Legislature(2007 - 2008)HOUSE FINANCE 519
10/28/2007 02:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB2001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
October 28, 2007
3:12 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Nancy Dahlstrom
Representative Mark Neuman
Representative Jay Ramras
Representative Ralph Samuels
Representative Mike Doogan
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Bob Buch
Representative Sharon Cissna
Representative Bryce Edgmon
Representative Anna Fairclough
Representative Carl Gatto
Representative Lindsey Holmes
Representative Craig Johnson
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
COMMITTEE CALENDAR
HOUSE BILL NO. 2001
"An Act relating to the production tax on oil and gas and to
conservation surcharges on oil; relating to the issuance of
advisory bulletins and the disclosure of certain information
relating to the production tax and the sharing between agencies
of certain information relating to the production tax and to oil
and gas or gas only leases; amending the State Personnel Act to
place in the exempt service certain state oil and gas auditors
and their immediate supervisors; establishing an oil and gas tax
credit fund and authorizing payment from that fund; providing
for retroactive application of certain statutory and regulatory
provisions relating to the production tax on oil and gas and
conservation surcharges on oil; making conforming amendments;
and providing for an effective date."
- MOVED CSHB 2001(O&G) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB2001
SHORT TITLE: OIL & GAS TAX AMENDMENTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
10/18/07 (H) READ THE FIRST TIME - REFERRALS
10/18/07 (H) O&G, RES, FIN
10/19/07 (H) O&G AT 1:30 PM HOUSE FINANCE 519
10/19/07 (H) Heard & Held
10/19/07 (H) MINUTE(O&G)
10/20/07 (H) O&G AT 12:00 AM HOUSE FINANCE 519
10/20/07 (H) Heard & Held
10/20/07 (H) MINUTE(O&G)
10/21/07 (H) O&G AT 1:00 PM HOUSE FINANCE 519
10/21/07 (H) Heard & Held
10/21/07 (H) MINUTE(O&G)
10/22/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/22/07 (H) Heard & Held
10/22/07 (H) MINUTE(O&G)
10/23/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/23/07 (H) Heard & Held
10/23/07 (H) MINUTE(O&G)
10/24/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/24/07 (H) Heard & Held
10/24/07 (H) MINUTE(O&G)
10/25/07 (H) O&G AT 10:00 AM HOUSE FINANCE 519
10/25/07 (H) Heard & Held
10/25/07 (H) MINUTE(O&G)
10/26/07 (H) O&G AT 10:00 AM HOUSE FINANCE 519
10/26/07 (H) Heard & Held
10/26/07 (H) MINUTE(O&G)
10/27/07 (H) O&G AT 2:00 PM HOUSE FINANCE 519
10/27/07 (H) Heard & Held
10/27/07 (H) MINUTE(O&G)
10/28/07 (H) O&G AT 3:00 PM HOUSE FINANCE 519
WITNESS REGISTER
KONRAD JACKSON, Staff
to Representative Olson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 2001, provided a
sectional review of the proposed CS for HB 2001 labeled 25-
GH0014\K, Bullock, 10/27/07.
JANE PIERSON, Staff
to Representative Ramras
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 2001, answered
questions.
STEVE PORTER, Consultant
to the Legislative Budget and Audit Committee
Alaska State Legislature
Tehachapi, California
POSITION STATEMENT: During the hearing on HB 2001, presented
information and answered questions.
BARRY PULLIAM, Senior Economist
Econ One Research, Inc.;
Consultant to the Legislative Budget and Audit Committee
Alaska State Legislature
Los Angeles, CA
POSITION STATEMENT: During the hearing on HB 2001, presented
information and answered questions.
MARCIA DAVIS, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 2001, answered
questions and presented information.
DAN E. DICKINSON, Consultant
to the Legislative Budget and Audit Committee
Alaska State Legislature
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 2001, presented
information and answered questions.
DON BULLOCK, Attorney
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 2001, answered
questions and provided information.
ACTION NARRATIVE
CHAIR KURT OLSON called the House Special Committee on Oil and
Gas meeting to order at 3:12:08 PM. Representatives Olson,
Neuman, Ramras, Samuels, Doogan, Kawasaki, and Dahlstrom were
present at the call to order. Also present were Representatives
Buch, Cissna, Edgmon, Fairclough, Gatto, Holmes, Johnson, Roses,
Seaton, and Wilson.
HB 2001-OIL & GAS TAX AMENDMENTS
3:12:15 PM
REPRESENTATIVE OLSON announced that the only order of business
would be HOUSE BILL NO. 2001, "An Act relating to the production
tax on oil and gas and to conservation surcharges on oil;
relating to the issuance of advisory bulletins and the
disclosure of certain information relating to the production tax
and the sharing between agencies of certain information relating
to the production tax and to oil and gas or gas only leases;
amending the State Personnel Act to place in the exempt service
certain state oil and gas auditors and their immediate
supervisors; establishing an oil and gas tax credit fund and
authorizing payment from that fund; providing for retroactive
application of certain statutory and regulatory provisions
relating to the production tax on oil and gas and conservation
surcharges on oil; making conforming amendments; and providing
for an effective date." [Before the committee was the proposed
committee substitute (CS) for HB 2001, Version 25-GH0014\K,
Bullock, 10/27/07, which was adopted as the working document on
10/27/07.]
3:15:28 PM
CHAIR OLSON noted that the key element of the proposed CS for HB
2001 [labeled 25-GH0014\K, Bullock, 10/27/07]("Version K") is
the gross windfall profits tax that kicks in at the price of $50
per barrel. He said that this is not a new concept because it
came out of the House Resources Standing Committee (HRES) last
year.
3:16:51 PM
KONRAD JACKSON, Staff to Representative Olson, Alaska State
Legislature, presented a sectional review of Version K. He
stated that Section 1 amends AS 38.05.035(a) by adding a
paragraph directing the Division of Lands, Department of Natural
Resources (DNR), to furnish information to the Department of
Revenue (DOR) related to the taxes that DOR will be
administering. Sections 2 and 3 amend AS 38.05.036(b) and AS
38.05.036(f), respectively, by changing a cross-reference to a
paragraph in AS 38.05.035(a). These are technical amendments
due to the amendment made in Section 1, he explained. Section 4
amends AS 38.05.036(g), Section 5 amends AS 389.05.123(f),
Section 6 amends AS 38.05.133(e), Section 7 amends AS
38.05.180(j)(6)(B), and Section 8 amends AS 38.05.275(c). He
said the foregoing are also technical amendments due to the
amendment made in Section 1.
3:18:36 PM
MR. JACKSON reported that Section 9 adds a new paragraph (42) to
AS 39.25.110 which is basically the auditor language that was in
the governor's original bill [HB 2001, Alaska's Clear and
Equitable Share (ACES)]. Section 10 amends AS 41.09.010(d) and
is another cross-reference to Section 1. Section 11 amends AS
43.05.230(a) to include some of the tax disclosure information
from HB 2001. Section 12 amends AS 43.05.230(h) and is part of
the information sharing between DOR and DNR. He pointed out a
typographical error for the last word in this paragraph of the
sectional - it should be the Department of Natural "Resources",
not "Revenue". Section 13 amends AS 43.55.260(a) to make a
change to the statute of limitations for assessments of taxes.
Section 14 relates to Cook Inlet gas and Section 15 relates to
Cook Inlet oil, Mr. Jackson continued, and both of these add AS
43.55.011(o), the subject of an amendment being drafted "as we
speak". A similar change occurs in Section 16, he stated, with
the addition of reference to AS 43.55.011(o).
MR. JACKSON said Section 17 adds new subsections (o) and (p) to
AS 43.55.011. Subsection (o) is a substantive change that adds
gross progressivity and subsection (p) provides that any gas
produced south of 68 degrees North Latitude, and outside Cook
Inlet Basin, will be taxed at a similar rate to Cook Inlet gas.
Section 18 cross-references AS 45.55.011, an amendment required
by the addition of AS 45.55.01(o). It also deletes references
to AS 43.55.011(g). Mr. Jackson related that Section 20
clarifies the period during which interest accrues under the
Internal Revenue Service (IRS) code for underpayment of an
installment. Section 21 clarifies the period during which
interest accrues under IRS code for the overpayment of an
installment. Section 22 amends AS 43.55.023(d) by applying
current statutory language to the use of tax credits for losses
and expenditures and makes conforming amendments to AS
43.55.030(a) or (e), he said.
3:22:31 PM
MR. JACKSON noted that Section 23 reduces the credits for
transitional investment expenditures (TIE) to those expenditures
incurred [after March 31, 2003]. These credits were completely
removed in the governor's bill [HB 2001], he said. Section 24
amends AS 43.55.030(a) to make the statement filing requirement
apply to all producers rather than only those producers with a
tax liability, along with some effective date provisions.
Section 25 requires explorers or producers to file an annual
statement on expenditures, or adjustments, even if they produce
no oil or gas during the year. Section 25 also gives authority
to the department to require those reports from producers,
explorers, and operators, he stated. Section 26 amends AS
43.55.040 by adding paragraph (5) that authorizes DOR to require
a producer, explorer, or operator to file reports and records
that are deemed necessary by DOR for future forecasts of
revenue.
3:24:08 PM
MR. JACKSON explained that Section 27 adds new section AS
43.55.075 to push the statute of limitations back to six years.
Section 28 adds three new subsections to AS 43.55.110, and
Sections 29 and 30 make conforming amendments to AS 43.55.160(a)
and AS 43.55.165(a), respectively. He said Section 31 amends AS
43.55.165(e) relating to excluded lease expenditures and that
this goes back to the governor's language which includes the
disallowance of the ultra-low sulfur diesel plant on the North
Slope. Section 32 amends AS 43.55.170(a) by delineating an
exception relating to the subtraction of a payment or credit in
calculating billing costs. Section 33 adds a new section AS
43.55.890 and Section 34 adds two more definitions. Sections
35-43 are various provisions related to repealing language,
applicability, transition language, retroactivity, and effective
date clauses, he said.
3:26:18 PM
REPRESENTATIVE SAMUELS moved to adopt Amendment 1, labeled 25-
GH0014\K.3, Bullock, 10/28/07, which read [original punctuation
provided]:
Page 18, following line 9:
Insert a new bill section to read:
"* Sec. 24. AS 43.55.023 is amended by adding a new
subsection to read:
(l) A person that is exempt from taxation under
this chapter may not apply for a transferable tax
credit certificate."
Renumber the following bill sections accordingly.
Page 31, line 9:
Delete "Sections 23, 30, 31, 32, and 35"
Insert "Sections 23, 24, 31 - 33, and 36"
Page 31, line 11:
Delete "Sections 14 - 19, 29, and 36"
Insert "Sections 14 - 19, 30, and 37"
Page 31, line 13:
Delete "Sections 24 and 25"
Insert "Sections 25 and 26"
Page 31, line 14:
Delete "sec. 24"
Insert "sec. 25"
Page 31, line 15:
Delete "sec. 25"
Insert "sec. 26"
Page 31, line 16:
Delete "sec. 27"
Insert "sec. 28"
Page 31, line 18:
Delete "secs. 13 and 27"
Insert "secs. 13 and 28"
Page 32, line 15:
Delete "secs. 23, 30, 31, 32, and 35"
Insert "secs. 23, 24, 31 - 33, and 36"
Page 32, line 17:
Delete "secs. 14 - 19, 24, 25, 29, and 36"
Insert "secs. 14 - 19, 25, 26, 30, and 37"
Page 33, lines 3 - 4:
Delete "Sections 23, 30, 31, 32, and 35"
Insert "Sections 23, 24, 31 - 33, and 36"
Page 33, line 5:
Delete "Sections 14 - 19, 24, 25, 29, and 36"
Insert "Sections 14 - 19, 25, 26, 30, and 37"
Page 33, line 6:
Delete "sec. 42"
Insert "sec. 43"
REPRESENTATIVE RAMRAS objected for discussion purposes.
3:26:41 PM
REPRESENTATIVE SAMUELS explained that Amendment 1 would disallow
the sale of tax credits by a tax exempt entity. This returns
the language originally included in the governor's bill [HB
2001], he said, and it provides that a tax exempt entity, such
as a municipal-owned electrical utility that owns a gas field,
cannot sell tax credits for gas that it owned and discovered
because the entity would not have paid taxes on that gas.
3:27:18 PM
REPRESENTATIVE RAMRAS removed his objection. There being no
further objections, Amendment 1 was adopted as written.
3:27:30 PM
REPRESENTATIVE RAMRAS moved to adopt Amendment 2, labeled 25-
GH0014\K.4, Bullock, 10/28/07, which read [original punctuation
provided]:
Page 1, lines 3 - 4:
Delete "and south of 68 degrees North latitude"
Page 13, following line 20:
Insert a new subsection to read:
"(q) For a calendar year before 2022, the tax
levied by (e) and (o) of this section for gas produced
from a lease or property that is outside of the Cook
Inlet sedimentary basin that is sold and processed
into liquefied natural gas in the state at a facility
with a maximum processing capacity that does not
exceed 10,000,000,000 cubic feet a year may not exceed
the product of the amount of taxable gas produced
during the calendar year from the lease or property,
multiplied by the average rate of tax imposed under
this chapter for taxable gas produced from all leases
or properties in the Cook Inlet sedimentary basin,
multiplied by the average prevailing value for gas
delivered in the Cook Inlet area for the 12-month
period ending March 31, 2006, as determined by the
department under AS 43.55.020(f). This subsection
applies only to gas produced from a lease or property
after December 31, 2007."
Page 14, line 27, following "production":
Insert ";
(6) notwithstanding (1) of this subsection,
that part of the installment payment determined by (2)
and (3) of this subsection that is attributable to the
production of gas that is subject to the limitations
under AS 43.55.011(p) or (q) is the result obtained by
multiplying the volume of gas produced during the
month by the average rate of tax imposed under this
chapter for taxable gas produced from all leases or
properties in the Cook Inlet sedimentary basin,
multiplied by the average prevailing value for gas
delivered in the Cook Inlet area for the 12-month
period ending March 31, 2006, as determined by the
department under (f) of this section"
REPRESENTATIVE DOOGAN objected.
REPRESENTATIVE SAMUELS objected.
3:27:41 PM
REPRESENTATIVE RAMRAS disclosed a conflict of interest because
Amendment 2 relates to Fairbanks Natural Gas (FNG) of which he
is an FNG customer through his ownership of Bentley Food
Factory, Pikes Landing, and Pikes Waterfront Lodge. Prior to
his election, he said, he took out two loans from FNG - one for
$13,000 and one for $15,000 - and that repaid them in 2003 and
2004. He stated that Anchorage, through its Cook Inlet Basin
gas supply, enjoys the lowest prices for natural gas in the U.S.
at $8 per million cubic feet (mcf); however, for that very same
gas, Fairbanks pays the most in the U.S. at $21-$23 per mcf.
This difference, is because Fairbanks must take its gas to Point
MacKenzie where it is liquefied at a loss of 20 percent, then it
is transported by vehicle to the Fairbanks area where it is re-
gasified and subsequently distributed by pipe. He said that FNG
ran into supply problems when Aurora Gas LLC abruptly
discontinued gas supply, resulting in the Regulatory Commission
of Alaska (RCA) issuing an emergency order that required ENSTAR
Natural Gas Company to provide gas to FNG. Representative
Ramras explained that FNG then pursued a plan to pivot its gas
supply to the North Slope and attempt, with the cooperation of
BP Exploration (Alaska) Inc., to commercialize some of the North
Slope gas by building a liquefied natural gas (LNG) plant and
transporting the gas by the haul road to Fairbanks. In light of
the changes being made to tax policy, he said it seemed an
appropriate time to make this request and that he understood the
other committee members had talked to an FNG representative and
were familiar with the topic.
3:33:05 PM
REPRESENTATIVE KAWASAKI inquired whether this amendment would
preclude other companies from building natural gas facilities of
the same design on the North Slope.
REPRESENTATIVE RAMRAS said he believed the provision was not
specific to FNG and would apply to anyone wishing to build an
LNG plant that does not exceed 10 billion cubic feet (bcf) a
year. However, he continued, FNG is the only entity that he is
aware of that is pursuing bringing a gas supply to Fairbanks.
3:34:17 PM
REPRESENTATIVE NEUMAN asked whether this would allow a tax
credit to be used by a for-profit company to build an LNG plant
on the North Slope although the bill stipulates that tax credits
cannot be used for constructing a low sulfur diesel plant on the
North Slope.
JANE PIERSON, Staff to Representative Ramras, Alaska State
Legislature, said this would not allow for the building of a
diesel plant because the tax break would be the Cook Inlet break
on the sale of gas to a plant that produces less than 10 bcf.
In further response to Representative Neuman, Ms. Pierson stated
that she did not think a for-profit company could use tax
credits against construction of an LNG plant on the North Slope.
3:36:04 PM
REPRESENTATIVE DOOGAN understood that it is regulated utilities
in Anchorage that are receiving the tax benefits and that FNG is
not regulated. Therefore, he inquired, how will it be ensured
that FNG will confer the tax benefit to its customers.
REPRESENTATIVE RAMRAS responded that while FNG is not an RCA
regulated utility, it is under the auspices of the RCA. He said
he shared Representative Doogan's concerns, but that the greater
issue for consideration is securing a stable natural gas supply
for the community of Fairbanks, which is a different issue than
what price each community pays for that gas.
3:40:14 PM
REPRESENTATIVE DOOGAN contended that a competitive advantage
will be conferred to this company, plus there is no assurance
that the benefit of reduced costs will be passed along to
consumers.
MS. PIERSON said the problem is that the tax break is not being
given to FNG, it is being given to the people that sell the gas
to FNG, and therefore it cannot be done under this bill as a tax
bill.
3:42:08 PM
REPRESENTATIVE SAMUELS stated that no one talked to him about
the amendment and that getting into North Slope gas is venturing
into the very complex world of the gas pipeline. He said he
opposed Amendment 2 because there is not enough information
currently available to alleviate his many concerns.
3:44:13 PM
CHAIR OLSON opposed Amendment 2. He said it was apparent from
talking to the [FNG] lobbyist that the bill was being seen as a
"Christmas tree" opportunity. He is willing to look at the
topic in January, he continued, when there is time to talk with
the RCA and review the unresolved issues.
3:45:01 PM
REPRESENTATIVE NEUMAN said he had not spoken to any lobbyist
about the FNG issue and that he is not speaking to any lobbyists
or industry representatives while working on HB 2001.
3:45:35 PM
REPRESENTATIVE RAMRAS related that he had previously gone before
the RCA to request regulation of FNG precisely for the concerns
being mentioned. He welcomed a vote on the amendment as a way
to benchmark the issue for consideration at a later date. He
expressed his frustration and anger with the high costs of fuel
oil and natural gas and with the antiquated systems for fuel
delivery to Fairbanks and rural villages. He said he would vote
yes for Amendment 2 so that his community could enjoy access to
an abundant supply of natural gas. Passing the savings on to
the consumer and RCA regulation are issues that can be addressed
during the permitting process involved with gaining access to
the gas, he submitted.
3:50:42 PM
REPRESENTATIVE DAHLSTROM stated that she is not meeting with
lobbyists during consideration of HB 2001, although she had
heard of the company's concerns in the hallway. She said she is
concerned about the effects the amendment might have on other
things and that the issue should be dealt with in the next
session.
3:51:33 PM
REPRESENTATIVE DOOGAN said he had spoken with the FNG lobbyist
and that he was not provided with much reassurance that the
benefit would be passed on to Alaskans. He said he would be
voting no on Amendment 2.
3:52:32 PM
REPRESENTATIVE KAWASAKI noted that costs for natural gas rose
sharply after Fairbanks lost its biggest gas supplier from Cook
Inlet a few years ago and that this created uncertainty for
economic development in the Fairbanks area. He said that
getting gas from the North Slope is a good first step for all of
Alaska, not just Fairbanks, and therefore he will vote yes on
Amendment 2.
3:53:42 PM
REPRESENTATIVE RAMRAS emphasized that he is not advocating
Amendment 2 on behalf of himself or his businesses because
natural gas represents only about 1 percent of his business
costs and his businesses are outside of his district. Rather,
he stressed, he is advocating for Amendment 2 out of concern for
his constituents, some of whom will be unable to afford further
increases in the cost of natural gas and who need the
reliability of a stable gas supply.
3:58:55 PM
A roll call vote was taken. Representatives Kawasaki and Ramras
voted in favor of Amendment 2. Representatives Samuels, Doogan,
Dahlstrom, Neuman, and Olson voted against it. Therefore,
Amendment 2 failed by a vote of 2-5.
3:58:59 PM
REPRESENTATIVE SAMUELS directed attention to his 10/26/07
handout entitled, "First Approaches to Using Certain Receipts
from Taxes on the Energy Producing Industry to Alleviate High
Alaskan Energy Consumption Costs". The long-run problem, he
opined, is that as oil production declines the state will have
less money regardless of how this tax bill ends. In 10 years
the state will not yet have income from gas and will have run
out of oil income, thus jeopardizing the state's energy
assistance programs for those low income Alaskans most needing
the help. Therefore, he continued, the progressivity income
should be set aside and saved for future energy cost assistance
programs. He said that once he determined the necessary
mechanics for implementing this he would either offer an
amendment later this special session or come up with something
for the next session in January.
4:03:56 PM
CHAIR OLSON stated that a key element of the committee's CS
[Version K] is the addition of subsection (o) [to AS 43.55.011].
Discussion commenced on this topic.
4:04:41 PM
STEVE PORTER, Consultant to the Legislative Budget and Audit
Committee, Alaska State Legislature, explained the DOR's basic
methodology for calculating tax as shown on his multi-page chart
displayed by volunteers from the audience: value minus cost,
times the tax rate, minus the credits, equals the tax. The
value, he said, is determined by multiplying production by the
wellhead price, minus the royalty barrels. The wellhead price
is determined by subtracting all of the transportation costs
from the West Coast price. After the value is determined, the
costs - operating expenses (opex) and capital expenses (capex) -
are subtracted and this bill assists in understanding what those
costs are, he said. Total operating costs are the operating
expenses plus the capital expenses after the 30 cent exemption.
Thus, total gross value minus operating costs equals the net
annual production tax value; this is then multiplied by the tax.
The value and cost equation would remain the same as under
current law [PPT], said Mr. Porter. It is the tax and credit
portions that are changed under the governor's bill [HB 2001],
he continued. The governor's bill [HB 2001] raises the current
tax rate from 22.5 percent to 25 percent, reduces the current
price index calculation factor from 40 to 30, and lowers the
progressivity factor from 0.25 percent to 0.20 percent. The
total tax liability is determined by subtracting the 20 percent
capital expenses (capex) credit and the transitional investment
expenditures (TIE) credits. A minimum tax liability of 10
percent is established under the governor's bill [HB 2001], he
said. Mr. Porter then explained that the addition of a gross
tax under subsection (o) [to AS 43.55.011 by Version K] results
in a substantial difference [from the governor's bill, HB 2001]
because gross progressivity takes the tax value prior to cost
deductions instead of from the net tax value.
4:12:41 PM
BARRY PULLIAM, Senior Economist, Econ One Research, Inc.;
Consultant to the Legislative Budget and Audit Committee, Alaska
State Legislature, directed attention to his 10/28/07 chart
entitled, "Estimated Tax Impacts Under Potential Alternative
Scenarios, TIE Sensitivity 1 -- No TIE Credit, FY 2008 - FY
2014". He said the chart compares the effective tax rates and
tax differences to the current petroleum production profits tax
(PPT) law for various progressivity assumptions and price
levels. He explained that columns (2) through (6) compare five
different ANS West Coast Prices - $40, $60, $80, $100, and $120.
These are expressed in real 2008 dollars per barrel and inflate
at about two and three-quarter percent consistent with the
assumptions used by the administration in its fiscal note [for
the original HB 2001]. He said the administration used the $60
and $80 levels in its fiscal note and that, using the same
assumptions used by the administration for these two price
levels, Econ One's estimates came out very similar. The top
section of the chart entitled, "Estimated Effective Tax Rate,"
is the tax rate that would be represented as the percentage of
gross wellhead value that the tax would bring in. For instance,
he said, at a $60 West Coast price, the current PPT system would
result in an effective tax rate of 10.7 percent on the gross
value of the oil over the next 7 fiscal years. Under the
current PPT system, he continued, the effective tax rate
increases as the price per barrel increases.
4:16:35 PM
REPRESENTATIVE SAMUELS inquired whether the effective tax rate
model uses the same assumption of level costs as did the
administration and whether the model incorporates the production
level.
MR. PULLIAM responded that the model's assumptions mirror those
used by the administration. He said there is a sensitivity on
cost that is related to prices. So, relative to a $60 price
level, if prices go up, costs go up with a lag, and if prices go
down, they likewise go down with a lag. In further response to
Representative Samuels, he stated that the model does take into
account the different cost levels over the seven fiscal years
shown, so they are based on anticipated production during each
of those years.
4:17:59 PM
MR. PULLIAM continued his discussion, noting that the effective
tax rate for ACES [HB 2001] is shown on the line below the
current PPT rates. He pointed out that the effective tax rate
for ACES [HB 2001] is higher than the current PPT at all of the
different price levels. This is because the base tax is higher
at 25 percent versus 22.5 percent, and the progressivity factor
is different, he said. Additionally, there are no TIE credits
under ACES [HB 2001]. He directed attention to the lines
entitled, "Progressivity on Gross," and explained that these
scenarios keep the current PPT law as it is, but change the
trigger point for progressivity from a net to a gross basis.
The current law has a trigger of $40 net, which means after
deduction of operating and capital costs. The trigger in all of
the scenarios, however, is on a gross wellhead value and the
progressivity portion is on the gross value as opposed to the
net.
4:20:09 PM
REPRESENTATIVE SAMUELS understood that this means the
transportation costs are incorporated into the progressive
feature at the front end, while opex and capex are not
incorporated into the progressive feature whatsoever.
MR. PULLIAM said correct.
4:20:43 PM
MR. PULLIAM described the two different progressivity structures
shown on the chart - one structure with a .225 percent increment
and one with a .25 percent increment. Another way to think
about these, he said, is that the .225 would be a .225 percent
per dollar increase over the trigger price shown. Thus,, a $10
rise over the trigger price would equate to a 2.25 percent
progressivity tax on the gross wellhead value.
MR. PULLIAM explained that the bottom section of the chart is an
estimate of the average annual production tax that would come in
relative to the current PPT under these different scenarios.
Under the ACES line of that section, the annual average
differences rise from [$459] million at $40 per barrel to [$627]
million at $80 per barrel, then dropping down at prices of $100
and $120. The reason for this decrease at the higher prices, he
said, is that the progressivity slope in ACES [HB 2001] is not
as great as it is under the current PPT. He pointed out that
all of the scenarios on the chart assume no TIE credits and that
if TIE credits were re-introduced the dollar amounts would
decline somewhat.
4:23:55 PM
REPRESENTATIVE DOOGAN cited the chart's third example under the
topic of estimated effective tax rate labeled, "Progressivity on
Gross: $50 Trigger, 0.225% Increment," which results in an
effective tax rate of 6.1 percent when the price is $40 per
barrel. He said he assumed that this example is the language in
the amendment. He asked if the 6.1 percent is equal to PPT plus
the gross progressivity.
MR. PULLIAM explained that the 6.1 represents the total tax the
state would collect expressed as a percent of the wellhead value
of the oil. Thus, the 6.1 includes the base tax plus the
progressivity piece. He said that if this example was the tax
plan in place, then at $40 per barrel the average effective tax
rate would be 6.1 percent of the gross value of the oil. In
further response to Representative Doogan, Mr. Pulliam explained
that when the trigger amount is exceeded, the progressivity
taxes the entire gross value. For example, he said, assuming
the trigger is $50 and the price is $51, the tax would be on the
entire $51.
4:26:19 PM
REPRESENTATIVE DOOGAN asked, at an oil price of $50.01, would
the progressivity factor then be used on the entire $50.01.
CHAIR OLSON responded, "Yes."
REPRESENTATIVE SAMUELS added that the progressive feature would
be miniscule under a scenario of $50.01. In regard to the
question about 6.1 percent at $40 per barrel, he said there is
no progressivity in that statistic and that it is higher than
current PPT due to the elimination of the TIE credits.
4:27:32 PM
MARCIA DAVIS, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), Juneau, Alaska, responded to a
question about TIE credits from Representative Doogan. She
explained that the TIE credits are good until 2013 or six years
after the credits are first used, whichever is later. For
example, she said, TIE credits first used in 2010 would be good
for six more years after that.
REPRESENTATIVE SAMUELS commented that this is why it is
difficult to model the specifics of the TIE credit even though
it goes away.
4:28:56 PM
REPRESENTATIVE DOOGAN inquired why the percentages vary on the
chart between the $20 increments.
MR. PULLIAM replied that the percentages vary as the price goes
up because of the progressivity piece - at higher prices the
progressivity tax itself will be growing. For example, he said,
if the trigger point is $50 and prices are $10 above that, the
progressivity piece would be 2.25 percent on the entire gross
value of the oil. If prices go up another $10, then the
progressivity piece would go to 4.5 percent of the entire gross
value of the oil. Thus, as prices increase, the progressivity
piece is a larger and larger percent of the total tax.
4:30:50 PM
REPRESENTATIVE DOOGAN referred to the example on the chart for
progressivity on gross with a $50 trigger. He noted that when
compared to the current PPT, the effective tax rate increases
are asymmetrical between the $20 price increments - up 3
percent, then up 3.8, then up [4.0], then up [4.2]. Why does
the effective tax rate not go up or down in equal increments, he
asked.
MR. PULLIAM answered that there is a generally rising difference
across the broad spectrum with a little dip between the $60 and
$80 price and that this may be due to the TIE credits. In the
model, the TIE credits are in the PPT line itself, he explained,
while the sensitivities of the TIE credits are not included.
Additionally, there are different slope factors and different
trigger levels relative to current PPT, thus causing the
differences being cited.
MR. PORTER explained that the reason for different slope factors
is that the PPT is calculated off the net which includes opex
and capex which are projected differently over time. They are
also projected differently as the prices go from $40 on up to
$80. In a true gross world the operating and capital expenses
that may change over time are excluded, he said, so it is
straight off the $50 or $60, inflated. In further response to
Representative Doogan, Mr. Porter explained that it is not in
the PPT numbers, it is the difference in calculation of a gross
versus a net. In the net calculation there is a prediction
factor of how much the industry will spend on opex and capex
over the next eight years and this will vary based on price. In
a high price environment, he said, DOR has a delay factor in
increasing or decreasing the opex and capex that is a percentage
based on price. So, as the numbers are massaged, that ratio
comes out in the number that is subtracted against the start
price. Another factor that contributes to the percentage
variation, he continued, is the TIE credit which is $200 million
a year over the first five or six years. The variation in the
percentage change is because the model is built on no TIE
credits at all. Thus, the model matches closer to ACES [HB
2001] than to PPT because PPT includes the TIE credits. In
further response to Representative Doogan, Mr. Porter confirmed
that Version K of the bill is in between these two.
4:40:03 PM
REPRESENTATIVE RAMRAS opined that there are three significant
factions within the legislative body - those, including himself,
who prefer the status quo, those who prefer HB 2001, and those
who prefer a gross tax methodology - and that the ultimate goal
is to satisfy all three of these constituent groups. Every time
a dollar in tax is added, he said, a dampening effect takes
place. Some believe it is best to have the least dampening
effect during the time that industry is making its decisions as
to whether something is or is not economic, and to participate
the most when there are windfall profits at prices above $60.
He asked Mr. Porter to speak to the value of the slope of the
line and to address the incremental progressive feature that
gets richer as the oil price increases.
4:45:50 PM
MR. PORTER responded that at the higher ranges, there are three
increments of revenue to the state. The first increment is the
royalty that is a gross tax at a flat 12.5 percent off the top.
The next increment is a piece of net and it is curved because it
is based on opex and capex over time. As prices get higher,
industry will spend more capital, thus opex and capex increase
as the price increases. The formulas take into consideration
that opex will likely not go up as fast as capex. This results
in a growing curve from which the state receives a piece of the
net, he explained. In the higher price ranges, the state also
wants to make sure that it is getting a fair share of the wedge
of the total. At high prices the way to make the tax
environment stable is to ensure that everyone is happy with
their wedge because if it is disproportionate then it is an
unstable tax environment. If the state is going to take
additional tax, it will have less impact if it is taken off the
higher portion of the wedge. As long as it is fair it is not
going to affect the major overall economics of the project, Mr.
Porter advised, although any dollar taken away from private
business is a dollar that could have been returned to
shareholders or reinvested in the community or finding more oil.
4:48:08 PM
MR. PORTER warned against hitting industry with the
progressivity piece at low ranges when the industry is not
making money. The trigger price must be a fair price that
allows industry a fair profit and when prices are high the state
must make sure that it is capturing incremental value. The $50
trigger with the 0.225 percent increment is a good balance, he
said. This scenario takes less money than HB 2001 at $40, so
this would encourage projects with high cost environments. Yet,
in the high price environment, he continued, it is substantially
higher than the governor's proposal [HB 2001]. In that respect,
he said, it is a fair "reference" balance.
4:50:32 PM
REPRESENTATIVE RAMRAS requested Mr. Porter's opinion on whether
the House Special Committee on Oil and Gas was moving in a
direction that would satisfy the objectives of the three
different constituent groups within the legislature.
MR. PORTER stated that he believed the committee had come across
with a fair balance.
4:53:06 PM
REPRESENTATIVE NEUMAN submitted that the state must provide the
incentives necessary for developing the harder-to-produce fields
because they are Alaska's future. He asked what the "stress
point" is on these types of fields and how the $50 trigger
equates in this regard.
MR. PORTER replied that he did not have personal knowledge in
this regard, but that Commissioner Galvin had previously
testified that it is around $41 for heavy oil. As technology
gets better and industry gets better at producing those heavy
oils, they might be able to do it for less than $41. At the
same time, he cautioned, inflation will increase the cost over
time. So, the question is establishing a dollar figure that
allows for those two elements to weigh against each other and
still not impact them. Under current scenarios the $50 is a
good start price, Mr. Porter advised. Then, during the 2011
review, the state can look at how industry fared over the past
five years and re-examine the start price in regard to
production on viscous and heavy oil reservoirs.
4:56:03 PM
REPRESENTATIVE NEUMAN inquired whether trying to find the edge
of where investment into Alaska starts and stops and then
backing up a little bit is a good method for determining a start
price.
MR. PORTER explained that his philosophy is different, although
it might come up with the same result. He said that he looks at
where things are today, what the share of the pie looks like,
and what is fair. The goal is to create a long-term stable tax
policy, he said, and in order to do that a balance must be
maintained at all prices.
REPRESENTATIVE NEUMAN commented that during meetings of the
House Special Committee on Economic Development, International
Trade and Tourism, the one thing mentioned by every witness was
stability.
4:57:49 PM
REPRESENTATIVE RAMRAS asked what effect inflation might have on
the state's share or on a trigger point between now and the year
2011.
MR. PORTER answered that DOR is projecting roughly two and
three-quarter percent per year inflation and that the projection
assumes oil prices will not be skyrocketing like they have done
over the past two years. Inflation will always impact the
industry, he said, the key is figuring out what industry's
future production costs will be and then keeping the trigger
price above that range. He said he believes that the $50
trigger price is in a fair range and that he would not go down
substantially from that.
4:59:59 PM
REPRESENTATIVE RAMRAS asked who would be hurt the most -
industry or the state - should inflation remain at two and
three-quarters percent over the next three years and there is no
inflation escalator on the trigger price for progressivity.
MR. PORTER responded that while the costs of lifting a barrel of
oil would creep toward the $50 over the three-year period, those
costs would not surpass $50.
5:01:42 PM
REPRESENTATIVE RAMRAS inquired whether inflation is therefore a
benign consideration if all things remain the same.
MR. PORTER stated that from an inflation standpoint, the
progressivity factor is, in essence, kicking in sooner by the
rate of inflation over time.
5:02:43 PM
REPRESENTATIVE DOOGAN inquired about another chart before the
committee created by Dan Dickinson.
DAN E. DICKINSON, Consultant to the Legislative Budget and Audit
Committee, Alaska State Legislature, directed attention to his
chart entitled, "Progressivity Studies 10/28/07." He explained
that the first column in the chart demonstrates how the PPT
works under current law. He then chose as an example the ANS
market price of $87. He calculated the gross value at the point
of production by subtracting $7 in transportation costs for
moving the oil from a North Slope field to Los Angeles, arriving
at $80. He next subtracted $20 in field lifting costs to arrive
at a production tax value of $60 per barrel. He said that a $20
lifting cost is a very high number, higher than what has been
used in either DOR's or Mr. Pulliam's models. He then
calculated the total value by multiplying the $60 per barrel by
the number of taxable barrels projected for 2008 which is
244,000,000. This results in a tax base of $14.6 billion, he
said. The progressivity calculation, he continued, starts at
$40 under current law. The progressivity is determined by:
subtracting the $40 from the $60 net value of each barrel to
arrive at a price index of $20; the $20 price index is then
multiplied by the 0.25 percent increment factor as established
under current law, which means that 0.25 percent is used for
each $1. Thus, at a $20 price index the progressivity factor is
5 percent and this 5 percent is then applied to the entire base.
In this example, he said, that 5 percent generates an additional
$732 million in tax,. Mr. Dickinson then presented the
calculations for a production tax value of only $41: subtract
the $40 from the $41, arriving at a price index of $1; multiply
the $1 by 0.25 percent, arriving at a progressivity of 0.25
percent; then multiply the $41 by 0.25 percent. Thus, he
continued, as soon as the $40 trigger point is exceeded,
progressivity kicks in against everything and it grows rapidly.
The trigger point in the amendment before the committee is $50,
he noted.
5:07:46 PM
MR. DICKINSON pointed out that under ACES [HB 2001] the lines
are essentially the same [as under PPT] and they result in a
similar base amount of $16.4 billion. The difference, he said,
is that ACES [HB 2001] uses an earlier starting point of $30.
Subtracting the $30 from the $60 results in a price index of
$30. However, instead of 0.25 percent, ACES [HB 2001] uses a
lower rate of 0.2 percent for every $1, thus the additional
progressivity is 6 percent of that same base.
5:08:33 PM
MR. DICKINSON drew attention to the third column of his chart
representing the proposal before the committee [Version K].
Because [Version K] does not subtract the lifting costs, he
said, the $50 is subtracted from the gross value at the point of
production, resulting in a price index of $30. [Version K] uses
an increment of 0.225 percent for each dollar, an increment
midway between the PPT and ACES [HB 2001]. Thus, he said, this
generates a very high progressivity factor of 6.75. As prices
go up, he continued, the dollars of tax - before credits - also
go up. He next referred to the three graph lines on his chart
depicting the tax revenues that would be generated by ACES [HB
2001], PPT, and the House Special Committee on Oil and Gas
(HO&G) proposal [Version K]. At prices of $27-$57, he
explained, the tax revenue from all three proposals goes upward
in a straight line, with ACES [HB 2001] generating slightly more
revenue than PPT and [Version K], both of which generate
virtually the same amount at these prices. However, things
become different once the progressivity starts, he continued.
Above the $57 price, all three lines begin to bend upward due to
the progressivity. Without progressivity, he said, the lines
would remain straight upward rather than bending upward. The
lines start to bend as more is added at higher percentage of the
base. He said that ACES [HB 2001] does this earlier than PPT,
so at a $67 price ACES [HB 2001] generates a couple million
dollars more than PPT or [Version K]. However, beginning at a
$77 price [Version K] will be higher than either ACES [HB 2001]
or PPT, and as prices increase so does the take under the
committee's proposal.
5:12:57 PM
REPRESENTATIVE DOOGAN noted that the lines on the graph show the
tax revenue prior to credits. He asked whether the credit
provisions of the various bills make the lines perform
differently.
MR. DICKINSON responded, "Generally, no." The credits lower the
tax, so they would just simply move every line down. The place
where there would be some effect, he said, "is what happens at
the very bottom when that would take you negative and which
credits could be applied." But, as long as it is assumed that
the entire credit is implied, it would look exactly the same,
just shifted down. In further response to Representative
Doogan, he agreed that the credit provisions would reduce the
tax revenues but the slopes on the lines would not change.
5:14:14 PM
REPRESENTATIVE SAMUELS related that the reason a net
progressivity [under PPT] was chosen was because - over time -
both costs and prices can go either up or down depending on
inflation, a glut, or numerous other reasons. Using a net
basis, he said, provides an automatic shifting up and down
depending on what costs and prices are doing. By "sticking this
at $50," he opined, there is no automatic shifting and the state
is risking that future investments will not be made should costs
go up during future decision making processes. This also causes
the risk of having to change things again in 2011, he said.
Additionally, he related, an industry representative stated that
when looking at the tails of a bell curve, even a 10 percent
chance of costs going up will be factored in. Thus, increased
costs can affect investment decisions even when the price may be
up because industry would recoup less money. Is this an
accurate description of the risks the state is taking, he asked.
5:17:06 PM
MR. PORTER stated that he thought this was a fair estimation
because there is inflation kicking in so that inflation will
creep toward the $50.
MR. PULLIAM said this was right because the stress price
probably takes a greater part in a company's risk analysis than
the high side scenarios that it might run.
REPRESENTATIVE SAMUELS quoted a statement by an oil industry
expert, Mr. Johnston, warning legislators to be careful because
all of the numbers will be wrong. Representative Samuels urged
committee members to not read the charts like they are the
Bible.
5:19:12 PM
REPRESENTATIVE SAMUELS moved to adopt Amendment 3, labeled 25-
GH0014\K.6, Bullock, 10/28/07, which read [original punctuation
provided]:
Page 13, lines 7 - 9:
Delete ".225 percent of the difference between
the gross value at the point of production for the
month and the product of the total amount of
production for that month in BTU equivalent barrels
multiplied by $50"
Insert "the sum over all months of the calendar
year of the amount calculated under this subsection.
For each month for which this subsection applies, the
tax is equal to .225 percent of the monthly gross
value at the point of production of the taxable oil
and gas multiplied by the number that represents the
difference between (1) the quotient of the total
monthly gross value at the point of production of the
taxable oil and gas produced by the producer during
that month divided by the amount of oil and gas
produced by the producer in BTU equivalent barrels,
and (2) $50. The tax levied under this subsection may
not be less than zero or more than 25 percent of the
gross value at the point of production of the taxable
oil and gas"
REPRESENTATIVE RAMRAS objected for discussion purposes.
5:20:14 PM
DON BULLOCK, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency, Alaska
State Legislature, stated that Amendment 3 is a new tax on
progressivity that is in addition to the 22.5 percent nominal
tax already in AS 43.55.011(e). This provides another tax that
is triggered when the gross value at the point of production
starts to exceed $50, he said. He read the language of
Amendment 3 to the committee.
5:22:57 PM
REPRESENTATIVE RAMRAS withdrew his objection.
5:23:13 PM
REPRESENTATIVE DOOGAN understood that some committee members
involved with the amendment had had problems with the language.
He asked whether those members were satisfied that the language
now did what they wanted it to do.
MR. BULLOCK stated that he took the suggested language, which
would have put it into two subsections, and made it more concise
while still saying the same thing and that this allowed him to
put it all in one place.
MR. PORTER agreed that it was correct.
5:24:08 PM
There being no further objections, Amendment 3 was adopted as
written.
MR. BULLOCK noted that this replaces the current progressivity
which is repealed at the end of the bill.
5:24:17 PM
REPRESENTATIVE SAMUELS moved to adopt Amendment 4, labeled 25-
GH0014\K.5, Cook/Bullock, 10/28/07, which read [original
punctuation provided]:
Page 12, following line 3:
Insert a new bill section to read:
"* Sec. 16. AS 43.55.011(l) is amended to read:
(l) When a limitation under (j) or (k) of this
section on the tax levied by (e) and (o) [(g)] of this
section has the effect of reducing the producer's tax
on oil or gas produced from a lease or property below
the amount of tax that would be levied in the absence
of that limitation, the amount of the reduction is
applied first against the tax levied by (o) [(g)] of
this section. However, that tax may not be reduced
below zero."
Page 31, line 6:
Delete "43.55.011(l),"
Page 31, line 9:
Delete "Sections 23, 30, 31, 32, and 35"
Insert "Sections 24, 31 - 33, and 36"
Page 31, line 11:
Delete "Sections 14 - 19, 29, and 36"
Insert "Sections 14 - 20, 30, and 37"
Page 31, line 13:
Delete "Sections 24 and 25"
Insert "Sections 25 and 26"
Page 31, line 14:
Delete "sec. 24"
Insert "sec. 25"
Page 31, line 15:
Delete "sec. 25"
Insert "sec. 26"
Page 31, line 16:
Delete "sec. 27"
Insert "sec. 28"
Page 31, line 18:
Delete "secs. 13 and 27"
Insert "secs. 13 and 28"
Page 32, line 15:
Delete "secs. 23, 30, 31, 32, and 35"
Insert "secs. 24, 31 - 33, and 36"
Page 32, line 17:
Delete "secs. 14 - 19, 24, 25, 29, and 36"
Insert "secs. 14 - 20, 25, 26, 30, and 37"
Page 33, lines 3 - 4:
Delete "Sections 23, 30, 31, 32, and 35"
Insert "Sections 24, 31 - 33, and 36"
Page 33, line 5:
Delete "Sections 14 - 19, 24, 25, 29, and 36"
Insert "Sections 14 - 20, 25, 26, 30, and 37"
Page 33, line 6:
Delete "sec. 42"
Insert "sec. 43"
5:24:46 PM
REPRESENTATIVE DOOGAN objected in order to have time to look at
the amendment.
5:24:54 PM
MR. BULLOCK stated that AS 43.55.011(l) is repealed under the
"current version of the bill" and under the senate version
passed yesterday by the Senate Resources Standing Committee
yesterday. He explained that the issue, brought to his
attention by one of the administration's consultants, is that
subsection (l) talks about when Cook Inlet is subject to the tax
caps that they are going to have credits that they can't use and
this just describes the order in which the credits have to be
applied. The old reference that is deleted in brackets is (g)
which is the current progressivity and it is replaced with (o),
the subsection in the committee's bill [Version K] that was just
amended by Amendment 3. So, he said, it deletes a reference to
the old progressivity and inserts the new reference to the
progressive tax. He said this is because most of the credits
are written from the standpoint that the credit is taken against
the tax levied by AS 43.55.011(e) which is the 22.5 percent tax.
5:26:13 PM
REPRESENTATIVE DOOGAN removed his objection.
5:26:18 PM
REPRESENTATIVE NEUMAN asked if Mr. Bullock had said that it was
the administration that had brought the issue to his attention.
MR. BULLOCK responded yes, that it was an oversight that had not
been addressed. When the progressivity was changed in the bill
this change was required, he said. In further response to
Representative Neuman, Mr. Bullock stated that the
administration brought it to his attention and he then presented
it to the committee. I work for [legislative members], not the
administration, he said.
5:26:46 PM
There being no further objections, Amendment 4 was adopted as
written.
5:27:10 PM
REPRESENTATIVE RAMRAS inquired how the progressivity feature as
currently adopted would at this price affect the exploration and
development of heavy oil in Alaska.
MR. PORTER said that specific evaluations could only be given by
the individual parties involved in heavy oil development. At
$50, he said, progressivity only takes a small piece, but at $70
the actual percentage begins to increase. Therefore, it really
is affecting the higher ranges where both the heavy oil and the
legacy fields are making money. It definitely impacts the
economics of heavy oil, he continued, because it affects the
overall portion of the pie.
MR. DICKINSON agreed with Mr. Porter. Much of the oil,
particularly the heavy oil that is about to be exploited, he
said, are smaller reservoirs within the legacy fields of Prudhoe
Bay and the Kuparuk River Unit. This maintains within the
ability to make specific investments within legacy fields that
drive or will increase the cost - which may go as high as $40 a
barrel - but a baseline net is still being retained for that
heavy oil within the legacy field. Then, he continued, if the
prices go high there is the exact effect mentioned by Mr.
Porter. The amount of investment is what is driving this, he
said, as opposed to just saying that because the legacy fields
have lots of easy-to-get oil, we want to treat the heavy oil
within those fields the same way.
5:30:33 PM
REPRESENTATIVE DOOGAN stated that like Representative Samuels,
he had an amendment drafted to remove the language that puts the
auditors in exempt service and that he would have offered it if
he could have thought of another solution. "Frankly, the idea
of tax auditors being political appointees does not appeal to me
at all," he declared.
CHAIR OLSON said that he would work with Representative Doogan
in January should the auditor provision remain in the bill.
5:32:12 PM
REPRESENTATIVE DOOGAN voiced his concern with language in the
bill that essentially targets Nenana shallow gas. There are now
two tax regimes for gas, he said, one for the North Slope and
the other for everything else that is the same tax regime as
Cook Inlet. Encouraging gas production for domestic use in
marginally economic areas is a good thing, but it will not be so
good should there be a big commercial strike elsewhere that
forces the legislature to jump through hoops to make it right.
He wished that narrower language could have been found to enable
Nenana without throwing the entire state open to those
provisions. Representative Doogan acknowledged the risk of
taxing industry out of the state. But, he argued, the
assumptions for supporting a net profits tax are not necessarily
true and there is the risk of leaving money on the table that
could be used for when the inevitable oil decline comes. He
directed attention to a handout he prepared entitled, "10
Impossible Things" and urged that legislators think about this
other kind of risk that has received very little attention.
5:36:18 PM
REPRESENTATIVE SAMUELS stated that in current law the credit for
buying net operating losses (NOLs) is at 20 percent, but the tax
rate is at 22.5 percent. They should be the same so all players
are treated the same, he opined. When the change in tax rate
was stripped from the bill, was there also a change for NOLs, he
asked.
MR. BULLOCK responded that he did not recall that provision and
recommended that the question be referred to the administration.
REPRESENTATIVE SAMUELS contended that there is a middle ground
for finding the right tax level. He advised members to not get
wrapped up in the graphs and to instead think about what they
want for Alaska 10 years from now, not 2 years. The correct
approach for setting public policy is to think on a long-term
basis and to think about more than just the tax rate, he opined.
5:40:34 PM
REPRESENTATIVE NEUMAN stated that he has thought about the
issues brought up by Representative Doogan. Given the decline
in barrels of oil going down the Trans-Alaska Pipeline System
(TAPS) and the current investment climate, the state must do
something different, he opined. The governor started out saying
that she wanted a gross tax, he said, but after studying the
issue her administration concluded that going to a full gross
did not work in Alaska. The numbers may be a little different,
but the governor's staff came back to the same model passed by
the previous legislature, he continued. At $100 a barrel,
Version K produces $300 million more per year than HB 2001, he
stated. It also provides for a gross system, something that was
asked for by a lot of Alaskan's in their public opinion messages
(POMs). But "we" also wanted to send a message to industry that
"we" want stability in our tax rate. He said he believes that
Version K does the job in ensuring accountability, getting
Alaska's fair share, establishing a good and stable investment,
simplifying the system, and preventing the state from being
"gamed".
5:46:58 PM
REPRESENTATIVE RAMRAS emphasized the importance of safeguarding
good public policy and a healthy revenue stream for the state.
A second revenue source is required, he opined, because
regardless of the tax policy adopted the state's income stream
from oil resources will never be enough to meet the needs of
Alaska's people. He agreed with Mr. Porter that the state must
have the discipline to save the surplus earnings while the price
of oil is robust. Although he supports Governor Palin, he said,
he believes she is wrong to challenge the integrity of decisions
made by the entire previous legislature based upon the
unforgivable actions of some. This aside, the committee has
crafted a bi-partisan CS that meets the needs of the three
constituent groups, he remarked.
5:54:18 PM
REPRESENTATIVE DOOGAN commented that at the beginning of the
last session he sponsored a bill that would have put the entire
surplus into the Constitutional Budget Reserve (CBR), but
withdrew the bill when it was given no consideration. He said
he will be sponsoring another bill to save the surplus and that
he will be coming to committee members to ask for their co-
sponsorship.
5:55:45 PM
REPRESENTATIVE SAMUELS moved to report CSHB 2001, Version 25-
GH0014\K, Bullock, 10/27/07, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, CSHB 2001(O&G) was reported from the
House Special Committee on Oil and Gas.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 5:56
P.M.
| Document Name | Date/Time | Subjects |
|---|