Legislature(2017 - 2018)BARNES 124

04/09/2018 01:00 PM RESOURCES

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Audio Topic
02:04:18 PM Start
02:05:05 PM Presentation(s): Alaska Industrial Development and Export Authority
02:32:24 PM HB331
03:12:28 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 4/10/18 at 8:00 am --
Presentation: AIDEA & Ambler Road
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 331 TAX CREDIT CERT. BOND CORP; ROYALTIES TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                          April 9, 2018                                                                                         
                            2:04 p.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative John Lincoln, Vice Chair                                                                                         
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 331                                                                                                              
"An  Act  establishing  the Alaska  Tax  Credit  Certificate  Bond                                                              
Corporation;  relating to  purchases of  tax credit  certificates;                                                              
relating   to   overriding  royalty   interest   agreements;   and                                                              
providing for an effective date."                                                                                               
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PRESENTATION(S):  ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT                                                                      
AUTHORITY                                                                                                                       
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 331                                                                                                                  
SHORT TITLE: TAX CREDIT CERT. BOND CORP; ROYALTIES                                                                              
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/07/18       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/07/18       (H)       RES, FIN                                                                                               
03/30/18       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/30/18       (H)       Heard & Held                                                                                           
03/30/18       (H)       MINUTE(RES)                                                                                            
04/04/18       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/04/18       (H)       Heard & Held                                                                                           
04/04/18       (H)       MINUTE(RES)                                                                                            
04/06/18       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/06/18       (H)       Heard & Held                                                                                           
04/06/18       (H)       MINUTE(RES)                                                                                            
04/07/18       (H)       RES AT 2:00 PM BARNES 124                                                                              
04/07/18       (H)       -- Continued from 4/6/18 --                                                                            
04/09/18       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KENDRA ZAMZOW PhD, Environmental Geochemist                                                                                     
Center for Science in Public Participation                                                                                      
(No local address provided), Alaska                                                                                             
POSITION   STATEMENT:     Provided   a   PowerPoint   presentation                                                            
entitled, "Testimony  on Ambler Mining District  Industrial Access                                                              
Road," dated 4/6/18, and answered questions.                                                                                    
                                                                                                                                
GENE THERRIAULT, Team Lead                                                                                                      
Interior Energy Project                                                                                                         
Alaska Industrial Development and Export Authority                                                                              
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Answered questions  during testimony  on the                                                            
Ambler Mining District Industrial Access Project.                                                                               
                                                                                                                                
MIKE BARNHILL, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Co-Provided  a  PowerPoint   presentation                                                          
entitled,   "Company   X   Tax  Credits:   Potential   Impact   of                                                              
HB331/SB176," revised  4/18/18, and answered questions  during the                                                              
hearing of HB 331.                                                                                                              
                                                                                                                                
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Co-Provided  a  PowerPoint   presentation                                                          
entitled,   "Company   X   Tax  Credits:   Potential   Impact   of                                                              
HB331/SB176," revised  4/18/18, and answered questions  during the                                                              
hearing of HB 331.                                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
2:04:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   GERAN  TARR   called  the   House  Resources   Standing                                                            
Committee meeting  to order  at 2:04  p.m.  Representatives  Tarr,                                                              
Parish,  Talerico, Rauscher,  and  Josephson were  present at  the                                                              
call  to order.    Representatives  Birch, Johnson,  Lincoln,  and                                                              
Drummond arrived as the meeting was in progress.                                                                                
                                                                                                                                
^PRESENTATION(S):    Alaska  Industrial   Development  and  Export                                                              
Authority                                                                                                                       
   PRESENTATION(S):  Alaska Industrial Development and Export                                                               
                            Authority                                                                                       
                                                                                                                                
2:05:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that  the first  order of business  would                                                              
be further  testimony on  the [Ambler  Mining District  Industrial                                                              
Access Project  (Ambler Access Project)].   The project  was first                                                              
presented  by   the  Alaska  Industrial  Development   and  Export                                                              
Authority (AIDEA),  Department of  Commerce, Community  & Economic                                                              
Development, at the committee meeting on 4/6/18.                                                                                
                                                                                                                                
2:06:08 PM                                                                                                                    
                                                                                                                                
KENDRA ZAMZOW,  PhD, Environmental Geochemist, Center  for Science                                                              
in Public Participation,  informed the committee she  is a 30-year                                                              
resident of  Alaska.  Dr.  Zamzow said the  Center for  Science in                                                              
Public  Participation is  a nonprofit  and  her role  there is  to                                                              
review  technical  documents  on   mining  projects  and  identify                                                              
potential  risks  for  communities  and  Tribes.    She  said  she                                                              
concluded, from her  review of the Ambler Access  Project to date,                                                              
it  is too  soon for  the  state to  invest  in infrastructure  to                                                              
support  the project,  because exploration  in  the Ambler  Mining                                                              
District has  not achieved a level  of confidence that  mining can                                                              
be  conducted  profitably.    The   conclusion  is  based  on  the                                                              
following:                                                                                                                      
                                                                                                                                
   • deposits have not been identified as measured resources or                                                                 
     proven reserves, which would provide a level of certainty                                                                  
     that mining could be profitable                                                                                            
   • drilling has been limited and extensive drilling is needed                                                                 
     to define an ore body                                                                                                      
   • only one company is exploring the area of known deposits                                                                   
                                                                                                                                
DR. ZAMZOW  acknowledged the region  has known deposits  of copper                                                              
and  zinc;  however,  the  costs   of  mining  said  deposits  are                                                              
unknown,  and  therefore,  the profitability  of  mining  is  also                                                              
unknown.   She said  the early  stage of  exploration showed  rich                                                              
deposits  in the  district, and  the middle  stage of  exploration                                                              
will reveal  more about  the ore  body (slide  1).  Language  used                                                              
when   mining  companies   report   to  investors   reflects   the                                                              
profitability  of a mine;  for example, rich  ore means  a mineral                                                              
resource,  and increasing  levels of  confidence in  the ore  body                                                              
are reported as  inferred, indicated, and measured  resources.  To                                                              
date, there are  no measured resources - which  would reflect high                                                              
confidence - found  in the Ambler Mining District.   She explained                                                              
the term  "mineral resources"  reflects a  level of confidence  in                                                              
the  ore   body,  and   the  term   "mineral  reserves"   reflects                                                              
confidence  the ore body  can be  mined profitably.   Furthermore,                                                              
reserves  reflect economic  costs  such as  infrastructure,  water                                                              
treatment,  and  closure.    She  characterized  the  Arctic  Mine                                                              
deposit  as  a massive  sulfide  deposit  containing  geochemistry                                                              
that  would increase  the cost  of  the mine's  closure, and  also                                                              
affect the  profitability of  the mine.   The term "reserves"  are                                                              
either proven  [higher level] or  probable [lower level],  and the                                                              
Arctic  Mine deposit  prefeasibility  study,  released on  4/6/18,                                                              
reported  probable  mineral  reserves.     She  stated  her  first                                                              
concern is that  after the state pays for the road  without proven                                                              
mineral reserves,  mining  may not occur,  and directed  attention                                                              
to a  disclaimer required  on reports  issued by mining  companies                                                              
(slides 2 and 3).  She remarked:                                                                                                
                                                                                                                                
     [The disclaimer]  indicated mineral resources,  which is                                                                   
     what we  have right  now, from  the drilling at  Arctic,                                                                   
     may or may  not ever be upgraded to the  measured, which                                                                   
     is the high confidence level.                                                                                              
                                                                                                                                
DR. ZAMZOW continued to her second concern and  noted between 2004                                                              
and  2017, less  than 100  boreholes  were drilled  at the  Arctic                                                              
deposit  and less than  60 were  drilled at  the Bornite  deposit;                                                              
however, hundreds  more are  necessary to  define the ore  bodies.                                                              
Slide 4 was  four graphs which illustrated how  drilling boreholes                                                              
infers  information to  define  the ore  body  and she  explained,                                                              
"you  can go  from  what  you had  hoped  might  be a  very  large                                                              
resource [that]  could end up to  be somewhat scattered,  and that                                                              
really changes  how mining  could occur,  whether mining  would be                                                              
profitable, and  how it would be  done.  For instance,  whether it                                                              
would  be surface  or  underground."    The Donlin  project  site,                                                              
[Placer  Dome Inc.],  reached  a high  level  of confidence  after                                                              
five  years  of   exploration,  and  during   2006-2008,  NovaGold                                                              
continued  drilling  two  hundred  boreholes  per year.    At  the                                                              
Pebble  Mine site,  [Northern  Dynasty Minerals  Ltd.]  identified                                                              
five billion  pounds of measured  resources within three  years of                                                              
exploration  and drilled  an average  of  one hundred  thirty-five                                                              
boreholes   per  year  between   2002-2008.     She  advised   the                                                              
aforementioned  levels  of  exploration are  needed  to  determine                                                              
whether  an  ore body  can  become  a  mine,  and to  provide  the                                                              
geotechnical information  needed to design  a mine and  a tailings                                                              
facility.   She restated  her second concern  about the  slow rate                                                              
of exploration  [at the  Arctic Mine site].   Slide 5  illustrated                                                              
the four  mine deposit  sites identified  by AIDEA  in the  Ambler                                                              
Mining  District,  as  follows:   Arctic  and  Bornite  are  being                                                              
developed  by Trilogy,  and  Sun  and Smucker  appear  to have  no                                                              
activity.    Dr. Zamzow reviewed  the following key  points (slide                                                              
6):                                                                                                                             
                                                                                                                                
    •  rich ore does not make a mine and limited drilling has not                                                               
      produced a sufficiently high level of confidence in any of                                                                
      the mine sites in the Ambler Mining District                                                                              
                                                                                                                                
    •  the state should wait for confidence levels of measured                                                                  
      resources and proven reserves                                                                                             
                                                                                                                                
2:15:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked whether the mine would go forward.                                                                
                                                                                                                                
DR. ZAMZOW  opined it  would not  go forward  in the near  future,                                                              
but "several decades from now, that's  certainly a possibility."                                                                
                                                                                                                                
REPRESENTATIVE  BIRCH  asked for  the  presenter's  qualifications                                                              
and the motivation behind her testimony.                                                                                        
                                                                                                                                
DR.  ZAMZOW  informed   the  committee  she  holds   a  degree  in                                                              
environmental  chemistry with  a focus  in biogeochemistry,  which                                                              
is the study of  trace metals and mining.  For  the last ten years                                                              
she  has  reviewed  the  geology  and  hydrology  of  ore  bodies,                                                              
looking for  potential risks,  which vary  with individual  mines.                                                              
Her testimony is  based on work that was completed  at the request                                                              
of the  Brooks Range Council,  and her time  to testify  today was                                                              
paid  by  The Wilderness  Society.    The  Center for  Science  in                                                              
Public  Participation is  supported by  a mix  of grant money  and                                                              
clients.                                                                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH  pointed out the  Ambler Access Project  is a                                                              
road  project  that  has  been compared  to  the  Delong  Mountain                                                              
Transportation  System (DMTS),  and  inquired as  to Dr.  Zamzow's                                                              
observations specifically related to the road.                                                                                  
                                                                                                                                
DR.  ZAMZOW  stated  the  mining  issues are  raised  due  to  her                                                              
concern that the road  may not be paid for if there  are no mines;                                                              
because  mining is  speculative at  this point,  the state  should                                                              
wait to provide a road.                                                                                                         
                                                                                                                                
REPRESENTATIVE  LINCOLN  advised the  state  would  not invest  or                                                              
authorize  bonds without  exercising  due diligence.   Further,  a                                                              
level  of investment,  exploration,  and an  environmental  impact                                                              
statement  (EIS) are  facets  of [the  legislative]  process.   He                                                              
questioned  the  urgent  need  to  advocate  for  "something  that                                                              
strikes me as being pretty obvious ...."                                                                                        
                                                                                                                                
2:19:48 PM                                                                                                                    
                                                                                                                                
DR. ZAMZOW  expressed her  understanding AIDEA  is moving  forward                                                              
with EIS - potentially  to fund a pioneer road, at  a cost of $300                                                              
million  - without  definite confidence  in ore  bodies, and  that                                                              
would  be a waste  of money.   A  road to  a port  is an  entirely                                                              
different  situation,  but for  a  road that  would  be repaid  by                                                              
mines, it  is important to determine  whether there will  be mines                                                              
accessed by the road.                                                                                                           
                                                                                                                                
REPRESENTATIVE  LINCOLN   urged  for  further  testimony   at  the                                                              
appropriate time.                                                                                                               
                                                                                                                                
REPRESENTATIVE PARISH  asked what proportion  of mines have  a low                                                              
level of  activity prior to opening,  and if the road  were built,                                                              
how would  access affect  the likelihood  the [Arctic]  mine would                                                              
open.                                                                                                                           
                                                                                                                                
2:21:59 PM                                                                                                                    
                                                                                                                                
DR. ZAMZOW said  she did not have enough information  to determine                                                              
whether a  mine would  open or  not and  discussed the  history of                                                              
three other  mines.   Background information on  the Red  Dog Mine                                                              
is limited,  although  it is known  the mine  progressed from  its                                                              
first drill  hole to  mine operations  in 13  years; in  contrast,                                                              
NovaCopper  and Trilogy  have  been drilling  in  the Arctic  Mine                                                              
exploration area  for over  16 years.   At the NovaGold  operation                                                              
at  Galore Creek  [in  British Columbia,  Canada]  700 holes  were                                                              
drilled  before indicated  and  measured resources  were  located,                                                              
and  there  were   400  drill  holes  without   reaching  measured                                                              
resources at  Rock Creek  [in Nome, Alaska].   Exploration  at the                                                              
Rock  Creek  Mine  located approximately  20-30  million  tons  of                                                              
"indicated" which  is roughly  equal to what  has been  located at                                                              
"Ambler."   The Rock  Creek Mine  operated for  two months  before                                                              
closing for  various reasons.   Dr. Zamzow opined  several hundred                                                              
drill  holes are  needed to  define the  ore body  and that  could                                                              
take  another decade.    She restated  her  concern  is about  the                                                              
state investing in EIS at this stage.                                                                                           
                                                                                                                                
2:24:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR surmised  Dr.  Zamzow's position  is  that the  EIS                                                              
process  is  premature and  the  state  should wait  until  mining                                                              
companies reach the exploration results of measured resources.                                                                  
                                                                                                                                
DR. ZAMZOW said that would be wise.                                                                                             
                                                                                                                                
REPRESENTATIVE  LINCOLN inquired  as to the  total cost  estimated                                                              
for EIS.                                                                                                                        
                                                                                                                                
DR. ZAMZOW said she did not know.                                                                                               
                                                                                                                                
2:25:19 PM                                                                                                                    
                                                                                                                                
GENE  THERRIAULT,  Team  Lead,  Interior  Energy  Project,  AIDEA,                                                              
DCCED,  was unsure  what has  been  expended to  date; however,  a                                                              
previous  legislative appropriation  has  been  spent on  assuming                                                              
the  project  from  the Department  of  Natural  Resources  (DNR),                                                              
scoping meetings,  and documents prepared  by other agencies.   In                                                              
addition,  AIDEA requested  consultants provide  estimates of  the                                                              
cost to advance  the project to a record of decision  (ROD), which                                                              
he estimated at  $1 million.  The question for  policymakers is to                                                              
consider  how much has  been invested,  and whether  the value  of                                                              
the funds  expended is  greater if the  project continues  to ROD,                                                              
although continuing  to ROD  does not  guarantee the road  project                                                              
would  advance.   He corrected  a critical  misstatement heard  by                                                              
the committee on  4/6/18 by directing attention  to [AS 44.88.120.                                                              
Nonliability  On Bonds.],  which prohibits  AIDEA from  obligating                                                              
the  state  and  specifies  that  bonds issued  by  AIDEA  do  not                                                              
constitute  an indebtedness or  other liability  of the  state, or                                                              
of a political  subdivision of the state.  Mr.  Therriault advised                                                              
AIDEA  provided  money  to determine  whether  the  Ambler  Access                                                              
Project could  be permitted;  if so, AIDEA  would not  spend state                                                              
money  without a  legislative appropriation  and  would not  issue                                                              
bonds without  a business  plan to  ensure the  users of  the road                                                              
pay  back the  bond indebtedness.    The mission  of  AIDEA is  to                                                              
facilitate   projects'   access  to   the   bond  market   without                                                              
obligating the state.                                                                                                           
                                                                                                                                
REPRESENTATIVE  LINCOLN  surmised  an  additional  $1  million  is                                                              
needed to finish EIS.                                                                                                           
                                                                                                                                
MR. THERRIAULT estimated  there are $2 million to  $3 million left                                                              
in  the  original  appropriation   and  offered  to  provide  more                                                              
detailed information.                                                                                                           
                                                                                                                                
2:29:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LINCOLN observed AIDEA  garners about  $20 million                                                              
per year  as earnings  from DMTS, which  represents 40  percent of                                                              
its profits and  80 percent of its bonding capacity.   He stressed                                                              
approximately  $2 million  invested  to finish  EIS  on a  project                                                              
that  is  extremely  important  to  his  constituents,  and  other                                                              
Alaska  residents,  is  more than  warranted  --  especially  when                                                              
AIDEA earns over  $20 million per year from one  road in Northwest                                                              
Alaska.                                                                                                                         
                                                                                                                                
MR. THERRIAULT  affirmed  DMTS has  been a very  good project  for                                                              
the state; AIDEA  has repaid all the original  capitalization plus                                                              
almost $400  million.  He restated  AIDEA - without  using general                                                              
fund dollars - provides  access to other people's money  and is an                                                              
economic engine for the state.                                                                                                  
                                                                                                                                
CO-CHAIR TARR  asked for  the amount of  the appropriation  in the                                                              
FY 12-FY 13 budget  for the Ambler Mining District  Access portion                                                              
of former Governor Sean Parnell's Roads to Resources initiative.                                                                
                                                                                                                                
MR. THERRIAULT will provide the requested information.                                                                          
                                                                                                                                
          HB 331-TAX CREDIT CERT. BOND CORP; ROYALTIES                                                                      
                                                                                                                                
2:32:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that  the final  order of business  would                                                              
be  HOUSE  BILL NO.  331,  "An  Act establishing  the  Alaska  Tax                                                              
Credit  Certificate Bond  Corporation;  relating  to purchases  of                                                              
tax credit certificates;  relating to overriding  royalty interest                                                              
agreements; and providing for an effective date."                                                                               
                                                                                                                                
REPRESENTATIVE  BIRCH related  his and  his constituents'  support                                                              
of  the  bill  which  would  honor  the  state's  commitments  and                                                              
positively  affect the state's  economy.   He urged the  committee                                                              
to act expeditiously.                                                                                                           
                                                                                                                                
The committee took a brief at ease.                                                                                             
                                                                                                                                
2:35:12 PM                                                                                                                    
                                                                                                                                
MIKE BARNHILL,  Deputy Commissioner, Department of  Revenue (DOR),                                                              
directed  attention  to  two  slides   entitled,  "COMPANY  X  Tax                                                              
Credits:   Potential  Impact  of HB331/SB176."    He informed  the                                                              
committee the  slides are examples  of the estimates  DOR provided                                                              
to each  tax credit holder; however,  the figures provided  on the                                                              
slides  are de-identified  and thus  do not represent  any  one of                                                              
the 37  companies who  hold tax  credit certificates.   One  slide                                                              
reflects figures for  fiscal year 2019 (FY 19) through  FY 24, and                                                              
the second slide reflects figures for FY 19 through FY 31.                                                                      
                                                                                                                                
2:36:50 PM                                                                                                                    
                                                                                                                                
KEN ALPER, Director,  Tax Division, DOR, explained  the purpose of                                                              
the slides  is to  show how  a company  with $50  million in  2016                                                              
credits and  $50 million  in 2017  would be paid  off.   The slide                                                              
illustrating figures  for FY  19-FY 24 was  prepared as if  HB 331                                                              
was enacted;  the slide illustrating  figures for FY 19-FY  31 was                                                              
prepared  as if HB  331, amended  to fund  a smaller,  alternative                                                              
appropriation, was enacted.                                                                                                     
                                                                                                                                
2:37:53 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 2:37 p.m. to 2:39 p.m.                                                                       
                                                                                                                                
2:39:32 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  restated the  slides  are  a hypothetical  example  of                                                              
information  that was  twice provided  by DOR  to each  of the  37                                                              
impacted  companies.   He first  directed attention  to the  slide                                                              
illustrating  figures for  FY 19-FY 24  and gave  an example  of a                                                              
company with $50  million in the "first pool" of  2016 credits and                                                              
$50  million in  the  "second  pool" of  2017  credits.   If  $184                                                              
million were  appropriated in FY  19, it would represent  about 45                                                              
percent  of  the $400  million  in  total  2016 tax  credits,  and                                                              
credit  holders would  be  paid approximately  $0.45  on each  $1.                                                              
Thus, the  example company  would be eligible  for $23  million in                                                              
FY 19; in FY  20, a statutory appropriation of  $168 million would                                                              
pay an  additional 40 percent, and  the example company  would get                                                              
$21 million.   The FY  21 appropriation  of $168 million  would be                                                              
split to  pay off the  last of the 2016  credits and the  first of                                                              
the 2017 credits.   Further, FY 22 and FY 23  appropriations would                                                              
continue  to pay  off  the example  company's  share  of the  2017                                                              
pool, as affected  by the number of years the  discounts rates are                                                              
applied, until  FY 24.  Mr. Alper  said the columns on  the slides                                                              
labeled Face  Value show what the  example company expects  to get                                                              
paid;  the  columns labeled  Discount  Rates  show the  money  the                                                              
example company  would receive  under the terms  of HB 331  and HB                                                              
331,  amended.   He concluded  the example  company, depending  on                                                              
its discount  rate,  would be offered  either  $85 million  or $91                                                              
million  if it  chose to  relinquish $100,000  million in  credits                                                              
and participate  in  the program.   He directed  attention  to the                                                              
slide  illustrating figures  for  FY 19-FY  31  and explained  the                                                              
figures  on  this  slide reflect  a  forthcoming  amendment  which                                                              
would lower  the appropriation schedule  and base the  schedule on                                                              
a percentage of  the actual taxes received, rather  than the "raw"                                                              
tax  calculations, thus  the appropriations  would be  in the  $40                                                              
million  to $60  million range.    The example  company would  not                                                              
receive  2016  credits  until  FY  25-FY 26,  due  to  more  years                                                              
affected  by its discount  rate.   In this  situation, the  credit                                                              
holders  would receive  dramatically  less,  and  the state  would                                                              
borrow less.                                                                                                                    
                                                                                                                                
2:44:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  asked,  "Which  of  these  two  scenarios,                                                              
would  you  say,   more  accurately  reflects,  or   more  closely                                                              
reflects,  the net present  value  of these credit  assets  to the                                                              
companies?"                                                                                                                     
                                                                                                                                
MR.  ALPER  stated  the credit  holders'  internal  economics  and                                                              
valuing are unknown  to DOR; however, he expressed  his belief the                                                              
companies are anticipating  a statutory appropriation,  similar to                                                              
what the state has appropriated in the last two years.                                                                          
                                                                                                                                
REPRESENTATIVE  PARISH   surmised  the  tax  credit   holders  are                                                              
amenable to [the proposals shown on both slides].                                                                               
                                                                                                                                
MR. ALPER recalled  testimony from a representative of  one of the                                                              
banks that holds  debt that is guaranteed by the  tax credits owed                                                              
to one of  the credit holders:   from the bank's  perspective, the                                                              
reduced appropriation  schedule would enable a company  to pay off                                                              
its  debt to  the bank.    However, from  the  perspective of  the                                                              
company,  a reduced  appropriation  would  not repay  the  company                                                              
that  did the  [exploration]  work, and  he  provided an  example.                                                              
Mr. Alper said,  "So, I think you would get a  different answer if                                                              
you had  a representative of the  actual explorer up  here, rather                                                              
than  their  banker."    In  further  response  to  Representative                                                              
Parish, he  said the companies  [holding tax credit  certificates]                                                              
would  like  an amount  that  would  enable  them to  continue  in                                                              
business.                                                                                                                       
                                                                                                                                
MR.  BARNHILL  restated  the  administration  is  seeking  a  fair                                                              
balance between  various interests through its introduction  of HB                                                              
331; however,  if the  forthcoming amendment  were to be  adopted,                                                              
HB 331 would no longer be fair.  He remarked:                                                                                   
                                                                                                                                
     We're  trying to  find  a way,  not  only  to clear  the                                                                   
     decks, but  clear the decks  in a way that  accomplishes                                                                   
     a  variety  of  purpose.   Paying  off  the  tax  credit                                                                   
     holders is  certainly one of  those purposes,  but, just                                                                   
     as important,  is attempting to reestablish  the state's                                                                   
     credibility, with  respect to the oil and  gas industry.                                                                   
     And restore  ... Alaska, in  the perspective of  the oil                                                                   
     and gas  industry, as a place  to come and  invest money                                                                   
     ....                                                                                                                       
                                                                                                                                
2:49:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  expressed support for HB 331  as introduced.                                                              
He asked  how many  businesses are  impacted by  the inability  of                                                              
the state to fulfil its obligation to pay the tax credits.                                                                      
                                                                                                                                
MR.  ALPER said  there  are 37  companies  - approximately  20  of                                                              
which received  cash in 2017 for  pro rata shares of  2016 credits                                                              
- that have credits.   There are new companies  with 2017 credits,                                                              
some of which  are very small  and received $10,000 or  less, such                                                              
as  some  of  the  working  interest  partners  within  the  Point                                                              
Thomson Unit.                                                                                                                   
                                                                                                                                
REPRESENTATIVE   BIRCH  observed   the  affected  businesses   are                                                              
largely Alaska  businesses  with Alaskan employees.   He  returned                                                              
attention  to the discount  rates  shown on the  slides and  noted                                                              
one  tier  would  incentivize investment  in  Alaska  and  restore                                                              
Alaska's credibility.                                                                                                           
                                                                                                                                
MR. ALPER expressed  his hope that both discount  rates would help                                                              
restore   Alaska's    credibility;   the   lower    rate   rewards                                                              
reinvestment  because to  qualify  for the  lower  rate a  company                                                              
would  have  to  spend all  of  its  appropriation  on  "qualified                                                              
capital expenditures"  - which  are capital expenditures  upstream                                                              
of the  point of  production in  its oilfields  - within  the next                                                              
two years.  He provided an example.                                                                                             
                                                                                                                                
REPRESENTATIVE BIRCH restated his support for the bill.                                                                         
                                                                                                                                
2:53:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON  surmised the  forthcoming amendment  may cause                                                              
[small, independent,  oil and gas  industry businesses]  to either                                                              
sell   their  assets   under  the   current   statute  or   suffer                                                              
foreclosure.                                                                                                                    
                                                                                                                                
MR. BARNHILL agreed.                                                                                                            
                                                                                                                                
REPRESENTATIVE  PARISH gave  an example of  a small  multimillion-                                                              
dollar  oil and gas  company with  a marginal  oilfield and  asked                                                              
whether  said company  could  be prevented  from  "agreeing to  an                                                              
overriding royalty  interest and then  pulling up stakes  the next                                                              
year."                                                                                                                          
                                                                                                                                
MR. ALPER  stated if that  were the intent,  the company  would be                                                              
lying to  the Department  of Natural  Resources (DNR) because  the                                                              
overriding royalty interest is a negotiated agreement.                                                                          
                                                                                                                                
2:55:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH moved Amendment  1, labeled  30-GH2863\A.2,                                                              
Nauman, 4/6/18, which read [original punctuation provided]:                                                                     
                                                                                                                                
     Page 13, line 14:                                                                                                          
            Delete "before the application of any tax                                                                           
     credits"                                                                                                                   
                                                                                                                                
CO-CHAIR JOSEPHSON objected.                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  explained  Amendment  1 would  return  the                                                              
language in HB  331 to the current statutory language,  which does                                                              
not make  any reference  to the  application of  tax credits,  and                                                              
would give  DOR the  option to follow  a repayment schedule  based                                                              
on actual  taxes received.  Amendment  1 would reduce the  risk to                                                              
the state,  reduce the amount of  debt incurred by the  state, and                                                              
bring  appropriations  closer to  the  real  market value  of  the                                                              
assets.   Further, Amendment 1  would constrain subsidies  paid to                                                              
multinational interests.                                                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH expressed his opposition to Amendment 1.                                                                   
                                                                                                                                
REPRESENTATIVE  RAUSCHER  questioned   whether  this  was  another                                                              
situation  in  which "they  roll  the  dice  again and  invest  in                                                              
Alaska."                                                                                                                        
                                                                                                                                
REPRESENTATIVE  PARISH  said,  "...  they  decided  to  invest  in                                                              
Alaska,  sure, they,  presumably  read their,  their contracts,  I                                                              
certainly  hope that they  did.   I have  nothing but respect  for                                                              
people and  their ability to  serve their rational  self-interest.                                                              
Where  it  gets  murky  is when  you  start  moving  around  other                                                              
people's money."   He assured the committee [HB  331] contemplates                                                              
spending - not  the oil industry's money because  tax credits [are                                                              
not  money]  -  money  that  belongs  to  the  people  of  Alaska.                                                              
Further, Amendment  1 would balance the interests  of the industry                                                              
with those of Alaska in an equitable way.                                                                                       
                                                                                                                                
2:59:52 PM                                                                                                                    
                                                                                                                                
MR.  BARNHILL  recalled the  original  intent  of the  tax  credit                                                              
program was  for the  state to  invest alongside  the oil  and gas                                                              
industry  to expand  the exploration  and development  of oil  and                                                              
gas  resources.    [HB  331]  seeks  to  create  a  cycle  of  new                                                              
investment  and new production  that would  result in new  revenue                                                              
to the state  for the benefit of its citizens;  however, Amendment                                                              
1 signals industry  that Alaska is not competitive  with other oil                                                              
and  gas basins  around  the world.   He  urged  the committee  to                                                              
consider the long-term ramifications of Amendment 1.                                                                            
                                                                                                                                
CO-CHAIR  TARR noted  several  of  the state's  current  problems,                                                              
that  are  related  to  the tax  credit  program,  may  have  been                                                              
avoided.    She said  her  concern  is if  the  state's  financial                                                              
situation  does not  improve,  and  HB 331  is  enacted -  because                                                              
nonpayment  of  debt  secured  by   bonding  would  downgrade  the                                                              
state's  financial  position -  payments  on  the bonds  would  be                                                              
elevated and  prioritized over other  programs such  as healthcare                                                              
and education.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  TALERICO  related he  had considered  offering  an                                                              
amendment, however,  he carefully  reviewed previous  testimony on                                                              
the bill  presented by  representatives of  the Department  of Law                                                              
and  DOR.     After  revisiting  Sections  3-11,   he  stated  his                                                              
preference  to move  the bill,  without amendments,  to the  House                                                              
Finance  Committee  for  further   review  and  additional  expert                                                              
testimony.                                                                                                                      
                                                                                                                                
3:04:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  withdrew   Amendment  1.    Representative                                                              
Parish moved Amendment  2, labeled 30-GH2863\A.3,  Nauman, 4/9/18,                                                              
which read [original punctuation provided]:                                                                                     
                                                                                                                                
     Page 6, line 25:                                                                                                           
          Delete "1.5"                                                                                                          
          Insert "two"                                                                                                          
                                                                                                                                
     Page 13, line 24:                                                                                                          
          Delete "of 10 percent a year"                                                                                         
          Insert "based on the true interest cost plus                                                                          
          seven percent"                                                                                                        
                                                                                                                                
     Page 13, lines 29-30:                                                                                                      
        Delete "1.5 percent and is less than ten percent                                                                        
          applies each year"                                                                                                    
          Insert "two percent"                                                                                                  
                                                                                                                                
     Page 14, lines 3-4:                                                                                                        
        Delete "1.5 percent and is less than ten percent                                                                        
          applies each year"                                                                                                    
          Insert "two percent"                                                                                                  
                                                                                                                                
CO-CHAIR TARR objected.                                                                                                         
                                                                                                                                
REPRESENTATIVE  PARISH cautioned  HB 331  exposes the  state to  a                                                              
good  degree of  risk.    If the  state's  true cost  of  interest                                                              
rises,  that   would  erode   the  incentive   for  companies   to                                                              
participate   in  the   proposal,   and  for   meeting  the   four                                                              
requirements  for  a discounted  rate.    He  pointed out  if  the                                                              
distance between  the higher discount  rate and the  state's rates                                                              
close,  it  will  reduce  the incentive  to  reinvest  in  Alaska.                                                              
Amendment 2 would  also increase the differential  that covers the                                                              
state's  risk,  in  the  event  of   a  drop  in  oil  prices,  by                                                              
increasing the difference  to the true cost of  borrowing from 1.5                                                              
percent to 2 percent.                                                                                                           
                                                                                                                                
3:07:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH asked for  an assessment  of Amendment  2 by                                                              
the representatives from DOR.                                                                                                   
                                                                                                                                
MR.  BARNHILL advised  the  first change  brought  by Amendment  2                                                              
increases the  "cushion" from 1.5 percent  to 2 percent.   He said                                                              
Amendment 2  does not provide  additional protection to  the state                                                              
if there  is a drop  in the  price oil; in  fact, the  1.5 percent                                                              
added  to the  true interest  cost  is designed  to replicate  the                                                              
state's opportunity  cost of  capital, which  is about  5 percent,                                                              
and reflects the  rate of earnings garnered from  earnings reserve                                                              
accounts, general  funds, and  the constitutional budget  reserve.                                                              
He opined  1.5 percent  is sufficient  for the  purpose of  HB 331                                                              
due to the long-term  nature of the bill.  The  second change made                                                              
by Amendment  2, which  would increase  the default discount  rate                                                              
for participants,  is not  an issue of  protecting the  state, but                                                              
is "tipping  that balance more  in the state's  favor.   We picked                                                              
10 percent  intentionally to,  kind of, be  a median point  if you                                                              
will.  ...  We'd prefer not to do that at this point in time."                                                                  
                                                                                                                                
REPRESENTATIVE PARISH stated a drop in the price of oil would                                                                   
dramatically affect the state's opportunity cost by changing the                                                                
schedule of repayment under the existing statute.                                                                               
                                                                                                                                
3:11:29 PM                                                                                                                    
                                                                                                                                
MR. ALPER remarked:                                                                                                             
                                                                                                                                
     I think  what Representative  Parish is referring  to is                                                                   
     we're  sort of locking  in the  payment schedule at  the                                                                   
     bonding moment.   We are going  to make them  a one-time                                                                   
     offer, we're going  to give them a bunch  of money based                                                                   
     on  what  the  schedule  of payments  would  be  if  our                                                                   
     spring 2018  forecast comes in  true.  If, in  fact, the                                                                   
     price of oil  is lower ... that schedule  would decline,                                                                   
     and those companies  would actually be getting  less, so                                                                   
     they'd be benefitting,  so to speak, from  the structure                                                                   
     in the bill.   Likewise, if the price of oil  were to be                                                                   
     higher  than forecasted  in  the spring,  they would  be                                                                   
     losing out  by taking the offer  at this point  cause it                                                                   
     turned  out  the  scheduled  payments  would  have  been                                                                   
     higher  than anticipated.   So yes,  to the extent  that                                                                   
     is true,  it's exaggerated  a little  bit by  increasing                                                                   
     the, the interest rate, the, the spread.                                                                                   
                                                                                                                                
[HB 331 was held over.]                                                                                                         
                                                                                                                                
3:12:28 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting of the House Resources Standing Committee was                                                                       
recessed at 3:11 p.m., to be continued April 10, 2018, at 8:00                                                                  
a.m.                                                                                                                            

Document Name Date/Time Subjects
HB331 Transmittal Letter.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Version A.PDF HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Fiscal Note -DNR-DOG 1.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Fiscal Note-DOR-TAX 2.5.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - Presentation Credit Bonds for HRES 3.30.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - DOR.LAW 3.2.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Sectional Analysis 3.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - Letter of Support 3.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
HB331 Credit Bonds for HRES 4-2-18.pdf HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
AOGA Testimony - HB 331 - 4.4.2018.pdf HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
HB 331 Amendment One - A.2 - Rep. Parish 4.6.18.pdf HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
Ambler CSPP invited testimony.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler CSPP PPT.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_AIDEA statutes re Regional Resource Advisory Council review.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_APRN article 1.30.18.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Cardno econ analysis excerpts.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_AIDEA PPT.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Clarke invited testimony.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Clarke PPT.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_DOWL AIDEA Cost Estims 2.26.18.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_DOT May 2012 Report, Excerpt.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Doyon ltr to BLM 1.24.18.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Trilogy Metals PPT.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_Trustees' Follow-up Letter to BLM re Leg Hearing.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Allakaket Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Ambler Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Bettles Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Evansville Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Huslia Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Kobuk Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Kotzebue Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Koyukuk Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Louden Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Rampart Opposition Resolution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_v_Ruby Opposition Resoulution.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_WIRAC 2017 Letter.pdf HRES 4/9/2018 1:00:00 PM
AMDIAR
Ambler_APRN article 1.30.18.pdf HRES 4/6/2018 1:00:00 PM
HRES 4/9/2018 1:00:00 PM
Ambler
AMDIAR
HB 331 Amendment Two - A.3 - Rep. Parish 4.9.18.pdf HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 theoretical 100m company.pdf HRES 4/9/2018 1:00:00 PM
Ambler_AIDEA bonds are not an indebtedness or liability of the state.pdf HRES 4/9/2018 1:00:00 PM
HRCHearingResponse_041218.pdf HRES 4/9/2018 1:00:00 PM