Legislature(2017 - 2018)HOUSE FINANCE 519

03/13/2017 01:30 PM FINANCE

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Audio Topic
01:49:57 PM Start
01:50:29 PM SB30
02:28:06 PM HB90 HOUSE BILL NO. 90
03:10:36 PM HB6
03:33:09 PM HB31
03:37:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:45 PM --
+ HB 31 SEXUAL ASSAULT EXAMINATION KITS TELECONFERENCED
Heard & Held
+ HB 90 OCC. LICENSING FEES; INVESTIGATION COSTS TELECONFERENCED
Heard & Held
+ SB 30 APPROVAL: ROYALTY OIL SALE TO PETRO STAR TELECONFERENCED
Heard & Held
+ HB 6 JONESVILLE PUBLIC USE AREA TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 13, 2017                                                                                            
                         1:49 p.m.                                                                                              
                                                                                                                                
1:49:57 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:49 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Jim  Shine, Commercial  Manager,  Division of  Oil and  Gas,                                                                    
Department  of  Natural   Resources;  Doug  Chapados,  Chief                                                                    
Executive Officer and  President, Petro Star; Representative                                                                    
Sam Kito,  Sponsor; Crystal Koeneman,  Staff, Representative                                                                    
Sam  Kito;  Darrell  Breese,  Staff,  Representative  George                                                                    
Rauscher;    Representative   George    Rauscher,   Sponsor;                                                                    
Representative Geran Tarr, Sponsor.                                                                                             
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Susan   Terwilliger,   Midwives   Association   of   Alaska,                                                                    
Anchorage;  Brent  Goodrum,  Director, Division  of  Mining,                                                                    
Land and Water, Department of Natural Resources.                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 6      JONESVILLE PUBLIC USE AREA                                                                                            
                                                                                                                                
          HB 6 was HEARD and HELD in committee for further                                                                      
          consideration.                                                                                                        
                                                                                                                                
HB 31     SEXUAL ASSAULT EXAMINATION KITS                                                                                       
                                                                                                                                
          HB 31 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 90     OCC. LICENSING FEES; INVESTIGATION COSTS                                                                              
                                                                                                                                
          HB 90 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
SB 30     APPROVAL: ROYALTY OIL SALE TO PETRO STAR                                                                              
                                                                                                                                
          SB 30 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
1:50:29 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster discussed the meeting agenda.                                                                                   
                                                                                                                                
SENATE BILL NO. 30                                                                                                            
                                                                                                                                
     "An Act approving and ratifying the sale of royalty                                                                        
     oil by the State of Alaska to Petro Star Inc.; and                                                                         
     providing for an effective date."                                                                                          
                                                                                                                                
1:51:09 PM                                                                                                                    
                                                                                                                                
JIM  SHINE, COMMERCIAL  MANAGER,  DIVISION OF  OIL AND  GAS,                                                                    
DEPARTMENT  OF  NATURAL  RESOURCES,  provided  a  PowerPoint                                                                    
presentation titled  "Proposed Sale  of the  State's Royalty                                                                    
Oil  to Petro  Star: Senate  Bill 30"  dated March  13, 2017                                                                    
(copy on  file). He relayed  that the proposed sale  was the                                                                    
result  of  a  lengthy  commercial  negotiation  and  public                                                                    
review process. He began on slide 2:                                                                                            
                                                                                                                                
     Royalty In-Kind Versus Royalty In-Value                                                                                    
                                                                                                                                
          The State has a choice to take its royalty in-                                                                        
          kind (RIK) or in-value (RIV).                                                                                         
                                                                                                                                
                                                                                                                                
          lessees  who  produce  the  oil  also  market  the                                                                    
          State's share along with  their own production and                                                                    
          pay the State the value of its royalty share.                                                                         
                                                                                                                                
                                                                                                                                
          SOA  assumes ownership  of the  oil,  and the  DNR                                                                    
          Commissioner  disposes  of  it  through  the  sale                                                                    
          procedures prescribed by AS 38.05.183.                                                                                
                                                                                                                                
                                                                                                                                
          oil as RIK (starting in 1979).                                                                                        
                                                                                                                                
                                                                                                                                
          million in additional revenue  over what the state                                                                    
          would  receive  if  the  contracted  volumes  were                                                                    
          taken RIV.                                                                                                            
                                                                                                                                
                                                                                                                                
          review and Royalty Board processes.                                                                                   
                                                                                                                                
Mr. Shine related  that the state was  currently selling oil                                                                    
to  Petro Star  under  a one-year  contract,  which had  not                                                                    
required  legislative  approval.  Contracts  over  one  year                                                                    
required legislative ratification.                                                                                              
                                                                                                                                
Mr. Shine addressed slide 3 titled "Non-Competitive RIK                                                                         
Sale Process":                                                                                                                  
                                                                                                                                
     Before taking  RIK, the DNR  Commissioner must  find it                                                                    
     is in the State's best interest.                                                                                           
                                                                                                                                
     DNR  must decide  whether  to sell  RIK  pursuant to  a                                                                    
     competitive  auction or  a non-competitive,  negotiated                                                                    
     sale.                                                                                                                      
                                                                                                                                
     Solicitation  of   Interest  issued  January   2015  to                                                                    
     prospective purchasers to gauge market interest.                                                                           
                                                                                                                                
     DNR determined that there  was not competition allowing                                                                    
     for a competitive sale, and  proposed to enter into two                                                                    
     negotiated contracts with Petro Star.                                                                                      
                                                                                                                                
     The first contract, in effect  for the period January -                                                                    
     December 2017, did not  need legislative approval under                                                                    
     AS 38.06.055(a) and  (b)(1), received recommendation of                                                                    
     the Royalty Board and was entered into in August 2016.                                                                     
     The second contract, effective for the period January                                                                      
     2018 -December 2021, received the recommendation of                                                                        
     the Royalty Board, but requires Legislative approval.                                                                      
                                                                                                                                
Mr. Shine detailed that the  Department of Natural Resources                                                                    
(DNR)  sent the  solicitation  of interest  to five  instate                                                                    
refineries:  Petro  Star,  Tesoro,   Flint  Hills,  BP,  and                                                                    
ConocoPhillips. The  state choose  to enter  into negotiated                                                                    
sales with Tesoro  and Petro Star. In  2016, the legislature                                                                    
ratified  a  5-year  contract  with   Tesoro  under  HB  373                                                                    
Approval of  Sale of  Royalty Oil to  Tesoro [Chapter  3 SLA                                                                    
16/ - 04/21/2016]. The department  prepared a  best interest                                                                    
finding and  determined that the 4-year  Petro Star contract                                                                    
was in the state's best  interest. In addition, DNR issued a                                                                    
30-day public  comment review where  no public  comments had                                                                    
been received.  Subsequently, DNR presented the  contract to                                                                    
the Alaska  Oil and  Gas Royalty Development  Advisory Board                                                                    
(Royalty  Board)  on  August  31,  2016,  which  unanimously                                                                    
approved  the contract  and recommended  it for  legislative                                                                    
approval.  He   noted  that  the   "Report  to   the  Alaska                                                                    
Legislature" (copy  on file) and    the  Approval Resolution                                                                    
[Resolution  2016-2 (copy  on file)]  were  included in  the                                                                    
committee member's packets.                                                                                                     
                                                                                                                                
1:55:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  noted Representative Wilson had  joined the                                                                    
meeting.                                                                                                                        
                                                                                                                                
Vice-Chair  Gara relayed  that he  had never  had a  problem                                                                    
with the oil  royalty contracts. He spoke to  RIK versus RIV                                                                    
and noted that  the state stood to gain more  taking RIK. He                                                                    
asked  whether  the RIK  "net  positive"  accounted for  the                                                                    
amount of  oil used  to pay the  pipeline tariff.  Mr. Shine                                                                    
answered  that Petro  Star had  already  received its  "feed                                                                    
stock" from  other producers. The  state was  maximizing the                                                                    
value of  it royalty by  selling the  oil to Petro  Star. He                                                                    
elaborated that Petro Star refined  roughly 25 to 30 percent                                                                    
of each barrel of oil  and returned the remaining percentage                                                                    
of the barrel back  into Trans-Alaska Pipeline System (TAPS)                                                                    
in the  comingled stream. He  noted that the same  volume of                                                                    
oil  would  be  shipped  upstream and  downstream  from  the                                                                    
refinery.                                                                                                                       
                                                                                                                                
Representative  Guttenberg   referenced  the   Quality  Bank                                                                    
allowance  calculation and  a related  court case.  He asked                                                                    
what the  state would  lose in  the Quality  Bank allowances                                                                    
versus if  there was  no sale. He  thought that  the Quality                                                                    
Bank cost the state and  buyer money. He asked whether there                                                                    
was a  calculation for  the expense.  Mr. Shine  deemed that                                                                    
the  case Representative  Guttenberg  referred to  concerned                                                                    
the valuation  of the  residual portion of  a barrel  of oil                                                                    
and  was  a  Quality Bank  administrative  mandated  federal                                                                    
program.  The  value  was  determined   by  a  Quality  Bank                                                                    
administrator  contracted   through  the  TAPS   owners.  He                                                                    
delineated that the Quality Bank  payment was a deduction on                                                                    
the  netback   formula,  determined  by  the   Quality  Bank                                                                    
administrator.  He noted  the formula  was the  same if  the                                                                    
state chose RIV. Representative  Guttenberg relayed that the                                                                    
court  determined that  the  state had  no  standing in  the                                                                    
Quality  Bank   allowance  situation.   He  was   under  the                                                                    
impression  the state  lost money  because "the  calculation                                                                    
was higher than it should be."  He asked if the state looked                                                                    
at the  Quality Bank costs and  how it impacted the  sale of                                                                    
oil.  Mr. Shine  replied in  the affirmative.  He reiterated                                                                    
that  the number  was the  same whether  the state  took its                                                                    
royalty in-value  or in-kind. He explained  that the Quality                                                                    
Bank  was  an  economic   leveling  mechanism  that  ensured                                                                    
upstream  producers were  in the  same economic  position at                                                                    
the  Valdez main  terminal based  on the  value of  oil they                                                                    
contributed  into  the  comingled  stream.  He  agreed  that                                                                    
larger  Quality   Bank  payments   may  impact   the  bank's                                                                    
deduction that was  part of the state's  netback formula. He                                                                    
surmised that  the real  value to the  state taking  RIK was                                                                    
not  being subject  to  a  marine transportation  deduction.                                                                    
Representative Guttenberg requested  a letter explaining how                                                                    
the in-kind and  in-value worked out to be  the same number.                                                                    
Mr. Shine agreed to follow up.                                                                                                  
                                                                                                                                
2:01:34 PM                                                                                                                    
                                                                                                                                
Representative Grenn  referenced point  number 4 on  slide 4                                                                    
and read:                                                                                                                       
                                                                                                                                
     The  ability  of  the   prospective  buyer  to  provide                                                                    
     refined  products  for  distribution and  sale  in  the                                                                    
     state with price or supply  benefits to the citizens of                                                                    
     the state…                                                                                                                 
                                                                                                                                
Representative Grenn asked whether  there was a breakdown of                                                                    
what  Petro Star  would do  with its  refined products.  Mr.                                                                    
Shine  answered that  the  items were  covered  in the  best                                                                    
interest finding  included in  the member's  packets ["Final                                                                    
Best  Interest Finding  and Determination  for  the Sale  of                                                                    
Alaska North Slope Royalty Oil  to Petro Star Inc." Division                                                                    
of  Oil and  Gas,  Alaska Department  of Natural  Resources,                                                                    
September 15, 2016 (copy on file)].                                                                                             
                                                                                                                                
Co-Chair Seaton  spoke to refineries  tax credits  that were                                                                    
not "transparent."  He asked if  the department  was opposed                                                                    
to the suggestion of  adding transparency language regarding                                                                    
the  credits to  the bill.  Mr.  Shine did  not believe  the                                                                    
department   would   have    a   problem   with   increasing                                                                    
transparency.                                                                                                                   
                                                                                                                                
Representative  Wilson  asked  whether   the  bill  was  the                                                                    
appropriate  vehicle to  discuss the  refinery tax  credits.                                                                    
Mr.  Shine replied  that  the contract  was  not subject  to                                                                    
amendment. He  believed that  DNR preferred  the legislature                                                                    
address the issue in standalone legislation.                                                                                    
                                                                                                                                
Mr. Shine  moved to slide 4  titled "Commissioner's Decision                                                                    
Criteria":                                                                                                                      
                                                                                                                                
     AS 38.05.183(e) states that  the commissioner must sell                                                                    
     the  State's  royalty  oil  to  the  buyer  who  offers                                                                    
     "maximum  benefits to  the citizens  of the  state." In                                                                    
     making  this   determination,  the   commissioner  must                                                                    
     consider:                                                                                                                  
                                                                                                                                
     1.   The cash value offered;                                                                                               
     2.   The projected  effects of the sale  on the economy                                                                    
     of the state;                                                                                                              
     3.   The projected  benefits of refining  or processing                                                                    
     the oil in state;                                                                                                          
     4.   The ability  of the  prospective buyer  to provide                                                                    
     refined  products  for  distribution and  sale  in  the                                                                    
     state with price or supply  benefits to the citizens of                                                                    
     the state; and                                                                                                             
     5.   The eight  criteria listed in AS  38.06.070(a), as                                                                    
     reviewed by the Royalty Board.                                                                                             
     In  considering these  criteria, the  commissioner will                                                                    
     state which criteria apply  to the proposed disposition                                                                    
     and  discuss   the  weight  given  to   the  applicable                                                                    
     criteria  in determining  the maximum  benefits to  the                                                                    
     state.                                                                                                                     
                                                                                                                                
Mr. Shine  noted that Petro  Star had two  refineries: North                                                                    
Slope and  Valdez. The refined  products provided  jet fuel,                                                                    
home heating, and ultralow sulfur  diesel fuel for Alaskan's                                                                    
use.                                                                                                                            
Mr. Shine advanced to slide 5 titled "Approval Process for                                                                      
the RIK sale":                                                                                                                  
                                                                                                                                
     DNR must make a Best Interest Finding (BIF) in support                                                                     
     of the sale.                                                                                                               
                                                                                                                                
          Preliminary BIF issued July 2016.                                                                                     
                                                                                                                                
          Final BIF issued in September 2016.                                                                                   
                                                                                                                                
          DNR  presented the  proposed sale  to the  Royalty                                                                    
          Board on August 31, 2016.                                                                                             
                                                                                                                                
          The  Board reviewed  the Preliminary  BIF and  the                                                                    
          proposed  contracts,  and   unanimously  voted  to                                                                    
          recommend the Legislature approve  the sale of ANS                                                                    
          royalty oil to Petro Star.                                                                                            
                                                                                                                                
          The   Board  issued   a  Report   to  the   Alaska                                                                    
          Legislature  and  Resolution 2016-2  stating  that                                                                    
          the  proposed disposition  of ANS  royalty oil  to                                                                    
          Petro   Star   meets   the  requirements   of   AS                                                                    
          38.06.070.                                                                                                            
                                                                                                                                
          Prior   to  finalizing   the  RIK   contract,  the                                                                    
          Legislature  must   pass  a  bill   ratifying  the                                                                    
         contract with Petro Star (HB 70; SB 30).                                                                               
                                                                                                                                
Mr. Shine turned to slide 6 titled "Royalty Board's                                                                             
Decision Criteria":                                                                                                             
                                                                                                                                
     AS 38.06.070(a) states that the Alaska Royalty Oil and                                                                     
     Gas Development Advisory Board must consider:                                                                              
                                                                                                                                
        1. The revenue needs and projected fiscal condition                                                                     
          of the state;                                                                                                         
        2. The existence and extent of present and projected                                                                    
          local  and   regional  needs   for  oil   and  gas                                                                    
          products;                                                                                                             
        3. The desirability of localized capital investment,                                                                    
          increased   payroll,  secondary   development  and                                                                    
          other possible effects of the sale;                                                                                   
        4. The projected social impacts of the transaction;                                                                     
        5. The    projected     additional     costs     and                                                                    
          responsibilities which  could be imposed  upon the                                                                    
          state  and  affected   political  subdivisions  by                                                                    
         development related to the transactions;                                                                               
        6. The existence of specific local or regional labor                                                                    
          or consumption markets or both which should be                                                                        
          met by the transaction;                                                                                               
        7. The projected positive or negative environmental                                                                     
         effects related to the transactions; and                                                                               
        8. The projected effects of the proposed transaction                                                                    
          upon existing private commercial enterprise and                                                                       
          patters of investment.                                                                                                
                                                                                                                                
Mr. Shine notified the committee that the Royalty Board                                                                         
addressed the criteria in its report.                                                                                           
                                                                                                                                
2:05:48 PM                                                                                                                    
                                                                                                                                
Mr. Shine addressed slide 7 titled "Petro Star RIK Contract                                                                     
Terms":                                                                                                                         
                                                                                                                                
     Quantity                                                                                                                   
                                                                                                                                
     1-year  contract: from  18,800  bpd to  23,500 bpd  for                                                                    
     Jan. 2017 -Dec. 2017                                                                                                       
                                                                                                                                
     4-year  contract: from  16,400  bpd to  20,500 bpd  for                                                                    
     Jan. 2018 -Dec. 2018                                                                                                       
                                                                                                                                
          from 13,200 bpd to 16,500 bpd for Jan. 2019 -Dec.                                                                     
          2019                                                                                                                  
          from 10,800 bpd to 13,500 bpd for Jan. 2020 -Dec.                                                                     
          2020                                                                                                                  
          from 8,400 bpd to 10,500 bpd for Jan. 2021 -Dec.                                                                      
          2021                                                                                                                  
                                                                                                                                
     Price:  the   contracts  use  a  netback   formula  and                                                                    
     provides higher revenue to State compared to RIV.                                                                          
     Quantity flexibility                                                                                                       
                                                                                                                                
     Petro  Star   may  nominate  zero   barrels  up   to  3                                                                    
     consecutive  months  if  "turnaround clause"  is  used,                                                                    
     otherwise the contract terminates.                                                                                         
                                                                                                                                
     The State  can cap its  delivery amounts to 95%  of the                                                                    
     total ANS royalty  oil if the nominations  from all RIK                                                                    
     buyers is greater than the 95% threshold.                                                                                  
                                                                                                                                
     Provided  that the  supply of  ANS royalty  oil exceeds                                                                    
     demand  from  both  RIK  buyers,  the  State  can  sell                                                                    
     Additional  Sale Oil  as long  as the  total deliveries                                                                    
     are not greater than the 95% threshold.                                                                                    
                                                                                                                                
     Security                                                                                                                   
                                                                                                                                
     Petro Star's  guarantor (ASRC)  shall provide  a letter                                                                    
     of  opinion  from a  financial  analyst  or a  stand-by                                                                    
     letter of  credit or surety  bond equal in value  to 50                                                                    
     days of delivery.                                                                                                          
                                                                                                                                
     If  guarantor's credit  rating  falls below  investment                                                                    
     grade level,  then guarantor  shall provide  a stand-by                                                                    
     letter of credit or surety bond described previously.                                                                      
                                                                                                                                
     In-state  processing: Petro  Star to  use "commercially                                                                    
     reasonable  efforts"  to manufacture  refined  products                                                                    
     in-state from the ANS royalty oil.                                                                                         
                                                                                                                                
     Employment  of  Alaska   residents:  no  discrimination                                                                    
     against AK companies and residents.                                                                                        
                                                                                                                                
Mr.  Shine  reported  that the  decline  in  the  nomination                                                                    
values  was reflective  of the  state's anticipated  royalty                                                                    
barrels.  The numbers  were based  on  2015 Fall  Production                                                                    
Forecast   using  only   currently   producing  assets.   He                                                                    
indicated that the state expected  to receive 50 thousand to                                                                    
55 thousand  barrels of oil  per day  in 2017 and  from 2018                                                                    
through 2021 the state anticipated  receiving 36 thousand to                                                                    
50 thousand barrels of oil  per day. The Tesoro contract (HB                                                                    
373 from the  previous year) was based on 20  thousand to 25                                                                    
thousand barrels  per day during  the same time  period. The                                                                    
total accounted for approximately  95 percent of the state's                                                                    
royalty oil in the next five years.                                                                                             
                                                                                                                                
Representative Thompson  referenced slide 7  and interpreted                                                                    
that the  state could  sell an  increased amount  of royalty                                                                    
oil up  to the  95 percent threshold  if supply  was greater                                                                    
due to increased production. He  asked whether the statement                                                                    
was correct. He  noted that current oil  production was over                                                                    
550,000  barrels per  day but  the  fall forecast  predicted                                                                    
under 500,000/bbl. Mr. Shine replied  in the affirmative. He                                                                    
pointed  to  the  third  bullet   point  on  slide  7  under                                                                    
"Quantity  Flexibility" and  reported that  if more  royalty                                                                    
oil  was  available during  the  contract  period the  state                                                                    
could provide the excess barrels  based on the contracts. He                                                                    
restated  that  the contract  was  based  on 2015  currently                                                                    
producing assets.                                                                                                               
2:09:08 PM                                                                                                                    
                                                                                                                                
Mr.  Shine spoke  to the  security  provisions. He  reported                                                                    
that  the state  negotiated a  surety bond  with the  Arctic                                                                    
Slope Regional Corporation; Petro  Stars parent company, for                                                                    
$46 million  that would ensure  the state was  reimbursed at                                                                    
the same level in case  of default. He elaborated that there                                                                    
were two default risks: -  if barrels were delivered and the                                                                    
company was unable to meet  its obligation or a denomination                                                                    
risk.  He explained  that the  state  employed a  nomination                                                                    
process to receive  its royalty oil. One  hundred days prior                                                                    
to  the delivery  of  royalty oil,  the  state received  the                                                                    
nomination volumes  information from  Petro Star.  The state                                                                    
then  had 10  days  to notify  upstream  producers how  many                                                                    
barrels it was  taking in-kind. The purpose  of the security                                                                    
provision and  the bond  was to ensure  the state  was "kept                                                                    
whole" if  either default occurred. He  indicated that Petro                                                                    
Star employed over 300 Alaskans.                                                                                                
                                                                                                                                
Mr.  Shine offered  that the  following slide  contained the                                                                    
netback  formula  for the  contract.  He  discussed slide  8                                                                    
titled "RIK Contract Price:"                                                                                                    
                                                                                                                                
          ANS  Spot Price  -  $1.95 -  Tariff Allowance  +/-                                                                    
          Quality Bank Adjustments - Line Loss                                                                                  
                                                                                                                                
          ANS Spot Price  = Average US West  Coast Price for                                                                    
          Alaska  North  Slope  oil  (reported  by  industry                                                                    
          trade publications Platts and Reuters)                                                                                
                                                                                                                                
          $1.95 RIK Differential                                                                                                
                                                                                                                                
          This is  a deduction  used to calculate  the price                                                                    
          of ANS oil sold in Alaska.                                                                                            
                                                                                                                                
          The deduction is  applied to the price  of ANS oil                                                                    
          at its  most common  destination market  (the U.S.                                                                    
          West Coast).                                                                                                          
                                                                                                                                
          It resembles  the deduction used  in sales  of ANS                                                                    
          oil in  Alaska between  North Slope  producers and                                                                    
          between   North  Slope   producers  and   in-state                                                                    
          refineries.                                                                                                           
                                                                                                                                
          In contrast, for the ANS  royalty oil that is sold                                                                    
          outside  of Alaska  and  that  is taken  in-value,                                                                    
          producers  use a  deduction that  approximates the                                                                    
          marine transportation cost.                                                                                           
                                                                                                                                
          Since   deduction  that   represents  the   marine                                                                    
          transportation cost  is generally higher  than the                                                                    
          value of  the RIK differential, the  State has the                                                                    
          potential  to obtain  a higher  price for  its ANS                                                                    
          royalty oil  by taking  it in-kind and  selling it                                                                    
          in Alaska.                                                                                                            
                                                                                                                                
          Tariff Allowance = Tariffs  for TAPS and pipelines                                                                    
          upstream of Pump Station 1 (PS-1).                                                                                    
                                                                                                                                
          Quality  Bank Adjustments  = adjustments  reported                                                                    
          by TAPS Quality Bank Administrator.                                                                                   
                                                                                                                                
          Line  Loss  =  loss or  mismeasurement  of  volume                                                                    
          between  PS-1  and   the  Valdez  Marine  Terminal                                                                    
          (VMT).  It is  calculated as  0.09% of  the amount                                                                    
          resulting from the  formula above, excluding "Line                                                                    
          Loss."                                                                                                                
                                                                                                                                
Mr. Shine  summarized that the  main difference  between the                                                                    
RIK and  the RIV netback  formula was the difference  in the                                                                    
marine    transportation    deduction   versus    the    RIK                                                                    
differential. He  delineated that  the RIK  differential was                                                                    
$1.95 /bbl. in both  contracts and the marine transportation                                                                    
deduction was expected between  $3.30/bbl. and $3.70bbl. The                                                                    
RIK differential  represented the  value of oil  sold within                                                                    
the  state. He  referenced the  $29 million  to $37  million                                                                    
over 5  years increase in excess  of a RIV contract  was the                                                                    
delta between no marine transportation  deduction and an RIK                                                                    
differential at approximately $1.50bbl.                                                                                         
                                                                                                                                
2:13:09 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg asked  who  performed the  marine                                                                    
transportation  calculation.  Mr.  Shine  replied  that  the                                                                    
calculation  on   fields  that   were  covered   under  RSAs                                                                    
(Reimbursable Service Agreements)  was an average subtracted                                                                    
from the netback formula for the RIV.                                                                                           
                                                                                                                                
Mr.  Shine instructed  that the  line loss  was an  industry                                                                    
standard   deduction  in   netback  formulas   for  pipeline                                                                    
transportation  that accounted  for the  difference in  flow                                                                    
meters.  He moved to slide 9:                                                                                                   
                                                                                                                                
     CONTRACT IS IN THE STATE'S BEST INTEREST                                                                                   
                                                                                                                                
     The State  will receive between  $29 to $37  million in                                                                    
     additional revenue  over what  the state  would receive                                                                    
     if  the volume  of  ANS royalty  oil  the contracts  is                                                                    
     taken  in-value.  1-year  contract (Jan.  -Dec.  2017):                                                                    
     from $7.6 to $9.5 million  4-year contract (Jan. 2018 -                                                                    
     Dec. 2021): from $22.3 to $27.9 million                                                                                    
                                                                                                                                
     On average,  producers selling ANS royalty  oil outside                                                                    
     Alaska  for  the  5-year period  of  the  proposed  RIK                                                                    
     contracts with  Petro Star are expected  to deduct from                                                                    
     $3.37 to  $3.70 per barrel as  a "marine transportation                                                                    
     cost" in  arriving at  the price for  RIV. This  is the                                                                    
     deduction used to adjust the  price of ANS oil from the                                                                    
     U.S. West Coast to Alaska.                                                                                                 
                                                                                                                                
          The  proposed  contracts   with  Petro  Star  will                                                                    
          deduct  only $1.95  as  a "location  differential"                                                                    
          from the west coast ANS value.                                                                                        
                                                                                                                                
          The proposed  sale provides crude to  Petro Star's                                                                    
          refineries  at  North  Pole and  Valdez  with  the                                                                    
          associated   economic  and   social  benefits   to                                                                    
          Alaska's     economy:    Petro     Star    employs                                                                    
          approximately   44   people    in   its   refining                                                                    
          operations.                                                                                                           
                                                                                                                                
          Maximum throughput  capacity North  Pole refinery:                                                                    
          22,000  barrels per  day  (bpd). Valdez  refinery:                                                                    
          60,000 bpd.                                                                                                           
          Of the  throughput amounts,  approximately 25%-30%                                                                    
          will be refined products.                                                                                             
                                                                                                                                
          Petro Star  refineries' estimated  contribution to                                                                    
          the local economy in 2014 was $25mm                                                                                   
                                                                                                                                
Mr.  Shine  commented that  the  total  of the  two  current                                                                    
contracts  and another  previously approved  Tesoro contract                                                                    
brought the state  $75 million to $95 million  more over the                                                                    
next five years than available under RIV contracts.                                                                             
                                                                                                                                
2:15:40 PM                                                                                                                    
                                                                                                                                
Mr.  Shine  addressed slide  10  titled  "Comparison of  RIK                                                                    
Contracts."  The  slide  contained  charts  summarizing  the                                                                    
breakdown  in  the difference  between  the  volumes in  the                                                                    
Tesoro  and Petro  Star contracts.  He mentioned  that there                                                                    
was a positive fiscal  note accompanying the bill reflecting                                                                    
the  value of  the four-year  contract taken  in RIK  versus                                                                    
RIV.                                                                                                                            
                                                                                                                                
Representative Guttenberg  spoke to the tariff  allowance on                                                                    
slide 10.  He read the  following from a box  titled "Tariff                                                                    
Allowance":                                                                                                                     
                                                                                                                                
     …If royalty comes from fields upstream of PS No 1,                                                                         
     then RIK contracts consider tariffs filed with FERD                                                                        
     for shipment of royalty oil upstream of PS No 1.                                                                           
                                                                                                                                
Representative  Guttenberg  asked  where  the  tariffs  were                                                                    
filed and who set the rates.  He asked whether the state was                                                                    
paying twice  for shipments and  if the upstream  costs were                                                                    
regulated. Mr.  Shine responded that if  the state nominated                                                                    
royalty  barrels from  Prudhoe Bay  the netback  formula was                                                                    
only  subject to  a TAPS  deduction,  which represented  the                                                                    
transportation costs  from Prudhoe  Bay to  Valdez. However,                                                                    
if  the  state was  nominating  royalty  barrels from  other                                                                    
locations like  Pt. Thompson, additional  tariff adjustments                                                                    
were made  for moving the  oil from the point  of production                                                                    
to the  comingled stream  at Pump Station  number 1.  He was                                                                    
not  certain  whether the  costs  were  regulated. He  would                                                                    
follow up.                                                                                                                      
                                                                                                                                
2:18:25 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg was  concerned that  in the  past                                                                    
some  of  the  tariff   allowances  on  TAPS  were  disputed                                                                    
because, in  his view,  owners were  overcharging themselves                                                                    
and lowering the costs at  the wellhead and getting a better                                                                    
deal from  themselves for shipping  costs. He  wondered what                                                                    
happened   upstream  with   TAPS   owners  and   independent                                                                    
producers and  asked for  a follow up.  Mr. Shine  agreed to                                                                    
follow up.                                                                                                                      
                                                                                                                                
Co-Chair  Seaton asked  whether  there  was any  interaction                                                                    
with the gross  value reduction (GVR) for new oil  or the 10                                                                    
percent  GVR  for  those with  royalty  shares  above  12.25                                                                    
percent. Mr. Shine answered in the negative.                                                                                    
                                                                                                                                
Representative   Wilson    thanked   the    department   for                                                                    
negotiating the  deal, which she believed  was long overdue.                                                                    
She asked  about the difference between  the Tesoro contract                                                                    
and  the Petro  Star contract  in  how much  more the  state                                                                    
received. Mr.  Shine replied that the  prior Tesoro contract                                                                    
was $56  million more over  5 years  and in the  two current                                                                    
contracts between  $29 million  to $37  million more  or the                                                                    
difference  between the  minimum  nomination volumes  versus                                                                    
the  high-end volumes.  Representative Wilson  spoke to  the                                                                    
best  interest of  the state.  She asked  if the  department                                                                    
believed the contract was in  the state's best interest. Mr.                                                                    
Shine replied in the affirmative.                                                                                               
                                                                                                                                
Representative Grenn  asked for clarification of  the fiscal                                                                    
note (FN  2 (DNR). He  noted that according to  the analysis                                                                    
on page  two the proposed  contract is expected  to generate                                                                    
between $22  million and $27  million in revenues.  He asked                                                                    
about the difference.                                                                                                           
                                                                                                                                
2:21:22 PM                                                                                                                    
                                                                                                                                
Mr.  Shine responded  that SB  30 was  based on  a four-year                                                                    
contract. He cited sub-bullets on  slide 9 that reported the                                                                    
range for  a four year  contract similar to the  fiscal note                                                                    
at $22.3  million to  $27.9 million  the minimum  versus the                                                                    
maximum nomination range.                                                                                                       
                                                                                                                                
DOUG CHAPADOS, CHIEF EXECUTIVE  OFFICER AND PRESIDENT, PETRO                                                                    
STAR,  thanked DNR  for its  work on  the contract  and felt                                                                    
that the contract was equitable.                                                                                                
                                                                                                                                
Representative Thompson  asked whether  Mr. Chapados  was in                                                                    
favor  of   the  contract.  Mr.  Chapados   replied  in  the                                                                    
affirmative. He added that crude  oil for his refineries was                                                                    
essential  to remain  in  business and  stated  that it  was                                                                    
becoming harder  to source with  the decline  in throughput.                                                                    
The royalty oil served as the basis of his supply.                                                                              
                                                                                                                                
Co-Chair Seaton agreed the contract  was in the state's best                                                                    
interest.  He asked  if the  company had  any opposition  to                                                                    
transparency  regarding   refinery  credits.   Mr.  Chapados                                                                    
answered that  Petro Star  was happy to  provide a  level of                                                                    
transparency,  but he  believed it  was more  appropriate to                                                                    
have  the issue  attached  to a  tax  bill. Co-Chair  Seaton                                                                    
replied that he was not planning  to add any language to the                                                                    
current bill.                                                                                                                   
                                                                                                                                
2:25:09 PM                                                                                                                    
                                                                                                                                
Representative  Wilson thanked  Mr. Chapados  for taking  up                                                                    
the "gap"  that had been  left in Fairbanks by  Flint Hills.                                                                    
Mr. Chapados answered that Petro  Star was happy to still be                                                                    
in  business and  was  happy to  fill the  gap  left by  the                                                                    
closure of  Flint Hills. The  company utilized  the refinery                                                                    
credits  that  enabled  Petro  Star to  fill  the  void.  He                                                                    
reported  that the  company invested  in an  asphalt project                                                                    
and  produced  a low-cost  fuel  for  use by  Golden  Valley                                                                    
Electric Association due to the credits.                                                                                        
                                                                                                                                
Representative   Thompson  stated   that  the   company  was                                                                    
currently  holding  about $15  million  in  tax credits.  He                                                                    
asked if  the company had  been paid anything.  Mr. Chapados                                                                    
replied that Petro Star submitted  $5 million in tax credits                                                                    
generated in  2015 and  would apply for  $10 million  in tax                                                                    
credits generated in 2016.                                                                                                      
                                                                                                                                
2:27:17 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster  OPENED  and CLOSED  public  testimony.  He                                                                    
relayed that the bill would be heard on Friday.                                                                                 
                                                                                                                                
SB  30  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 90                                                                                                             
                                                                                                                                
     "An Act relating to occupational licensing fees;                                                                           
     relating to an occupational investigation surcharge;                                                                       
     and providing for an effective date."                                                                                      
                                                                                                                                
2:28:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAM KITO,  SPONSOR,  introduced himself  and                                                                    
the bill.                                                                                                                       
                                                                                                                                
CRYSTAL KOENEMAN, STAFF,  REPRESENTATIVE SAM KITO, explained                                                                    
that  HB  90  eased  the  burden  of  regulatory  costs  for                                                                    
licensees  governed under  Title  8 regarding  corporations,                                                                    
business   and  professional   licensing.  The   legislation                                                                    
would  remove investigative  fees  out  of regulatory  costs                                                                    
paid  by  each  licensee  and   spread  the  total  cost  of                                                                    
investigation  charges across  all  licensees regardless  of                                                                    
profession. The  investigative surcharge was in  lieu of the                                                                    
current amount that licensees paid  in their overall license                                                                    
fee. The  licensee would pay a  licensing and administrative                                                                    
fee   and  in   addition,  pay   a  separate   investigative                                                                    
surcharge.  The   Department  of  Commerce,   Community  and                                                                    
Economic   Development   (DCCED)  estimated   the   separate                                                                    
surcharge at  $55 for  all licensees  every two  years. Some                                                                    
boards would  benefit greatly  and conversely,  others might                                                                    
experience a  slight increase. She  knew that  the licensing                                                                    
issues pertained to  working people that had  an interest in                                                                    
avoiding  large  fee increases  and  a  level playing  field                                                                    
without  barriers to  entering a  profession. She  felt that                                                                    
licensees  wanted  assurances  from   DCCED  that  it  would                                                                    
stabilize  licensing fees.  She elaborated  that one  of the                                                                    
reasons  for  large  fee spikes  was  due  to  investigative                                                                    
costs, which  were difficult to  contain. If  a professional                                                                    
licensing program received a complaint  leading to a complex                                                                    
investigation, an enforcement  action could exceed $100,000.                                                                    
The  scenario  would  cause  devastating  fee  increases  in                                                                    
licensing  programs  with  fewer licensees.  She  summarized                                                                    
that  the  bill   would  spread  investigative  expenditures                                                                    
across all 74,000 licensees.                                                                                                    
                                                                                                                                
2:32:33 PM                                                                                                                    
                                                                                                                                
Representative Wilson appreciated the  effort to resolve the                                                                    
issue,  but  she  wondered  if the  bill  solved  the  issue                                                                    
related to  investigations. She  wondered what  really drove                                                                    
the   high  cost   of  investigations   Representative  Kito                                                                    
identified that  the yearly  total investigative  costs were                                                                    
relatively  consistent at  roughly $4  million. He  recapped                                                                    
that for  smaller boards an investigation  can significantly                                                                    
increase   their   fees.   Some  boards   were   large   and                                                                    
investigative  fees  were  spread  out  across  members.  He                                                                    
commented  that   some  boards   with  fewer   members  that                                                                    
developed a large debt were  at risk of losing their ability                                                                    
to  perform   statutory  board  functions;  one   board  did                                                                    
temporarily shut down. Some of  the boards with higher costs                                                                    
caused  fee increases  to the  point of  being a  barrier to                                                                    
entry  into   the  professions.   He  surmised   that  since                                                                    
investigative  costs were  fairly consistent  and the  state                                                                    
had a  large number  of licensees,  spreading the  costs out                                                                    
was  a small  burden  to  the larger  boards  and eased  the                                                                    
burden  on smaller  boards. He  reported that  one challenge                                                                    
that remained  was how to  ensure the state  was maintaining                                                                    
efficient use  of the fee  revenue while still  carrying out                                                                    
effective  investigations. The  issue was  not addressed  in                                                                    
the  bill.  Currently,  individual boards  identified  which                                                                    
cases to consider and certain  board members decided whether                                                                    
to  pursue further  action. Subsequently,  the investigative                                                                    
result was  communicated to  the boards.  He noted  that the                                                                    
solution in the bill was  similar to an insurance model. The                                                                    
goal was to protect public  safety and have reasonable fees.                                                                    
He learned  that some of the  large boards ran a  surplus in                                                                    
anticipation of  an investigation, so the  fees would remain                                                                    
consistent. However, if the  investigation costs were spread                                                                    
out  over  all boards,  the  larger  boards' fees  may  also                                                                    
decrease. The  larger pool  for investigative  costs created                                                                    
fee  stability that  averaged out  over years  and prevented                                                                    
large  fee spikes.  He  felt that  the  larger boards  could                                                                    
eliminate their practice of maintaining a surplus.                                                                              
                                                                                                                                
2:37:28 PM                                                                                                                    
                                                                                                                                
Representative Wilson  questioned whether each  board should                                                                    
be responsible for its own costs  and felt the issue was the                                                                    
larger policy  call. She wondered whether  another issue was                                                                    
whether the  state decided to pursue  investigations instead                                                                    
of  the  board. She  mentioned  hearing  from the  Board  of                                                                    
Nursing, relaying  that the  board worked  hard to  keep its                                                                    
costs   down.  Representative   Kito   responded  that   the                                                                    
investigative process  would not change. He  offered that an                                                                    
investigation  was  initiated by  the  public  or through  a                                                                    
board member  complaint. The exact  same processes  would be                                                                    
used to implement investigations.  The provision was related                                                                    
to how  costs were attributed  to boards. He used  the Board                                                                    
of Midwifery  as an example.  A single  investigation caused                                                                    
fees  to possibly  skyrocket  to  $4.8 thousand  biennially,                                                                    
which  was  identified   as  a  barrier  to   entry  by  the                                                                    
Legislative  Audit agency.  An audit  recommendation was  to                                                                    
merge  the midwifery  board with  a  larger board.  However,                                                                    
merging boards created members that  lacked expertise in the                                                                    
other profession and engaged  members in professional issues                                                                    
and  functions  they were  not  familiar  with and  possibly                                                                    
involved them  in the decision  on whether  an investigation                                                                    
was warranted for  a profession they did not  belong to. How                                                                    
professions were licensed was a  big question, but he wanted                                                                    
to  ensure the  professions were  protecting public  safety.                                                                    
Representative Wilson agreed the  issue had existed for many                                                                    
years and  appreciated the sponsor's effort.  She was trying                                                                    
to  determine if  the proposed  bill was  the solution.  She                                                                    
asked whether  the boards were  notified of  the legislation                                                                    
and   how   the   provisions  would   impact   each   board.                                                                    
Representative  Kito  responded  that his  office  had  been                                                                    
communicating   with  some   of   the   boards.  Some   were                                                                    
supportive,   and  others   had   expressed  concern   about                                                                    
increasing fees.  He noted that information  was included in                                                                    
the  member's bill  packets regarding  the new  fee schedule                                                                    
["Division  of   Corporations,  Business   and  Professional                                                                    
Licensing  Professional Licensing  Fee  Changes and  Program                                                                    
Investigation  Costs Comparisons"  (as of  January 1,  2017)                                                                    
(copy on file).]                                                                                                                
                                                                                                                                
Representative  Wilson  hoped  to  hear  feedback  from  the                                                                    
boards. She  observed that the  bill was a big  policy shift                                                                    
that affected  the boards. Ms.  Koeneman relayed  that DCCED                                                                    
was engaged in  discussions with the boards  regarding HB 90                                                                    
and boards were meeting and proposing action.                                                                                   
                                                                                                                                
2:43:19 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster suggested  Representative Wilson  work with                                                                    
Representative Kito's office on the issue.                                                                                      
                                                                                                                                
Co-Chair Seaton  was concerned about  investigations related                                                                    
to  non-licensed individuals,  which resulted  in a  cost to                                                                    
law  abiding licensed  individuals. He  asked how  the issue                                                                    
was handled within the  system. Representative Kito answered                                                                    
that  the  question  pertained to  unlicensed  practice  and                                                                    
whether   the   board   should   have   to   pay   for   the                                                                    
investigations.  He  elaborated  that   if  the  state  made                                                                    
unlicensed  practice a  crime, the  Department of  Law would                                                                    
investigate,  but  it  was likely  the  DCCED  investigators                                                                    
would still be  drawn in because of their  expertise. He had                                                                    
not  collected  information  identifying  how  many  of  the                                                                    
complaints  were a  result of  unlicensed practice  or other                                                                    
activities  related  to a  licensed  practice.  He hoped  to                                                                    
pursue unlicensed  practice as  a separate issue  next year.                                                                    
Co-Chair  Seaton voiced  that  one board  the committee  had                                                                    
heard from  had high fees  due to investigations  related to                                                                    
unlicensed  individuals. He  suggested that  the legislature                                                                    
consider  a  remedy that  included  cost  recovery from  the                                                                    
unlicensed individuals. He thought  the scenario could lower                                                                    
licensing fees.  Representative Kito answered he  would keep                                                                    
the issue at the forefront of their work.                                                                                       
                                                                                                                                
Vice-Chair Gara  asked whether  the cost  impact of  the one                                                                    
fee  proposal  on  all  the   boards  was  accessed  by  the                                                                    
department.   Representative   Kito    answered   that   the                                                                    
information  was  included  in members'  packets.  [Document                                                                    
cited earlier.]                                                                                                                 
                                                                                                                                
Ms.  Koeneman added  that DCCED  performed the  analysis and                                                                    
the fee was  $55 every two years. Vice-Chair  Gara asked for                                                                    
the number  of boards.  Ms. Koeneman  replied there  were 43                                                                    
boards.  Vice-Chair Gara  did not  believe that  the sponsor                                                                    
should  perform an  analysis on  every  board. Ms.  Koeneman                                                                    
answered that  if board  action was  required to  proceed, a                                                                    
board  meeting was  necessary,  which  could add  additional                                                                    
costs  for the  boards. Vice-Chair  Gara spoke  to a  recent                                                                    
committee  hearing on  a midwifery  bill. He  referred to  a                                                                    
conversation  regarding penalties  for violations.  He asked                                                                    
whether there  was a uniform  penalty structure  for boards.                                                                    
Ms.  Koeneman   replied  that  AS  08.01.075   outlined  the                                                                    
disciplinary powers  of a board  and subsection  8 specified                                                                    
that the fine  not exceed $5,000. In  addition, AS 08.01.102                                                                    
authorized that DCCED could issue  a citation for unlicensed                                                                    
practice or  activity but did  not specify a  dollar amount.                                                                    
Vice-Chair  Gara asked  whether the  penalty structure  also                                                                    
included cost recovery for the  state.  Ms. Koeneman replied                                                                    
in the negative.                                                                                                                
                                                                                                                                
2:50:03 PM                                                                                                                    
                                                                                                                                
Representative  Kito interjected  that  one issue  involving                                                                    
cost recovery  for investigations was that  penalty proceeds                                                                    
were  deposited  into  the  general   fund  (GF),  which  he                                                                    
preferred. He  worried that collecting penalties  to support                                                                    
the   licensing   program   opened  the   possibility   that                                                                    
investigations could be used to  fund the licensing program.                                                                    
He favored  using the licensing  fees to fund  the programs.                                                                    
Vice-Chair Gara clarified that he  had only inquired whether                                                                    
the  costs were  recovered in  general. Representative  Kito                                                                    
replied that he would examine the issue over the interim.                                                                       
                                                                                                                                
Ms. Koeneman added  that DOL raised concerns  with the issue                                                                    
of raising penalties to cover the full investigative costs.                                                                     
Representative Guttenberg spoke  to investigations of people                                                                    
practicing without  a license and  how it impacted  the cost                                                                    
to a  specific board. He  suggested parity for a  board when                                                                    
the  investigative cost  were recovered  and deposited  into                                                                    
GF. He  asked whether  the sponsor  considered some  type of                                                                    
cost recovery allocation from GF  to a board. He stated that                                                                    
the  system was  broken and  believed the  bill contained  a                                                                    
decent solution.                                                                                                                
                                                                                                                                
2:54:01 PM                                                                                                                    
                                                                                                                                
Ms. Koeneman replied that if  there was a mechanism in place                                                                    
for the  fines to reimburse  the board, more than  likely it                                                                    
would  come through  the operating  budget  process and  the                                                                    
legislature could  possibly allocate some funds  back to the                                                                    
boards.                                                                                                                         
Representative Thompson  relayed hearing  about incompetence                                                                    
by state  board investigators  that resulted in  longer than                                                                    
necessary   investigations  which   added  costs   onto  the                                                                    
profession.  He  favored a  cost  recovery  process for  the                                                                    
boards. He  believed HB 90  was a good solution.  He worried                                                                    
about boards  currently with  large defaults  that increased                                                                    
its  fees. He  asked whether  the  one fee  system would  be                                                                    
charged in  concert with  fees related  to a  large deficit.                                                                    
Ms. Koeneman answered in the  affirmative and added that the                                                                    
boards  with deficits  were required  to pay  their deficits                                                                    
before participating in  the bill. She agreed  it would hurt                                                                    
to  pay off  the  deficits,  but it  would  be  in the  best                                                                    
interest  in the  long-term. She  reported that  the Medical                                                                    
Board accrued investigative costs  of $632 thousand over the                                                                    
biennium.   The  Nursing   Board   had   $909  thousand   in                                                                    
investigative  costs for  FY  14  and FY  15.  The Big  Game                                                                    
Commercial  Service  Board  accrued investigative  costs  of                                                                    
$559 thousand. She  surmised that in the long  run the costs                                                                    
would  level   off  and  create  a   more  predictable  cost                                                                    
structure for all boards.                                                                                                       
                                                                                                                                
2:58:18 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  spoke  to a  handout  ["Division  of                                                                    
Corporations,    Business   and    Professional   Licensing,                                                                    
Professional    Licensing    Fee   Changes    and    Program                                                                    
Investigation  Costs  Comparisons  as of  January  1,  2017"                                                                    
(copy on file)].  He remarked on the  large income disparity                                                                    
among the different professions.  He identified the Board of                                                                    
Barbers  and  Hairdressers  and  cited  the  professions  as                                                                    
examples  of  lower  income occupations.  He  asked  how  to                                                                    
justify increasing fees for some  boards and penalizing them                                                                    
for  mistakes and  incompetence by  the state  when managing                                                                    
boards'  fees. He  agreed  that a  solution  was needed  but                                                                    
disagreed with the provisions in  HB 90. Representative Kito                                                                    
answered  that at  first glance  the solution  seemed unfair                                                                    
due  to  the  income  inequities. However,  he  likened  the                                                                    
solution  to   an  insurance  policy  and   pointed  to  how                                                                    
automobile insurance works as an  example of the benefits of                                                                    
HB  90.   He  offered   that  the   Board  of   Barbers  and                                                                    
Hairdressers may not receive a  benefit in the current year,                                                                    
but perhaps  there would be  an investigation in  the future                                                                    
that  would  have  significantly increased  their  fees.  He                                                                    
communicated  that rather  than  every board  paying for  30                                                                    
percent  to   over  50  percent  of   their  investigations,                                                                    
everyone  paid  a  smaller percentage  and  all  boards  had                                                                    
access to the investigative services.                                                                                           
Ms. Koeneman  added that  in FY  12 and FY  13 the  Board of                                                                    
Barbers  and Hairdressers  had only  paid  $59 thousand  for                                                                    
investigations but  the amount rose  to $131 thousand  in FY                                                                    
14 and FY 15. The  board's surplus was diminishing; one more                                                                    
large investigation  would likely  increase their  fees. She                                                                    
expected that the bill would level off fees.                                                                                    
                                                                                                                                
Representative Pruitt  countered that  if the  provision was                                                                    
likened  to  insurance, a  person  paid  less if  they  were                                                                    
accident free.  He surmised that  there should  be different                                                                    
levels  of payment  versus one  fee, for  boards with  lower                                                                    
costs; lower  cost boards  should pay  less. He  stated that                                                                    
currently there  was pressure on  the legislature  and DCCED                                                                    
for  prudent  use of  investigations  to  contain costs.  He                                                                    
opined  that   the  pressure  was  necessary   to  keep  the                                                                    
investigatory  process in  check. He  wondered how  the bill                                                                    
ensured the efficient use of investigations.                                                                                    
                                                                                                                                
3:06:01 PM                                                                                                                    
                                                                                                                                
Ms. Koeneman  answered that there  would be  74,000 licensed                                                                    
individuals  to collectively  weigh in  on the  department's                                                                    
regulatory process  and the amount  of the  surcharge, which                                                                    
would maintain pressure on the department.                                                                                      
                                                                                                                                
Representative  Kito interjected  that one  of his  concerns                                                                    
was  a  board  that  made  decisions  regarding  whether  to                                                                    
proceed with  an investigation based on  fees increasing. He                                                                    
believed  the  scenario  was  an  example  of  inappropriate                                                                    
pressure;  if  the  state  did   not  investigate  a  person                                                                    
practicing  inappropriately   the  state  was   failing  its                                                                    
mission. He  related that investigators were  overworked and                                                                    
responded  to  public or  licensee  complaints.  He had  not                                                                    
heard  of   investigators  "trying  to  drum   up  work  for                                                                    
investigations."  He   reiterated  that   the  investigatory                                                                    
process  would remain  the  same. He  did  not believe  that                                                                    
currently  boards  made  investigatory  decisions  based  on                                                                    
possible fee increases.                                                                                                         
                                                                                                                                
Co-Chair Seaton OPENED public testimony.                                                                                        
                                                                                                                                
SUSAN  TERWILLIGER,   PRESIDENT,  MIDWIVES   ASSOCIATION  OF                                                                    
ALASKA,  ANCHORAGE  (via  teleconference), spoke  in  strong                                                                    
support of  the legislation.  She voiced  that the  bill was                                                                    
beneficial for  the consumers of midwifery  care. She shared                                                                    
that  midwifes   attended  the  births  of   people  in  all                                                                    
different occupations. She hoped the bill would pass.                                                                           
Co-Chair Seaton CLOSED public testimony.                                                                                        
                                                                                                                                
HB  90  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 6                                                                                                              
                                                                                                                                
     "An Act establishing the Jonesville Public Use Area."                                                                      
                                                                                                                                
3:10:36 PM                                                                                                                    
                                                                                                                                
DARRELL  BREESE,  STAFF,   REPRESENTATIVE  GEORGE  RAUSCHER,                                                                    
explained  the legislation.  He reported  that the  area was                                                                    
north  of Sutton  and was  historically a  coal mining  area                                                                    
from  1919  to  1977.  The   bill  would  establish  the  11                                                                    
thousand-acre Jonesville  Public Use  Area and  maintain its                                                                    
popular  recreational opportunities  for Alaskans.  The bill                                                                    
would  protect,   maintain,  enhance,  and   perpetuate  the                                                                    
present use  of the  area for year-round  public recreation,                                                                    
migratory waterfowl nesting areas  and habitats for fish and                                                                    
wildlife,  and other  uses.  He noted  that  along with  the                                                                    
popular  uses  negative  activities were  happening  in  the                                                                    
unmanaged area. Burning cars,  illegal activity, and gunfire                                                                    
causing  stray bullets  were reoccurring  events. He  shared                                                                    
that a death had taken place  in the area in the prior year.                                                                    
The  people  of  the  Sutton Community  Council  coined  the                                                                    
phrase "Mad Max  Theater" to describe the  activities in the                                                                    
area. The Sutton Community Council  and the Chickaloon Tribe                                                                    
had  worked to  remove thousands  of pounds  of garbage  and                                                                    
abandoned vehicles from  the area. The groups  had worked to                                                                    
develop  a  compromise for  the  land  use by  creating  the                                                                    
Public  Use Area  (PUA). The  area would  allow for  all the                                                                    
proper  uses  of  the area  that  included  hiking,  biking,                                                                    
camping,  ATV  use,  etc.  He  noted  that  a  petition  was                                                                    
included  in the  committee  member's  packets ["A  Petition                                                                    
Regarding  Jonesville\Slipper Lake  Area"  (copy on  file)].                                                                    
The goal  was to  move forward to  create a  safe recreation                                                                    
area.                                                                                                                           
                                                                                                                                
Representative Wilson  wondered why  an agreement  could not                                                                    
be made  between the Department  of Natural  Resources (DNR)                                                                    
and  Mat-Su.  Mr.  Breese  deferred   the  question  to  the                                                                    
department.                                                                                                                     
                                                                                                                                
3:15:06 PM                                                                                                                    
                                                                                                                                
BRENT  GOODRUM,  DIRECTOR,  DIVISION  OF  MINING,  LAND  AND                                                                    
WATER,    DEPARTMENT     OF    NATURAL     RESOURCES    (via                                                                    
teleconference),  replied  that   by  establishing  an  area                                                                    
merely  through an  agreement the  department  would not  be                                                                    
able to  adopt regulations for enforcement.  The legislation                                                                    
authorized  DNR  to  adopt  and  enforce  restrictions  that                                                                    
curtailed undesirable activities.                                                                                               
                                                                                                                                
Representative Wilson referred to the  DNR fiscal note, FN 4                                                                    
(DNR). She read from the analysis:                                                                                              
                                                                                                                                
     The department would need to develop the management                                                                        
     plan with existing staff resources.                                                                                        
                                                                                                                                
Representative  Wilson  noted   that  the  analysis  further                                                                    
stated  that  was  unlikely  to happen  due  to  costs.  She                                                                    
understood  that  the   Matanuska-Susitna  (Mat-Su)  Borough                                                                    
would undertake the obligation.  The fiscal notes were zero,                                                                    
consequently, DNR lacked funding  for writing the management                                                                    
plan   and  regulations,   enforcement,  or   policing.  She                                                                    
wondered what the  current benefits of the  bill was without                                                                    
funding attached. She surmised  that the Borough could write                                                                    
the  management plan.  Mr. Goodrum  answered the  department                                                                    
would  work  closely with  other  local  partners to  enlist                                                                    
help.  He indicated  that  DNR had  the  ability to  develop                                                                    
plans, but the current workload  and queue of projects ahead                                                                    
of Jonesville PUA was long.                                                                                                     
                                                                                                                                
Representative Wilson  requested more  information regarding                                                                    
the Knik  River Public Use  Area. She cited the  fiscal note                                                                    
analysis  stating  that   enforcement  regulation  would  be                                                                    
similar to the Knik River  PUA. She believed that the Mat-Su                                                                    
did  not want  a lot  of government  regulation. Mr.  Breese                                                                    
answered that the  Knik River PUA was in  the Mat-Su Borough                                                                    
and the  regulations would be  similar. He related  that the                                                                    
community  would be  accepting  of  similar regulations.  He                                                                    
reiterated that  it was  necessary to  establish the  PUA to                                                                    
begin work on the management plan.                                                                                              
                                                                                                                                
Co-Chair Seaton pointed to a  document [unknown] in the bill                                                                    
packet that referred  to the ability of  the Commissioner of                                                                    
DNR to  appoint one of  the department's employees  or other                                                                    
individual as  a Peace  Officer for the  PUA. He  asked what                                                                    
was  envisioned  as  the  work of  the  Peace  Officer.  Mr.                                                                    
Goodrum answered  that DNR had  a rigorous  training program                                                                    
for  its   employees  that  resulted  in   a  Peace  Officer                                                                    
certification.  Many Peace  Officers were  operating in  the                                                                    
Knik  River  PUA.  In  addition,   state  troopers  had  the                                                                    
authority  to  enforce   DNR  regulations.  Co-Chair  Seaton                                                                    
remarked that currently the Department  of Revenue (DOR) and                                                                    
Department  of  Public Safety  (DPS)  entered  into a  joint                                                                    
agreement  and transferred  authority to  8 DOR  enforcement                                                                    
officers  to carry  firearms. He  asked whether  DNR program                                                                    
was  similar. Mr.  Goodrum replied  that the  department had                                                                    
certain park rangers who were  able to carry weapons. He was                                                                    
not  aware  of  public  use  area  peace  officers  carrying                                                                    
weapons. He  reported that the  peace officers  were trained                                                                    
to  interact  with  and educate  the  public  regarding  the                                                                    
regulations.  Co-Chair  Seaton  requested a  memo  from  the                                                                    
department  about its  intentions  related  to firearms  and                                                                    
peace officers for the PUA.                                                                                                     
                                                                                                                                
3:23:20 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  referred to the first  paragraph of                                                                    
DNR's fiscal note analysis that  mentioned the long queue of                                                                    
other projects  ahead of  the Jonesville  PUA. He  asked for                                                                    
clarification.  He  wanted  the  legislation  to  accomplish                                                                    
something. Mr.  Goodrum answered that the  challenge was the                                                                    
amount  of  work  and  the   number  of  current  staff.  He                                                                    
explained that the reason the  fiscal note was zero was that                                                                    
the project  was far  off in the  queue. He  reiterated that                                                                    
DNR  was  looking for  other  local  partners to  help  with                                                                    
development with the plan.                                                                                                      
                                                                                                                                
Co-Chair  Seaton asked  whether  nothing  will happen  until                                                                    
2023. Mr. Goodrum replied in the affirmative.                                                                                   
                                                                                                                                
Representative Kawasaki looked at  the fiscal notes from the                                                                    
establishment of  the Knik River  PUA in 2006. He  noted the                                                                    
initial  cost of  roughly $400  thousand.  He believed  that                                                                    
costs   would  be   associated  with   the  development   of                                                                    
Jonesville PUA.  He wondered about  the cost  of enforcement                                                                    
related to Knik River Public  Use Area and observed that the                                                                    
fiscal note  cited a  Reimbursable Services  Agreement (RSA)                                                                    
for  enforcement. Mr.  Goodrum answered  that in  the FY  17                                                                    
budget,  $125,000 had  been allocated  to  the troopers  for                                                                    
enforcement.                                                                                                                    
                                                                                                                                
Representative   Guttenberg  asked   about  the   difference                                                                    
between a  PUA and multi-use recreational  area. Mr. Goodrum                                                                    
replied that a PUA allowed  DNR to establish enforcement for                                                                    
the area. A multi-use area was general state land.                                                                              
                                                                                                                                
Co-Chair Seaton  noted that Representatives  George Rauscher                                                                    
and Geran Tarr had joined the audience.                                                                                         
                                                                                                                                
Representative  Guttenberg asked  whether a  trooper or  law                                                                    
enforcement officer  was required and  who paid for  it. Mr.                                                                    
Goodrum  replied that  due  to  enforcement regulations  and                                                                    
associated bail fees for PUA  areas, and resources available                                                                    
to compensate  state troopers,  the troopers  enforced PUAs.                                                                    
He added  that on general state  land it was less  likely to                                                                    
obtain trooper support due to the size of the state.                                                                            
                                                                                                                                
3:29:48 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  stated  that for  years  he  had                                                                    
tried to establish a recreational  area. He reported that he                                                                    
was  unable to  dissuade  the  State Parks  to  back off  on                                                                    
providing an armed  officer, even though the  public did not                                                                    
want one.                                                                                                                       
                                                                                                                                
Representative Wilson  inquired whether  the Mat-Su  and DNR                                                                    
could   enter  into   an  agreement   granting  Mat-Su   the                                                                    
responsibility  for   developing  the  management   plan  to                                                                    
eliminate DNR's funding needs.                                                                                                  
                                                                                                                                
REPRESENTATIVE GEORGE  RAUSCHER, SPONSOR, answered  that the                                                                    
Mat-Su Borough  strongly supported the bill.  He referred to                                                                    
a letter  from the Mat-Su Borough  planning department (copy                                                                    
on file) that strongly supported  development of the PUA. He                                                                    
related that the  bill development lasted for  over one year                                                                    
and involved the  borough, public, and all  user groups. The                                                                    
borough was thoroughly committed  to the project through its                                                                    
completion. He  reiterated that the process  required that a                                                                    
PUA was  established to  develop the  plan, however  DNR did                                                                    
not have to write the plan; only approve it.                                                                                    
                                                                                                                                
Co-Chair  Seaton noted  that public  testimony would  remain                                                                    
open.                                                                                                                           
                                                                                                                                
HB  6   was  HEARD  and   HELD  in  committee   for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 31                                                                                                             
                                                                                                                                
     "An Act  requiring the Department  of Public  Safety to                                                                    
     develop   a   tracking   system  and   collection   and                                                                    
     processing  protocol  for  sexual  assault  examination                                                                    
     kits;  requiring  law   enforcement  agencies  to  send                                                                    
     sexual assault  examination kits for testing  within 18                                                                    
     months  after collection;  requiring  an inventory  and                                                                    
     reports  on untested  sexual assault  examination kits;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
3:33:09 PM                                                                                                                    
                                                                                                                                
Representative Wilson MOVED to  ADOPT the proposed committee                                                                    
substitute  for  HB  31,  Work  Draft  30-LS0271\J  (Martin,                                                                    
2/28/17). There being NO OBJECTION, it was so ordered.                                                                          
                                                                                                                                
REPRESENTATIVE  GERAN TARR,  SPONSOR,  introduced the  bill.                                                                    
She identified  that a problem related  to addressing sexual                                                                    
assault  in  the  state  was  the  untested  sexual  assault                                                                    
examination  kits.   She  explained   that  the   kits  were                                                                    
typically associated  with the individual crime  at the time                                                                    
of   collection.  However,   perpetrators   can  be   serial                                                                    
assaulters and can be involved  in multiple cases. The issue                                                                    
had prompted  multiple jurisdictions  across the  country to                                                                    
test untested  kits and assess  the serial  assault problem.                                                                    
She related the story of a  rapist in 2014 and reported that                                                                    
if the  DNA was tested at  the time against other  kits, the                                                                    
assailant  would have  been discovered  as a  serial rapist.                                                                    
She felt  that the  legislation would further  safeguard the                                                                    
public's safety.                                                                                                                
                                                                                                                                
HB  31  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Seaton addressed  the  meeting  for the  following                                                                    
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:37:05 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:37 p.m.                                                                                          

Document Name Date/Time Subjects
HB 31 Support Documents PKT.pdf HFIN 3/13/2017 1:30:00 PM
HB 31
HB31 - CSHB 31 Workdraft version J.pdf HFIN 3/13/2017 1:30:00 PM
HB 31
HB31 Additional Document ADN Crimes & Reports 2.13.17.PDF HFIN 3/13/2017 1:30:00 PM
HB 31
HB31 Additional Document Tracking Kit Software 2.13.17.PDF HFIN 3/13/2017 1:30:00 PM
HB 31
HB 006 MSB Assembly Jim Sykes Draft Resolution.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB 006 Supporing Document MSB Support Resolution.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB 6 sponsor statement.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-ADN Article.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-DNR Petition.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-Frontiersman Editorial.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-Jonesville Action Plan.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-KTUU Article.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-Lynne Woods letter.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-Map of Area.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-MSB Letter.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB006 Supporting Document-Sutton Resolution.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
SB 30 Best Interest Finding.pdf HFIN 3/13/2017 1:30:00 PM
SB 30
SB 30 PSI Letter of Support for RIK Bill.pdf HFIN 3/13/2017 1:30:00 PM
SB 30
SB 30 Report from Royalty Board.pdf HFIN 3/13/2017 1:30:00 PM
SB 30
SB 30 Royalty Board Resolution.PDF HFIN 3/13/2017 1:30:00 PM
SB 30
SB 30 Transmittal Letter.pdf HFIN 3/13/2017 1:30:00 PM
SB 30
SB30 PPT to HFIN - 03.13.2017.pdf HFIN 3/13/2017 1:30:00 PM
SB 30
HB090 Sectional Analysis 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Sponsor Statement 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Document - Board License Action Options 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Document - CBPL Investigative Process 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Document - CBPL Program Fees and Investigation Cost Comparison 022817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Document - Licensing Statistics 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Document - Summary of All Professional Licensing 020817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Documents - Letters of Opposition 022817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB090 Supporting Documents - Letters of Support 022817.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB31 Sponsor Statement.pdf HFIN 3/13/2017 1:30:00 PM
HB 31
HB31- Explaination of Changes.pdf HFIN 3/13/2017 1:30:00 PM
HB 31
HB 6 Explanation of Changes.pdf HFIN 3/13/2017 1:30:00 PM
HB 6
HB90 Opposition Document - Letter 3.14.17.pdf HFIN 3/13/2017 1:30:00 PM
HB 90
HB 6 - Administration Letter of Support-signed.pdf HFIN 3/13/2017 1:30:00 PM
HB 6