Legislature(2009 - 2010)BARNES 124
04/13/2010 09:00 AM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 305 | TELECONFERENCED | |
| += | HB 246 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 13, 2010
9:18 a.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
COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 305(FIN)(TITLE AM)
"An Act providing that the tax rate applicable to the production
of oil as the average on oil and gas production for
appropriation to the community revenue sharing fund; production
tax value of oil, gas produced in the Cook Inlet sedimentary
basin, and gas relating to the allocation of lease expenditures
and adjustments to lease expenditures; produced outside of the
Cook Inlet sedimentary basin and used in the state increases and
providing for an effective date."
- MOVED HCS CSSB 305(RES) OUT OF COMMITTEE
HOUSE BILL NO. 246
"An Act relating to the licensing and regulation of sport
fishing operators and sport fishing guides and licensing and
registration of sport fishing vessels; and providing for an
effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 305
SHORT TITLE: SEPARATE OIL & GAS PROD. TAX/ DEDUCTIONS
SPONSOR(s): FINANCE
03/08/10 (S) READ THE FIRST TIME - REFERRALS
03/08/10 (S) FIN
03/09/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/09/10 (S) Heard & Held
03/09/10 (S) MINUTE(FIN)
03/10/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/10/10 (S) <Bill Hearing Canceled>
03/11/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/11/10 (S) -- MEETING CANCELED --
03/12/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/12/10 (S) Heard & Held
03/12/10 (S) MINUTE(FIN)
03/18/10 (S) FIN AT 3:00 PM SENATE FINANCE 532
03/18/10 (S) Heard & Held
03/18/10 (S) MINUTE(FIN)
03/29/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/29/10 (S) <Bill Hearing Postponed>
03/31/10 (S) FIN RPT CS 6DP 1AM NEW TITLE
03/31/10 (S) DP: HOFFMAN, STEDMAN, THOMAS, EGAN,
OLSON, ELLIS
03/31/10 (S) AM: HUGGINS
03/31/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/31/10 (S) Moved CSSB 305(FIN) Out of Committee
03/31/10 (S) MINUTE(FIN)
04/01/10 (S) TRANSMITTED TO (H)
04/01/10 (S) VERSION: CSSB 305(FIN)(TITLE AM)
04/05/10 (H) READ THE FIRST TIME - REFERRALS
04/05/10 (H) RES, FIN
04/07/10 (H) RES AT 1:00 PM BARNES 124
04/07/10 (H) Heard & Held
04/07/10 (H) MINUTE(RES)
04/09/10 (H) RES AT 1:00 PM BARNES 124
04/09/10 (H) Heard & Held
04/09/10 (H) MINUTE(RES)
04/10/10 (H) RES AT 10:00 AM BARNES 124
04/10/10 (H) Heard & Held
04/10/10 (H) MINUTE(RES)
04/11/10 (H) RES AT 12:00 AM BARNES 124
04/11/10 (H) Heard & Held
04/11/10 (H) MINUTE(RES)
04/12/10 (H) RES AT 1:00 PM BARNES 124
04/12/10 (H) Heard & Held
04/12/10 (H) MINUTE(RES)
04/13/10 (H) RES AT 9:00 AM BARNES 124
WITNESS REGISTER
MARCIA DAVIS, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: During hearing of SB 305, answered
questions.
PAT GALVIN, Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: During hearing on SB 305, answered
questions.
SENATOR JOE PASKVAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During hearing of SB 305, provided
comments.
ACTION NARRATIVE
9:18:19 AM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 9:18 a.m. Representatives Tuck,
Guttenberg, Edgmon, Kawasaki, Seaton, P. Wilson, Olson, Johnson,
and Neuman were present at the call to order.
SB 305-SEPARATE OIL & GAS PROD. TAX/ DEDUCTIONS
9:18:50 AM
CO-CHAIR NEUMAN announced that the only order of business is CS
FOR SENATE BILL NO. 305(FIN)(title am), "An Act providing that
the tax rate applicable to the production of oil as the average
production tax value of oil, gas produced in the Cook Inlet
sedimentary basin, and gas produced outside of the Cook Inlet
sedimentary basin and used in the state increases above $30
shall be 0.4 percent multiplied by the number that represents
the difference between that average monthly production tax value
and $30, or the sum of 25 percent and the product of 0.1 percent
multiplied by the number that represents the difference between
that average monthly production tax value and $92.50, except
that the total rate determined in the calculation may not exceed
50 percent; providing for an increase in the rate of tax on the
production of gas as the average production tax value on a BTU
equivalent barrel basis of gas produced outside of the Cook
Inlet sedimentary basin and not used in the state increases
above $30; relating to payments of the oil and gas production
tax; relating to availability of a portion of the money received
from the tax on oil and gas production for appropriation to the
community revenue sharing fund; relating to the allocation of
lease expenditures and adjustments to lease expenditures; and
providing for an effective date." [Before the committee is HCS
CSSB 305, Version 26-LS1577\M, Bullock, 4/10/10.]
9:19:18 AM
CO-CHAIR NEUMAN stated he would not be accepting any further
amendments to SB 305 beyond those that were submitted last
night.
9:19:56 AM
REPRESENTATIVE SEATON said he has two conceptual amendments with
his name on them that he discussed with Co-Chair Johnson
yesterday. He then opined that these amendments had been
properly offered.
9:20:55 AM
CO-CHAIR NEUMAN said those amendments were delivered at 10:30
p.m. last night and not to other members or the public. He
reminded the committee that he wasn't taking any further
amendments.
REPRESENTATIVE SEATON pointed out that per Mason's Manual and
the Uniform Rules, amendments can be offered by any committee
member at the time the committee is meeting on the relevant
legislation. He then related that his amendments were
conceptually discussed with both Co-Chair Johnson and Co-Chair
Neuman yesterday and they are now in the form appropriate to
offer before the committee.
9:22:04 AM
The committee took a brief at-ease.
9:22:55 AM
CO-CHAIR NEUMAN reminded members of the 24-hour rule for
receiving amendments prior to a meeting. Furthermore, he
characterized conceptual amendments as amendments that are
merely word smithing. However, he recalled that Representative
Seaton's conceptual amendments are substantial changes that
would eliminate the point of production (PoP) method and remove
the per barrel of oil equivalent (BOE) method.
REPRESENTATIVE SEATON offered his belief that Mason's Manual
would apply here and that he has the right to offer the
amendments, which aren't dilatory amendments. He agreed that
the amendments are as Co-Chair Neuman described them and are
significant policy amendments.
CO-CHAIR NEUMAN reiterated the committee's policies, which are
established and delivered to members at the beginning of the
year. He again reiterated that the 24-hour rule applies for
significant amendments, adding that the rule is in place to
allow adequate time for the co-chairs and committee members to
review the amendments. He emphasized that policy has been made
very clear.
REPRESENTATIVE SEATON stated that his amendments address whether
PoP or BOE should be used as the determining factor for
allocating cost. The aforementioned isn't a new concept rather
it's a clarification of Version M, specifically on the points
that have been discussed at every meeting on SB 305. He
reminded the committee that the bulk of the committee discussion
has been based on the BOE value, which places the state in a
detrimental position. The amendments take the presentation made
by Mr. Logsdon and select the criteria for PoP, which is
relevant to the discussions the committee has had.
9:29:26 AM
The committee took an at-ease from 9:29 a.m. to 9:48 a.m.
9:48:06 AM
CO-CHAIR NEUMAN, upon returning from conferring with
Representative Dahlstrom, Chair, House Rules Standing Committee,
informed the committee that Mason's Manual applies to the floor.
The rules put out by the House Resources Standing Committee
earlier in the year apply to that committee, and therefore
proposed amendments and committee substitutes need to be
delivered to Debra Higgins, Staff, Co-Chair Johnson, or to Co-
Chair Johnson or Co-Chair Neuman 24 hours prior to the scheduled
hearing. He reminded the committee that the aforementioned was
discussed at length and everyone seemed to accept the policy.
However, ultimately Co-Chair Neuman announced that he would
allow Representative Seaton to offer his amendments, but limit
discussion and comments.
9:49:51 AM
REPRESENTATIVE SEATON related his understanding that the co-
chair had requested two amendments/proposals from the
department, which he offered to allow to precede his amendments.
CO-CHAIR NEUMAN said that he didn't believe anyone besides
Representative Seaton was offering any amendments.
CO-CHAIR JOHNSON said that he didn't have any amendments.
9:50:18 AM
REPRESENTATIVE SEATON moved Conceptual Amendment 3, as follows
[original punctuation provided]:
The provisions in this bill that de-couple the
production tax treatment of oil and gas are limited to
the production tax treatment of oil and gas that are
produced north of 68 degrees North latitude. Those
changes would include Sections 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14, 15, 16, 17, 18, 19, 20, and 23.
CO-CHAIR JOHNSON objected.
9:51:07 AM
REPRESENTATIVE SEATON explained that Conceptual Amendment 3 is
meant to help implement the legislation. If the entire tax
calculation mode is changed such that it's decoupled throughout
the state, there would be significant administrative and tax
burden to the producers as well as to the administration and the
Department of Revenue. Since the [AS 43.90.320] provision only
applied to production taxes levied on North Slope gas shipped
through firm transportation capacity, Conceptual Amendment 3
would seek to ensure the industry the least harm and problems in
calculating their taxes. "We'll be sure that the amendment does
what it is intended to do, and that is talk about North Slope
gas at the start of open season," he remarked.
9:52:33 AM
CO-CHAIR NEUMAN pointed out that taxes are calculated monthly,
but deductions can still be taken. He indicated concern with
issues that could arise due to the different treatment of the
oil and gas depending upon whether it's north or south of 68
degrees North latitude.
9:54:34 AM
REPRESENTATIVE SEATON reminded the committee that the entire
purpose of SB 305 is the AGIA provisions, which specifically
apply only to North Slope gas. The definition of North Slope
gas is gas produced north of 68 degrees North latitude.
Representative Seaton related then that SB 305 would change the
way taxes are calculated across the state instead of targeting
the gas that is being discussed and reducing the impact on the
producers as well as the department. He explained that
[Conceptual Amendment 3] would eliminate the need to redo taxes
on about five of the seven buckets, discussed in the Logsdon &
Associates' presentation.
9:56:16 AM
REPRESENTATIVE P. WILSON requested that the Department of
Revenue staff be allowed to provide information that may help
committee members understand.
9:57:08 AM
MARCIA DAVIS, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, remarked that she has just seen
[Conceptual Amendment 3] and certainly the department could make
it work. She informed the committee that it does have a certain
mitigation aspect such that it limits the decoupling effects to
the area of concern, which is when the state enters a major gas
sail. Since the amendment is conceptual, much of it would be
dependent upon the details of it.
9:58:10 AM
CO-CHAIR NEUMAN inquired as to how Doyon would be impacted if it
was drilling in the Nenana area and struck large volumes of gas.
MS. DAVIS answered that if Conceptual Amendment 3 decouples
north only, then Doyon would have the benefit of having
expenditures associated with their production under the current
law. Therefore, Doyon would receive credits and since Doyon is
a small producer, it would have credits it could sell to other
producers until such time as they actually produce. Ms. Davis
opined then that Conceptual Amendment 3 wouldn't negatively
impact Doyon.
9:58:58 AM
CO-CHAIR NEUMAN inquired as to the situation with [gas in the]
Cook Inlet.
MS. DAVIS said that since the decoupling wouldn't impact those
in Cook Inlet, it wouldn't impede the flow of their expenditures
and etcetera. In further response to Co-Chair Neuman, Ms. Davis
said it would depend upon how decoupling is drafted for the
North Slope, which would then be reflected in regulations the
department would adopt. Ms. Davis thanked Representative P.
Wilson for the request of an explanation, but clarified "it
wouldn't be explaining this specific amendment, but the
underlying W Version and the underlying M Version."
9:59:55 AM
CO-CHAIR JOHNSON maintained his objection to Conceptual
Amendment 3 and then called the question.
10:00:34 AM
A roll call vote was taken. Representatives Seaton, Guttenberg,
Kawasaki, and Tuck voted in favor of the adoption of Conceptual
Amendment 3. Representatives P. Wilson, Olson, Neuman, and
Johnson voted against it. Therefore, Conceptual Amendment 3
failed to be adopted by a vote of 4-4.
10:01:38 AM
The committee took an at-ease from 10:02 a.m. to 10:04 a.m.
10:04:29 AM
REPRESENTATIVE TUCK moved Amendment 4, as follows [original
punctuation provided]:
version W.A: Page 12, lines 9-12; version M: Page
31, lines 19-22
Delete
"When determining a reasonable method of
allocating lease expenditures between the production
of oil and the production of gas, the department shall
consider allocating lease expenditures in proportion
to the BTU equivalent barrels of oil produced and gas
produced from each lease or property."
Insert
"When determining a reasonable method of
allocating lease expenditures between the production
of oil and the production of gas, the department shall
to the extent possible allocate lease expenditures in
proportion to the gross value at the point of
production for oil produced and gas produced from each
lease or property."
CO-CHAIR JOHNSON objected.
10:04:48 AM
REPRESENTATIVE TUCK related his understanding that the sponsor
is concerned that the state will be in a disadvantaged
bargaining position if the gas [tax] has to be changed later on,
which was one of the main reasons for decoupling. He then
directed attention to the chart on page 2 of the Logsdon &
Associates presentation dated April 9, 2010. The chart compares
the BOE method versus the PoP method, and the concern by the
sponsor is that there will be a total loss of revenue when oil
and gas are together. The concern from DOR is that it will be
unable to enter into negotiations for changes. Representative
Tuck acknowledged that although under the decoupling scenario
the state would collect more revenue for the state, the gas
proportion would be about one-third lower than if the BOE method
was utilized. He opined that whether to couple or decouple
comes down to the gas portion of the cost allocation.
Determining that on a PoP versus a BOE method places the state
more in the status quo environment than the gas cost allocation.
CO-CHAIR NEUMAN asked, "In what way?"
10:08:39 AM
REPRESENTATIVE TUCK, still referring to page 2 of the Logsdon &
Associates report dated April 9, 2010, highlighted that under
the BOE method, decoupling results in [tax revenue] in the
amount of 0.3 billion while the status quo results in [tax
revenue] in the amount of 1.2 billion. However, under the PoP
method, the gas cost allocation can be maintained at 0.8 billion
if the oil and gas are decoupled. The aforementioned provides a
bit more strength in bargaining.
10:09:30 AM
CO-CHAIR NEUMAN explained that the Btu equivalency was utilized
as a way in which to measure the value of gas. However, it
doesn't recognize that there are different gases. In fields
such as Prudhoe Bay that contain natural gas liquids, propanes,
butanes, and ethanes the Btu value is increased and thus the PoP
value changes. Therefore, if the Btu value is changed, the
value of the PoP has to be able to be adjusted because the value
of that gas is different. "So, if you take out that portion of
it, how do you measure that," he asked.
REPRESENTATIVE TUCK opined that the PoP would be a simpler and
easier way of determining that. Although the PoP wouldn't
determine the Btu value of one gas as compared to another gas,
it would be a measure of all production. Representative Tuck
related that he prefers the PoP method as it allows the state to
ensure it has the higher cost allocation for gas. Decoupling,
he opined, would protect the state's best interest.
10:11:05 AM
CO-CHAIR NEUMAN the problem with using the Btu equivalent is
that nobody would drill a field such as Gubik, which is just
methane, because the value of that Btu is lower. The actual
value of the product must be determined, otherwise how would
that product be taxed, he asked. He noted that the Btu value
changes depending upon the well, how much gas is coming out of
the well, and the types of gas coming out of the well. That Btu
value [of the gas] is then compared to oil at the point of
production.
REPRESENTATIVE TUCK reminded the committee that Logsdon &
Associates stated that there are many different ways to
determine the relationship between oil and gas. Representative
Tuck said that he didn't have an answer to Co-Chair Neuman, but
would like to hear the response from DOR.
10:13:35 AM
CO-CHAIR NEUMAN inquired as to how the actual value of gas is
determined if Btu values are separated from PoP.
10:13:56 AM
PAT GALVIN, Commissioner, Department of Revenue (DOR), said his
understanding of the amendment is that it has nothing to do with
establishing the value for the purposes of taxation other than
in the allocation of costs between oil and gas in order to
derive a production tax value. The ability to use a volume
based measurement results in the use of a Btu value in order to
properly use a volume of hotter gas, the actual heat value, to
establish the volume equivalent. The proportion of that is used
to divide costs and establish the profit or, as the amendment
suggests, the value of the two streams is reviewed. Therefore,
the PoP value of the oil and the PoP value of the gas are
reviewed [to determine] the proportion of each. The total costs
are then divided based upon the proportion. Commissioner Galvin
said that either way is legitimate and will arrive at a
production tax value from which the tax is derived. As pointed
out by Representative Tuck, the PoP allocation will result in a
higher gas production tax that's locked as well as a lower
overall tax because the oil's profitability will be reduced
since more costs will move to the oil. This will be the case
when using PoP versus BOE or heat value.
10:16:07 AM
CO-CHAIR NEUMAN inquired as to what the department currently
uses to derive the value of gas.
COMMISSIONER GALVIN answered that currently regulations include
both systems. In further response to Co-Chair Neuman,
Commissioner Galvin explained that for the context in which it
was needed, DOR chose the allocation that best met the
particular purpose. "So, you need to choose one for this
particular purpose," he said.
10:17:11 AM
REPRESENTATIVE SEATON noted his agreement with Co-Chair Neuman
on the value basis. However, he wanted to ensure that PoP is a
value and isn't a heat content. He expressed the need to
calculate what people will pay for the gas whether it's wet or
dry gas so that the PoP is the actual value associated with the
gas and is for what it will sell.
COMMISSIONER GALVIN replied yes, adding that to determine the
PoP value a conversion of heat value isn't used to convert that
to volumes rather it's the value they sold for in the market.
10:18:19 AM
CO-CHAIR NEUMAN inquired as to how the value of the gas is
measured if the Btu isn't used.
COMMISSIONER GALVIN responded that it's measured by total sales
of the entire stream less transportation costs, which is how
it's [calculated now]. He further responded that the PoP is how
the attributed gas tax is determined under the status quo. The
only time BOE is used is to separate the oil from the gas within
a particular field of Cook Inlet in order to compare it to
Alaska's Clear and Equitable Share (ACES) for purposes of the
"lower of."
10:19:07 AM
REPRESENTATIVE P. WILSON ascertained that Conceptual Amendment 4
seems to do the same thing as Representative Seaton's amendment
[that he has yet to offer]. However, it appears Conceptual
Amendment 4 may provide more flexibility to DOR over
Representative Seaton's pending amendment.
MS. DAVIS surmised that the debate here is how to get at value
better and Co-Chair Neuman has been asking how such can be
accomplished without considering the Btu, which is how the
market tends to evaluate the value. Conceptual Amendment 4 gets
at the heart of value because going to the gross value at the
PoP is the closest measure of how the market values the product.
Ms. Davis explained that the sales proceeds minus the
transportation costs results in the gross value at the PoP,
which is the best indicator of the value of the product.
Conceptual Amendment 4 proposes to allocate expenditures and
costs [based on the notion that] the producers will spend money
because of how much money they will receive for that oil and
gas. The best indicator of what they will receive for that oil
and gas is what people paid for it. The gross value at the PoP
provides that benchmark, and thus is being used as the measure
for allocating the lease expenditures.
10:22:57 AM
CO-CHAIR NEUMAN inquired as to what the value is.
MS. DAVIS confirmed that one of the values is Btu, but pointed
out that there are other values. Still, the best measure of
value is what someone will pay for the product.
CO-CHAIR NEUMAN then inquired as to how this measure would
impact propane shipments since [propane] is a higher value Btu.
MS. DAVIS answered that it's captured because the marketplace
values that stream and if there's good propane they will pay a
price, which will be apparent in the gross proceeds.
CO-CHAIR NEUMAN interjected, "Takes the stream out of the gas."
MS. DAVIS indicated that to be the case, adding that the price
will be evident for the product that continues downstream and
thus the value of it will be known as well.
CO-CHAIR NEUMAN pointed out that by taking out the propane, the
Btus are lowered and the value of the gas that is shipped is
also lower. He suggested that perhaps it could make it more
difficult to have a successful open season because [the
producers] are counting on those Btus to amortize their cost.
MS. DAVIS specified that for this purpose she would consider
what the marketplace paid for that volume of gas and the sales
prices [from the various products in the stream] could be added.
10:24:39 AM
REPRESENTATIVE TUCK opined that the May 1st date isn't
necessarily the issue. The goal at this point, in the first
open season, is to define the portion of combined tax that's
derived from gas. He reminded the committee of an earlier DOR
presentation that illustrates whether the BOE or PoP method is
used the [gas cost allocation] is equivalent in a status quo
environment. However, if the oil and gas is decoupled, there is
a significant difference in the gas cost allocation. To
preserve the sponsor's intent for the state to avoid losing
revenue, [Conceptual Amendment 4] puts the state in a better
position as it only determines the gas cost allocation and then
moves forward. Representative Tuck then asked if [Conceptual
Amendment 4] is a simple method of determining the gas cost
allocation.
COMMISSIONER GALVIN replied yes. Furthermore, Conceptual
Amendment 4 provides good direction to DOR without mandating
[the use of the allocating lease expenditures in proportion to
the gross value at the point of production]. He characterized
Conceptual Amendment 4 as a good balance.
CO-CHAIR NEUMAN interjected that use of the term "shall" [in
Conceptual Amendment 4] makes the difference.
COMMISSIONER GALVIN pointed out that Conceptual Amendment 4
inserts language in Section 21 of Version M, which would also
need to be inserted in Section 22 on page 32, lines 1-6.
Section 21 addresses cost allocation and Section 2 addresses
adjustments to cost allocation. In response to Co-Chair Neuman,
Commissioner Galvin said that although today is the first time
he has seen Conceptual Amendment 4, he is familiar with this
type of amendment because the committee has discussed it over
the last week.
10:28:50 AM
REPRESENTATIVE TUCK agreed that the committee talked about this
all last week and was the purpose of Co-Chair Johnson's request
of DOR to present the one bucket and two buck worlds under the
BOE and PoP methods. He reiterated that if the status quo
continues, it doesn't matter. However, if the state decides to
decouple, it will change the gas cost allocation for the state.
Representative Tuck said if the state does decouple, he would
prefer using the PoP method because it would bring the state
more status quo.
10:29:43 AM
CO-CHAIR NEUMAN inquired as to how much gas is produced on the
North Slope.
COMMISSIONER GALVIN answered that on the North Slope little gas
is produced for the purpose of sale in comparison to the total
volume brought out from the ground and sent back down.
CO-CHAIR NEUMAN posed a scenario in which the language being
inserted by Conceptual Amendment 4 didn't include the term
"shall". He then asked how such a situation would impact [AS
43.90.320].
COMMISSIONER GALVIN responded that such a change would result in
a significant difference in the way cost allocation would take
place when gas is produced for sale. The aforementioned would
then result in a significantly different tax burden on the
taxpayer. In further response, Commissioner Galvin said, "If
there is no expectation of what the department's regulations may
use for cost allocation, the potential tax burden would vary
significantly depending upon what the department chooses to
use." The existing language [using "shall"] in Conceptual
Amendment 4 tells the department the legislature wants a
particular cost allocation method to be used in order that the
window of potential deviation by the regulations will be
narrower than if left undirected.
CO-CHAIR NEUMAN clarified that his point is that one word could
have a significant impact and difference.
COMMISSIONER GALVIN emphasized that the effect of this law is
that it has significant impacts on the state's revenue and
should be considered very carefully. In further response to Co-
Chair Neuman, Commissioner Galvin highlighted that [SB 305]
locks in [the tax] for potentially 10 years not 2 days.
Commissioner Galvin characterized it as "a two-day gimmick to
lock something in for 10 years."
10:32:27 AM
REPRESENTATIVE TUCK pointed out that Conceptual Amendment 4
replaces "shall consider allocating lease expenditures in
proportion to the BTU equivalent barrels of oil" with the
language "shall to the extent possible allocate lease
expenditures in proportion to the gross value at the point of
production". Therefore, the "shall" already exists in the
legislation and Conceptual Amendment 4 merely changes it from
the BTU equivalent BOE to PoP.
CO-CHAIR NEUMAN said that months were spent to develop the
system proposed in SB 305, which was deemed the most fair for
the state. To change that with an amendment is inappropriate,
he opined.
COMMISSIONER GALVIN clarified that there is no previous
statutory direction for a cost allocation. The legislature
hasn't addressed the issue previously because it's not a
necessary part of a combined tax system. In further response to
Co-Chair Neuman, Commissioner Galvin explained that the Btu
equivalent per barrel was developed for a completely different
purpose than cost allocation. The Btu equivalent per barrel
related to a methodology for how to compare gas streams to oil
streams for the purposes of determining the tax value, which is
a different purpose than what's described [in SB 305].
10:33:50 AM
REPRESENTATIVE TUCK surmised that the state would be in a better
position now even if decoupling never occurs than it would were
the petroleum production profits tax (PPT) program still in
effect. The goal is to protect the interests of Alaskans, which
he opined is accomplished with the status quo. Therefore,
Conceptual Amendment 4 attempts to maintain the status quo as
much as possible while decoupling.
10:35:15 AM
REPRESENTATIVE TUCK specified his question as follows:
In comparing to the PPT that was before ACES, if we
keep everything the status quo, isn't the State of
Alaska still collecting more revenues than we would've
been under PPT? Are we safe, we're not losing the
revenues that's been so feared in decoupling. I mean
we are going to be losing some revenues, but it would
never be as much revenues as we would've lost if we
would've continued with PPT.
COMMISSIONER GALVIN answered yes. As a result of Representative
Tuck's question the other day, DOR did run an analysis and found
that in the various price relationships between oil and gas the
status quo brings in significantly more revenue than under the
PPT. The analysis further found that in many instances,
particularly when the parity relationship is wide, the increase
from PPT to ACES is much smaller than the increase from status
quo to decoupled. However, if the PPT was decoupled, whether
based on BOE or PoP, the result is a situation similar to the
status quo. Therefore, Representative Tuck is correct that even
with the proposed cost allocation, compared to PPT the status
quo remains the same without going to the decoupled cost
allocation world.
10:37:21 AM
REPRESENTATIVE TUCK requested that Senator Paskvan be allowed to
speak to Conceptual Amendment 4.
10:37:55 AM
The committee took a brief at-ease.
10:38:57 AM
SENATOR JOE PASKVAN, Alaska State Legislature, related that he
is intrigued by Representative Tuck's comment on the potential
of a win-win situation. He then related that he has no problem
with moving SB 305 with decoupling with the PoP method. The
aforementioned accommodates the interests of protecting the
state. He concluded by stating he has no objection to
[Conceptual Amendment 4].
10:40:05 AM
CO-CHAIR JOHNSON called the question and then removed his
objection.
CO-CHAIR NEUMAN then objected.
10:40:28 AM
A roll call vote was taken. Representatives Guttenberg,
Kawasaki, Tuck, P. Wilson, and Seaton voted in favor of
Conceptual Amendment 4. Representatives Olson, Neuman, and
Johnson voted against it. Therefore, Conceptual Amendment 4 was
adopted by a vote of 5-3.
10:41:29 AM
REPRESENTATIVE SEATON asked if the charts/slides that were
referenced earlier had been introduced to the committee.
CO-CHAIR NEUMAN related his belief that they were provided to
committee members, although they have not been introduced to the
committee.
CO-CHAIR JOHNSON recalled that the charts were from the
presentation that Commissioner Galvin isn't making, and
therefore members could discuss them with him after the meeting.
He, too, related that the charts/slides haven't been introduced
to the committee or used in the committee.
10:42:49 AM
REPRESENTATIVE GUTTENBERG surmised that the charts/slides mostly
deal with PoP versus BOE. He then asked if the issue was taken
care of with Conceptual Amendment 4.
COMMISSIONER GALVIN answered that to the extent that DOR would
perform an economic analysis on SB 305, with the passage of
Conceptual Amendment 4 the department would use the PoP cost
methodology to run the economics. In further response to
Representative Guttenberg, Commissioner Galvin confirmed that
Conceptual Amendment 4 provides the department direction in
terms of whether to use the BOE or PoP methodology.
10:44:09 AM
CO-CHAIR NEUMAN, upon ascertaining no one wished to testify,
closed public testimony.
10:44:38 AM
REPRESENTATIVE TUCK echoed earlier statements that this really
isn't a May 1st issue. The legislature has the ability to
decouple at any time and there's no urgency to decouple now.
Furthermore, DOR's draft regulations define the portion of
combined tax that comes from gas. Any decoupling that occurs
after the open season is locked in due to [AS 43.90.320] and has
no affect on what the state can bring in for oil.
Representative Tuck offered that he likes having oil and gas
coupled together because it offers an incentive for a gasline.
While the state would potentially receive less revenue if the
state didn't decoupled, the gas producers would be able to take
the lowest gas cost allocation method under [AS 43.90.320], this
merely establishes a ceiling for what the producers will have to
pay for a gasline. Furthermore, the legislation only gives a
tax break if gas prices are extremely low and there is a large
parity. If there's a situation in which gas prices are so low
that a pipeline isn't necessary, then this discussion isn't
necessary. [The legislation] is for determining the gas cost
allocation at the point of first open season and only that. In
summary, Representative Tuck related that he supports having
incentives in place that allow the producers to move their gas
down a gasline.
10:47:15 AM
CO-CHAIR NEUMAN surmised then that Representative Tuck will
support the governor's legislation. He then opined, "It's
because a person's gas production tax obligation, the tax
obligation calculated under the gas production tax that's in
effect on the day that [open season] starts, that's where it's
at." The value was artificially inflated up because of the
calculations of oil and the price of oil. Those calculations
weren't accurate, he opined. Co-Chair Neuman noted his
agreement that the legislature should ensure the state's
interests are secure. He also noted his agreement that the
state has the ability to go back and re-negotiate and that the
state should ensure industry has an environment in which it can
thrive. In conclusion, Co-Chair Neuman related his support for
this legislation.
10:48:57 AM
CO-CHAIR JOHNSON moved to report HCS CSSB 305, Version 26-
LS1577\M, Bullock, 4/10/10, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
REPRESENTATIVE GUTTENBERG objected.
10:49:21 AM
REPRESENTATIVE GUTTENBERG related his belief that SB 305 is
neither necessary nor ready to be moved. He expressed concern
that the next committee of referral, the House Finance
Committee, doesn't have time to address SB 305.
10:51:01 AM
REPRESENTATIVE OLSON recalled that one of the co-chairs of the
House Finance Committee said that if he received SB 305 today he
would have time to properly vet the legislation. Therefore, he
opined that it's imperative to forward the legislation today if
it's the will of the committee.
CO-CHAIR JOHNSON said he believes the groundwork has been laid
for the House Finance Committee and it's important to forward
this time sensitive legislation.
REPRESENTATIVE P. WILSON noted that she has reservations in
terms of some of the provisions in SB 305. However, Conceptual
Amendment 4 will result in less loss to the state, which she
partially attributed to the fact that oil is still king in
Alaska and the state needs more oil [exploration]. Although
this legislation isn't perfect, it's time to forward the
legislation.
10:53:23 AM
CO-CHAIR JOHNSON called the question.
10:53:30 AM
A roll call vote was taken. Representatives Kawasaki, P.
Wilson, Olson, Seaton, Edgmon, Neuman, and Johnson voted in
favor of reporting HCS CSSB 305, Version 26-LS1577\M, Bullock,
4/10/10, as amended, out of committee. Representatives
Guttenberg and Tuck voted against it. Therefore, HCS CSSB
305(RES) was reported out of the House Resources Standing
Committee by a vote of 7-2.
10:54:23 AM
CO-CHAIR NEUMAN recessed to a call of the chair.
1:16:27 PM
CO-CHAIR NEUMAN reconvened the House Resources Standing
Committee.
1:16:29 PM
CO-CHAIR JOHNSON moved that the committee adjourn. There being
no objection, it was so ordered.
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 1:16 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 246 Packet.pdf |
HRES 4/13/2010 9:00:00 AM |
HB 246 |
| SB 305 amend Tuck 4.13.10.pdf |
HRES 4/13/2010 9:00:00 AM |
SB 305 |
| SB 305 PoP minus BOE v2.pdf |
HRES 4/13/2010 9:00:00 AM |
SB 305 |
| SB 305 4.13.10 Response to Rep Tuck_V4 [Read-Only].pdf |
HRES 4/13/2010 9:00:00 AM |
SB 305 |
| SB 305 Explanation to Amendments.pdf |
HRES 4/13/2010 9:00:00 AM |
SB 305 |