new                                                                    
     section to read:                                                                                                           
     Sec.   43.20.053.  Qualified   in-state  oil   refinery                                                                    
     infrastructure expenditures tax  credit. (a) A taxpayer                                                                    
     that  owns  an  in-state  oil  refinery  whose  primary                                                                    
     function  is  the  manufacturing and  sale  of  refined                                                                    
     petroleum  products to  third parties  in arm's  length                                                                    
     transactions  may apply  a credit  against the  tax due                                                                    
     under  this  chapter  for  a  qualified  infrastructure                                                                    
     expenditure  incurred  in  the  state for  a  tax  year                                                                    
     beginning after  December 31, 2014, and  before January                                                                    
     1,  2020. The  total amount  of credit  a taxpayer  may                                                                    
     receive under  this section may  not exceed  the lesser                                                                    
     of 40 percent  of qualified infrastructure expenditures                                                                    
     incurred  in   the  state  during   the  tax   year  or                                                                    
     $10,000,000  for  each   in-state  refinery  for  which                                                                    
     qualified expenditures are incurred.                                                                                       
     (b)  A taxpayer applying  the credit under this section                                                                    
     against a liability under this  chapter shall claim the                                                                    
     credit  on  the  taxpayer's  return. A  tax  credit  or                                                                    
     portion of a  tax credit under this section  may not be                                                                    
     used to reduce the  taxpayer's tax liability under this                                                                    
     chapter below  zero. Any unused  tax credit  or portion                                                                    
     of  a tax  credit  under this  section  may be  carried                                                                    
     forward  to the  five tax  years immediately  following                                                                    
     the  tax year  in  which  the qualified  infrastructure                                                                    
     expenditures were incurred.                                                                                                
     (c)   An expenditure  that is the  basis of  the credit                                                                    
     under this section may not be the basis for                                                                                
     (1)   a  deduction against  the tax  levied under  this                                                                    
     chapter;                                                                                                                   
     (2)  a  credit or deduction under  another provision of                                                                    
     this title; or                                                                                                             
     (3)  any federal credit claimed under this title.                                                                          
     (d)   A  person entitled  to  a tax  credit under  this                                                                    
     section  that   is  greater   than  the   person's  tax                                                                    
     liability under  this chapter may  request a  refund or                                                                    
     payment in the amount of  the unused portion of the tax                                                                    
     credit.                                                                                                                    
     (e)  The department may  use money available in the oil                                                                    
     and gas tax credit fund  established in AS 43.55.028 to                                                                    
     make a refund  or payment under (d) of  this section in                                                                    
     whole or in part if the department finds that                                                                              
     (1)    the  claimant   does  not  have  an  outstanding                                                                    
     liability  to the  state  for  unpaid delinquent  taxes                                                                    
     under this title; and                                                                                                      
     (2)   after application  of all available  tax credits,                                                                    
     the claimant's  total tax liability under  this chapter                                                                    
     for the  calendar year  in which the  claim is  made is                                                                    
     zero.                                                                                                                      
     (f)    A  refund  under  this  section  does  not  bear                                                                    
     interest.                                                                                                                  
     (g)  The  issuance of a refund under  this section does                                                                    
     not limit  the department's  ability to later  audit or                                                                    
     adjust  the  claim  as  provided in  AS  43.05  if  the                                                                    
     department  determines that  the taxpayer  claiming the                                                                    
     credit was not entitled to the amount of the credit.                                                                       
     (h)  In this section,                                                                                                      
     (1)   "qualified  infrastructure expenditure"  means an                                                                    
     expenditure  directly  attributable   to  the  in-state                                                                    
     purchase,  installation,  modification, adjustment,  or                                                                    
     other alteration of tangible  personal property for the                                                                    
     manufacture or transport  of refined petroleum products                                                                    
     or petroleum-based feedstock;                                                                                              
     (2)    "refined   petroleum  products"  means  separate                                                                    
     marketable elements,  compounds, or mixtures of  oil in                                                                    
     liquid form, including gasoline,  diesel, jet fuel, gas                                                                    
     oil, heating oil, and kerosene;                                                                                            
     (3)   "unpaid delinquent  tax" means  an amount  of tax                                                                    
     for which the department  has issued an assessment that                                                                    
     has  not been  paid  and, if  contested,  has not  been                                                                    
     finally resolved in the taxpayer's favor.                                                                                  
        * Sec. 4. AS 43.55.028(a) is amended to read:                                                                           
     (a)  The oil and gas  tax credit fund is established as                                                                    
     a separate fund  of the state. The purpose  of the fund                                                                    
     is  to purchase  transferable  tax credit  certificates                                                                    
     issued  under AS  43.55.023 and  production tax  credit                                                                    
     certificates  issued  under  AS 43.55.025  and  to  pay                                                                    
     refunds and  payments claimed under AS  43.20.046, [OR]                                                                    
     43.20.047, or 43.20.053.                                                                                                   
        * Sec. 5. AS 43.55.028(g) is amended to read:                                                                           
     (g)  The department may  adopt regulations to carry out                                                                    
     the purposes  of this section, including  standards and                                                                    
     procedures   to   allocate    available   money   among                                                                    
     applications  for  purchases  under  this  chapter  and                                                                    
     claims  for refunds  and payments  under AS  43.20.046,                                                                    
     [OR] 43.20.047,  or 43.20.053 when the  total amount of                                                                    
     the  applications for  purchase and  claims for  refund                                                                    
     exceed the amount  of available money in  the fund. The                                                                    
     regulations  adopted by  the department  may not,  when                                                                    
     allocating  available  money  in the  fund  under  this                                                                    
     section,  distinguish an  application for  the purchase                                                                    
     of  a   credit  certificate  issued  under   former  AS                                                                    
     43.55.023(m) or a  claim for a refund  or payment under                                                                    
     AS 43.20.046, [OR] 43.20.047, or 43.20.053."                                                                               
                                                                                                                                
     Page 1, line 5:                                                                                                            
     Delete "Section 1"                                                                                                         
     Insert "Sec. 6"                                                                                                            
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 1:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec.  7. Sections 1 -  5 of this Act  take effect                                                                    
     January 1, 2015."                                                                                                          
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 2, line 2:                                                                                                            
     Delete "This"                                                                                                              
     Insert  "Except as  provided  in sec.  7  of this  Act,                                                                    
     this"                                                                                                                      
                                                                                                                                
Representative Gara OBJECTED for the purpose of discussion.                                                                     
                                                                                                                                
Representative   Wilson   explained   that   the   amendment                                                                    
addressed the  removal of the  instate refinery  tax credit.                                                                    
She pointed to page 3, line  1 of the amendment related to a                                                                    
"qualified    in-state     oil    refinery    infrastructure                                                                    
expenditures  tax credit"  for  a tax  year beginning  after                                                                    
December 31, 2014 and before  January 1, 2020. She explained                                                                    
that  the total  amount  of credit  a  taxpayer may  receive                                                                    
could  not   exceed  less  than  40   percent  of  qualified                                                                    
infrastructure expenditures.                                                                                                    
                                                                                                                                
8:45:09 AM                                                                                                                    
                                                                                                                                
JOE BALASH,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
stated that he supported the amendment.                                                                                         
                                                                                                                                
Representative  Gara  appreciated   the  amendment  and  the                                                                    
problem.  He  wished  to keep  refineries  in  business.  He                                                                    
pointed out  that Tesoro Refining and  Marketing Company was                                                                    
on record stating that they did  not need the tax credit. He                                                                    
pointed  to  page 4,  line  6  and  the issue  of  qualified                                                                    
infrastructure    expenditures.    He   noted    that    any                                                                    
modifications   made  by   the  company   would  allow   for                                                                    
eligibility for  the credit. He  explained that  $25 million                                                                    
in  expenditures  allowed $10  million  in  credit from  the                                                                    
state. He opined  that giving $50 million to  a company that                                                                    
did not  need it was  poor policy.  He stated that  he could                                                                    
not  support the  amendment. He  believed that  the solution                                                                    
was not tailored to the problem.                                                                                                
                                                                                                                                
Representative Gara  agreed with  Co-Chair Austerman  that a                                                                    
tailored  solution would  include a  low-interest loan  from                                                                    
the  Alaska  Industrial  Development  and  Export  Authority                                                                    
(AIDEA)  for those  companies that  would  benefit from  the                                                                    
loan. He proposed the idea  of waiving interest payments for                                                                    
the  initial four  or  five years  for  Petro Star.  Another                                                                    
suggestion  was  limiting  the  tax  credit  to  financially                                                                    
distressed companies.                                                                                                           
                                                                                                                                
8:50:18 AM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman reiterated  concern  about the  original                                                                    
amendment  creating  a tax  credit  for  the refineries.  He                                                                    
considered  that proposed  amendment  a  giveaway. He  noted                                                                    
that  the  new  amendment  removed the  first  part  of  the                                                                    
original  amendment.  He  expressed  concern  with  page  3,                                                                    
beginning on  line 21. The  portion of the bill  stated that                                                                    
without  profit or  tax liability,  the state  would provide                                                                    
the credit anyway.  He stated that the sponsor  was aware of                                                                    
his concerns. He  believed that a true  tax credit addressed                                                                    
corporate taxes. He stated that  he would offer an amendment                                                                    
to the amendment.                                                                                                               
                                                                                                                                
8:52:44 AM                                                                                                                    
                                                                                                                                
Representative   Thompson  understood   the  concern   about                                                                    
instate refineries.  He mentioned the additional  concern of                                                                    
losing  two  refineries   along  the  Trans-Alaska  Pipeline                                                                    
System  (TAPS) line.  He pointed  out that  the two  Alaskan                                                                    
refineries  contributed $335  million to  the state  for the                                                                    
instate use  of oil from the  TAPS line. He did  not know if                                                                    
the $10 million  would allow for continued  viability of the                                                                    
refineries. He noted  that a refinery closure  would lead to                                                                    
a  $335 million  shortfall from  the loss  of revenues.  The                                                                    
additional   implications   included   the   potential   for                                                                    
skyrocketing electric bills in  Fairbanks. He suggested that                                                                    
Fairbanks would  be included in the  Power Cost Equalization                                                                    
program  (PCE),  which  would cost  the  state  millions  of                                                                    
dollars.  He  anticipated  that closure  of  the  refineries                                                                    
would mean  a closure of  Eielson Air Force Base  because of                                                                    
the lack  of jet fuel leading  to the loss of  1500 civilian                                                                    
jobs.  He noted  that  the rural  areas  north of  Fairbanks                                                                    
depended on fuel  oil produced in the  refineries. He stated                                                                    
that  the tax  credits presented  in the  bill would  not be                                                                    
great enough  to keep the  refineries healthy.  He expressed                                                                    
support for  the amendment, but  lamented that it  would not                                                                    
be enough.                                                                                                                      
                                                                                                                                
8:55:47 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman MOVED amendment 2 to amendment 3.                                                                            
                                                                                                                                
     Page 3, lines 21 through Page 4, line 4                                                                                    
     Delete subsection (d), (e), (f), (g)                                                                                       
     Renumber the sections accordingly                                                                                          
                                                                                                                                
Representative Thompson OBJECTED.                                                                                               
                                                                                                                                
Co-Chair Austerman  discussed the amendment to  amendment 3.                                                                    
The  deleted  subsections were  related  to  the refund  and                                                                    
payment.                                                                                                                        
                                                                                                                                
Representative Wilson clarified  that the proposed amendment                                                                    
to the  amendment would further  complicate matters  for the                                                                    
targeted  refinery. The  amendment would  force an  Interior                                                                    
refinery to  compete with imports.  She stated that  the tax                                                                    
credit  was not  unique. She  opined that  the state  should                                                                    
have   acted  one   year  ago.   She  stated   that  earlier                                                                    
legislative  actions might  have  prevented  the closure  of                                                                    
Flint  Hills  Refinery.  She   mentioned  that  the  credits                                                                    
allowed did not always produce the expected results.                                                                            
                                                                                                                                
8:58:47 AM                                                                                                                    
                                                                                                                                
Representative Wilson  stated that  the credits  provided to                                                                    
various entities provided uncertain  returns. She noted that                                                                    
the removal  of the  subsections would negate  the potential                                                                    
benefit of the tax credits.                                                                                                     
                                                                                                                                
8:59:49 AM                                                                                                                    
                                                                                                                                
Representative Gara  opined that  the proposed  solution did                                                                    
not match the problem. He  provided an example of attempting                                                                    
to  reform the  foster care  system in  the same  manner and                                                                    
predicted that  a similar proposal would  be denied quickly.                                                                    
He  suggested  seeking  a  remedy   to  fiscally  solve  the                                                                    
problems.  He  supported  the Eielson  Air  Force  Base  and                                                                    
additional military equipment in  Alaska. He stated that the                                                                    
word "efficiency" did not appear  in the bill. He noted that                                                                    
the  companies could  spend the  credit on  anything without                                                                    
specification  or recommendation  from  the legislature.  He                                                                    
stated that there  was no limitation to the  amount of money                                                                    
kept by executives. He suggested  that AIDEA could arrive at                                                                    
a  better  solution  and  he  proposed  a  consultation.  He                                                                    
stressed  that he  represented the  entire  state and  cared                                                                    
about the Fairbanks area.                                                                                                       
                                                                                                                                
Representative  Gara  stated  that   the  amendment  to  the                                                                    
amendment was  not in his  best interest. He  recognized the                                                                    
efforts to  narrow the fiscal  spend on the  legislation. He                                                                    
considered the bill language sloppy.                                                                                            
                                                                                                                                
9:03:55 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman asked  for Commissioner  Balash's opinion                                                                    
about  the effects  of the  amendment to  the amendment.  He                                                                    
understood  that  the  change  would  help  the  Petro  Star                                                                    
refineries with solutions regarding debt.                                                                                       
                                                                                                                                
Commissioner Balash  replied that the effect  of amendment 2                                                                    
to amendment  3 would delete  subsections (d), (e),  (f) and                                                                    
(g) on lines  3 and 4. He spoke to  subsections (e), (f) and                                                                    
(g)  that  would  allow  a  company  without  a  robust  tax                                                                    
liability  to  take  the  tax   credit  earned  following  a                                                                    
qualified  investment  and  request a  refund.  The  request                                                                    
would be made to the  Department of Revenue. The deletion of                                                                    
the subsections would eliminate  the opportunity leaving the                                                                    
company  with an  unusable tax  credit.  He appreciated  the                                                                    
intent  and  noted that  the  credit  was not  optimal,  but                                                                    
necessary considering  the seriousness of  the circumstances                                                                    
faced.                                                                                                                          
                                                                                                                                
Co-Chair Stoltze asked the  administration's position on the                                                                    
amendment to the amendment.                                                                                                     
                                                                                                                                
Commissioner Balash replied  that the administration opposed                                                                    
the amendment to the amendment.                                                                                                 
                                                                                                                                
9:06:55 AM                                                                                                                    
                                                                                                                                
Representative  Thompson  noted that  a  tax  credit was  an                                                                    
indirect expenditure to  the state. In order  to receive the                                                                    
$10  million,  the entity  must  invest  $25 million.  After                                                                    
three  years  the  $30 million  state  investment  could  be                                                                    
compared to $335 million in revenue from the refineries.                                                                        
                                                                                                                                
Co-Chair Stoltze  requested elaboration of the  $335 million                                                                    
figure.                                                                                                                         
                                                                                                                                
9:08:38 AM                                                                                                                    
                                                                                                                                
Commissioner  Balash replied  that the  ability to  sell the                                                                    
state's royalty in-kind to instate  refineries over the last                                                                    
three years  resulted in  $136 million  to the  treasury. He                                                                    
added that the  quality bank payments made  in 2013 amounted                                                                    
to approximately  $100 million. The benefit  achieved on the                                                                    
royalty side  was in excess  of $20 million. He  pointed out                                                                    
the indirect  effect on production  tax value of  35 percent                                                                    
of  the remaining  value or  approximately  $35 million.  He                                                                    
noted that the  values were higher in 2012  and 2011 because                                                                    
of  the  Alaska's  Clear  and  Equitable  Share  (ACES)  tax                                                                    
system.   He   stated   that  the   estimate   provided   by                                                                    
Representative Thompson  was a little high  as they included                                                                    
progressivity   calculations   no   longer   available.   He                                                                    
estimated approximately  $300 million in positive  impact to                                                                    
the treasury.                                                                                                                   
                                                                                                                                
9:11:46 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  assumed that the  public was not  aware of                                                                    
that information.                                                                                                               
                                                                                                                                
Representative  Thompson   asked  what  percentage   of  the                                                                    
quality bank payment was allocated to the state.                                                                                
                                                                                                                                
Commissioner  Balash  replied  that  the  state  received  a                                                                    
direct  benefit  as a  percentage  based  on royalties.  The                                                                    
state  would receive  12.5 percent  of the  royalty if  $100                                                                    
million  was   paid  by  the   refineries.  He   added  that                                                                    
production  tax  resulted  in  additional  payments  to  the                                                                    
treasury associated with the tax rate.                                                                                          
                                                                                                                                
9:12:51 AM                                                                                                                    
                                                                                                                                
Representative Munoz  asked if the language  in the original                                                                    
amendment  was  consistent  with other  North  Slope  policy                                                                    
credit opportunities.                                                                                                           
                                                                                                                                
Commissioner Balash  replied yes.  He noted  that production                                                                    
tax credits  were handled  similarly under  the oil  and gas                                                                    
production tax system.                                                                                                          
                                                                                                                                
9:13:44 AM                                                                                                                    
                                                                                                                                
Representative  Holmes pointed  out subsection  (d) and  her                                                                    
prior  concerns. She  stated that  the underlying  amendment                                                                    
was  proposed to  preserve the  refineries' presence  in the                                                                    
future. She  stated that tax  credits should be  written off                                                                    
of  tax liabilities.  She appreciated  the amendment  to the                                                                    
amendment,  but she  wished to  help the  refineries in  the                                                                    
short  term.  She  worried that  the  refineries  would  not                                                                    
continue  to  operate  for  the   next  five  years  if  the                                                                    
amendment to the amendment were to pass.                                                                                        
                                                                                                                                
9:15:50 AM                                                                                                                    
                                                                                                                                
Representative   Gara  discussed   the   quality  bank.   He                                                                    
understood that  Petro Star deemed the  quality bank formula                                                                    
unfair. He  wondered if the  state had intervened in  such a                                                                    
legal mater related to the refineries.                                                                                          
                                                                                                                                
9:16:49 AM                                                                                                                    
                                                                                                                                
Commissioner Balash replied that  payers into the bank aided                                                                    
recipients from  the bank, using  the quality  bank formula.                                                                    
He noted that  the state was considered a  recipient. If the                                                                    
system worked perfectly, a refinery  shut-down would lead to                                                                    
higher  oil prices.  He  was unprepared  to  comment on  the                                                                    
fairness of  the quality bank.  He noted that the  state had                                                                    
intervened on  proceedings regarding  the quality  bank. The                                                                    
goal of the  administration was for a  favorable ruling that                                                                    
made  an adjustment  to the  quality  bank or  to achieve  a                                                                    
settlement that  would reduce the  cost associated  with the                                                                    
quality bank payments.                                                                                                          
                                                                                                                                
9:20:02 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman stated that the  issue of tax credits was                                                                    
philosophical to him,  as it always had  been. He understood                                                                    
the refinery issue. He noted  similar debates related to oil                                                                    
taxes  in the  last three  years.  He had  sympathy for  the                                                                    
refineries, but noted  that the global market  was at issue.                                                                    
He stated that addressing the  very serious issue at the end                                                                    
of the  session was  unpalatable. He informed  the committee                                                                    
that amendment 3  allowed a lesser investment  as the credit                                                                    
would provide $10 million each year.                                                                                            
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Austerman                                                                                                       
OPPOSED:  Thompson,  Wilson, Costello,  Edgmon,  Guttenberg,                                                                    
Holmes, Munoz, Neuman, Stoltze                                                                                                  
                                                                                                                                
The MOTION FAILED (2/9).                                                                                                        
                                                                                                                                
Amendment 3 was before the committee                                                                                            
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson,  Costello,   Edgmon,  Guttenberg,  Holmes,                                                                    
Munoz, Neuman, Thompson, Stoltze                                                                                                
OPPOSED: Gara, Austerman                                                                                                        
The MOTION PASSED (9/2).                                                                                                        
                                                                                                                                
Amendment 3 was ADOPTED.                                                                                                        
                                                                                                                                
9:24:27 AM                                                                                                                    
                                                                                                                                
Representative Gara MOVED to ADOPT Amendment 2.                                                                                 
                                                                                                                                
     Page 1, line 1, following "Act":                                                                                           
     Insert "creating  a loan  program for  certain in-state                                                                    
     oil refineries;"                                                                                                           
                                                                                                                                
     Page 1, following line 4:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Section 1.   AS 44.88 is amended by  adding a new                                                                    
     section to read:                                                                                                           
     Article 9A. In-State Refiner Loan Program.                                                                                 
     Sec. 44.88.800. In-state refiner  loan program. (a) The                                                                    
     authority  may make  loans of  up to  $20,000,000 to  a                                                                    
     person that owns  an in-state oil refinery  south of 68                                                                    
     degrees North  latitude if the primary  function is the                                                                    
     manufacturing  and sale  of refined  petroleum products                                                                    
     to third  parties in arm's length  transactions. A loan                                                                    
     under  this section  may be  used for  working capital,                                                                    
     equipment, construction, or  other commercial purposes.                                                                    
     A  loan under  this section  may  be made  only if  the                                                                    
     authority finds that                                                                                                       
     (1)  the loan is  required to maintain profitability of                                                                    
     the in-state  refiner and the refinery  would otherwise                                                                    
     be in financial distress; and                                                                                              
     (2)   the primary function  of the in-state  refiner is                                                                    
     to  engage  in  the manufacture  of  refined  petroleum                                                                    
     products in the state, and  the in-state refiner is not                                                                    
     affiliated  with  the  lessee   or  with  a  subsequent                                                                    
     purchaser  of  more than  10  percent  of the  in-state                                                                    
     refiner's  product;  the  parties   to  a  contract  or                                                                    
     purchase  are affiliated  if, in  the  judgment of  the                                                                    
     authority,  one  of  the parties  to  the  contract  or                                                                    
     purchase  exercises  substantial   influence  over  the                                                                    
     policies and  actions of  the other  as evidenced  by a                                                                    
     relationship  based  on   common  ownership  or  family                                                                    
     interest or by  action taken in concert  whether or not                                                                    
     that    influence    is   based    on    stockholdings,                                                                    
     stockholders, officers, or directors.                                                                                      
     (b)  A loan made under this section                                                                                        
     (1)  may not exceed a term of 10 years; and                                                                                
     (2)   may not bear  interest exceeding the  prime rate,                                                                    
     as  defined  by  AS   44.88.599,  plus  two  percentage                                                                    
     points.                                                                                                                    
     (c)  Repayment of a  loan issued under this section may                                                                    
     begin as late  as July 1, 2019, if the  loan is secured                                                                    
     by sufficient collateral or a guarantor.                                                                                   
     (d)   The  application for  a loan  under this  section                                                                    
     must be  received by the authority  before December 31,                                                                    
     2015.                                                                                                                      
     (e)     The  legislature  may  appropriate   the  money                                                                    
     required  to  make a  loan  issued  under this  section                                                                    
     prudent for the authority.                                                                                                 
     (f)   The authority  by regulation may  establish other                                                                    
     conditions for loans under this section."                                                                                  
                                                                                                                                
     Page 1, line 5:                                                                                                            
     Delete "Section 1"                                                                                                         
     Insert "Sec. 2"                                                                                                            
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
9:26:15 AM                                                                                                                    
                                                                                                                                
Representative   Gara   reiterated   his   request   for   a                                                                    
consultation  from  AIDEA  about  the  important  issue.  He                                                                    
stated that the amendment  was drafted without AIDEA's help.                                                                    
He  noted  that  the  committee members  shared  a  goal  of                                                                    
protecting the financially  distressed refineries. Amendment                                                                    
2  stated  that AIDEA  shall  offer  low interest  loans  to                                                                    
distressed refineries as  seen on line 14, page  1. The loan                                                                    
would extend to  $20 million per year with  an interest rate                                                                    
of  2  percent.  The  loan   would  allow  for  a  five-year                                                                    
repayment  holiday. He  believed that  the fiscal  health of                                                                    
the state would remain protected  by the amendment. He noted                                                                    
that Tesoro  requested the  underlying royalty  renewal bill                                                                    
as opposed to the tax  credit. The amendment would allow the                                                                    
loans to be  accessed by the companies in need  of help. The                                                                    
general fund  would reimburse AIDEA  if the loan  terms were                                                                    
too  generous. He  stressed that  AIDEA would  be the  ideal                                                                    
drafter  of an  amendment to  protect businesses  in Alaska.                                                                    
Amendment 2 would  save the state $50 million  over the last                                                                    
version  of the  amendment,  which allowed  $50 million  for                                                                    
Tesoro.                                                                                                                         
                                                                                                                                
9:30:58 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze stated that  Representative Gara could have                                                                    
invited AIDEA to the conversation.                                                                                              
                                                                                                                                
9:31:23 AM                                                                                                                    
                                                                                                                                
Representative Wilson  informed the  committee that  she had                                                                    
contacted both  AIDEA and  Petro Star. She  was told  that a                                                                    
loan  was  not  available  for  a  company  that  might  not                                                                    
succeed.  She  suggested  that  Tesoro  could  benefit  from                                                                    
upgrades. The loss of the  refineries and their contribution                                                                    
to the state  would be greater than the  money available for                                                                    
use as tax credits. She  stressed the critical nature of the                                                                    
problem.                                                                                                                        
                                                                                                                                
Co-Chair Stoltze requested committee protocol.                                                                                  
                                                                                                                                
9:33:28 AM                                                                                                                    
                                                                                                                                
Representative  Wilson  stressed  that the  amendment  could                                                                    
lead to  the loss  of two refineries  in Alaska.  She stated                                                                    
that  other businesses  connected  to  the refineries  would                                                                    
suffer as well.  She asked the administration's  view of the                                                                    
amendment.                                                                                                                      
                                                                                                                                
9:34:43 AM                                                                                                                    
                                                                                                                                
Representative  Edgmon recalled  testimony from  Petro Star.                                                                    
He  understood  that the  amendment  would  not address  the                                                                    
financial  situation encountered  by Petro  Star. He  stated                                                                    
that a broader  public purpose was involved;  support of the                                                                    
refineries allowed  them to continue functioning.  He stated                                                                    
that he was unprepared to support the amendment.                                                                                
                                                                                                                                
9:35:46 AM                                                                                                                    
                                                                                                                                
Commissioner  Balash  replied that  Representative  Edgmon's                                                                    
characterization of  the situation  was accurate.  He stated                                                                    
that the  administration opposed  amendment 2.  He mentioned                                                                    
the  premise that  low-interest loans  were the  answer. The                                                                    
credit  would reduce  the  cost of  the  investment for  the                                                                    
refinery.  He  noted that  financing  for  the outlay  would                                                                    
reduce  the   cash  expended  up-front.  He   stressed  that                                                                    
financing that  extended beyond two  or three years  was not                                                                    
an option without the benefit of the investment credits.                                                                        
                                                                                                                                
9:38:26 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  stated  that  the  refineries'  business                                                                    
plans  depended on  state credits  for  survival. He  opined                                                                    
that  the  closure  of Flint  Hills  Refinery  allowed  more                                                                    
business to competitors.                                                                                                        
                                                                                                                                
Commissioner Balash  replied that he would  agree with Vice-                                                                    
Chair Neuman  if costs remained  the same. Unless  more than                                                                    
$3 million  was created by  the loss of the  competitor, the                                                                    
situation  was worse  for  competitors  without Flint  Hills                                                                    
Refinery operations.                                                                                                            
                                                                                                                                
Vice-Chair  Neuman   asked  about  a  revenue   request.  He                                                                    
wondered if the state should refuse the $3 million.                                                                             
                                                                                                                                
9:41:04 AM                                                                                                                    
                                                                                                                                
Commissioner Balash replied that  the revenue requirement in                                                                    
question was  the amount  of money  required to  operate the                                                                    
two  pipelines regulated  by  the  Regulatory Commission  of                                                                    
Alaska for  purposes of paying  their costs. The  total $4.5                                                                    
million went  to Golden  Valley Electric  Association (GVEA)                                                                    
for  the   cost  incurred  to  construct   and  operate  the                                                                    
pipelines.                                                                                                                      
                                                                                                                                
Co-Chair Stoltze  noted that  there would  not be  a lengthy                                                                    
debate on the final passage of the bill.                                                                                        
                                                                                                                                
Representative  Wilson clarified  that Flint  Hills Refinery                                                                    
had  closed  their  refinery  yet   continued  to  meet  all                                                                    
obligations related to jet fuel  and gasoline. The customers                                                                    
would  continue  to  receive service  through  imports.  The                                                                    
other refineries were forced to compete with imports.                                                                           
                                                                                                                                
Co-Chair Austerman referred to  a past discussion requesting                                                                    
that  AIDEA provide  a recommendation.  He  agreed that  the                                                                    
issue was complex  and help from AIDEA would  be welcome. He                                                                    
understood that the banking institutions  would not help the                                                                    
refineries  because of  past failures.  He argued  about the                                                                    
lack of criteria  attached to the tax credits.  He felt that                                                                    
the information requested from AIDEA  should be available to                                                                    
members making the decision.                                                                                                    
                                                                                                                                
9:44:57 AM                                                                                                                    
                                                                                                                                
Representative  Gara pointed  out  that Petro  Star had  ten                                                                    
years to repay the money.  He stated another requirement for                                                                    
a Fortune  500 guarantor.  Without the amendment,  there was                                                                    
no guarantee  that the refinery  would not accept  the money                                                                    
for five  years and  then disappear. He  stated that  a loan                                                                    
would force  the business model  to work.  The  cash payment                                                                    
would not  provide the documentation necessary  to allow the                                                                    
state to monitor the use of the tax credit by the refinery.                                                                     
                                                                                                                                
9:47:47 AM                                                                                                                    
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Costello, Gara, Austerman                                                                                             
OPPOSED:   Edgmon,   Guttenberg,  Holmes,   Munoz,   Neuman,                                                                    
Thompson, Wilson, Stoltze                                                                                                       
                                                                                                                                
The MOTION FAILED (3/8).                                                                                                        
                                                                                                                                
9:49:23 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
9:49:43 AM                                                                                                                    
                                                                                                                                
Representative Thompson  MOVED to REPORT CSHB  287 (FIN) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying forthcoming fiscal notes.                                                                                          
                                                                                                                                
Representative  Guttenberg  OBJECTED.  He  objected  to  the                                                                    
timing   of  the   bill's  hearing.   He  stated   that  the                                                                    
comprehensive  information  regarding   the  refineries  was                                                                    
unavailable   to   the    committee.   He   requested   more                                                                    
information.  He believed  that  both Petro  Star and  AIDEA                                                                    
should be present to further inform the committee.                                                                              
                                                                                                                                
Representative Guttenberg REMOVED his objection.                                                                                
                                                                                                                                
Co-Chair  Stoltze  stated   that  Representative  Guttenberg                                                                    
echoed many of his concerns.                                                                                                    
                                                                                                                                
Representative Gara  OBJECTED for  the purpose  of solution.                                                                    
He credited  many experts  in the state  who might  help the                                                                    
legislature make the best decision.  He objected to the fact                                                                    
that  AIDEA had  not crafted  a  solution. He  hoped that  a                                                                    
fiscally responsible  solution would  be crafted  before the                                                                    
bill hit the House Floor.                                                                                                       
                                                                                                                                
Representative Gara  WITHDREW his objection. There  being NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
9:55:28 AM                                                                                                                    
                                                                                                                                
CSHB  287  (FIN)  was  REPORTED out  of  committee  with  no                                                                    
recommendation and  with one  new indeterminate  fiscal note                                                                    
from  the  Department  of  Natural  Resources  and  one  new                                                                    
indeterminate fiscal note from the Department of Revenue.                                                                       
                                                                                                                                
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
                                                                                                                                
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
9:56:26 AM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman   requested  an  understanding   of  the                                                                    
state's responsibility  regarding the  gas pipeline  and the                                                                    
accompanying  infrastructure.   He  noted  that   roads  and                                                                    
bridges would  provide important components of  the project.                                                                    
He requested  that Department  of Transportation  and Public                                                                    
Facilities provide  input regarding Article 10  of the Heads                                                                    
of  Agreement (HOA)  and additional  state  support for  the                                                                    
Alaska Liquefied  Natural Gas (LNG)  project. He  pointed to                                                                    
Article   10.1  (c)   "appropriations  permitting   for  the                                                                    
construction  of  necessary instate  infrastructure  [roads,                                                                    
bridges]  including  drafting   and  introducing  supporting                                                                    
legislation." He asked  if the HOA reflected  that the state                                                                    
would be responsible for  all infrastructure and improvement                                                                    
costs  throughout the  project.  He interpreted  the HOA  to                                                                    
read that  the state  would be responsible  for construction                                                                    
of all necessary infrastructures.                                                                                               
                                                                                                                                
9:58:31 AM                                                                                                                    
                                                                                                                                
PAT  KEMP, COMMISSIONER,  DEPARTMENT  OF TRANSPORTATION  AND                                                                    
PUBLIC  FACILITIES  introduced  himself,  Jeff  Ottesen  and                                                                    
David Bloom.                                                                                                                    
                                                                                                                                
JEFF  OTTESEN, DIRECTOR,  DIVISION  OF PROGRAM  DEVELOPMENT,                                                                    
DEPARTMENT OF TRANSPORTATION  AND PUBLIC FACILITIES provided                                                                    
a  historical  background  related to  Alaska  and  pipeline                                                                    
construction.  He stated  that  the department  was not  yet                                                                    
informed  about the  precise  infrastructure needs  required                                                                    
for  the   gasline  project.  He  knew   the  general  route                                                                    
established  for the  gas pipeline,  but  specifics had  not                                                                    
been  determined. He  compared the  project to  Trans-Alaska                                                                    
Pipeline  System (TAPS)  and noted  that current  population                                                                    
and  traffic was  triple that  of  the 1970s.  He wished  to                                                                    
maintain  safety  standards  and statistics  on  the  Dalton                                                                    
Highway.                                                                                                                        
                                                                                                                                
10:02:36 AM                                                                                                                   
                                                                                                                                
Mr. Ottesen  commented that the  natural gas  pipeline would                                                                    
be buried  leading to additional  earth work as  compared to                                                                    
TAPS.  He mentioned  the need  to replace  the Tanana  River                                                                    
Bridge as it presented a weak  link between the Lower 48 and                                                                    
Alaska.  He stated  that both  a large  and medium  diameter                                                                    
pipeline  was  proposed for  the  Parks  Highway, which  was                                                                    
parallel  to  the  Alaska Railroad.  He  expected  that  the                                                                    
railroad would  provide a major  component of  any logistics                                                                    
plan.  The Richardson,  Alaskan  and  Haines highways  would                                                                    
have  minimal improvements  as well.  He provided  a handout                                                                    
"Parks  Highway  Planned  Construction Information  -  2014"                                                                    
(copy on  file). He  pointed out that  many of  the projects                                                                    
addressed features that would  prove helpful to the pipeline                                                                    
construction  such as  14  new passing  lanes  built on  the                                                                    
Parks Highway in the summer of 2014.                                                                                            
                                                                                                                                
10:06:53 AM                                                                                                                   
                                                                                                                                
Mr.  Ottesen discussed  maintenance expenses  ineligible for                                                                    
federal contribution. He expected  the department to ask the                                                                    
legislature  for  general  funds for  the  relatively  small                                                                    
costs  averaging $12-$15  million annually.  He stated  that                                                                    
the  department  would  provide more  information  when  the                                                                    
logistics plan was determined. Highways  were blessed with a                                                                    
dedicated  source   of  federal   funds  that   allowed  for                                                                    
adaptation to the possibility of  new pipelines. The Federal                                                                    
Aviation program was specific in  its funding, which led the                                                                    
department  to  spend  funds   in  areas  disconnected  from                                                                    
pipeline plans.                                                                                                                 
                                                                                                                                
10:09:40 AM                                                                                                                   
                                                                                                                                
DAVID   BLOOM,   P.E.,   GASLINE  LIAISON,   DEPARTMENT   OF                                                                    
TRANSPORTATION  AND PUBLIC  FACILITIES, stated  that he  had                                                                    
very little  exposure to  the project  via the  sponsors. He                                                                    
mentioned  a  high-level  overview  provided  to  state  and                                                                    
federal  agencies   offered  by  the  project   sponsors  in                                                                    
February  2014. He  mentioned another  meeting in  Fairbanks                                                                    
related to  the permits required  for the summer  2014 field                                                                    
season. He  noted that upcoming  information such  as access                                                                    
and egress points for the  laydown yard, and safety lanes on                                                                    
the  highway would  prove essential  to  the department.  He                                                                    
pointed  out  that airports  and  their  service needs  also                                                                    
required  consideration. He  noted substantial  improvements                                                                    
to  the Dalton  and Parks  Highways with  approximately $120                                                                    
million allocated  to the Parks Highway  maintenance for the                                                                    
summer of 2014.                                                                                                                 
                                                                                                                                
10:13:00 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman asked  if the state would  be expected to                                                                    
pay   for   the   large  module   accommodation   and   road                                                                    
maintenance.                                                                                                                    
                                                                                                                                
Mr.  Kemp  replied that  highways  and  roadways within  the                                                                    
right-of-way must  accommodate legal  or permit  able loads.                                                                    
He  stated  that  the  highway  must  be  strong  enough  to                                                                    
accommodate  a   permitted  load.   He  believed   that  the                                                                    
department was responsible for the  majority of the work. He                                                                    
stated that an intersection requiring  an access road to the                                                                    
pipeline  should be  assigned  to the  developer. A  similar                                                                    
arrangement  was  often  embarked  on  with  a  large  store                                                                    
requiring an  intersection. He explained that  some portions                                                                    
of  the project  allowed  for  federal participation,  while                                                                    
others did not. The department  would request some help from                                                                    
the legislature  for those  portions ineligible  for federal                                                                    
funding. He  stated that the Parks  Highway required repairs                                                                    
whether the pipeline  was constructed or not.  He added that                                                                    
the  Parks  Highway was  not  free  of weight  restrictions.                                                                    
Understanding the Alaska  Railroad's level of responsibility                                                                    
would help the department to better understand theirs.                                                                          
                                                                                                                                
10:16:50 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman  asked if layout yards  or pull-off areas                                                                    
for larger modules  would be constructed by and  paid for by                                                                    
the producers.                                                                                                                  
                                                                                                                                
Commissioner  Kemp replied  that passing  lanes would  be an                                                                    
improvement addressed by the  department, while the pull-off                                                                    
area for a module would be covered by the developer.                                                                            
                                                                                                                                
Co-Chair  Austerman  asked  about   the  federal  funds.  He                                                                    
expressed concern  that the Dalton and  Parks Highways could                                                                    
use up the federal funds needed elsewhere in the state.                                                                         
                                                                                                                                
10:18:02 AM                                                                                                                   
                                                                                                                                
Mr. Otteson replied that the  many projects on the Parks and                                                                    
Dalton   Highways  were   underway  despite   the  potential                                                                    
pipeline.   The  work   was  prioritized   because  of   the                                                                    
connection  to  Prudhoe  Bay.  The   revenue  from  the  oil                                                                    
resources fueled  the Alaskan  economy. He  acknowledged the                                                                    
tension  between projects  and provided  an example  of such                                                                    
tension.                                                                                                                        
                                                                                                                                
10:20:08 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman agreed in reference  to the importance of                                                                    
the North Slope, but noted  that the benefit extended to the                                                                    
producers making  the profit. He  asked if any of  the three                                                                    
testifiers helped draft the language in the HOA.                                                                                
                                                                                                                                
Commissioner Kemp replied no.                                                                                                   
                                                                                                                                
10:21:09 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Neuman asked  Mr.  Ottesen  about each  proposed                                                                    
gasline. He wondered about Port  Mackenzie as a staging area                                                                    
for either pipeline.                                                                                                            
                                                                                                                                
10:22:01 AM                                                                                                                   
                                                                                                                                
Mr. Otteson replied yes; he  expected Port Mackenzie to be a                                                                    
key staging area  as part of the  rail extension. Completing                                                                    
the extension was an important component of the project.                                                                        
                                                                                                                                
10:22:34 AM                                                                                                                   
                                                                                                                                
Representative  Guttenberg noted  the $800  million deferred                                                                    
maintenance  budget on  the Dalton  Highway.  The state  was                                                                    
asked  to  fund  the  agreement in  general  terms.  Massive                                                                    
amounts of  heavy-walled pipe  would compromise  the asphalt                                                                    
and shoulders  of the  highway. He  asked about  the state's                                                                    
obligation entering into the project.                                                                                           
                                                                                                                                
10:23:51 AM                                                                                                                   
                                                                                                                                
Commissioner Kemp replied that  the information would become                                                                    
available  later.  He  questioned the  deferred  maintenance                                                                    
quote offered  by Representative Guttenberg. He  wondered if                                                                    
deferred   maintenance  was   not   confused  with   routine                                                                    
maintenance. He agreed that the  questions must be answered,                                                                    
but stressed that the state's  roadways were in better shape                                                                    
than they  were in the  time of TAPS construction.  He noted                                                                    
the   department's   focus   on  safety   in   addition   to                                                                    
accommodation of the increased industry traffic.                                                                                
                                                                                                                                
10:25:02 AM                                                                                                                   
                                                                                                                                
Representative  Gara  noted  that  Governors  Murkowski  and                                                                    
Palin approached  the legislature with  infrastructure costs                                                                    
during their gasline proposals dependent  on the size of the                                                                    
chosen pipeline.  He recalled estimates of  approximately $2                                                                    
billion worth  of infrastructure increases.  The legislators                                                                    
were  able  to  incorporate  the information  into  the  Net                                                                    
Present Value calculations.                                                                                                     
                                                                                                                                
Co-Chair Austerman concurred.                                                                                                   
                                                                                                                                
CSSB  138(FIN)  am  was  HEARD and  HELD  in  committee  for                                                                    
further consideration.                                                                                                          
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
10:26:44 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:26 a.m.                                                                                         

Document Name Date/Time Subjects
Am 1 to Am 3 to HB 287.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 Replacement Amendment #2 GARA.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 Amendment #2 to Amendment #3 Austerman.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 New Fiscal Note CS FIN DNR.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
SB 138 3 10 14 Responses to Senate Finance_February 27 Hearing- Signed.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 3.10.14 AS 38.05.180(i)-exploration-incentive-credits.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 3.11.14 Response to Sen Olson_Municipal Taxation.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 HFIN Weissler Comments 4-14-14.pdf HFIN 4/14/2014 8:30:00 AM
SB 138