Legislature(2009 - 2010)BARNES 124
01/29/2010 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB217 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 217 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 29, 2010
1:02 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Kurt Olson
Representative Paul Seaton
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Bryce Edgmon
Representative Peggy Wilson
COMMITTEE CALENDAR
HOUSE BILL NO. 217
"An Act relating to the tax applicable to the production of
natural gas used in the state as fuel or feedstock in producing
a manufactured end product."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 217
SHORT TITLE: TAX ON GAS FOR IN STATE MANUFACTURING
SPONSOR(s): REPRESENTATIVE(s) NEUMAN
04/06/09 (H) READ THE FIRST TIME - REFERRALS
04/06/09 (H) RES, FIN
04/13/09 (H) RES AT 1:00 PM BARNES 124
04/13/09 (H) Heard & Held
04/13/09 (H) MINUTE(RES)
01/29/10 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
GARY ROGERS, Oil & Gas Revenue Specialist
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
DAN STICKEL, Petroleum Economist
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
MARCIA DAVIS, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
KEVIN BANKS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
BILL NOLL
Seward, Alaska
POSITION STATEMENT: Supported HB 217.
ACTION NARRATIVE
1:02:36 PM
CO-CHAIR CRAIG JOHNSON called the House Resources Standing
Committee meeting to order at 1:02 p.m. Present at the call to
order were Representatives Olson, Seaton, Tuck, Neuman, and
Johnson. Representatives Guttenberg and Kawasaki arrived as the
meeting was in progress.
^#hb217
HB 217-TAX ON GAS FOR IN STATE MANUFACTURING
1:02:36 PM
CO-CHAIR JOHNSON announced that the only order of business is
HOUSE BILL NO. 217, "An Act relating to the tax applicable to
the production of natural gas used in the state as fuel or
feedstock in producing a manufactured end product."
1:03:23 PM
REPRESENTATIVE NEUMAN, sponsor of HB 217, stated that the bill
deals with the five percent production tax for gas, including
liquefied natural gas (LNG) for in-state electrical generation
and home heating [AS 43.55.900(24)]. It is an effort to do
everything possible to provide opportunities for an anchor
tenant for an in-state gas pipeline, such as a gas-to-liquids
(GTL) plant or natural gas liquid (NGL) export. Thus, HB 217
would provide a production tax rate of five percent for gas that
is used to create jobs in Alaska rather than the current rate of
25 percent plus progressivity.
1:05:32 PM
REPRESENTATIVE SEATON inquired whether this would apply to all
basins across the state.
REPRESENTATIVE NEUMAN answered, "If it is in Alaska."
REPRESENTATIVE SEATON asked how the proposed differential tax
rate on gas would work as far as the allocation of costs under
the State's current production tax credits and production taxes
for wells that are both oil and gas on the North Slope.
REPRESENTATIVE NEUMAN replied that the production profits tax
(PPT) applies to oil, whereas the tax rate under HB 217 would
apply to gas production. Currently, there are many different
rates, deductions, and credits depending upon whether it is
downstream, midstream, upstream, or what field the production is
from. If the gas is put into a factory to create jobs in the
state, then HB 217 would provide a lower production tax rate for
that gas.
1:08:11 PM
REPRESENTATIVE SEATON noted he is not opposed to HB 217, he is
just trying to figure out how it would work. He asked whether
the term manufactured would apply to liquefied natural gas under
HB 217.
REPRESENTATIVE NEUMAN responded that liquefied natural gas is
gas, and under current law the production tax rate for liquefied
natural gas that is used for home heating or electrical
generation is five percent.
CO-CHAIR JOHNSON interjected that [electrical] generation is
already in statute, and HB 217 would add "or used as fuel stock
in manufacturing."
1:09:10 PM
REPRESENTATIVE SEATON said he is asking for clarification on
whether conversion of gas to liquefied natural gas (LNG) is
considered a manufacturing process.
CO-CHAIR JOHNSON referred the question to Gary Rogers.
GARY ROGERS, Oil & Gas Revenue Specialist, Tax Division,
Department of Revenue (DOR), explained that under current State
law, LNG is not treated as a manufactured product; it is treated
as gas, and it is netted back from its ultimate disposition
point or sales delivery point. The conversion of natural gas to
LNG is presently considered a transportation process.
1:10:25 PM
REPRESENTATIVE SEATON inquired whether that is an interpretation
or a statutory definition. He said he is concerned the State
could get into the argument of an LNG export facility that has
very little tax rate on it, which he believes is not the
sponsor's intention.
MR. ROGERS answered he believes it is in regulation and the
State's past history of practice, but is not statutory. That
would be an item that would certainly be recommended for
clarification, he added.
1:11:40 PM
REPRESENTATIVE TUCK offered his support for the intent of HB 217
and the encouragement of manufacturing in the state. He
requested a review the areas that Representative Neuman would
like to see promoted under this bill.
REPRESENTATIVE NEUMAN said he would like to see HB 217 provide
the opportunity to create jobs in Alaska by being an incentive
to inspire gas operations, such as a gas-to-liquids plant doing
alternative fuels. A specific purpose is to create an anchor
tenant for an in-state gas pipeline as a pipeline would help
create jobs. Another possibility is gas to Donlin Creek Gold
Mine as he understands the mine owners may not go forward
because of the lack of energy supply. This is just the
beginning of the discussion of what can be done, he noted.
1:13:16 PM
REPRESENTATIVE NEUMAN returned to Representative Seaton's
previous line of questioning. He explained that in regard to
manufacturing there is the law and there is dictionary
terminology. Manufacturing is described as a molecular change.
Export of LNG would compete against the Alaska Gasline
Inducement Act (AGIA) and exports from a large diameter
pipeline, and this is not what is being talked about here. In a
manufacturing process the gas would be changed into a product
other than gas. In the case of a gas-to-liquids processing
plant it would go through a Fischer-Tropsch process to create an
alternative fuel, such as a jet, diesel, or marine fuel.
1:14:07 PM
REPRESENTATIVE TUCK understood that the conversion of gas to
fertilizer is a feedstock situation which would be included
under HB 217. He asked whether a smelter plant that uses
natural gas for the heating process already receives the five
percent production tax rate under current statute.
REPRESENTATIVE NEUMAN deferred [to Mr. Rogers].
MR. ROGERS replied that [DOR] issued an advisory bulletin in
February 2009 in response to a company asking whether gas used
as part of the feedstock in manufacturing qualifies as gas used
in-state, and the answer is no, it does not. However, gas used
as fuel to generate electricity, run equipment, or generate heat
does qualify as used in-state.
1:16:31 PM
REPRESENTATIVE KAWASAKI noted that Fairbanks has a production
plant for jet fuel. He asked how this plant would be affected
by HB 217. For example, this plant currently uses portions of
the oil to generate heat.
CO-CHAIR JOHNSON pointed out that HB 217 affects natural gas and
the aforementioned plant uses oil. He said that plant would
love to have the opportunity to use natural gas.
REPRESENTATIVE NEUMAN understood that the aforementioned plant
purchases it electricity from Golden Valley Electric and Golden
Valley Electric has a gas pipeline that delivers gas used for
electrical generation.
1:18:04 PM
DAN STICKEL, Petroleum Economist, Tax Division, Department of
Revenue (DOR), stated that he, Deputy Commissioner Marcia Davis,
and Gary Rogers are available to answer questions.
1:18:40 PM
REPRESENTATIVE SEATON inquired how HB 217 would influence the
credits and deductions for the expenses of a North Slope field
that is both oil and gas.
MR. STICKEL responded that [DOR] has not looked specifically at
how HB 217 would relate to a facility on the North Slope.
MR. ROGERS explained that because gas used in-state is
considered a favored tax rate under Section 43.55.011(o) of
Alaska's Clear and Equitable Share (ACES), the allocation of
costs is not based on credits or tax rates, but is based on
equivalent British Thermal Unit (BTU) barrels. So, in a unit
with both oil and gas, costs would be allocated based on the BTU
equivalents of each. In regard to credits, some credits such as
the exploration tax credit, might have a reduction. There are
some tax savings due to the favored tax rate for gas used in-
state and that could limit a company on the application of some
of its credits if it had unused tax credits under AS 43.55.025.
Other than that there is not much effect.
1:20:57 PM
REPRESENTATIVE SEATON understood Mr. Rogers' answer to mean that
the allocation of lease costs is then on the BTU of what is
coming out of the well as oil or gas and not on the monetary
value of oil and gas.
MR. ROGERS answered correct.
CO-CHAIR JOHNSON added that ACES has a BTU equivalent to treat
oil and gas similarly, which is something that will have to be
dealt with in the future.
1:21:35 PM
REPRESENTATIVE SEATON noted he is trying to understand the
consequences. He asked whether it would be a positive or
negative incentive for a field that has credits or upstream
costs if the BTU equivalent is 6:1 and the value difference is
15:1, which is about where it is today.
MR. ROGERS replied he does not have an answer off the top of his
head because this would require some modeling. He said there is
also a provision under [43.55.011(m)] of ACES that affects
credits and he does not believe that ACES specified how to
allocate costs between oil and gas. He thinks the use of BTU
equivalent barrels was established by [DOR] regulation.
1:23:24 PM
CO-CHAIR JOHNSON inquired whether Mr. Rogers is saying [DOR] has
the regulations written.
MR. ROGERS responded that some regulations were written, and he
thinks it was one of the very first packages of regulations that
[DOR] did.
1:23:39 PM
REPRESENTATIVE SEATON requested that members receive this
information for background as the bill is considered further.
CO-CHAIR JOHNSON said it is his intention to hold HB 217 today
and to bring it up again on Monday [February 1] and report it
from committee provided a major problem is not found.
1:25:14 PM
REPRESENTATIVE GUTTENBERG asked whether there are regulations
defining exactly what a feedstock is.
MR. ROGERS answered that [DOR] does not presently have a
regulatory definition of what a feedstock is; more or less it is
a term commonly used in the industry.
REPRESENTATIVE GUTTENBERG interjected, "You know it when you see
it."
MR. ROGERS said yes.
1:26:12 PM
REPRESENTATIVE GUTTENBERG inquired whether there is any conflict
with the "commerce clause" given this deals with both oil and
gas used in-state.
MR. ROGERS pointed out that the used in-state only applies to
gas used in-state under AS 43.55.011(o), and this is the only
used in-state reduced tax rate; oil is not included.
1:27:20 PM
MARCIA DAVIS, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, in response to Representative Guttenberg,
explained that [AS 43.55.011] of ACES establishes all of the
various tax rates. Subsection (o) was added late in the process
and was a specific provision targeting only gas that was used
in-state; it was put in place to provide some mitigation of the
costs of use of gas for the citizens of Alaska. She recalled
that at the time subsection (o) was inserted, the Department of
Law discussed the constitutionality of this particular provision
and determined that it is a privileges and immunities type of an
argument that makes this provision perhaps somewhat vulnerable.
However, at that time it was concluded that until gas was
exported and used as fuel outside of the state, such that there
were people who could claim disparity or unequal protection of
the laws, there were no fouls being committed by this particular
section. For that reason a sunset was put on subsection (o)
which requires it to go away at the end of calendar year 2021.
1:29:26 PM
REPRESENTATIVE SEATON posed a scenario on the allocation for
expenses that a company would get to write off for lease
expenses for tax credit on a gas and oil well on the North
Slope. He asked if he is correct in understanding that if it is
an oil well, the company would be looking at the tax credit,
plus the tax rate on the oil, including progressivity depending
on profits, and if it is on gas and the tax rate is 5 percent,
that basically the maximum the company could get is 5 percent
plus its tax credit instead of having State participation such
as 45-50 percent in the well drilling process and lease
expenses.
MS. DAVIS replied that this particular provision says that if
gas from a location other than Cook Inlet is burned and used as
fuel in-state it will have the lower tax rate. That means that
a North Slope producer that has gas that is burned as heat for
the Deadhorse airport or elsewhere on the North Slope will have
the lower tax rate. She pointed out that gas consumed to
produce the oil and gas is not taxed as it is a cost of doing
business. She said she therefore is not sure how it would
detriment the operations on the North Slope or impact the
State's calculations of credits and so forth in the overall oil
and gas production operation on the North Slope.
1:32:33 PM
MR. ROGERS added that the tax rate is the lower of the tax
calculated by taking the value less the lease expenditures or
the five percent tax rate on gas used in-state. A significant
difference between the ACES tax rate on the value less the lease
expenditures - i.e. the 25 percent progressivity, and the 5
percent tax rate on gas used in-state - may reduce the
availability of some of the tax credits that the company could
otherwise apply that year. However, there is not a direct
impact on lease expenditures themselves of the 5 percent used-
in-state tax rate.
1:33:46 PM
REPRESENTATIVE SEATON noted that the general philosophy of ACES
was that there would be a fairly high profits tax and really
good credits, and those two things added together would give a
lot of State participation in the lease expenditures. He asked
whether a production tax rate of 5 percent would limit the
State's participation to 20 percent tax credit for drilling plus
5 percent, so that the maximum incentive that the State gives a
company to explore and drill, as long as it is not over 25 miles
away, is then 25 percent participation rather than the 60-65
percent participation that has occurred in some exploration and
development wells. He said he wants to understand whether by
doing this the incentive is actually lowered for investment in
the field.
MR. ROGERS responded he thinks it is just the opposite. The
State is providing an incentive by telling a producer that its
tax rate is limited to five percent on gas that is used in-state
that meets the qualifications proposed by HB 217. It is
difficult to produce the exact incentive in numbers unless
scenarios are modeled with prices, price levels, and lease
expenditure levels, but if a company has gas used in-state the
tax may not exceed the 5 percent limitation rate and that in
itself is an incentive compared to the ACES tax rate which is 25
percent base plus progressivity, which depends on a combined
production tax value of oil and gas. Lease expenditures are not
being lost, they would still be there. While some of the
credits might have to be deferred, they would still be
available.
1:37:11 PM
REPRESENTATIVE SEATON said he is still unclear on this because
when the [ACES] system was created he understood that while the
25 percent base tax rate with progressivity was a fairly high
tax rate, a company got to deduct that tax rate from its lease
expenditures which could result in the State participating at
60-70 percent or even over 100 percent under certain scenarios.
While a company would [still] get its full tax credit for its
lease expenditures [under HB 217], it seems that State
participation is based on the PPT or the ACES tax rate.
CO-CHAIR JOHNSON offered his understanding that the in-field
expenditure is based on the expenses using a sliding scale, not
the tax rate. Basically, HB 217 would treat North Slope gas
just like Cook Inlet gas.
1:38:59 PM
REPRESENTATIVE TUCK understood that under current law the same
deal that is applied to Cook Inlet gas is also applied to others
as long as the gas is consumed within state as fuel or to
generate electricity. Under HB 217, this tax benefit would be
extended to gas used in the manufacturing process. However, the
company doing the manufacturing may not be the same company
producing the gas. Given that the tax cap is for the producer,
not the manufacturer, he asked if the hope under HB 217 is that
the manufacturer will have a preferred gas supply due to the tax
break offered to the producer.
CO-CHAIR JOHNSON responded that HB 217 would lower the price and
lowering the price would give the incentive for a manufacturer
to come in, which would create jobs. He said he does not think
"a ConocoPhillips, or BP, or an Exxon" will come in and build a
gas-to-liquids plant; rather, a third party would be able to buy
that fuel at a lesser rate because the State is giving a tax
reduction to the producer. So, the price will flow down, and if
it does not, then a third party would not build and the producer
would not have that market.
1:40:51 PM
KEVIN BANKS, Director, Division of Oil & Gas, Department of
Natural Resources, said he understands Representative Seaton's
questions and concerns. He offered to meet with Representative
Seaton privately to provide further response and explanation.
REPRESENTATIVE SEATON agreed and requested that all members
receive diagrams depicting the consequences of HB 217. He
reiterated he is not unsupportive.
1:42:00 PM
MS. DAVIS, in response to Co-Chair Johnson, agreed to prepare
information comparing the situation of a North Slope producer
providing gas with and without the HB 217 incentive. This would
show the economics, and how it would appear from the perspective
of a North Slope producer, which should answer Representative
Seaton's question.
REPRESENTATIVE SEATON said he wants to ensure that members look
at the effect on the incentives for drilling and production as
well as just the sale of gas that a producer has.
MS. DAVIS agreed, saying she understands that Representative
Seaton's dominant concern is what HB 217 would do to the
inherent incentives that were the structure of ACES.
REPRESENTATIVE SEATON replied correct.
1:43:11 PM
REPRESENTATIVE GUTTENBERG said he shares Representative Seaton's
concerns about unintended consequences. In reference to the
situation brought up by Representative Tuck, he pointed out that
it is the producer, not the manufacturer, that is getting the
break and he is therefore concerned the manufacturer might not
see that break. For example, Fairbanks has an oil pipeline
going through it and residents there do not get a break. He
suggested that in HB 217, "use" for consumption might be more
appropriate than "delivered" for consumption.
CO-CHAIR JOHNSON agreed to come back to this, but said he thinks
that is a commercial arrangement that needs to be made between
the manufacturer and the producer; HB 217 provides an incentive.
[The legislature] should not get involved in commercial
agreements unless something comes up. There are people
genuinely interested in doing business in Alaska who need this
natural gas but who cannot function under the current tax rate.
This would provide incentive and send a message that the State
is open for business, which is not currently the case.
1:46:36 PM
REPRESENTATIVE TUCK inquired whether there are any other
statutes that could potentially be affected by HB 217 and
whether anything beyond natural gas could be affected.
CO-CHAIR JOHNSON deferred to Ms. Davis.
MS. DAVIS responded that [DOR] has looked at this, and it should
be okay as long as the manufacturing process is thought through
to ensure that the characteristics of the gas are not changed;
for example, conversion to LNG is merely changing the form of
the gas for transportation. One area needing more thought is
the gas-to-liquids type of process where gas is transformed into
a diesel product; that transformation process needs further
consideration to determine whether it is more analogous to the
LNG situation. While that is truly a molecular transformation
into another product, it has the manufacturing characteristics,
so it must be thought through as to how to value that. One of
the challenges is whether to look at it as gas sold and if the
point of production is looked at, then how should it be valued.
As far as other standard manufacturing, [DOR] has already gotten
its arms around the use of gas as fuel. There may be issues
about liquefied petroleum gas (LPG) in which gas is taken off
and transformed into propane. However, as long as it is
understood which side of the fence the extraction of the various
forms of liquids falls on, it should be okay. She said she does
not see HB 217 reaching into any other statutory structures like
credits or allocation of costs.
1:49:42 PM
MS. DAVIS, in further response to Co-Chair Johnson, agreed that
she, too, thinks of manufacturing as changing one thing into
another. However, she has found that people very knowledgeable
about the petroleum industry may see a particular process as a
transformation process rather than a manufacturing process.
Therefore, she would like to step back and make sure [DOR]
thinks this through with the experts and draws a line that is
clear enough for the taxpayers to understand which side of the
line they are on in regard to the various processes.
1:50:23 PM
REPRESENTATIVE SEATON inquired whether there is already in place
a good definition of natural gas which distinguishes the point
at which propane is or is not natural gas.
MS. DAVIS replied that Section 43.55.900(8), of ACES describes
gas as: all hydrocarbons that are recovered by mechanical
separation of well fluids or by gas processing in a gas
processing plant, and exist in a gaseous phase at the completion
of the mechanical separation in any gas processing. [Section
43.55.900(9)] identifies gas processing as something that
involves use of absorption, adsorption, externally applied
refrigeration, artificial compression followed by adiabatic
expansion using the Joule-Thomson effect, or another physical
process that is not mechanical separation. She said she thinks
that externally applied refrigeration picks up the LNG.
1:51:55 PM
REPRESENTATIVE SEATON asked whether propane is considered
natural gas.
MS. DAVIS answered she thinks propane is clearly gas because it
is pulled out due to chilling and compression processes applied
to the gas stream. Gas-to-liquids is a different thing, she
continued, and she is unsure whether it falls under gas
processing or manufacturing, so [DOR] needs to look at this to
see what can be done to provide more clarity as to where the
line is drawn. In response to Co-Chair Johnson, she said [DOR]
may not be able to look at this by Monday [2/1/10] as expertise
from people in the industry will need to be brought in.
1:53:15 PM
REPRESENTATIVE TUCK said it is important that members understand
the manufacturing definition as it applies to liquid natural
gas. If gas that is turned into liquid natural gas is defined
as being manufactured, then under this provision that definition
would also apply to liquid natural gas that is manufactured for
export. He offered his belief that if LNG is excluded from the
definition of manufacturing, then LNG can still be used for fuel
for power generation and for other needs based on the first part
of AS 43.55.900(24).
1:54:20 PM
CO-CHAIR JOHNSON asked whether it is Representative Tuck's
intention that gas sold as jet fuel and flown out of the state
be exported.
REPRESENTATIVE TUCK responded that in that case the gas would be
a feedstock for a manufactured process because that would be a
gas-to-liquids process and he would hope that gas-to-liquids
would fall into the definition of manufacturing. Liquid natural
gas is the one he is concerned about because it could be more of
a transport definition than manufacturing.
1:55:00 PM
CO-CHAIR JOHNSON opened public testimony.
BILL NOLL testified that HB 217 looks like a proper and useful
tool to prospective manufacturers and developers around the
world. How to move Alaska's tremendous natural gas resource has
been a puzzle ever since the discovery of oil on the North Slope
in 1968. Although there may be unexpected negative
consequences, there might be unexpected positive consequences.
The bill would provide an opportunity to monetize some of that
tremendous asset. The benefits in terms of jobs, other tax-
based development, indirect jobs, transportation, and marketing
are easy to enumerate. He said he therefore enthusiastically
supports HB 217. At Co-Chair Johnson's request, Mr. Noll said
his background experience includes his current membership in
Alaska Ratepayers, a nonprofit that is seeking ways to level
rates for ratepayers, particularly those residing in the
Railbelt. He was also commissioner and deputy commissioner of
the Department of Commerce, Community, & Economic Development
during the Murkowski Administration, as well as deputy
commissioner under the Hickel Administration. He listed other
private and public positions he has held over the years. He
added that he sees this as a giant economic development project
that is quite different from the pipeline to Alberta or the
conversion of gas to LNG for export to Asia. Should
legislators, producers, and developers get this on line, the
state could easily be looking at 1,000 jobs for a very long
period of time, which he greatly encourages.
2:00:35 PM
CO-CHAIR JOHNSON closed public testimony after ascertaining that
no one else wished to testify. He agreed that HB 217 is an
economic opportunity because there are people looking at Alaska
but the State's tax structure is standing in the way. He
announced that he is holding over HB 217.
REPRESENTATIVE NEUMAN said he worked hand-in-hand with the
administration while drafting HB 217. He noted that many of
Representative Seaton's questions have to do with ACES, the
Alaska Gasline Inducement Act (AGIA), and other legislation, and
HB 217 has nothing to do with that. He reiterated that HB 217
would provide for using gas as a feedstock which would supply
jobs. He reiterated that manufacturing is described as a
molecular change. He further noted that the Fischer-Tropsch
process is the fuel of the future and has strong world-wide
demand.
MS. DAVIS, in response to Representative Olson and Co-Chair
Johnson, said [DOR] will strive to have a fiscal note for HB 217
by Monday [2/1/10].
2:05:39 PM
REPRESENTATIVE TUCK asked whether it is possible to create
difficulty for ratepayers by having the incentive increase
demand so much that it ends up raising the rates. He said he
wants to ensure that the gas is not just shipped out and that
there is enough supply.
CO-CHAIR JOHNSON explained that without this kind of anchor
tenant for any kind of in-state gas pipeline the tariffs would
be huge and would double or triple the current cost of gas in
Anchorage. Regardless of the tax structure, an anchor tenant
would result in the taking of enough gas to lower the tariffs
and generate a savings to the consumers. The desire with this
tax break is to attract anchor tenants which would allow an in-
state gas pipeline to go from 250 [million cubic feet per day
(MMcfd)] to 500 MMcfd, which would lower the tariff.
REPRESENTATIVE TUCK concurred that an anchor is the key as this
is what would bring the volume. However, this legislation alone
may not be enough and other things may still need to be looked
at so as to benefit Alaskans to the maximum.
2:08:51 PM
CO-CHAIR JOHNSON said that HB 217, coupled with "Agrium" and
export, might get the state where it needs to be. All the doors
need to be kept open and HB 217 is the first step to get serious
players into Alaska to allow the economics of an in-state
pipeline to work.
REPRESENTATIVE NEUMAN stated he is available to answer questions
at any time. He pointed out that right now the fiscal note for
HB 217 is zero.
2:10:20 PM
REPRESENTATIVE SEATON said he fully agrees with the
aforementioned, but HB 217 is about a production tax, not an
anchor tenant. This tax rate would not go to the manufacturer,
it would go to the producer, and that is why he is concerned
about the effects of the bill. A 5 percent production tax has
been in effect in Cook Inlet for 20 years, yet there still has
not been the exploration. Other types of credits and incentives
have also been implemented and still there has not been the
exploration. He advised that as the program goes forward, the
legislature will have to come back to see whether it is
accomplishing the goal. He said he is not arguing against the
bill, he is pointing out that lowering the tax does not mean the
profit margin will be there.
CO-CHAIR JOHNSON agreed that those are valid points and members
will have a chance to look at some spread sheets to see exactly
what HB 217 has.
2:12:07 PM
REPRESENTATIVE OLSON related that [a potential] anchor tenant
come down to the Kenai Peninsula three years ago. The
[potential] tenant met with numerous people and the borough had
vacant land available along with existing infrastructure and gas
lines. However, the conversation ended when the [potential]
tenant learned that 1 billion cubic feet per day (Bcfd) of gas
for the next 10 years was not available. He concurred with
Representative Neuman that an in-state gasline must carry a
surplus of at least 1 Bcfd to attract an anchor tenant.
2:13:20 PM
REPRESENTATIVE NEUMAN again urged members to come talk to him.
MS. DAVIS, in response to Co-Chair Johnson, said [DOR] will work
on the modeling that will respond to the concerns about impact
to the current incentives under ACES.
CO-CHAIR JOHNSON encouraged members to talk to the sponsor and
to Ms. Davis directly.
2:14:18 PM
MR. ROGERS, in response to Co-Chair Johnson, pointed out that
the reference [in today's conversation] has been to a 5 percent
tax rate. However, it is 5 percent times a value, which works
out to 17.7 cents per Mcf [thousand cubic feet]. It is not like
5 percent on the gross value, it is 5 percent times an average
historical value of about $3.65, so 17.7 cents is the 5 percent
that is being talked about here and that is fairly low.
[HB 217 was held over.]
2:14:55 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:15 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 217.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |
| HB 217 Sponsor Statement.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |
| HB 217 Back Up Information.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |
| HB 217 Unemployment Information.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |
| HB 217 Fiscal Note-REV.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |
| HB 217 Fiscal Note-DNR.pdf |
HRES 1/29/2010 1:00:00 PM |
HB 217 |