Legislature(2011 - 2012)BARNES 124

02/29/2012 01:00 PM RESOURCES

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-- Meeting Delayed to 2:00 p.m. Today --
Heard & Held
Moved CSHJR 32(RES) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 29, 2012                                                                                        
                           2:03 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Eric Feige, Co-Chair                                                                                             
Representative Paul Seaton, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Alan Dick                                                                                                        
Representative Neal Foster                                                                                                      
Representative Bob Herron                                                                                                       
Representative Cathy Engstrom Munoz                                                                                             
Representative Berta Gardner                                                                                                    
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE JOINT RESOLUTION NO. 32                                                                                                   
Urging the United States Congress to remove wood bison from                                                                     
protection under the Endangered Species Act of 1973 and to grant                                                                
control of wood bison in Alaska to the state.                                                                                   
     - MOVED CSHJR 32(RES) OUT OF COMMITTEE                                                                                     
HOUSE BILL NO. 328                                                                                                              
"An  Act  relating to  the  oil  and  gas corporate  income  tax;                                                               
relating to the credits against  the oil and gas corporate income                                                               
tax;  making   conforming  amendments;   and  providing   for  an                                                               
effective date."                                                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HJR 32                                                                                                                  
SHORT TITLE: REMOVE WOOD BISON FROM ENDANGERED LIST                                                                             
SPONSOR(s): REPRESENTATIVE(s) DICK                                                                                              
02/01/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/01/12       (H)       RES                                                                                                    
02/29/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
BILL: HB 328                                                                                                                  
SHORT TITLE: OIL AND GAS CORPORATE TAXES                                                                                        
SPONSOR(s): REPRESENTATIVE(s) SEATON                                                                                            
02/17/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/17/12       (H)       RES, FIN                                                                                               
02/29/12       (H)       RES AT 1:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
PAUL VERHAGEN, Staff                                                                                                            
Representative Alan Dick                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HJR 32 on behalf of the prime                                                                  
sponsor, Representative Dick.                                                                                                   
MIKE MILLER, Executive Director                                                                                                 
Alaska Wildlife Conservation Center                                                                                             
Portage Glacier, Alaska                                                                                                         
POSITION STATEMENT:  Testified in regard to HJR 32.                                                                           
DOUG VINCENT-LANG, Acting Director                                                                                              
Division of Wildlife Conservation                                                                                               
Alaska Department of Fish & Game (ADF&G)                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions related to HJR 32.                                                                    
ROBYNN WILSON, Corporate Income Tax Manager                                                                                     
Anchorage Office                                                                                                                
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions related to HB 328.                                                                    
DEBORAH VOGT                                                                                                                    
Haines, Alaska                                                                                                                  
POSITION STATEMENT:  During the hearing on HB 328, provided a                                                                 
history on Alaska's oil and gas industry taxing methods.                                                                        
ACTION NARRATIVE                                                                                                              
2:03:06 PM                                                                                                                    
CO-CHAIR  ERIC   FEIGE  called   the  House   Resources  Standing                                                             
Committee meeting to order at  2:03 p.m.  Representatives Herron,                                                               
Dick, Gardner, P.  Wilson, Seaton, and Feige were  present at the                                                               
call  to  order.   Representatives  Kawasaki,  Munoz, and  Foster                                                               
arrived as the meeting was in progress.                                                                                         
         HJR 32-REMOVE WOOD BISON FROM ENDANGERED LIST                                                                      
2:03:41 PM                                                                                                                    
CO-CHAIR FEIGE announced  that the first order  of business would                                                               
be  HOUSE  JOINT RESOLUTION  NO.  32,  Urging the  United  States                                                               
Congress  to   remove  wood  bison  from   protection  under  the                                                               
Endangered  Species Act  of 1973  and  to grant  control of  wood                                                               
bison in Alaska to the state.                                                                                                   
2:04:38 PM                                                                                                                    
REPRESENTATIVE DICK,  prime sponsor  of HJR 32,  reminded members                                                               
that last year  the committee heard HB 186, but  that HJR 32 will                                                               
be the  ultimate answer for  both the  state and the  wood bison.                                                               
The  people who  will  benefit the  most are  the  people of  the                                                               
Yukon.   Many  groups and  individuals within  the state  and the                                                               
nation are concerned about the bison.   His concern all along has                                                               
not been  with the Alaska Department  of Fish & Game  or the U.S.                                                               
Fish and Wildlife Service, but  with special interest groups that                                                               
could potentially file suit in  federal court.  He drew attention                                                               
to  the  [e-mail]  of  support  from  Deputy  Commissioner  Craig                                                               
Fleener of the Alaska Department of Fish & Game.                                                                                
2:06:06 PM                                                                                                                    
PAUL  VERHAGEN, Staff,  Representative  Alan  Dick, Alaska  State                                                               
Legislature, presented  HJR 32 on behalf  of Representative Dick,                                                               
prime sponsor.   He said  last year Representative Dick  filed HB
186 in an effort to prevent  the Alaska Department of Fish & Game                                                               
(ADF&G)  from reintroducing  wood  bison into  the state  without                                                               
approval  by the  legislature.   However, between  then and  now,                                                               
things have  happened with regard  to the Endangered  Species Act                                                               
(ESA).   Several  states have  spent  years working  to get  gray                                                               
wolves removed from  the list [of endangered species]  - with one                                                               
court  ruling in  their favor  and then  the next  ruling against                                                               
them.  These states eventually  they took their case to Congress.                                                               
Congress intervened, exempting the  gray wolf from the Endangered                                                               
Species Act; further,  Congress made its decision  not subject to                                                               
review by the courts.   From Representative Dick's perspective, a                                                               
similar action  by Congress would remove  problems with releasing                                                               
the wood bison  into the wild without the  restrictions that come                                                               
along  with   the  Endangered  Species   Act,  and   would  allow                                                               
management of the wood bison by ADF&G.                                                                                          
2:07:18 PM                                                                                                                    
MR.  VERHAGEN said  HJR 32  urges  Congress to  intervene on  the                                                               
state's behalf by exempting wood bison  from the ESA.  He related                                                               
that  in a  recent letter  to Representative  Dick, the  regional                                                               
director  of  the  U.S.  Fish   and  Wildlife  Service,  Geoffrey                                                               
Haskett, takes issue with some of  the statements made in HJR 32.                                                               
However,  Representative Dick  does  not question  that the  U.S.                                                               
Fish and Wildlife  Service has spent years working  with ADF&G in                                                               
an effort to  reintroduce wood bison.  He does  not question that                                                               
the  service wants  the  project  to move  forward,  nor does  he                                                               
question the service's diligence  in ensuring that the agreements                                                               
reached  between  the service  and  ADF&G  comply with  the  most                                                               
current interpretation  of the Endangered  Species Act.   Rather,                                                               
Representative Dick sympathizes  with the service as  it tries to                                                               
keep  up with  the various  rulings and  is constantly  chasing a                                                               
moving target  - and that  is the point that  Representative Dick                                                               
is making.   While  the Endangered Species  Act was  created with                                                               
the best  of intentions  by people with  sincere concern  for the                                                               
environment, the  contradictory rulings  have bogged  things down                                                               
to the  point that it  appears the  biggest obstacle to  the wood                                                               
bison's success in Alaska is the  act itself.  If wood bison were                                                               
to  be treated  the  same  as the  plains  bison,  they would  be                                                               
wandering the  landscape and  Alaska would  not have  worry about                                                               
locked up  resources.  Although  passage of this  resolution will                                                               
not  change anything  itself, it  will serve  to remind  Congress                                                               
again that  in more than  a few instances the  Endangered Species                                                               
Act itself  has become its own  worst enemy.  It  may also prompt                                                               
Congress to step in and resolve  Alaska's wood bison problem.  If                                                               
Congress  were to  also exempt  all bison,  including the  plains                                                               
bison, then Alaska would not  need to worry about recent lawsuits                                                               
that  have  been   filed  to  include  plains   bison  under  the                                                               
protection of the act.                                                                                                          
2:10:11 PM                                                                                                                    
CO-CHAIR SEATON moved to adopt  the proposed committee substitute                                                               
(CS),  version  27-LS1234\E,  Bullard, 2/24/12,  as  the  working                                                               
document.   There being  no objection, Version  E was  before the                                                               
REPRESENTATIVE  P. WILSON  inquired how  much it  is costing  per                                                               
year to keep  the wood bison at the  Wildlife Conservation Center                                                               
while  the state  waits for  the  federal government  to get  its                                                               
regulations in order.                                                                                                           
MR. VERHAGEN understood the cost is  $100,000 per year.  The U.S.                                                               
Fish  and Wildlife  Service recently  granted the  state $200,000                                                               
for the bison's care.                                                                                                           
REPRESENTATIVE  DICK  added  that  ADF&G and  the  Department  of                                                               
Natural Resources  (DNR) are  working together  to get  the bison                                                               
out on  the landscape  and are  looking for  an island  where the                                                               
wood bison  could be  temporarily released  until they  are taken                                                               
off the endangered species list.                                                                                                
The committee took a brief at-ease.                                                                                             
2:13:04 PM                                                                                                                    
REPRESENTATIVE GARDNER asked whether some  of the changes made in                                                               
Version E were in response to  the letter from Mr. Haskett of the                                                               
U.S. Fish and Wildlife Service.                                                                                                 
MR. VERHAGEN replied the changes  that were made preceded receipt                                                               
of Mr. Haskett's  letter, although some of the  changes made were                                                               
suggested in that letter.                                                                                                       
2:13:37 PM                                                                                                                    
REPRESENTATIVE KAWASAKI inquired about  the current status of the                                                               
"10(j)  rule" that  would designate  wood  bison in  Alaska as  a                                                               
nonessential  experimental population.    He  commented that  the                                                               
rule seems like it would be a  way out, but has been talked about                                                               
for several years.                                                                                                              
REPRESENTATIVE DICK responded the  10(j) exemption is still being                                                               
applied for, but  the real question is the  "4(d)" exemption that                                                               
speaks to  whether the animals  can actually be hunted  once they                                                               
are  reintroduced.   The State  of Alaska  has said  it will  not                                                               
reintroduce the  animals if they  cannot be hunted at  some point                                                               
in the  future, so it  is really the  4(d) exemption that  is the                                                               
stalemate between ADF&G and the U.S. Fish and Wildlife Service.                                                                 
REPRESENTATIVE KAWASAKI asked where the  state and service are in                                                               
their current negotiations for the hunting of the wood bison.                                                                   
MR.  VERHAGEN understood  ADF&G  has received  approval from  the                                                               
U.S. Fish  and Wildlife Service  director on the  hunting aspect,                                                               
but said work on the 10(j) portion is still ongoing.                                                                            
2:15:21 PM                                                                                                                    
REPRESENTATIVE GARDNER  inquired whether  there are  any examples                                                               
of an endangered species being removed from the list by region.                                                                 
MR. VERHAGEN answered  that that is the only thing  that has ever                                                               
happened.   Congress removed the gray  wolf in the area  of Idaho                                                               
and Montana.   He  said he  did not know  if other  examples have                                                               
occurred since then.                                                                                                            
REPRESENTATIVE  GARDNER asked  whether the  possibility has  been                                                               
explored of removing  the wood bison from  the endangered species                                                               
list in Alaska only.                                                                                                            
REPRESENTATIVE DICK  replied that  since the  only wood  bison in                                                               
the U.S. are in Alaska that thought did not cross his mind.                                                                     
2:16:43 PM                                                                                                                    
MIKE  MILLER, Executive  Director,  Alaska Wildlife  Conservation                                                               
Center, offered his  appreciation for the work  toward some "can-                                                               
do  options."   Regarding removal  of  the wood  bison through  a                                                               
congressional  act, he  said  Eddie Grasser  is  working on  that                                                               
right now.   Three weeks  ago Mr.  Grasser met with  U.S. Senator                                                               
Lisa  Murkowski and  Congressman Don  Young to  discuss attaching                                                               
something  to  the U.S.  budget.    There  is optimism  for  this                                                               
happening and it would be  the best thing for everybody concerned                                                               
with the wood  bison.  He suggested that  questions regarding the                                                               
10(j) rule be directed to Doug  Vincent-Lang.  Both ADF&G and the                                                               
U.S.  Fish  and Wildlife  Service  are  trying  to come  up  with                                                               
agreeable language,  but it  would be good  to proceed  with both                                                               
the 10(j)  rule and the  complete congressional delisting  at the                                                               
same time.                                                                                                                      
2:18:19 PM                                                                                                                    
MR.  MILLER, in  regard to  caring for  the wood  bison, said  he                                                               
manages the 102 animals for the  State of Alaska.  The expense is                                                               
not  all  that monumental  -  Carlisle  Transportation hauls  the                                                               
1,000 bales  of hay  from the University  of Alaska  Fairbanks in                                                               
Palmer to  the center  and the U.S.  Forest Service  has provided                                                               
land for the bison  under a 15 year lease.   This leased area can                                                               
be  expanded  as  there  will  be 40  calves  this  spring.    He                                                               
encouraged  everyone to  continue a  can-do attitude,  explaining                                                               
that because  the wood  bison is on  the endangered  species list                                                               
these animals cannot go back  to Canada and cannot be slaughtered                                                               
or  sold.   Therefore, finding  a  good end  result is  necessary                                                               
because  these  are  living breathing  things  that  will  likely                                                               
outlive  the people  involved.    He noted  that  Canada now  has                                                               
6,000-8,000  wood bison  and has  reduced its  status to  that of                                                               
threatened.   Resource development in Canada  has been compatible                                                               
with  the  bison.    Finding  some  sort  of  a  resolution  this                                                               
legislative  session would  be a  great  thing for  the state  of                                                               
Alaska, not only  for the hunting and  tourism opportunities, but                                                               
also for the return of an extinct animal to the landscape.                                                                      
2:20:41 PM                                                                                                                    
REPRESENTATIVE P.  WILSON inquired what  the normal life  span is                                                               
for a wood bison.                                                                                                               
MR. MILLER responded  that in the wild, because  of hardships, 16                                                               
years would  be an old bison.   However, in captivity  wood bison                                                               
can live  up to  60 years and  can calve into  their 40s,  with a                                                               
calf every year instead  of every other year as in  the wild.  He                                                               
said  putting the  wood bison  on an  island would  be abandoning                                                               
them,  the problem  would not  go away,  and it  would only  be a                                                               
short-term  thing.   He said  he would  like to  discourage doing                                                               
that  because  he can  find  foundations  that will  provide  the                                                               
$100,000 in cost so that there is no expense to the state.                                                                      
REPRESENTATIVE DICK commented that ADF&G  has been unable to find                                                               
an island that  does not already have cattle, except  one that is                                                               
way out  in the Aleutians  and the  cost estimate for  moving the                                                               
bison out there  was $800,000, which would be  incurred again for                                                               
moving the bison back.                                                                                                          
2:22:50 PM                                                                                                                    
CO-CHAIR  FEIGE   closed  public   testimony  on  HJR   32  after                                                               
ascertaining that no one else wished  to testify.  He invited any                                                               
CO-CHAIR  SEATON  moved to  adopt  Conceptual  Amendment 1  which                                                               
would remove the second whereas clause from page 1, lines 8-10.                                                                 
CO-CHAIR FEIGE objected for purposes of discussion.                                                                             
CO-CHAIR SEATON noted that the  third paragraph of the [U.S. Fish                                                               
and Wildlife  Service] letter disagrees  with the  statement made                                                               
in lines  8-10 of  the resolution.   He did  not think  that this                                                               
whereas clause  is necessary at  all for accomplishing  the goals                                                               
of  the  resolution,  so  he  is  offering  this  as  a  friendly                                                               
REPRESENTATIVE DICK said he has no problem with the amendment.                                                                  
CO-CHAIR FEIGE removed his objection.                                                                                           
2:24:28 PM                                                                                                                    
REPRESENTATIVE P. WILSON directed  attention to page 2, paragraph                                                               
2, of the  U.S. Fish and Wildlife Service  letter which addresses                                                               
the claim  in HJR 32  that releasing  wood bison in  Alaska would                                                               
subject their  habitat to restrictive provisions.   The paragraph                                                               
also states that these "exaggerated  statements about the ESA are                                                               
creating a  negative and fearful  environment that makes  it more                                                               
difficult to achieve  common ground."  She pointed  out that this                                                               
claim occurs in the resolution on  page 2, lines 22-25, and asked                                                               
whether these lines should be deleted.                                                                                          
CO-CHAIR FEIGE commented  that it depends on a  person's point of                                                               
view on the Endangered Species Act.                                                                                             
REPRESENTATIVE KAWASAKI requested a response from ADF&G.                                                                        
2:25:50 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  reiterated   her  question  for  Doug                                                               
Vincent-Lang of ADF&G.                                                                                                          
DOUG   VINCENT-LANG,  Acting   Director,  Division   of  Wildlife                                                               
Conservation, Alaska Department of Fish  & Game (ADF&G), began by                                                               
providing  some  background  on   wood  bison  from  the  state's                                                               
perspective.   He said the  state is  working with the  U.S. Fish                                                               
and Wildlife  Service on  the 10(j)  rule and  a rule  that would                                                               
designate these  animals as nonessential experimental.   He added                                                               
that he  thinks the  agencies are fairly  close to  reaching some                                                               
type of  agreement that those  rules provide  sufficient language                                                               
to  assure   that  those  animals  are   not  affecting  resource                                                               
development across the  state.  However, on  the broader national                                                               
scale there is  concern about the certainty of  those rules being                                                               
able  to withstand  legal scrutiny,  especially if  challenges to                                                               
those rules are  filed in courts outside of Alaska,  in which are                                                               
ultimately defended  by the  U.S. Department  of Justice  and for                                                               
which the  State of Alaska may  not be a party  in the settlement                                                               
of those lawsuits.   The U.S. Fish and Wildlife  Service is right                                                               
that  all  intent  is  to   use  these  rules  to  prevent  undue                                                               
restrictions on  designation of critical  habitat or  on jeopardy                                                               
findings on species that are out  in the landscape.  Getting to a                                                               
rule  that assures  that certainty  will go  a long  ways towards                                                               
that end.   However, that is  only part of the  question that the                                                               
state will  still have  to answer after  that rule  is published.                                                               
The  state will  again have  to very  closely look  at how  valid                                                               
those  rules are  or how  firm those  rules will  be in  terms of                                                               
withstanding judicial scrutiny, especially  if those lawsuits are                                                               
filed outside of Alaska.                                                                                                        
2:28:52 PM                                                                                                                    
MR.  VINCENT-LANG further  noted  that there  is recent  evidence                                                               
that some  of these rules  may be  renegotiated by the  U.S. Fish                                                               
and   Wildlife  Service   to  the   states  that   have  released                                                               
nonessential experimental  populations in their landscapes.   The                                                               
State  of Alaska  is working  towards those  rules with  the hope                                                               
that those rules  will provide the state with  the certainty that                                                               
it will not  be in the same  position with wood bison  that it is                                                               
with  sea otters  today, which  is  that the  state introduces  a                                                               
species and  is then left with  the uncertainty of how  to manage                                                               
those into the future.  From  the state's point of view, the most                                                               
certainty that  can be had  before release  of wood bison  on the                                                               
landscape  is to  have an  exemption  for the  species under  the                                                               
Endangered Species Act similar to  what was done with gray wolves                                                               
in Idaho and Montana.  In  those cases the U.S. Fish and Wildlife                                                               
Service was  very much  in agreement  with the  states as  to the                                                               
need to delist those wolves, but  it was the judicial system that                                                               
prevented it from  happening.  There is a certain  amount of fear                                                               
out there  regarding the certainty  of those rules  and regarding                                                               
what would happen if those rules were overturned in the future.                                                                 
2:30:22 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON   inquired  whether  Mr.  Vincent-Lang                                                               
believes this whereas clause should remain in the resolution.                                                                   
MR. VINCENT-LANG  replied that that  whereas reflects what  he is                                                               
hearing at  his desk -  fear out  on the landscape  regarding the                                                               
certainty  of those  rules and  what could  happen if  those were                                                               
REPRESENTATIVE  MUNOZ  asked  for  some  examples  of  ESA-listed                                                               
animals  that   have  been  [reintroduced]   into  the   wild  as                                                               
nonessential experimental.                                                                                                      
MR.  VINCENT-LANG  responded that  these  include  wolves in  the                                                               
Lower 48,  grizzly bears,  and falcons, as  well as  some others.                                                               
He added  that the state  of Wyoming  is now having  trouble with                                                               
grizzly   bears  that   were   reintroduced  under   nonessential                                                               
experimental populations.                                                                                                       
2:31:28 PM                                                                                                                    
REPRESENTATIVE  MUNOZ requested  a  detail  of what  nonessential                                                               
experimental means.                                                                                                             
MR.  VINCENT-LANG explained  that when  first passed  by Congress                                                               
the  Endangered  Species  Act  did   not  have  a  provision  for                                                               
nonessential experimental  populations.   As such, when  the U.S.                                                               
Fish and Wildlife  Service and states were  trying to reintroduce                                                               
species onto the  landscape, the only way to do  so was under the                                                               
full protection of the Endangered  Species Act, which resulted in                                                               
immediately  the carryover  of that  designation as  well as  the                                                               
designation  of  critical  habitat.   It  therefore  became  very                                                               
difficult  for  states  or  federal agencies  to  go  to  private                                                               
landowners and others  with the suggestion that  these animals be                                                               
reintroduced on the landscape.   So Congress amended the act with                                                               
a provision  for designating animals being  reintroduced into the                                                               
landscape  as  nonessential experimental  to  that  species.   As                                                               
such,  special  rules  could  be  written  associated  with  that                                                               
species  to  disallow the  designation  of  critical habitat  and                                                               
allow  a taking  of  that  species that  would  otherwise not  be                                                               
allowed under existing  Endangered Species Act statutes.   It was                                                               
basically a  way to say that  if these animals were  brought onto                                                               
the  landscape   they  would  still  be   categorized  under  the                                                               
Endangered  Species   Act,  but   that  they  could   be  treated                                                               
differently in terms of how they were regulated under the act.                                                                  
2:33:18 PM                                                                                                                    
REPRESENTATIVE MUNOZ inquired whether  an agreement with the U.S.                                                               
Fish  and  Wildlife Service  has  been  negotiated to  allow  the                                                               
designation of nonessential experimental for these wood bison.                                                                  
MR.  VINCENT-LANG answered  that the  state is  working with  the                                                               
service  towards getting  a nonessential  experimental population                                                               
designation and  the associated regulations regarding  what is an                                                               
allowable  take for  those  wood  bison on  the  landscape.   The                                                               
allowable  takes would  be any  take  that is  associated with  a                                                               
resource  development  activity  or  an  allowed  take  would  be                                                               
hunting.   That is one step  in this process that  would help the                                                               
state get towards  the end, but before the state  puts animals in                                                               
the landscape  under that rule it  would need to be  assured that                                                               
the rule would withstand judicial  scrutiny, especially if it was                                                               
filed outside the state of Alaska.                                                                                              
REPRESENTATIVE MUNOZ understood it is  ADF&G's intent to get that                                                               
clarified and confirmed before any animals are reintroduced.                                                                    
MR. VINCENT-LANG related that ADF&G  has told the legislature and                                                               
the  public  that it  will  not  introduce  wood bison  into  the                                                               
landscape until everyone  is convinced there is  certainty to the                                                               
rules and  that those rules  would be  defendable.  None  of that                                                               
would  be necessary  if  Congress exempted  wood  bison from  the                                                               
Endangered Species  Act, as requested  by HJR  32.  He  said that                                                               
from his  point of  view, conservation  success is  getting these                                                               
animals out on  the landscape and the biggest reason  this is not                                                               
happening is fear  associated with the uncertainty  about how the                                                               
Endangered Species Act  will be implemented.   Removing that fear                                                               
would  go a  long  way towards  getting these  bison  out on  the                                                               
landscape quickly.                                                                                                              
2:35:21 PM                                                                                                                    
CO-CHAIR  FEIGE  asked  whether   the  grizzly  bears  that  were                                                               
[reintroduced]  as  a  nonessential  species are  allowed  to  be                                                               
MR. VINCENT-LANG  replied in some  cases yes, but  explained that                                                               
some of the problems being had  with some of these species in the                                                               
Lower 48 that  were nonessential experimental is  that there were                                                               
also  wild animals  that were  out in  the landscape.   As  those                                                               
animals are mixing with the  nonessential experimental animals it                                                               
becomes a  very complex question.   Fortunately, Alaska  does not                                                               
have that issue right now.                                                                                                      
REPRESENTATIVE DICK pointed out that the  target of HJR 32 is not                                                               
the U.S. Fish  and Wildlife Service, but the U.S.  Congress.  The                                                               
intent  is  to build  a  little  sense  of frustration  into  the                                                               
resolution  so  that  Congressman  Young can  show  this  to  his                                                               
colleagues.    While  sorry  if  someone at  the  U.S.  Fish  and                                                               
Wildlife  Service is  offended, he  said the  state must  be firm                                                               
enough to  make its point  clear.  He reminded  committee members                                                               
that the Donlin Creek Mine has  $100 billion worth of gold and is                                                               
only  50 miles  away from  the proposed  site of  reintroduction.                                                               
Drawing attention to  page 3, lines 10-12, of  the resolution, he                                                               
said these lines  say everything:  "WHEREAS these  facts serve to                                                               
demonstrate this point:   The wood bison's status on  the list of                                                               
species protected  under the  Endangered Species  Act of  1973 is                                                               
what most  endangers them".   If the wood  bison could be  put on                                                               
the landscape to  roam free they would be able  to multiply.  His                                                               
point is  that listing them as  an endangered species in  the act                                                               
makes them  endangered because  the state is  afraid to  put them                                                               
out there.                                                                                                                      
2:38:15 PM                                                                                                                    
CO-CHAIR   SEATON  moved   to  report   the  proposed   committee                                                               
substitute  (CS)  for  HJR   32,  version  27-LS1234\E,  Bullard,                                                               
2/24/12,   as  amended,   out   of   committee  with   individual                                                               
recommendations  and the  accompanying zero  fiscal note.   There                                                               
being no  objection, CSHJR  32(RES) was  reported from  the House                                                               
Resources Standing Committee.                                                                                                   
The committee took an at-ease from 2:38 p.m. to 2:40 p.m.                                                                       
               HB 328-OIL AND GAS CORPORATE TAXES                                                                           
2:41:40 PM                                                                                                                    
CO-CHAIR FEIGE  announced that the  next order of  business would                                                               
be  HOUSE BILL  NO. 328,  "An  Act relating  to the  oil and  gas                                                               
corporate income  tax; relating  to the  credits against  the oil                                                               
and gas  corporate income tax; making  conforming amendments; and                                                               
providing for an effective date."                                                                                               
2:42:15 PM                                                                                                                    
CO-CHAIR  SEATON   introduced  HB  328  as   the  prime  sponsor,                                                               
explaining  that  the  bill  would  reinstate  the  oil  and  gas                                                               
corporate income tax  regime that was Alaska  law from 1978-1981.                                                               
It would require oil companies  to pay their corporate income tax                                                               
on the profits made in Alaska,  which is generally referred to as                                                               
separate accounting.  It is a  matter of equity.  Alaska-only oil                                                               
companies pay their corporate income  tax on Alaska profits while                                                               
international oil  companies can  write off their  investments in                                                               
other  countries  against  their  Alaska  corporate  income  tax.                                                               
Under HB 328,  international oil companies would  be treated like                                                               
other oil companies in Alaska.                                                                                                  
CO-CHAIR   SEATON   specified   that  separate   accounting   was                                                               
established in 1975  and went into effect in  1978 because Alaska                                                               
felt that it  was not getting the proper amount  of its corporate                                                               
tax, which  was 9.4  percent, and  it was not  being paid  on the                                                               
profits made from Alaska.  That  was challenged in the 1980s.  It                                                               
was  upheld  in the  lower  courts  and  appealed to  the  Alaska                                                               
Supreme Court where it was upheld  on all grounds (slide 1 of the                                                               
Power   Point   presentation   accompanying   Co-Chair   Seaton's                                                               
introduction of the bill).  That  ruling was then appealed to the                                                               
U.S. Supreme Court,  which took the case and  dismissed it saying                                                               
that there  were no federal  constitutional or  federal statutory                                                               
problems that  needed to be  resolved by  the court.   The courts                                                               
have  determined  that  separate   accounting  falls  within  the                                                               
state's legitimate taxing authority.                                                                                            
2:44:19 PM                                                                                                                    
CO-CHAIR SEATON related that during  their tour of Norway, Alaska                                                               
legislators  asked whether  Norway  does  separate accounting  so                                                               
that companies pay  on their profits only in Norway.   The answer                                                               
was  yes, most  regimes  around the  world do  that.   Some  U.S.                                                               
states  have two  different sections  of corporate  income tax  -                                                               
regular corporate income  tax if separate accounting  is used, in                                                               
which the  company pays on  its profits in that  jurisdiction; or                                                               
"water's-edge"  taxation  where the  company  elects  to pay  tax                                                               
based on  any profits and expenses  in the U.S. and  in which the                                                               
company pays an additional amount that  is more than a 50 percent                                                               
increase in the taxes.                                                                                                          
CO-CHAIR  SEATON  stated  that   when  the  petroleum  production                                                               
profits tax  (PPT) was  developed, and  later Alaska's  Clear and                                                               
Equitable  Share  (ACES),  it  was  critical  to  not  have  ring                                                               
fencing.   Under ring fencing,  a company  going into a  new area                                                               
must write off its expenditures  in that area against the profits                                                               
made in  that area.   The Alaska  State Legislature did  not want                                                               
ring  fencing because  it  wanted to  stimulate  investment in  a                                                               
broad  scope  across  Alaska.    However,  Alaska's  current  tax                                                               
[method] of worldwide  apportionment does exactly that  - it says                                                               
a company  can invest  in other  places and if  those are  not as                                                               
profitable they can be used  to reduce the corporate income taxes                                                               
to  Alaska.   For  these  reasons, Alaska  needs  to  go back  to                                                               
separate accounting.                                                                                                            
2:46:25 PM                                                                                                                    
CO-CHAIR SEATON directed attention to  slide 2, saying it is from                                                               
one of the  documents in the Alaska Supreme Court  case and shows                                                               
the  loss to  the State  of Alaska  as being  about $1.8  billion                                                               
during the four  years [of 1978-1981].  He explained  that at the                                                               
time,  this   $1.8  billion  liability   is  what   the  previous                                                               
legislature was  looking at,  which was before  the value  in the                                                               
permanent  fund  that the  state  has  now.   Fearing  that  much                                                               
liability,  the  legislature  decided   to  return  to  worldwide                                                               
apportionment  until the  court cleared  things up.   About  $400                                                               
million of that $1.8 billion was  interest on those years, so the                                                               
loss to the state was really about $1.4 billion.                                                                                
CO-CHAIR SEATON  moved to a  comparison presented in 2000  to the                                                               
House Special Committee on Oil  & Gas by then Deputy Commissioner                                                               
of  the Department  of Revenue  Daniel Dickinson  (slide 3).   In                                                               
this presentation Mr.  Dickinson compared the actual  oil and gas                                                               
income tax collected under worldwide  apportionment for the years                                                               
[1982-1997]  to  estimated  revenues under  separate  accounting.                                                               
The comparison shows the state  collected $4.6 billion less under                                                               
worldwide  apportionment  than  it   would  have  under  separate                                                               
accounting.  He explained that  this same numerical comparison is                                                               
shown  graphically on  slide 4,  with the  actual income  tax for                                                               
each  year shown  by  the  bars on  the  left  and the  estimated                                                               
revenues  under separate  accounting  shown by  the  bars on  the                                                               
right.    While there  is  a  relationship  that changes  due  to                                                               
different amounts  of investments,  expenses, and prices  in each                                                               
year, he  pointed out that Alaska's  9.4 percent tax rate  on the                                                               
money  that was  earned  in  Alaska was  the  higher  of the  two                                                               
2:49:45 PM                                                                                                                    
CO-CHAIR SEATON turned  to the fiscal note for HB  328 (slide 5),                                                               
reading aloud the second sentence  of the middle paragraph, which                                                               
states:     "Preliminary  estimates  show  that   under  separate                                                               
accounting,   oil   and   gas  corporations   would   have   paid                                                               
approximately $250 million more during  each of the last 5 fiscal                                                               
years in  corporate income  tax if this  legislation had  been in                                                               
effect."  He said there  are three different determinations - the                                                               
determination when  separate accounting was in  effect from 1975-                                                               
1981,  the  estimates  from  Dan Dickinson  from  2000,  and  the                                                               
current estimate  from the Department  of Revenue - all  of which                                                               
are in somewhat the same range of $200-$300 million per year.                                                                   
CO-CHAIR SEATON reviewed the net  U.S. exploration and production                                                               
income for ConocoPhillips [for the  years 2000-2010 and comparing                                                               
the income from Alaska to the  Lower 48] (slide 6).  He explained                                                               
that ConocoPhillips, a good company,  makes filings with the U.S.                                                               
Securities   and  Exchange   Commission  (SEC),   so  Legislative                                                               
Research Services  was able to  compile the comparison.   He next                                                               
compared   the  global   net  exploration   and  production   for                                                               
ConocoPhillips  in  Alaska,  the Lower  48,  and  internationally                                                               
(slide 7).  He noted  that Alaska represents a significant amount                                                               
of income, but that amount  is quite variable depending upon what                                                               
is happening  in other parts  of the world.   Separate accounting                                                               
would  not consider  what  is  happening in  other  parts of  the                                                               
world, so  the corporate income tax  would be paid on  the profit                                                               
made in  Alaska.  In response  to Co-Chair Feige, he  stated that                                                               
in  2009  ConocoPhillips reported  no  profits  in the  Lower  48                                                               
(slide 6).                                                                                                                      
2:52:20 PM                                                                                                                    
CO-CHAIR  SEATON drew  attention to  an article  in the  May 2011                                                               
Petroleum  News by  Greg Garland  of ConocoPhillips,  senior vice                                                             
president for  exploration and production in  the Americas (slide                                                               
8).  He related that in  this article Mr. Garland states that the                                                               
Eagle Ford play [in South  Texas] "offered $45 per barrel margins                                                               
last   year,  twice   the  average   of  ConocoPhillips'   global                                                               
portfolio."   Thus,  Co-Chair Seaton  continued,  the average  of                                                               
ConocoPhillips' global portfolio is  $20-$25.  However, in spring                                                               
2011, when oil price was  at approximately $118 per barrel (slide                                                               
9), the  Alaska margin was  $43.50 per barrel, so  Alaska margins                                                               
are  well above  the  worldwide margins,  which  means Alaska  is                                                               
diluting its  margin with the less  profitable worldwide margins.                                                               
He added that in another publication,  the name of which he could                                                               
not recall,  the chief economist  for ConocoPhillips  stated that                                                               
the company's  cost of producing  a barrel  of oil is  $15.48, so                                                               
another $4 or so would be added to the margin here.                                                                             
2:54:12 PM                                                                                                                    
CO-CHAIR SEATON  addressed another graph in  the committee packet                                                               
regarding competitiveness that depicts what  the tax rate is, not                                                               
what the  oil companies are  paying.   Federal tax is  35 percent                                                               
and Alaska  state tax  is 9.4 percent,  but because  of worldwide                                                               
apportionment Alaska is  receiving less than 9.4  percent, as was                                                               
shown in the  three analyses mentioned earlier.   This means that                                                               
Alaska is actually  more competitive than shown  in those tables.                                                               
He added that when making  a presentation to the full legislature                                                               
in  Anchorage and  to a  committee meeting  in Juneau,  Pedro van                                                               
Meurs  stated   that  Alaska  should  definitely   have  separate                                                               
CO-CHAIR  FEIGE, regarding  slide  8,  inquired whether  Co-Chair                                                               
Seaton is essentially arguing that  for ConocoPhillips the profit                                                               
margins per barrel are essentially the same in Texas and Alaska.                                                                
CO-CHAIR SEATON replied that they  are according to Greg Garland.                                                               
He reminded  members that ConocoPhillips  has testified  a number                                                               
of times that it is very  distinct between margin and profit.  He                                                               
said the  comparison he was  trying to  make is that  Mr. Garland                                                               
stated   that  [the   margin  of   $45  per   barrel]  is   twice                                                               
ConocoPhillips' average global portfolio.                                                                                       
2:57:27 PM                                                                                                                    
CO-CHAIR FEIGE allowed that the  Alaska margin of $43.50 depicted                                                               
on slide  9 is pretty  close to  the $45 margin  on slide 8.   He                                                               
noted that  the article on  the top left  of slide 8  states that                                                               
ConocoPhillips plans  to invest $2 billion  in liquids-rich shale                                                               
plays, which sounds like the Eagle  Ford area, yet the company is                                                               
only investing  less than  $1 billion  in Alaska.   He  asked why                                                               
there is unequal investment if the margins are the same.                                                                        
CO-CHAIR SEATON answered that it  is a situational risk in Alaska                                                               
because there is  only one way to  get the oil out  of the state.                                                               
ConocoPhillips  is currently  getting 63  percent of  its profits                                                               
out  of this  single pipeline,  so  if anything  happens to  that                                                               
pipeline there  is no  way to  get that  oil out.   Additionally,                                                               
ConocoPhillips would also incur the  expense of having to shut in                                                               
all  of  its wells  plus  the  expense  of getting  the  pipeline                                                               
running  again.   ConocoPhillips  has been  pretty  much flat  in                                                               
investing  since  1996 as  far  as  the  number  of wells  it  is                                                               
drilling  on the  North Slope,  even though  tax rates  have been                                                               
totally  different  and  even though  prices  have  been  totally                                                               
different.   Risk  factors are  being  looked at  that cannot  be                                                               
mitigated and the  question is whether the  corporate board would                                                               
look  at  that  as  a fiduciary  responsibility  if  the  company                                                               
further  concentrated  its  profits  coming  from  Alaska.    For                                                               
example,  100 percent  of  the company's  profits  came from  the                                                               
North Slope  of Alaska  in 2009,  about 60  percent in  2010, and                                                               
63.6 percent  in 2011.   Therefore, it  is a  concentration thing                                                               
that  does  not  relate  necessarily to  profit  margin,  but  to                                                               
exposure.  Co-Chair  Seaton added that there  is another question                                                               
on decisions, which is that  the operating agreement on the North                                                               
Slope is such that if any  one of the three companies decides not                                                               
to invest, that  decision vetoes the project.  So,  it is unknown                                                               
whether it is  ConocoPhillips because of that risk or  one of the                                                               
other two major players that are not sanctioning an investment.                                                                 
3:01:09 PM                                                                                                                    
REPRESENTATIVE  DICK   said  he   also  saw  that   figure  where                                                               
[ConocoPhillips] is  receiving $20 a  barrel for getting  oil out                                                               
of the ground while it is  only costing $15.48.  Rounding off the                                                               
numbers, he calculated that at 600,000  barrels a day and a $4.52                                                               
discrepancy it comes  up to a little less than  $1 billion.  What                                                               
struck him is  that education is being scrutinized  almost to the                                                               
point of hostility and yet there is this figure of $1 billion.                                                                  
CO-CHAIR SEATON  responded that [slide 9]  says "typical company"                                                               
because  the legislature  has never  been given  the confidential                                                               
information of  what the production  costs are for  each company.                                                               
Last month  the chief economist  for ConocoPhillips  released the                                                               
information  publicly that  it was  $15.48,  which is  why he  is                                                               
saying to add another $4.50 to the figure on slide 9.                                                                           
3:02:45 PM                                                                                                                    
CO-CHAIR  FEIGE  asked  whether  the  bar graph  on  slide  6  is                                                               
depicting the income for ConocoPhillips.                                                                                        
CO-CHAIR  SEATON  confirmed  it  is the  income  and  offered  to                                                               
provide the figures in percentages if that was desired.                                                                         
3:03:04 PM                                                                                                                    
CO-CHAIR FEIGE  inquired how much oil  ConocoPhillips produces in                                                               
Alaska versus  Texas and what  price is received.   He understood                                                               
that recently  the Texas  oil price  was down  to $80  per barrel                                                               
while  Alaska North  Slope  crude was  above  $100.   Significant                                                               
differences in quantity and price  will influence the bar graphs,                                                               
he noted.                                                                                                                       
CO-CHAIR  SEATON said  Co-Chair Feige  is correct.  The question,                                                               
however, is whether  the state wants things  from other countries                                                               
or Texas  to influence the corporate  income tax that is  paid in                                                               
Alaska or does  the state want the companies to  simply pay their                                                               
9.4  percent  on the  profits  that  are  made  in Alaska.    The                                                               
worldwide apportionment works  both ways - it can  make things go                                                               
up and  down because of what  Alaska has and the  argument can be                                                               
made that  if Alaska  keeps worldwide  apportionment it  can grab                                                               
profits  that  are  made  in  Indonesia.   However,  all  of  the                                                               
[comparison]  calculations  with  separate accounting  show  that                                                               
every single year  Alaska has been reducing  its corporate income                                                               
tax to  basically subsidize  other operations  in other  parts of                                                               
the world.   No one is trying  to do anything unfair,  it is just                                                               
being  said that  if Alaska's  corporate  income tax  rate for  a                                                               
company like Great  Bear Petroleum, which only  has operations in                                                               
Alaska, is  going to be 9.4  percent of its income  in Alaska, is                                                               
it not then  fair that BP, ConocoPhillips, or  ExxonMobil pay 9.4                                                               
percent on the income that they  make in Alaska.  The question of                                                               
whether  it is  correct or  not  went through  the trial  courts,                                                               
Alaska  Supreme  Court,  and  U.S.  Supreme  Court,  and  it  was                                                               
determined at  several points that separate  accounting much more                                                               
accurately reflects  the corporate income  tax on the  profits in                                                               
the jurisdiction of Alaska.                                                                                                     
3:05:53 PM                                                                                                                    
REPRESENTATIVE  MUNOZ  asked what  the  real  percentage is  that                                                               
ConocoPhillips pays to Alaska.                                                                                                  
CO-CHAIR SEATON  replied it  is difficult  to answer  because the                                                               
information  is combined.   On  its 10-K  filings, ConocoPhillips                                                               
reported 1 percent, but that was not  a real 1 percent - that was                                                               
1  percent  compared to  its  worldwide  profit.   ConocoPhillips                                                               
lumps all  jurisdictions in  the Americas  together for  its U.S.                                                               
report.   When ConocoPhillips files  in say, North Dakota,  it is                                                               
unknown whether the  company is paying that  state's 5.15 percent                                                               
or paying water's-edge, which adds  another 3.5 percent corporate                                                               
income  tax.   North Dakota  has  noticed that  revenue is  lost,                                                               
whether apportionment is jurisdictional  to the U.S. water's-edge                                                               
or  worldwide.   Separate  accounting  simply  does one  thing  -                                                               
corporate income tax  is paid on the profit that  is made only in                                                               
Alaska.  He  stressed that he is not saying  any company has done                                                               
anything wrong;  the State of  Alaska creates the tax  system and                                                               
people obey  that system.   If the  state allows no  ring fencing                                                               
around Alaska, if the state takes  the same philosophy it did for                                                               
production tax to  not ring fence new fields in  the North Slope,                                                               
then the same thing applies here  - the further the net is drawn,                                                               
the  more washout  there is.    All three  of the  aforementioned                                                               
comparisons  show that  Alaska  is losing  income  because it  is                                                               
getting less than 9.4 percent.                                                                                                  
3:08:57 PM                                                                                                                    
REPRESENTATIVE MUNOZ inquired whether  all of the major companies                                                               
use the worldwide apportionment method.                                                                                         
CO-CHAIR  SEATON answered  the companies  use it  where they  are                                                               
allowed to,  but most  jurisdictions do  not allow  it.   That is                                                               
what  was interesting  about Norway  -  Alaska has  all the  same                                                               
players that are  working in Norway and all of  them pay separate                                                               
accounting in  Norway.  He said  he does not blame  the companies                                                               
for using worldwide apportionment where  they are allowed to, but                                                               
who  are  Alaska legislators  working  for?   The  companies  are                                                               
paying the  correct amount of  tax under  the system in  place in                                                               
Alaska.  The  question is whether that is  the appropriate system                                                               
for Alaska or  should Alaska go back to separate  accounting.  He                                                               
said HB 328 would reinstate the  1978 tax system that has already                                                               
gone  through court  and  been approved  all the  way  up to  the                                                               
[U.S.] Supreme Court, so it has no state or federal issues.                                                                     
3:10:32 PM                                                                                                                    
REPRESENTATIVE  P. WILSON  noted  that the  governor has  another                                                               
bill and the Senate has yet  another bill.  She asked whether the                                                               
companies would  be paying  more or  less than  now if  either of                                                               
those bills and HB 328 were put into law.                                                                                       
CO-CHAIR SEATON replied  that the companies will  have to testify                                                               
to that, but  he thinks [HB 328] brings some  balance.  More than                                                               
anything, HB 328  says that the appropriate  corporate income tax                                                               
should  be  paid in  Alaska.    The  other  bills deal  with  the                                                               
production  tax, which  is different  than corporate  income tax.                                                               
Basically there  is a difference  in which Alaska  restricts what                                                               
can  be  deducted  for lease  expenditures,  but  allows  instant                                                               
write-off on those.   Corporate income tax  generally follows the                                                               
depreciation  rules of  the  federal  income tax  so  there is  a                                                               
longer write-off  period, but there  are more things that  can be                                                               
written off than  just direct lease expenditures.   He reiterated                                                               
that both  the 15-year look back  done in 2000 by  the Department                                                               
of Revenue  and the fiscal  note for HB  328 show that  Alaska is                                                               
not receiving  9.4 percent of  the corporate income in  the state                                                               
of Alaska.                                                                                                                      
3:12:58 PM                                                                                                                    
CO-CHAIR FEIGE read  aloud from page 2 of the  fiscal note, first                                                               
paragraph, lines 4-8, [original punctuation provided]:                                                                          
     This   bill   would   require  Alaska   oil   and   gas                                                                    
     corporations to calculate income  tax for their oil and                                                                    
     gas  producing and  transportation  companies based  on                                                                    
     income  earned  solely  in  Alaska.   If  oil  and  gas                                                                    
     companies  are also  engaged in  activities other  than                                                                    
     oil and  gas production  and transportation,  this bill                                                                    
     would require those companies to  calculate and pay tax                                                                    
     on   those   other   activities  based   on   worldwide                                                                    
     combination and apportionment.                                                                                             
CO-CHAIR FEIGE said  this seems like Alaska would  be picking and                                                               
choosing where it  is asking companies to pay tax.   He asked for                                                               
an explanation and suggested that  the Department of Revenue also                                                               
speak to it.                                                                                                                    
CO-CHAIR SEATON  responded this  is not  unusual.   Whether under                                                               
worldwide  apportionment or  separate accounting  in Alaska,  the                                                               
tax  deals only  with oil  and gas,  not any  other activities  a                                                               
corporation might  be involved in,  which could be  land leasing,                                                               
buildings, welding  companies, or retail stores.   Integrated oil                                                               
company means  that the company  has more  than just oil  and gas                                                               
production; for  example, it could  have refineries.   Refineries                                                               
are different and are treated  different in 10-K filings as well.                                                               
For  example, in  its 10-K  filing, ConocoPhillips  lists totally                                                               
separate lines for its manufacturing and refining businesses.                                                                   
3:15:36 PM                                                                                                                    
CO-CHAIR FEIGE  said he understands the  aforementioned, but that                                                               
HB 328  would essentially fence  off Alaska.   If a  company owns                                                               
assets  elsewhere, it  seems  that the  income  and expense  from                                                               
those assets  would be  taxed on a  worldwide basis,  which would                                                               
not be in keeping  with the theme of the bill.   He asked why the                                                               
bill splits  this out rather than  fencing off Alaska as  its own                                                               
taxable entity for all of it.                                                                                                   
CO-CHAIR  SEATON deferred  to the  Department of  Revenue for  an                                                               
exact explanation of why.                                                                                                       
3:16:55 PM                                                                                                                    
CO-CHAIR FEIGE  asked the Department  of Revenue and  whether the                                                               
aforementioned  provision   would  make  the   accounting  rather                                                               
complicated for all concerned.                                                                                                  
ROBYNN WILSON,  Corporate Income  Tax Manager,  Anchorage Office,                                                               
Tax Division, Department  of Revenue (DOR), answered  it may make                                                               
the accounting complicated for two  reasons.  First, under HB 328                                                               
there  are three  components  that go  together.   The  component                                                               
being referred to is "other business,"  which would be on a basis                                                               
under the  Internal Revenue Code  while the other  two components                                                               
would  be on  a different  basis; so,  there may  be intercompany                                                               
transactions that  would be  difficult to  account for.   Second,                                                               
within one  actual corporation, meaning  a separate  legal entity                                                               
as opposed  to a corporate  group, these operations may  be mixed                                                               
in  the corporation's  books,  so extracting  the  piece that  is                                                               
specifically production may be difficult.                                                                                       
3:18:50 PM                                                                                                                    
REPRESENTATIVE  GARDNER  inquired  whether these  same  companies                                                               
already do this exact thing in other jurisdictions.                                                                             
MS. ROBYNN WILSON  replied she is not currently  aware of exactly                                                               
how  separate  accounting works  in  Norway.   Within  the  U.S.,                                                               
states either tax on combination  and apportionment, which is the                                                               
system Alaska  is under, or  states may  tax based on  a separate                                                               
company income.   She offered to follow up on  that if requested,                                                               
but said  she is unaware of  other jurisdictions that tax  in the                                                               
mixture that HB 328 would provide.                                                                                              
3:19:50 PM                                                                                                                    
REPRESENTATIVE P.  WILSON observed that the  fiscal note includes                                                               
four additional tax auditors under HB  328.  She asked whether it                                                               
would  be  easier for  the  department  if everything  was  under                                                               
separate accounting.                                                                                                            
MS. ROBYNN  WILSON responded that  if everything was  on separate                                                               
accounting there would still be  the difficulties of intercompany                                                               
transactions.   Also,  where a  company  had multiple  activities                                                               
within its  corporate structure  within its  set of  books, there                                                               
would  still   be  the  problem   of  extracting   that  separate                                                               
operation.    Additionally, there  are the  bill's administrative                                                               
provisions about when  the return is due and  that the department                                                               
must  calculate the  taxable income  and the  tax and  provide an                                                               
assessment within four months.   Presumably on top of that, would                                                               
be  Chapter   5  auditing  responsibilities  that   would  go  on                                                               
afterwards.    Add  that  to the  responsibility  of  the  public                                                               
disclosure provisions  in the  bill.   Therefore, while  it might                                                               
simplify  it slightly,  she did  not think  it would  simplify it                                                               
3:22:02 PM                                                                                                                    
REPRESENTATIVE P.  WILSON recalled the sponsor  stating he wanted                                                               
to  keep  the  separate  accounting exactly  how  it  was  before                                                               
because the courts have already ruled that that method was okay.                                                                
CO-CHAIR SEATON confirmed  this to be correct.   Regulations have                                                               
already  been written  for separate  accounting under  this exact                                                               
same proposal, so  writing the regulations would  be much simpler                                                               
because  they  were  already  written for  the  four  years  that                                                               
separate accounting  was in effect.   He  said the advice  of the                                                               
legislative legal counsel  was that this has  already been solved                                                               
and  the state  would  not need  to worry  nearly  so much  about                                                               
lawsuits if no changes were made to the former structure.                                                                       
3:23:46 PM                                                                                                                    
CO-CHAIR FEIGE opened public testimony.                                                                                         
DEBORAH VOGT noted that she  joined the attorney general's office                                                               
in 1978 and retired in 1999  from the Department of Revenue where                                                               
she  was serving  as deputy  commissioner.   Given  she has  been                                                               
retired for 10 years and the  law being talked about was repealed                                                               
more than 30 years ago, she  asked for forgiveness if the cobwebs                                                               
are a little thick.   She said 1978 was the  year the oil started                                                               
flowing, the year  that separate accounting was  enacted, and the                                                               
value of a barrel  of oil was about $8.  Not  long after that the                                                               
oil industry  sued over  the separate accounting  law.   She said                                                               
she defended  that law  before the Alaska  Supreme Court  and the                                                               
U.S. Supreme Court, so can speak with some fluency.                                                                             
MS.  VOGT stated  that, in  a  very simplistic  manner, she  will                                                               
provide a  history about  the law  that was  on the  books before                                                               
separate  accounting, the  separate accounting  law, and  the law                                                               
the state has now.  All  three are methods of dividing the income                                                               
of   a  multi-jurisdictional   taxpayer  so   that  each   taxing                                                               
jurisdiction  knows  how  much  of  the  overall  income  it  can                                                               
attribute to its  state for tax purposes.  The  analogy she likes                                                               
to use is  "restaurant accounting," where six  people have dinner                                                               
together at  a total cost  of $300.   Each person's share  of the                                                               
dinner bill can  be determined in two different ways  - the whole                                                               
bill could  be divided by six,  or the cost of  each entrée could                                                               
be attributed  to the  specific person eating  that entree.   The                                                               
first method  is formula apportionment  and the second  method is                                                               
separate accounting.   They are two means to the  same end, which                                                               
is to determine the appropriate share  for one person in the case                                                               
of diners or one jurisdiction in the case of taxpayers.                                                                         
3:26:21 PM                                                                                                                    
MS. VOGT said she thinks Alaska  was the first state to adopt the                                                               
Uniform Division of  Income for Tax Purposes  Act (UDITPA), which                                                               
is the three-factor  formula that is most commonly  used and that                                                               
Alaska uses  today for almost  all corporate taxpayers.   Encoded                                                               
in law as AS  43.19, it is the method of  attribution for the tax                                                               
under  AS 43.20.   This  standard  three-factor formula  includes                                                               
payroll,  property, and  sales.    The amount  of  income that  a                                                               
taxpayer  earns  is attributed  to  the  state by  averaging  the                                                               
fraction of  that taxpayer's property  that is in the  state, the                                                               
sales  that are  in the  state, and  the payroll  that is  in the                                                               
state, as compared to those  factors worldwide.  Returning to the                                                               
restaurant analogy,  she noted  that it  does not  matter whether                                                               
separate accounting or  a formula is used if  everybody has about                                                               
the same thing  to eat.  But  it gets sticky if one  person has a                                                               
bowl  of soup  and somebody  else has  a big  steak.   The three-                                                               
factor  formula  assumes  that profitability  is  fairly  uniform                                                               
throughout a  business or group  of businesses.   Neither formula                                                               
apportionment  nor  separate  accounting is  perfect;  both  have                                                               
flaws and both  have been upheld by the courts.   Most states, as                                                               
did Alaska originally, adopt the  three-factor formula because it                                                               
gets them  out of  the business  of untangling  corporate affairs                                                               
and establishing  transfer values.   For  example, if  a business                                                               
manufactures in one  state and sells in another, a  value for the                                                               
goods as they cross state lines  has to be established, which can                                                               
be tricky.   Tax  authorities generally  suspect that  a business                                                               
will tell  State A that  all its profits  are earned in  State B,                                                               
while it tells State B the opposite.                                                                                            
3:28:39 PM                                                                                                                    
MS.  VOGT related  that when  she  was assigned  to the  separate                                                               
accounting litigation  in the 1970s,  she had the  opportunity to                                                               
review in  some detail  the written  record of  the legislature's                                                               
four-year study of the corporate income  tax as it applied to oil                                                               
companies.   More  than  60  hearings were  held  over that  time                                                               
period,  during which  the legislature  learned  that there  were                                                               
flaws with  each of the three  factors used in UDITPA  as applied                                                               
to  an oil  production  company.   The  payroll  factor is  under                                                               
state's income because oil production  is not labor intensive and                                                               
is largely conducted through the  use of subcontractors.  At that                                                               
time,  she understood  that there  were some  federal income  law                                                               
incentives  to operate  through subcontractors;  however, whether                                                               
or  not that  is  true,  most of  the  business  is done  through                                                               
subcontractors  and so  the payroll  factor is  fairly low.   The                                                               
property factor is flawed  largely because traditional accounting                                                               
methods and  SEC rules do not  recognize the value of  the oil in                                                               
the  ground; put  another  way, discovery  is  not an  accounting                                                               
event.  Obviously,  the reserves that an oil company  owns can be                                                               
its greatest asset,  but those reserves are not  reflected on its                                                               
books.   When that  understated property is  used as  compared to                                                               
fully stated  property like a  refinery, the result is  a sliding                                                               
of the income  over to the jurisdiction with  the better property                                                               
formula.   For  a while  there was  a move  by the  SEC to  go to                                                               
reserve recognition accounting, but  she understood that that was                                                               
unsuccessful.   The sales  factor is flawed  because only  a tiny                                                               
fraction of the  oil produced is sold in the  state, so the sales                                                               
factor is not  very good at attributing income.   Therefore, with                                                               
none  of the  factors accurately  representing an  oil producer's                                                               
actual  business  value, the  legislature  went  to the  separate                                                               
accounting method.                                                                                                              
3:30:58 PM                                                                                                                    
MS.   VOGT  explained   that,  in   a  nutshell,   the  [separate                                                               
accounting] law established  value at the point  of production by                                                               
netting  back  the  ultimate  sales  value  to  the  wellhead  by                                                               
deducting out  the transportation costs.   In the late  1970s and                                                               
early 1980s, the value of Alaska  North Slope (ANS) crude was not                                                               
publically  available,  so there  were  huge  disputes over  this                                                               
amount.   Value  at  the  point of  production,  then, was  gross                                                               
income from which were deducted the  field costs, or the costs of                                                               
producing  the oil.    General overhead  expenses  under the  old                                                               
separate  accounting  law  were   apportioned,  so  the  old  law                                                               
actually incorporated apportionment  in two places -  one was for                                                               
general  overhead joint  expenses  and the  other  was for  other                                                               
income  that was  not oil  production or  pipeline transportation                                                               
MS. VOGT recounted  that the oil industry filed  suit against the                                                               
law, alleging  that it violated the  U.S. Constitution's Commerce                                                               
Clause, Equal  Protection Clause,  and Contract  Clause; industry                                                               
also  alleged  that  it  violated the  State  of  Alaska's  equal                                                               
protection laws.   She noted  that while separate  accounting was                                                               
in effect the price of oil went  from about $8 per barrel to $31,                                                               
a huge increase in those days,  and therefore the revenue and the                                                               
litigation risk piled up fairly fast.   In 1981, when the law was                                                               
repealed,  it  had  collected  about   $2  billion.    There  was                                                               
obviously  political pressure  from  the industry  to repeal  the                                                               
separate  accounting law  because it  taxed so  much revenue  and                                                               
those who  were around at  that time  may remember the  "coup" in                                                               
1981, which many said was pushed  largely by the desire to repeal                                                               
separate accounting.                                                                                                            
3:33:03 PM                                                                                                                    
MS. VOGT pointed  out that there were also legal  issues with the                                                               
law at that time.  In 1980  the U.S. Supreme Court had issued two                                                               
opinions  involving  the division  of  corporate  income for  tax                                                               
purposes:   Exxon v.  Wisconsin and  Mobil v.  Vermont.   In both                                                           
those  cases,  the  state  taxed  the  multi-state  oil  industry                                                               
taxpayers  using   formula  apportionment.     The   oil  company                                                               
taxpayers  each  argued  that  they could  prove  -  by  separate                                                               
accounting  or allocation  - that  they  did not  earn that  much                                                               
income in the respective state.   The Supreme Court, in upholding                                                               
those   state  statutes,   used  some   fairly  strong   language                                                               
criticizing the flaws  of separate accounting.  This  led some to                                                               
conclude  that apportionment  was  constitutionally required,  or                                                               
that separate  accounting was constitutionally prohibited.   That                                                               
is largely  what led  to the  litigation fear  over the  act, and                                                               
while she  personally did not  put much credence in  that theory,                                                               
it was  not her $2  billion that was on  the line.   So, separate                                                               
accounting  was  repealed and  for  the  oil industry  the  state                                                               
adopted what is  now called modified apportionment.   By the time                                                               
the litigation  reached the Alaska  Supreme Court,  the Container                                                               
Corporation  decision had  come down,  which really  resolved the                                                               
litigation in the  state's favor.  The  Container Corporation had                                                               
very   clear  language   that   both   separate  accounting   and                                                               
apportionment were means  to the same end and that  they both had                                                               
flaws, that  they both had  advantages, and that neither  one was                                                               
3:34:48 PM                                                                                                                    
MS. VOGT  explained that in  adopting the  modified apportionment                                                               
formula Alaska uses  today, the state was attempting  to find and                                                               
use  apportionment   factors  that  were  better   at  accurately                                                               
apportioning production  and pipeline transportation  income than                                                               
the old  three-factor formula.   The state adopted  two different                                                               
formulas.  The  production formula has a  two-factor formula that                                                               
includes  a  property  factor  and an  extraction  factor.    The                                                               
property  factor  still  does  not   include  the  value  of  the                                                               
reserves,  but the  extraction factor  is the  number of  barrels                                                               
extracted  in   the  state's   jurisdiction  versus   the  number                                                               
worldwide.  Pipeline transportation  is a two-factor formula that                                                               
includes property and  tariffs, or sales.  At the  time those two                                                               
were  adopted, it  was her  understanding that  production income                                                               
would be apportioned  by the two-factor formula  and the pipeline                                                               
by the  other two-factor  formula, but  right away  the companies                                                               
started  using  all  three  factors together  for  all  of  their                                                               
income.   She understood, however,  that now  it is not  just the                                                               
practice, it  is the law,  because the attorney  general's office                                                               
has issued an opinion stating that  that is the correct way to do                                                               
it.   The difficulty with that  is that a tariff  factor is being                                                               
used to apportion  production income, which is  pretty silly, and                                                               
an  extraction  factor  is  being   used  to  apportion  pipeline                                                               
transportation  income, which  is  also pretty  silly.   So,  the                                                               
result  is the  modified  apportionment, which  has never  really                                                               
worked very well.                                                                                                               
MS.  VOGT  added  that  during  her  time  with  the  state,  the                                                               
effective  tax  rate  for  oil   and  gas  taxpayers  was  always                                                               
somewhere around  3 percent  rather than the  9.4 percent  on the                                                               
books.  She further mentioned that  while Alaska at one time used                                                               
the  so-called  worldwide  apportionment for  all  taxpayers,  it                                                               
abandoned that  method years  ago for  water's-edge apportionment                                                               
for everyone  but the oil  and gas industry.   At the  request of                                                               
the  oil  and gas  industry,  the  modified apportionment  stayed                                                               
3:37:21 PM                                                                                                                    
REPRESENTATIVE  P. WILSON  requested Ms.  Vogt's opinion  on what                                                               
would be the best for the State of Alaska to do.                                                                                
MS. VOGT  expressed discomfort at  offering an opinion,  but said                                                               
she  has always  felt  that separate  accounting more  accurately                                                               
identifies  the  oil  industry  income  than  does  any  kind  of                                                               
apportionment formula that  has ever been figured  out.  However,                                                               
whether that should be adopted now, she could not say.                                                                          
3:38:33 PM                                                                                                                    
CO-CHAIR SEATON  observed that  for fiscal  year 2013  the fiscal                                                               
note includes  no expenses for  the four additional  auditors and                                                               
travel,  but it  includes [$253,900]  for fiscal  year 2014,  and                                                               
[$522,900] for fiscal years 2015 and thereafter.                                                                                
MS. ROBYNN WILSON confirmed that this is correct.                                                                               
CO-CHAIR  SEATON asked  whether the  Department of  Revenue would                                                               
consider  an  annual  $500,000 investment  with  a  $250  million                                                               
annual return to be a good cost-benefit ratio.                                                                                  
MS. ROBYNN  WILSON replied she  cannot speak to  the cost-benefit                                                               
for that.   She said  the department  is working on  some revised                                                               
numbers that will be forthcoming.                                                                                               
CO-CHAIR  SEATON maintained  that  that would  be  a much  bigger                                                               
return  than the  state  is  getting on  its  investments in  the                                                               
permanent fund or retirement system  accounts and therefore it is                                                               
an effective and efficient use of state personnel.                                                                              
3:40:53 PM                                                                                                                    
REPRESENTATIVE MUNOZ inquired how  separate accounting would work                                                               
when  expenses associated  with  the product  are occurring  over                                                               
more than one jurisdiction.                                                                                                     
MS. ROBYNN  WILSON qualified  she was not  with the  state during                                                               
the  administration  of separate  accounting,  but  said that  in                                                               
looking at  the bill as  presented it  is unclear how  that would                                                               
work  for multi-jurisdictional  expenses.   She thought  it would                                                               
show  up particularly  with administration  expense.   If another                                                               
state apportioned it, that state  would apportion the expenses as                                                               
well as the income.                                                                                                             
CO-CHAIR SEATON  pointed out that the  courts specifically looked                                                               
at that  and determined  there were no  significant issues.   The                                                               
U.S.  Supreme  Court  determined  that  separate  accounting  was                                                               
probably  more  accurate   than  apportionment  formulas  because                                                               
apportionment  does not  catch  those  things at  all.   It  also                                                               
determined that  separate accounting was not  taxing profits that                                                               
were  made in  other jurisdictions.   All  transportation to  the                                                               
market was  allowed to be subtracted  as a cost and  profits made                                                               
at refineries were not collected back.                                                                                          
3:42:59 PM                                                                                                                    
CO-CHAIR SEATON asked whether the  Department of Revenue would be                                                               
able  to  pull  up  the regulations  that  were  implemented  for                                                               
separate accounting so that they could be re-used.                                                                              
MS.  ROBYNN  WILSON agreed  to  look  into  the status  of  those                                                               
3:43:54 PM                                                                                                                    
CO-CHAIR FEIGE understood that if  enacted, HB 328 would disallow                                                               
the oil  companies from  writing off  expenses incurred  in other                                                               
parts  of the  world.    He inquired  whether  he  is correct  in                                                               
understanding that this would result  in increasing the corporate                                                               
tax rate and  hence the money that oil companies  in Alaska would                                                               
pay to the state.                                                                                                               
CO-CHAIR  SEATON  said  this  is  not  exactly  correct.    Under                                                               
separate accounting,  any expenses associated with  production in                                                               
Alaska could be taken off  the corporate income tax; any expenses                                                               
unaffiliated with Alaska could not  be used to write down profits                                                               
made in Alaska.                                                                                                                 
3:45:09 PM                                                                                                                    
CO-CHAIR  FEIGE asked  how HB  328 would  put more  oil into  the                                                               
Trans-Alaska Pipeline System (TAPS).                                                                                            
CO-CHAIR SEATON responded  it would put more oil  in TAPS because                                                               
it does  not incentivize  companies to invest  in other  parts of                                                               
the  world.   Instead,  it incentivizes  companies  to invest  in                                                               
Alaska  because any  expense in  Alaska is  then an  expense that                                                               
reduces their profit in Alaska.                                                                                                 
3:46:04 PM                                                                                                                    
REPRESENTATIVE P. WILSON presumed that  no oil company would like                                                               
this bill.                                                                                                                      
CO-CHAIR SEATON  said he  thinks Alaskan  oil companies  will see                                                               
the  bill  as fair  because  both  they and  their  international                                                               
competitors would  then be paying  9.4 percent tax.   The state's                                                               
goal for a  number of years has been to  incentivize companies to                                                               
reinvest in Alaska,  whether or not they  are multi-nationals, as                                                               
well as  to form  oil companies in  Alaska.  He  said he  is very                                                               
happy that there  are a number of oil companies  that are located                                                               
only in Alaska and he thinks  it unfair to tax those companies at                                                               
a higher rate  than the international companies that  are able to                                                               
dilute their Alaska profits.                                                                                                    
[HB 328 was held over.]                                                                                                         
3:48:12 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 3:48 p.m.                                                                 

Document Name Date/Time Subjects
HJR 32.pdf HRES 2/29/2012 1:00:00 PM
CSHJR 32 Version D.pdf HRES 2/29/2012 1:00:00 PM
HJR 32 Hearing Request.pdf HRES 2/29/2012 1:00:00 PM
HJR 32 Sponsor Statement.pdf HRES 2/29/2012 1:00:00 PM
HJR 32 Fiscal Note.pdf HRES 2/29/2012 1:00:00 PM
HB0328A.PDF HRES 2/29/2012 1:00:00 PM
HRES 3/16/2012 1:00:00 PM
HB 328
HB 328 Separate Accounting Sponsor Statement.pdf HRES 2/29/2012 1:00:00 PM
HRES 3/16/2012 1:00:00 PM
HB 328
HB 328 Sectional Analysis.pdf HRES 2/29/2012 1:00:00 PM
HRES 3/16/2012 1:00:00 PM
HB 328
HB328 Fiscal Note DOR.pdf HRES 2/29/2012 1:00:00 PM
HRES 3/16/2012 1:00:00 PM
HB 328
Alaska Margins Slide.pdf HRES 2/29/2012 1:00:00 PM
Legislative Research Report ConocoPhillips SEC 10K Filings.pdf HRES 2/29/2012 1:00:00 PM
Atlantic Richfield Co v. State.pdf HRES 2/29/2012 1:00:00 PM
PFC Energy Regime Competitiveness Slide.pdf HRES 2/29/2012 1:00:00 PM
Separate Accounting Revenue Comparison.pdf HRES 2/29/2012 1:00:00 PM
Petroleum News May 8, 2011 Eagle Ford Could Nudge Alaska for COP.pdf HRES 2/29/2012 1:00:00 PM
CSHJR32 Version E.pdf HRES 2/29/2012 1:00:00 PM
HJR 32 Background Info List.pdf HRES 2/29/2012 1:00:00 PM
HJR 32 Comment - R. Rogers.pdf HRES 2/29/2012 1:00:00 PM
HJR32 Explanation of Changes.pdf HRES 2/29/2012 1:00:00 PM
HJR32 Introduction Testimony.pdf HRES 2/29/2012 1:00:00 PM
HJR32 Letter from USFWS Regional Director Haskett.pdf HRES 2/29/2012 1:00:00 PM