02/24/2010 01:15 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB217 | |
| HJR40 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 217 | TELECONFERENCED | |
| *+ | HJR 40 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 24, 2010
1:19 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Bryce Edgmon
Representative Kurt Olson
Representative Paul Seaton
Representative Peggy Wilson
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
All members present
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."
- MOVED CSHB 217(RES) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 40
Opposing the proposed designation by the National Marine
Fisheries Service of 3,000 square miles of upper Cook Inlet, the
mid-inlet, all of the inlet's western shores, and Kachemak Bay
as critical habitat for beluga whales.
- MOVED CSHJR 40(RES) OUT OF COMMITTEE
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
01/29/10 (H) Heard & Held
01/29/10 (H) MINUTE(RES)
02/10/10 (H) RES AT 1:00 PM BARNES 124
02/10/10 (H) Heard & Held
02/10/10 (H) MINUTE(RES)
02/15/10 (H) RES AT 1:00 PM BARNES 124
02/15/10 (H) Scheduled But Not Heard
02/17/10 (H) RES AT 1:00 PM BARNES 124
02/17/10 (H) -- MEETING CANCELED --
02/22/10 (H) RES AT 1:00 PM BARNES 124
02/22/10 (H) -- MEETING CANCELED --
02/24/10 (H) RES AT 1:15 PM BARNES 124
BILL: HJR 40
SHORT TITLE: COOK INLET/KACHEMAK BELUGA POPULATION
SPONSOR(s): REPRESENTATIVE(s) MILLETT
01/27/10 (H) READ THE FIRST TIME - REFERRALS
01/27/10 (H) RES
02/24/10 (H) RES AT 1:15 PM BARNES 124
WITNESS REGISTER
DAN STICKEL, Petroleum Economist
Tax Division-Economic Research Group
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 217, provided
information, answered questions, and suggested amendments.
GARY ROGERS, Oil & Gas Revenue Specialist
Tax Division-Administration
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
REPRESENTATIVE CHARISSE MILLETT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the sponsor of HJR 40.
JEFF TURNER, Staff,
Representative Charisse Millett
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HJR 40, explained the
differences between the original resolution and the proposed
committee substitute, Version E, on behalf of Representative
Millett, sponsor.
ARNE FUGLVOG, Legislative Assistant
to U.S. Senator Lisa Murkowski
Washington, D.C.
POSITION STATEMENT: During the hearing on HJR 40, provided
information and answered questions.
RICHARD BERKOWITZ, Pacific Coast Director
Transportation Institute
Seattle, Washington
POSITION STATEMENT: Supported HJR 40.
JOHN MCCLELLAN, P.E.
Tyonek Native Association
Anchorage, Alaska
POSITION STATEMENT: Supported HJR 40.
JASON BRUNE, Executive Director
Resource Development Council
Anchorage, Alaska
POSITION STATEMENT: Supported HJR 40.
BRUCE WEBB
Anchorage, Alaska
POSITION STATEMENT: Supported HJR 40.
STACY SCHUBERT, Intergovernmental Affairs Director
Mayor's Office
Municipality of Anchorage
Anchorage, Alaska
POSITION STATEMENT: Supported the proposed committee substitute
for HJR 40, Version E, on behalf of Mayor Dan Sullivan.
GRAHAM SMITH, Communications and Membership Director
Alaska Support Industry Alliance
Anchorage, Alaska
POSITION STATEMENT: Supported HJR 40.
ACTION NARRATIVE
1:19:38 PM
CO-CHAIR CRAIG JOHNSON called the House Resources Standing
Committee meeting to order at 1:19 p.m. Present at the call to
order were Representatives P. Wilson, Olson, Kawasaki, Seaton,
Tuck, Neuman, and Johnson. Representatives Guttenberg and
Edgmon arrived as the meeting was in progress.
HB 217-TAX ON GAS FOR IN STATE MANUFACTURING
1:20:01 PM
CO-CHAIR JOHNSON announced that the first 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." [Before the
committee was the proposed committee substitute for HB 217,
labeled 26-LS0816\R, Bullock, 2/1/10 ("Version R").]
1:20:23 PM
REPRESENTATIVE NEUMAN reminded members that his intent as
sponsor of HB 217 is to expand manufacturing in the state, and
this provision can be found on page 10 of Version R. He
stressed that HB 217 is also a jobs creation bill. Three [oil]
companies pay 90 percent of the state's expenses, he pointed
out, and this bill is one of several in committee that seek to
create an environment in the state in which industry and
hundreds of companies can thrive. The bill would go a long way
in helping to provide for an anchor tenant for an in-state gas
pipeline, a project that might not happen otherwise. An in-
state gas pipeline would benefit the entire state because it
would support development, such as the Donlin Creek Gold Mine
that would provide 2,000 family-sustaining jobs. Alaska does
not have the time to continue delaying this project, he opined,
given the state's current dependence on only three companies.
1:22:31 PM
REPRESENTATIVE NEUMAN noted that today he is providing several
amendments as requested previously by committee members. One of
those amendments expands on the meaning of manufacturing.
REPRESENTATIVE P. WILSON moved the adoption of Amendment [2],
labeled 26-LS0816\R.4, Bullock, 2/23/10, written as follows
[original punctuation provided]:
Page 10, line 4, following "product":
Insert "; in this paragraph, "manufacturing
process" does not include cooling gas for the purpose
of storing or shipping the gas as a liquid"
CO-CHAIR JOHNSON objected for discussion purposes.
1:23:13 PM
REPRESENTATIVE NEUMAN explained that the language added by
Amendment 2 would ensure that the export of liquid natural gas
(LNG) is not included as a manufacturing process, given that the
cooling and compressing of gas is the method used for moving
gas. The bill is meant to deal with manufacturing which is a
molecular change. However, the Department of Law does not want
to define manufacturing in statute and has some conceptual
amendments to Amendment 2 that it would like to offer.
1:24:24 PM
REPRESENTATIVE TUCK asked whether another definition of
manufacturing had previously been moved forward. In response to
Co-Chair Johnson, he said he remembers a different amendment
that did the same thing.
REPRESENTATIVE NEUMAN replied that perhaps Representative Tuck
is referring to one of the Department of Revenue's suggested
amendments to Amendment 2.
CO-CHAIR JOHNSON pointed out that HB 217 was amended once
before. [Amendment 1 to the original version of HB 217, labeled
26-LS0816\A.1, Bullock, 4/13/09, adopted on 4/13/09.]
1:26:27 PM
DAN STICKEL, Petroleum Economist, Tax Division-Economic Research
Group, Department of Revenue (DOR), stated that the department
had informed the sponsor that a clear definition of
manufacturing was needed before the bill could be supported by
the administration. Work was done within the Department of
Revenue, along with the Department of Law and the Department of
Natural Resources, to come up with a suggested definition for
manufacturing under HB 217, and perhaps this is what
Representative Tuck is speaking to. To protect against certain
unintended consequences, the Department of Revenue recommends
that the list of exclusions from the manufacturing definition in
Amendment 2 be expanded to include gas processing, gas
treatment, dehydration, fractionation, compression, or
liquefaction.
REPRESENTATIVE NEUMAN responded that he is working toward a gas-
to-liquids, or Fisher-Tropsch process, which takes methane apart
at the molecular level and reconnects the chains of waxes to
create different transportation fuel components. He said he is
concerned as to whether that would be considered gas processing
or fractionation of molecules; therefore, he would like to know
if that would be the case.
1:28:31 PM
REPRESENTATIVE SEATON surmised the department's fear is that if
certain things like compression and conditioning are not
excluded, an unintended consequence could be that a gas
conditioning plant is suddenly considered manufacturing and all
the gas transmitted down a pipeline, whether for import or
export, could then qualify for this proposed lower tax rate.
MR. STICKEL answered that this is exactly the situation the
department is trying to protect against by having this longer
list of exclusions from manufacturing. In response to Co-Chair
Johnson, he stated that Amendment 2 does not currently include
the Department of Revenue's suggestions.
1:31:23 PM
REPRESENTATIVE P. WILSON pointed out that Amendment 2 does not
define manufacturing; rather, it states what is excluded from
consideration as manufacturing. She said she understands what
is being accomplished by Amendment 2 should more exclusions need
to be added to it.
REPRESENTATIVE NEUMAN related his understanding that the
administration's suggested amendment to Amendment 2 would not
interfere with a gas-to-liquids processing plant. He further
understood that the administration supports the gas-to-liquids
concept to create more jobs. He said he therefore does not have
a problem with the proposed amendment to Amendment 2.
The committee took an at-ease from 1:32 p.m. to 1:37 p.m.
1:37:55 PM
CO-CHAIR JOHNSON removed his objection to Amendment 2.
REPRESENTATIVE P. WILSON withdrew Amendment 2. There being no
objection, Amendment 2 was no longer before the committee.
REPRESENTATIVE P. WILSON moved the adoption of Conceptual
Amendment 3, dated 2/23/10, written as follows [original
punctuation provided]:
"manufacturing" means chemically converting gas or
components of gas, or chemically combining gas or
components of gas with other substances, to form
valuable compounds; "manufacturing" does not include
gas processing, gas treatment, dehydration,
fractionation, compression, or liquefaction.
CO-CHAIR JOHNSON objected for discussion purposes.
1:38:46 PM
REPRESENTATIVE NEUMAN read Conceptual Amendment 3 to members and
offered his belief that the intent of the amendment is to ensure
that LNG export is not considered manufacturing, but a gas-to-
liquids process like Fisher-Tropsch is considered manufacturing.
CO-CHAIR JOHNSON inquired whether Conceptual Amendment 3
addresses the administration's concerns and whether the
administration is comfortable with this language.
MR. STICKEL offered his understanding that this definition was
necessary before the administration could support the bill.
Since this particular definition was developed within the
Department of Revenue and the Department of Natural Resources in
coordination with the Department of Law, the administration is
comfortable that it would allow a gas-to-liquids facility or a
petrochemicals facility, such as the Agrium facility, to qualify
under the manufacturing definition, but the sale of natural gas
for a major pipeline or LNG facility would not qualify.
1:40:48 PM
REPRESENTATIVE GUTTENBERG inquired whether a chemist was
involved in drafting the language for Conceptual Amendment 3 to
ensure that all possible processes were addressed.
MR. STICKEL responded that a number of people were involved but
he does not know their chemistry backgrounds.
CO-CHAIR JOHNSON inquired whether the administration would
support this legislation with Conceptual Amendment 3 in place.
MR. STICKEL replied that with this amendment in place the
administration could support this bill.
CO-CHAIR JOHNSON withdrew his objection. There being no further
objections, Conceptual Amendment 3 was passed.
1:42:12 PM
REPRESENTATIVE P. WILSON moved the adoption of Amendment 4,
labeled 26-LS0816\R.3, Bullock, 2/23/10, written as follows
[original punctuation provided]:
Page 3, lines 26 - 27:
Delete "return is due under AS 43.55.030(a) for
the calendar year for which the election is made"
Insert "installment payment of estimated tax is
due under AS 43.55.020(a) for the month in which the
election is made. The election applies to the
production of gas in each month for which the election
is made"
CO-CHAIR JOHNSON objected for discussion purposes.
1:42:23 PM
REPRESENTATIVE NEUMAN deferred to Mr. Stickel for an explanation
of the amendment.
MR. STICKEL explained that Amendment 4, as presented, would
allow for the producer to take the election for the preferential
tax treatment - or not - at the time the producer makes its
monthly estimated payment. Under this amendment, the producer
could make an election to either take the 17.7 cent tax rate or
to include the natural gas along with the rest of its production
and could make that election on a monthly basis. However,
Alaska's Clear and Equitable Share (ACES) tax is calculated on
an annual basis, so there is a potential that when the producer
files its annual tax return the state could owe interest for
overpayments for the monthly estimated payments depending upon
the elections that the producer took on a monthly basis. He
said the department is flagging this as a concern because it was
unknown whether that was the intent of this amendment. The
department has some recommended language that would remedy this
potential.
1:43:57 PM
REPRESENTATIVE P. WILSON surmised the department would like to
have this amendment but would like to have it worded differently
while meaning the same thing.
MR. STICKEL answered that that would better address the intent
of this amendment. A way to remedy that particular situation
would be to have the producer make the election for which tax
rate would apply to its manufacturing gas at the time the first
estimated payment is made and then have that election apply for
the entire year, given the tax is levied on a calendar year
basis.
1:45:04 PM
CO-CHAIR JOHNSON said he does not see a way to change the
language of Amendment 4 to make this happen.
REPRESENTATIVE NEUMAN said his problem with the department's
suggestion is learning about it right now. He reminded members
that the reason for this part of the bill is because of concerns
expressed by committee members that the current rates being paid
by people for home heating and electrical generation could
increase because of the way credits are done.
CO-CHAIR JOHNSON asked whether just not adopting Amendment 4
would address the problem.
MR. STICKEL responded he believes that without the amendment a
producer could make estimated payments based on either taking
the election or not taking the election.
REPRESENTATIVE P. WILSON directed attention to page 3 of Version
R, line 25, and suggested that after election the words "either
monthly or annually" be inserted.
1:47:38 PM
MR. STICKEL, in response to Co-Chair Johnson, noted that this is
not necessarily a showstopper; it is just one issue the
department wanted to bring to the committee's attention because
of the potential to game the system. One possible change if
members wanted to make the election annual would be to have the
election made at the time the first monthly installment payment
of estimated tax is due under AS 43.55.020(a) for the calendar
year for which the election is made. Thus, at the end of
February when a producer makes its first estimated payment,
which is for the January production, the producer would choose
whether to make this election and that would then hold for the
entire calendar year.
MR. STICKEL, in response to Representative P. Wilson, stated
that the department's suggested amendment would be made at the
same place as Amendment 4, but the inserted language would
instead be "first monthly installment payment of estimated tax
is due under AS 43.55.020(a) for the calendar year for which the
election is made".
1:49:28 PM
REPRESENTATIVE TUCK inquired what would happen if the producer
waited until June or July to make that election rather than
making it in February, or would the department's suggested
amendment require that the election always be made in February.
MR. STICKEL replied that under the language he just read, the
election would be made at the time the producer makes its first
estimate.
1:50:31 PM
REPRESENTATIVE GUTTENBERG posed a scenario in which a gas
producer produces 10 billion cubic feet (Bcf) but only uses 2
Bcf for manufacturing. He asked whether the producer could take
this credit, which might be the lower of all the possible
credits that the producer can take, and apply it to all of its
product.
REPRESENTATIVE NEUMAN answered that it is not credits that are
being talked about here, but a reduction in production taxes.
1:51:30 PM
REPRESENTATIVE GUTTENBERG asked whether a reduction of credits
could be taken across everything that a producer produces.
MR. STICKEL provided a history of where this election comes
from. The department was working with the sponsor on some of
the questions that were raised by the committee to look at what
the possible impact on a producer's tax liability would be from
the lower tax rate of 17.7 cents per thousand cubic feet (Mcf).
It was found in the original bill that rolling the manufacturing
gas into a producer's existing portfolio of oil and gas would,
in most cases, lower the producer's tax liability. However,
there were some situations where the producer's tax liability
would actually increase, and that is why the election language
came to be. The last thing wanted is to raise a producer's tax
liability because the producer started selling gas to a
manufacturing facility. The election allows the producer "to
take the lower of" on the tax.
1:52:56 PM
REPRESENTATIVE SEATON remarked that the statement about not
wanting it for the month because it could game the system and
require the state to pay interest exemplifies his problem with
the structure. The only time he sees this as being valuable is
when there can be a modeling of the figures, something which he
requested but has not yet received. The state would be
providing 55-65 percent of the investment in the field through
credits and the taking off of production tax and progressivity
percentages, but the state would receive back in tax almost zero
or 5 percent because this would allow the producers to elect at
the end. The state would not even recover its expenses and that
is his problem with this, he opined. This is a small gaming of
the system that is a big gaming component. While he understands
that the intent of HB 217 and Amendment 4 is to stimulate gas-
to-liquids (GTLs), which he favors, he fears it will cost the
state big-time if the election is tied to when the election is
made and not to the time the gas is produced and applied against
the producer's oil taxes.
1:55:49 PM
CO-CHAIR JOHNSON understood that skirts what is being talked
about with Amendment 4. However, it is the concept of the
overall bill that Representative Seaton has a problem with as
much as this particular amendment, he said interrogatively.
REPRESENTATIVE SEATON responded that it is, but the discussion
is about when the election is taken. If the talk in this
amendment is about the difference between monthly and annual,
then his discussion is for later. If the talk in this amendment
is about allowing the election to be taken annually when the
producer chooses rather than at the start of development, then
it is on point now. For example, at the time that development
starts at Point Thomson the producer would decide to pay the 5
percent tax for gas to be used in manufacturing and would not
take off 60 percent from its oil taxes.
1:56:47 PM
CO-CHAIR JOHNSON surmised that Representative Seaton is more
comfortable with the monthly language.
REPRESENTATIVE SEATON noted that such an amendment is not before
the committee, but the amendment that would allow the election
to be made at a calendar year is what creates the obstacle
because it allows a producer to make the election when it is
best for its bottom line instead of the start of drilling, and
this is where he has a problem. It is an election timing issue,
but he is willing to let it go and come back to it later.
1:57:57 PM
CO-CHAIR JOHNSON said he understands where Representative Seaton
is coming from, but once the gas is manufactured and producers
are electing to do this, the state already has the manufacturing
and that is a commercial deal between the two entities that
would best play into whoever deals with that and he can see
where both would justify.
REPRESENTATIVE NEUMAN argued that nobody is gaming anyone and
such comments are inappropriate. The first nine pages of the
bill were written by the Department of Revenue, Department of
Natural Resources, and Department of Law to make sure the state
does not get gamed. He said he has no objection to Mr.
Stickel's suggested amendment to Amendment 4.
1:59:54 PM
REPRESENTATIVE TUCK posed a scenario in which a producer elects
the Alaska Gasline Inducement Act (AGIA) method for the
production tax credit and progressivity and that this is done at
the time of first payment, but later in the year the producer
begins providing feedstock for manufacturing. He asked whether
the producer would be able to take advantage of this bill
proposal.
MR. STICKEL deferred to Mr. Gary Rogers.
GARY ROGERS, Oil & Gas Revenue Specialist, Tax Division-
Administration, Department of Revenue (DOR), answered that the
producer certainly would because the tax calculation that is
going to be reported on the producer's annual return is an
annual calculation. The producer may not know at the beginning
of the year that it will be producing and selling gas to be used
for manufacturing in the state, but at the end of the year that
will be known. Perhaps the election should be made at the
earliest possible time that the taxpayer knows when it is going
to have gas used in state. The Department of Revenue's concern
is that a taxpayer could intentionally overpay its monthly
estimates and the state would not know that until sometime after
March 31 of the following year when the taxpayer files its
annual return. The state would then have limited time to
determine that there was overpayment and the taxpayer would be
earning interest on all those monthly installments for the whole
year. There may be a better way to wordsmith this, he added.
2:03:15 PM
CO-CHAIR JOHNSON inquired whether Mr. Rogers thinks it would be
sound business practice to overpay taxes with the expectation of
getting interest.
MR. ROGERS replied no, but the potential is there.
CO-CHAIR JOHNSON asked whether Mr. Rogers believes the companies
the state is dealing with participate in good business
practices; he then added that Mr. Rogers did not have to answer.
2:03:48 PM
REPRESENTATIVE SEATON inquired whether the election for gas
utilized for manufacturing in state is a proportional amount of
the total gas.
CO-CHAIR JOHNSON answered if it is not proportional, it should
be. He surmised it would be a small portion of the exploration
tax credits that Representative Seaton is talking about, given
that current law says it must be under 0.5 Bcf per day and not
all of the gas would be going to manufacturing.
REPRESENTATIVE NEUMAN stated that if 4.0 Bcf per day was going
to manufacturing to create more jobs in the state he would be
happy because right now there is nothing. Something is better
than nothing and that is what he is trying to make happen. He
said he is confused because this is the administration's
language and the administration keeps amending its own language.
CO-CHAIR JOHNSON shared Representative Neuman's frustration.
2:05:51 PM
REPRESENTATIVE SEATON reiterated his question as to whether it
would be only the proportion of a taxpayer's gas that is used
for manufacturing, heating, or power generation.
MR. STICKEL responded yes, the department's understanding of
this legislation is that the election would apply only to that
gas which qualifies under the definition of manufacturing.
2:06:35 PM
CO-CHAIR JOHNSON asked whether the sponsor is comfortable with
adopting the administration's suggested language.
REPRESENTATIVE NEUMAN replied that he comfortable with the
conceptual amendment that is being offered by the administration
through Mr. Stickel.
CO-CHAIR JOHNSON removed his objection to Amendment 4.
REPRESENTATIVE P. WILSON withdrew Amendment 4. There being no
objection, Amendment 4 was no longer before the committee.
2:07:22 PM
REPRESENTATIVE P. WILSON moved the adoption of Conceptual
Amendment 5, written as follows [original punctuation provided]:
Page 3, lines 26 - 27:
Delete "return is due under AS 43.33.030(a) for
the calendar year for which the election is made"
Insert:
"first monthly installment payment of estimated tax is
due under AS 43.55.020(a) for the calendar year for
which the election is made."
CO-CHAIR JOHNSON asked whether Conceptual Amendment 5 addresses
Mr. Stickel's concerns.
MR. STICKEL answered yes, this amendment would take care of the
issue of a taxpayer potentially overpaying to receive a refund
with interest at the end of the year.
There being no objection, Conceptual Amendment 5 was passed.
The bill was now before the committee.
2:08:14 PM
REPRESENTATIVE SEATON said he had previously asked for an
analysis [which he did not receive] that looks at a 1.5-2.0 Bcf
per day in-state manufacturing usage to see what it would look
like economically for the state with this later election. He
said that would probably preclude exporting the gas through
Canada because he does not think the state has enough gas to
build both a 1.5 Bcf in-state gasline and a 4 Bcf out-of-state
gasline. This would therefore mean that all of the gas produced
would be produced under this tax regime, whether it is for
heating, electrical generation, or manufacturing; yet, when
drilling for the gas the producers would be able to write off
the taxes on the oil value 25 percent production tax and the
progressivity. This would dig the state into a big hole for its
future economics and he does not believe this has been fully
considered.
2:10:26 PM
CO-CHAIR JOHNSON said he believes the state will be in bigger
trouble than anything this bill would allow if the state's only
gasline is a 2.0 Bcf line to Southcentral Alaska with all the
spurs because the other line is not practical. At least this
way the state will have a manufacturing base and a heating base
in Southcentral if the big pipeline is not built. While he
shares Representative Seaton's concern about the future
economics of the state, he is not comfortable resting the
economics totally on the big pipeline. This is a step in
generating the jobs for Alaska to become a more self-sufficient
state rather than an oil province. If it gets to the point that
the big pipeline is out of the question, then the legislators in
place at that time can address that. In the meantime, this is a
signal that the state is open for business and wants anchor
tenants, and for that reason he will be supporting HB 217.
2:12:01 PM
REPRESENTATIVE NEUMAN stated that a 4.5 Bcf per day gasline
through Canada would provide only 30-50 long-term legacy jobs.
However, an in-state gasline of up to 1.0 Bcf per day would
create thousands of long-term legacy jobs. This is an
opportunity to have a tremendous amount of jobs and payroll for
Alaskans as opposed to a smaller amount that will never replace
the oil going down the Trans-Alaska Pipeline System. The state
needs to diversify and have hundreds of companies paying
corporate taxes rather than just the three companies that are
currently paying 90 percent of the state's bills. Where would
the state be if one of these three companies left and the state
has not taken the opportunity to use its resources to create
jobs for Alaskans?
2:14:05 PM
REPRESENTATIVE SEATON asked whether the sponsor or the
Department of Revenue has done the analysis or has the
information that he previously requested.
MR. STICKEL responded that the department is in the process of
doing some more sophisticated and detailed analysis of gas-to-
liquids and has been working with Representative Seaton's office
in this regard, but the analysis is not yet completed. The
department did look at some hypothetical scenarios as to what
the effects would be on an existing producer that starts selling
gas for manufacturing that qualified under HB 217. It was found
that, generally speaking, at higher oil prices and lower gas
prices it would be advantageous to a producer to have that
manufacturing gas taxed under the existing statute. At lower
oil prices or higher gas prices, it would generally be more
advantageous for the producer to pay the 17.7 cents rate.
Beyond that information, the department does not have anything
to release at this time.
REPRESENTATIVE SEATON said the question he is getting at is the
state's participation in a development through the production
tax and progressivity offsets and then the switching to the
lower tax rate. However, he continued, it does not sound like
that analysis is available yet.
2:16:25 PM
CO-CHAIR JOHNSON, in response to Representative Edgmon, stated
that the next committee of referral is the House Finance
Committee. He added that it is his inclination to move the
bill, but he must insist that the sponsor get these questions
answered before HB 217 is heard in the House Finance Committee.
2:17:44 PM
REPRESENTATIVE P. WILSON moved to report Version R of HB 217,
labeled 26-LS0816\R, Bullock, 2/8/10, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes.
REPRESENTATIVE SEATON objected.
A roll call vote was taken. Representatives P. Wilson, Olson,
Edgmon, Tuck, Neuman, and Johnson voted in favor of HB 217.
Representatives Seaton and Kawasaki voted against it.
Therefore, CSHB 217(RES) was reported out of the House Resources
Standing Committee by a vote of 6-2.
The committee took an at-ease from 2:19 p.m. to 2:25 p.m.
HJR 40-COOK INLET/KACHEMAK BELUGA POPULATION
2:24:47 PM
CO-CHAIR NEUMAN announced that the next order of business is
HOUSE JOINT RESOLUTION NO. 40, Opposing the proposed designation
by the National Marine Fisheries Service of 3,000 square miles
of upper Cook Inlet, the mid-inlet, all of the inlet's western
shores, and Kachemak Bay as critical habitat for beluga whales.
2:25:23 PM
REPRESENTATIVE CHARISSE MILLETT, Alaska State Legislature,
sponsor of HJR 40, stated that the resolution is of utmost
importance to the entire state of Alaska because a critical
habitat listing in Cook Inlet would impact the port through
which 85 percent of the state's goods and products travel. The
resolution would tell Washington, D.C., that Alaska thinks a
critical habitat listing is ahead of its time. The listing was
preceded by the over-harvest of belugas from subsistence
hunting. A revised harvest management plan was instituted in
2000 and since then the belugas have increased about 4 percent a
year. The National Marine Fisheries Service (NMFS) has proposed
a critical habitat of 3,000 square [miles], which would affect
every business that comes through the Port of Anchorage, as well
as Representative Seaton's district.
REPRESENTATIVE MILLETT pointed out that it is possible to stop a
critical habitat designation by putting together a good economic
base for why critical habitat should not be administered. In
this situation, the National Marine Fisheries Service has
grossly understated the economic impacts. For example, the
service has stated that the impact would be $600,000 over the
next decade; however, other folks have said $600,000 is the cost
of just one permitting application and the impact statements on
that permit. This resolution asks the National Marine Fisheries
Service to slow the process down and take into consideration the
economic impacts of a 3,000-square-mile critical habitat area.
2:28:01 PM
CO-CHAIR NEUMAN moved the adoption of the proposed committee
substitute (CS) for HJR 40, labeled 26-LS1376\E, Kane, 2/4/10,
("Version E"), as the working document.
REPRESENTATIVE EDGMON objected for discussion purposes.
2:28:43 PM
JEFF TURNER, Staff, Representative Charisse Millett, Alaska
State Legislature, explained that the three changes in Version E
are based on recommendations received from the Municipality of
Anchorage. On page 2 of the original resolution, lines 13, 14,
16, 19, and 27, the word "will" was replaced by the word "may".
He related that the municipality is in the process of trying to
persuade the National Marine Fisheries Service that the needs of
the beluga whales around the city and in Cook Inlet have already
been completely addressed; therefore, the municipality wanted to
soften the language a little bit. On page 2 of the original
resolution, lines 22 and 23 were struck and a different whereas
was inserted which expands on the whereas that was replaced by
stating that the Port of Anchorage has already fully addressed
the conservation needs of Cook Inlet beluga whales. On page 3,
lines 7-10, of the original resolution, the whereas was removed
that talked about the potential increased cost of treating
wastewater that is discharged into Cook Inlet. The city asked
this be deleted because it feared this might insinuate that the
current wastewater discharge into the inlet could be harming the
belugas or needs to be changed. The city steadfastly believes
that the current wastewater discharge is not harming the beluga
whales or the environment of Cook Inlet.
2:30:23 PM
MR. TURNER, in response to Co-Chair Neuman, said three people
are available via teleconference to answer questions regarding
the wastewater discharge.
REPRESENTATIVE EDGMON removed his objection to adopting Version
E as the working document. There being no further objection,
Version E of HJR 40 was before the committee.
REPRESENTATIVE MILLETT stated she does not think the Endangered
Species Act (ESA) is a management plan that works for Alaska and
managing by the ESA is detrimental to the state. The more vocal
Alaska is to the federal government, the better the state
controls its destiny. In response to Co-Chair Neuman, she
requested that Mr. Arne Fuglvog be able to testify.
2:32:49 PM
ARNE FUGLVOG, Legislative Assistant to U.S. Senator Lisa
Murkowski, pointed out that the public comment period ends March
3, 2010, should the legislature's goal be to submit the
resolution by the deadline. He added, however, that the agency
typically allows a little bit of leeway for other government
bodies. He said this issue goes back to the first petition in
1999 and there have been multiple petitions since then. The
listing was made in 2008. Under the Endangered Species Act an
agency is required by law to designate and in this case the
National Marine Fisheries Service is the agency of jurisdiction.
The State of Alaska is working on extensive comments and he
thinks it would be helpful to have the resolution go back as a
comment from the legislature.
MR. FUGLVOG noted that the Secretary of Commerce has a lot of
discretion, unlike a listing decision which is based only on
science and in which economics do not matter. For example, a
$100 million economic loss was projected from listing the
Steller's sea lion and that did not play a factor in the listing
decision. After lawsuits shut down the fisheries, the cost was
somewhere between $50 million and $100 million.
2:35:50 PM
MR. FUGLVOG said the National Marine Fisheries Service had three
alternatives: 1) list everything in Cook Inlet, 2) list nothing
in Cook Inlet, and 3) the alternative that was chosen. He
maintained that the data describing some of the areas is weak,
especially along the western Cook Inlet shore, and he urged that
this go into the comments.
MR. FUGLVOG pointed out that the National Marine Fisheries
Service and the U.S. Fish and Wildlife Service treat critical
habitat very differently. For example, in a U.S. Fish and
Wildlife Service document, out of 1,231 species listed as either
threatened or endangered, critical habitat has been designated
for only 150. Thus, a little over 10 percent of species have
critical habitat designated for them. The U.S. Fish and
Wildlife Service basically stopped the declaration of critical
habitat in the mid-1990s because it was expending so much staff
and dollars on critical habitat that it could not get to all the
litigation and petitions to list species. The exception is the
polar bear for which the agency has proposed to list critical
habitat.
2:37:19 PM
MR. FUGLVOG related that the U.S. Fish and Wildlife Service has
stated that critical habitat designations usually afford little
extra protection to most species, and in some cases it can
result in harm to the species. This harm may be due to a
negative public sentiment to the designation or inaccuracies in
the initial area designated. However, the National Marine
Fisheries Service disagrees with that and will be designating by
law. He said he thinks that if the National Marine Fisheries
Service does not do this, it would get litigated.
MR. FUGLVOG added that with this resolution the legislature has
an opportunity to provide meaningful comments for the public
comment record. Given all the issues in Alaska related to the
Endangered Species Act, he thinks the legislature would be wise
to pay attention to this one and provide input. For example, as
part of his work for Senator Murkowski he is currently dealing
with 10 listings in Alaska.
2:38:52 PM
REPRESENTATIVE TUCK requested Mr. Fuglvog to provide examples of
how critical habitat designation has been harmful to a species.
MR. FUGLVOG related that the U.S. Fish and Wildlife Service
believes that in some cases the designation of critical habitat
highlights where the species is found and people then know where
the animals are located to the animals' detriment. Regarding
this critical habitat listing for beluga whales, the National
Marine Fisheries Service is saying that the benefits to the
species are clear; the U.S. Fish and Wildlife Service takes a
different approach.
2:40:02 PM
REPRESENTATIVE SEATON clarified that the endangered species
listing has already taken place, so critical habitat designation
would mean that human impacts on the habitat must be looked at.
However, even if critical habitat is not designated, all the
government agencies and industries will still have to look at
the impacts on the beluga whales themselves. The resolution is
not challenging that, it is challenging the designation of the
entire [3,000 square mile] unit.
MR. FUGLVOG replied correct. The benefits of the listing to the
species, and interactions between activities, will still occur
regardless of whether there is critical habitat designation.
The agency says the added benefit is the Section 7 consultation
which provides that any activity in the critical habitat must
consult with the National Marine Fisheries Service. In this
consultation the agency evaluates a project and how it might
adversely affect both the species and the critical habitat, and
a determination is made as to whether there needs to be
mitigation of the impacts on both the species and the critical
habitat. Therefore, it is an extra layer.
2:41:32 PM
REPRESENTATIVE SEATON surmised that in regard to an activity
taking place where there are whales, the consultation and
mitigation will have to take place no matter what. However, if
critical habitat is designated for areas like the west side of
Cook Inlet where whales have not been seen for 10 years, the
consultation would be required because it might influence what
has been designated as critical habitat even though there might
not be any whales there.
MR. FUGLVOG answered correct.
2:42:16 PM
RICHARD BERKOWITZ, Pacific Coast Director, Transportation
Institute, offered his organization's support of HJR 40. He
said the members of his organization are all U.S. Registry with
U.S. crews, U.S. built, and U.S. flagged vessels. Members most
directly impacted by this critical habitat designation include
Horizon Lines and TOTE. With respect to safety, these companies
have made up to five transits per week into Cook Inlet in all
sorts of weather in every season and have an unblemished record
of safety and risk avoidance, as well as no spills and no whale
strikes in all that time. They do not pollute the waters with
ballast because TOTE has no ballast and Horizon Lines does not
discharge ballast in Cook Inlet.
MR. BERKOWITZ said one of the key issues is that because of the
numerous trips each week that these companies are able to
provide into Anchorage, which in turn supplies much of the
state, the whole system is just-in-time. Because of this
frequent service, the cargo can be moved straight out so there
is no warehousing. This saves Alaska's consumers over $70
million in annual warehousing distribution costs and provides
Alaskans with fresh vegetables and milk. The potential changes
that could occur as a result of this critical habitat
designation could seriously impact that just-in-time cargo
distribution. He urged the resolution be moved in time to meet
the March 3, 2010, public comment deadline.
2:45:15 PM
REPRESENTATIVE TUCK asked how a whale strike is determined,
given the large size of the vessels.
MR. BERKOWITZ responded that "to their knowledge, there has not
been a whale strike." He allowed that there have been strikes
in other ports in other areas and when this happened the whale
ended up on the bulbous bow of the vessel and could be seen.
REPRESENTATIVE TUCK requested Mr. Berkowitz to elaborate on how
critical habitat designation would affect TOTE and Horizon
Lines.
MR. BERKOWITZ replied the key issue is that Cook Inlet has lots
of ice and up to 22-foot tides. Missing the tide can mean a 12-
hour delay getting into port and the just-in-time system does
not afford this kind of variability. If a vessel was asked to
go slow or to wait it would impact the just-in-time cargo and
also the safety of the vessel, particularly in ice.
2:47:05 PM
REPRESENTATIVE TUCK asked whether critical habitat designation
would require the vessels to slow down.
MR. BERKOWITZ answered that that is unknown, but in the right
whale situation on the East Coast ships have been required to
slow significantly during certain times of the year and to avoid
certain areas. He added that there are also significant
problems with silt in Cook Inlet and the last thing the
Transportation Institute wants to see is a ban on dredging which
could affect vessel safety. It is known what has happened
elsewhere and his organization does not want to see it
replicated in Cook Inlet.
2:47:57 PM
JOHN MCCLELLAN, P.E., Tyonek Native Association, testified that
his association supports HJR 40 because it believes that
designating all of this area would raise a barrier to the $18
billion-worth of new development that is seen for west Cook
Inlet on or near Tyonek's land. Tyonek does not believe that
all habitat is critical habitat and this is regulatory over-
reach.
MR. MCCLELLAN said Tyonek believes that the cause for the beluga
whale not restoring its population is the lack of king salmon.
The villagers who have lived with the beluga whale and the
salmon for years know that the beluga whale is dependent upon
king salmon during the critical nursing period and the belugas
will not come back until the king salmon come back. He cited
recent examples of similar events. In San Francisco, CA, the
sea lions disappeared from Pier 39 and scientists there said the
sea lions left because their food source left. In Puget Sound a
researcher has tied the killer whale population to the salmon
population. He related that when Tyonek asked the National
Marine Fisheries Service if it had correlated the drop of Cook
Inlet's belugas with the drop of king salmon, the service said
no, it did not have the data available.
2:51:51 PM
JASON BRUNE, Executive Director, Resource Development Council
(RDC), supported HJR 40. He spoke from the following written
statement [original punctuation provided]:
RDC members include all of the major, and many of the
minor, parties who will be adversely impacted by the
proposed designation of over 3,000 square miles of
critical habitat in Cook Inlet. From local
communities, to oil and gas, mining, tourism, and
fisheries members, all stand to be negatively affected
by this proposal. Meanwhile, this designation will
result in no added benefit to the belugas.
RDC members who live, recreate, and work in and around
Cook Inlet are committed to the recovery of the beluga
whale. It is important to remember that NMFS'
biologists have acknowledged the sole cause for the
population decline of Cook Inlet beluga whales was the
subsistence harvest that transpired in the 1990s. The
multitude of activities in Cook Inlet that will
absolutely be impacted by this critical habitat
proposal were not the cause of the decline, nor are
they an ongoing threat to the whale's recovery.
Since statehood, economic and community development
activities have occurred in Cook Inlet. Indeed, these
activities have long co-existed with the belugas.
Responsible community and economic development have in
no way adversely impacted these whales or impeded
their recovery. Unfortunately, this designation, if
finalized will lead to additional requirements, costly
delays, and lengthy 3rd party litigation. There is no
other way to put it.
The ESA requires economic effects to be taken into
account when designating critical habitat. In fact,
areas may be excluded from critical habitat if it is
determined that the benefit of such exclusion
outweighs the benefit of specifying such areas as
critical habitat.
The economic analysis that has been completed as part
of this proposal is grossly inadequate. In fact, only
direct consultation costs are acknowledged as "costs"
in this analysis. Nothing further is considered. The
agency's estimates are less than $600,000 over the
next decade. Frankly, this is naïve and way
understated.
Because of this, RDC has hired a contractor, Resource
Dimensions, to undertake an independent economic
analysis to attempt to more accurately identify the
costs of this proposal. These economists have been
conducting in person and telephone interviews with
many of the potentially affected entities. We are
working very closely with the State of Alaska
Department of Fish and Game as well as the Office of
Economic Development on the development of this
analysis and we will be providing the results of this
analysis to the agency. We hope NMFS will use these
results as a boilerplate to conduct a more robust
economic analysis and to that end, I wholeheartedly
endorse the second action item of this resolution
which calls for a more robust economic analysis.
In conclusion, the benefits of designating critical
habitat in most, if not all of the areas that have
been proposed is outweighed by the economic impacts it
will have. In addition, critical habitat will provide
no added benefit to the Cook Inlet belugas and
therefore, I enthusiastically endorse HJR40.
2:55:41 PM
BRUCE WEBB said he is the manager of land and regulatory affairs
for Aurora Gas, a small independent gas exploration and
production company in Cook Inlet. Aurora Gas supplies about six
percent of the gas to the Cook Inlet market. He recently
attended the North American Petroleum Expo in Houston, Texas,
where he was shocked to learn of the stigma that has happened
from this proposed critical habitat designation; for example,
some people at the expo thought drilling could no longer occur
in the Cook Inlet because of the beluga whale. He predicted
that if the habitat designation goes through it will open the
floodgates to frivolous litigation that will delay and possibly
cancel oil and gas exploration in the Cook Inlet. He therefore
supports HJR 40 because critical habitat designation would
negatively impact oil and gas exploration and development.
2:58:12 PM
STACY SCHUBERT, Intergovernmental Affairs Director, Mayor's
Office, Municipality of Anchorage, supported the proposed
committee substitute for HJR 40 on behalf of Mayor Dan Sullivan.
She said this is a significant issue to the Anchorage community
and its partners across the state. She testified from the
following written statement [original punctuation provided]:
The Municipality of Anchorage (MOA) is committed to
ensuring the long-term health and productivity of the
Cook Inlet and to the conservation of its beluga
population. Cook Inlet supports significant oil and
gas production, fishing, mining and a year-round
tourism industry to the benefit of all Alaskans. The
Port of Anchorage is the essential conduit through
which passes an astounding 85% of all goods entering
the state, and 26% of the tonnage of U.S.
international air freight moves through the city via
Ted Stevens Anchorage International Airport.
Anchorage's strategic location continues to be vitally
important to our nation's overall defense strategy.
We are an excellent staging point for an array of
military operations and equipment that is deployed -
and redeployed - through our Port in support of our
national strategic interests.
The proposed critical habitat designation adds nominal
value to the protection of the Cook Inlet beluga. It
is fundamentally vague, and because the Endangered
Species Act already applies, the MOA is addressing the
needs of the beluga responsibly, directly, and with
best available science. The projections of economic
costs associated with the proposed designation do not
pass the red face test; the potential for new
regulations, delayed development and increased costs
will most certainly total more than the $575,000 that
NMFS included along with its proposal.
MS. SCHUBERT stated that for the aforementioned reasons the
Municipality of Anchorage opposes the proposed critical habitat
designation. She urged expeditious passage of the resolution so
it can be included in the NMFS's public record.
3:00:32 PM
GRAHAM SMITH, Communications and Membership Director, Alaska
Support Industry Alliance, supported HJR 40 and urged it be
passed in time to meet the public record comment deadline. He
testified from the following written statement [original
punctuation provided]:
The Alliance is a trade organization representing
nearly 500 businesses, organizations and individuals
that provide goods and services to Alaska's oil, gas
and mining industries and more than 40,000 jobs for
Alaskan workers. Our livelihoods depend on a healthy
Alaska oil & gas industry and investment climate.
As a result of depressed business activity in Alaska's
oil patch, hundreds of Alaskan oil field workers and
professionals have been laid off in recent months.
New exploration and development efforts are necessary
to sustain Alaska's economy and the livelihoods of our
members. A critical habitat designation would have a
crippling impact on the already-struggling oil and gas
operations in Cook Inlet. It would risk billions of
dollars in future projects and could ultimately cost
Southcentral Alaska residents and companies hundreds
of millions of dollars to comply with new regulations
and standards.
As you have already heard, National Marine Fisheries
Service biologists have acknowledged the sole cause
for the population decline of Cook Inlet beluga whales
was the subsistence harvest that transpired in the
1990s.
Oil and gas operations in Cook Inlet have gone on for
decades without contributing to the population decline
or impeding the recovery of the Beluga whales, and we
believe that further exploration and development of
Cook Inlet resources can occur without adversely
affecting the Beluga population.
3:02:52 PM
CO-CHAIR NEUMAN closed public testimony after ascertaining no
one else was available to testify.
REPRESENTATIVE SEATON stated that he will be writing and
submitting personal testimony on this issue as he believes
designation of the full Cook Inlet is way too broad. He is not
opposed to designating critical habitat, but the current
proposal of the entire range of the animal is too much. He
offered his support for HJR 40.
REPRESENTATIVE TUCK related that for years he has heard the
beluga decline is directly tied to the king salmon runs, as was
stated by the Tyonek Native Association. Therefore it is hard
to say that industry, shipping, or drilling has had anything to
do with the decline.
3:04:03 PM
CO-CHAIR JOHNSON moved to report the proposed committee
substitute for HJR 40, labeled 26-LS1376\E, Kane, 2/4/10, out of
committee with individual recommendations and the accompanying
zero fiscal note. There being no objection, CSHJR 40(RES) was
reported from the House Resources Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 40 v.R.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| Changes to HJR 40.R.doc.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 Letter of Support MOA.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| CSHJR 40 v.E.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 - Sponsor Statement.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 zero Fiscal Note.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| CSHB 217.R amendment R.3.pdf |
HRES 2/24/2010 1:15:00 PM |
HB 217 |
| CSHB 217.R amendment R.4.pdf |
HRES 2/24/2010 1:15:00 PM |
HB 217 |
| HJR 40 Letter of Support Springer.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 Letter of Support TI.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 Letter of Support Webb.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 Info 2.12.10.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |
| HJR 40 N Star Ltr 2.23.10.pdf |
HRES 2/24/2010 1:15:00 PM |
HJR 40 |