Legislature(2005 - 2006)CAPITOL 124
03/17/2006 12:30 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB488 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 488 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 17, 2006
12:38 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux (via teleconference)
Representative Kurt Olson
Representative Paul Seaton
Representative Harry Crawford
Representative Mary Kapsner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 488
"An Act repealing the oil production tax and gas production tax
and providing for a production tax on the net value of oil and
gas; relating to the relationship of the production tax to other
taxes; relating to the dates tax payments and surcharges are due
under AS 43.55; relating to interest on overpayments under AS
43.55; relating to the treatment of oil and gas production tax
in a producer's settlement with the royalty owner; relating to
flared gas, and to oil and gas used in the operation of a lease
or property, under AS 43.55; relating to the prevailing value of
oil or gas under AS 43.55; providing for tax credits against the
tax due under AS 43.55 for certain expenditures, losses, and
surcharges; relating to statements or other information required
to be filed with or furnished to the Department of Revenue, and
relating to the penalty for failure to file certain reports,
under AS 43.55; relating to the powers of the Department of
Revenue, and to the disclosure of certain information required
to be furnished to the Department of Revenue, under AS 43.55;
relating to criminal penalties for violating conditions
governing access to and use of confidential information relating
to the oil and gas production tax; relating to the deposit of
money collected by the Department of Revenue under AS 43.55;
relating to the calculation of the gross value at the point of
production of oil or gas; relating to the determination of the
net value of taxable oil and gas for purposes of a production
tax on the net value of oil and gas; relating to the definitions
of 'gas,' 'oil,' and certain other terms for purposes of AS
43.55; making conforming amendments; and providing for an
effective date."
- MOVED CSHB 488(RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 488
SHORT TITLE: OIL AND GAS PRODUCTION TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/21/06 (H) READ THE FIRST TIME - REFERRALS
02/21/06 (H) RES, FIN
02/22/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/22/06 (H) Heard & Held
02/22/06 (H) MINUTE(RES)
02/23/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/23/06 (H) Heard & Held
02/23/06 (H) MINUTE(RES)
02/24/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/24/06 (H) Heard & Held
02/24/06 (H) MINUTE(RES)
02/25/06 (H) RES AT 10:00 AM SENATE FINANCE 532
02/25/06 (H) Joint with Senate Resources
02/27/06 (H) RES AT 12:30 AM CAPITOL 124
02/27/06 (H) Heard & Held
02/27/06 (H) MINUTE(RES)
02/28/06 (H) RES AT 12:30 AM CAPITOL 124
02/28/06 (H) Heard & Held
02/28/06 (H) MINUTE(RES)
03/01/06 (H) RES AT 12:30 AM CAPITOL 124
03/01/06 (H) Heard & Held
03/01/06 (H) MINUTE(RES)
03/02/06 (H) RES AT 12:00 AM CAPITOL 124
03/02/06 (H) Heard & Held
03/02/06 (H) MINUTE(RES)
03/03/06 (H) RES AT 12:30 AM CAPITOL 124
03/03/06 (H) Heard & Held
03/03/06 (H) MINUTE(RES)
03/04/06 (H) RES AT 2:00 PM HOUSE FINANCE 519
03/04/06 (H) Heard & Held
03/04/06 (H) MINUTE(RES)
03/06/06 (H) FIN AT 12:30 AM HOUSE FINANCE 519
03/06/06 (H) Presentation by Legislative Consultant
03/06/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
03/06/06 (H) Testimony by legislative consultant
03/07/06 (H) RES AT 12:30 AM CAPITOL 124
03/07/06 (H) Heard & Held
03/07/06 (H) MINUTE(RES)
03/08/06 (H) RES AT 12:30 AM CAPITOL 106
03/08/06 (H) -- Meeting Canceled --
03/09/06 (H) RES AT 12:30 AM CAPITOL 106
03/09/06 (H) -- Meeting Canceled --
03/10/06 (H) RES AT 12:30 AM CAPITOL 106
03/10/06 (H) Heard & Held
03/10/06 (H) MINUTE(RES)
03/11/06 (H) RES AT 10:00 AM CAPITOL 106
03/11/06 (H) -- Meeting Canceled --
03/13/06 (H) RES AT 10:00 AM CAPITOL 124
03/13/06 (H) Heard & Held
03/13/06 (H) MINUTE(RES)
03/14/06 (H) RES AT 12:30 AM CAPITOL 124
03/14/06 (H) Heard & Held
03/14/06 (H) MINUTE(RES)
03/15/06 (H) RES AT 1:15 PM CAPITOL 124
03/15/06 (H) Heard & Held
03/15/06 (H) MINUTE(RES)
03/16/06 (H) RES AT 12:30 AM CAPITOL 124
03/16/06 (H) Heard & Held
03/16/06 (H) MINUTE(RES)
03/17/06 (H) RES AT 12:30 AM CAPITOL 124
WITNESS REGISTER
ROBERT MINTZ, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Answered questions on HB 488.
DAN DICKINSON, Consultant
to the Office of the Governor
Anchorage, Alaska
POSITION STATEMENT: Answered questions on HB 488.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 12:40:41 PM. Representatives
Ramras, Samuels, Kapsner, Olson, Gatto, Seaton, Crawford, and
Elkins were present at the call to order. Representative LeDoux
was on teleconference.
HB 488-OIL AND GAS PRODUCTION TAX
12:40:57 PM
CO-CHAIR SAMUELS announced that the only order of business would
be HOUSE BILL NO. 488, "An Act repealing the oil production tax
and gas production tax and providing for a production tax on the
net value of oil and gas; relating to the relationship of the
production tax to other taxes; relating to the dates tax
payments and surcharges are due under AS 43.55; relating to
interest on overpayments under AS 43.55; relating to the
treatment of oil and gas production tax in a producer's
settlement with the royalty owner; relating to flared gas, and
to oil and gas used in the operation of a lease or property,
under AS 43.55; relating to the prevailing value of oil or gas
under AS 43.55; providing for tax credits against the tax due
under AS 43.55 for certain expenditures, losses, and surcharges;
relating to statements or other information required to be filed
with or furnished to the Department of Revenue, and relating to
the penalty for failure to file certain reports, under AS 43.55;
relating to the powers of the Department of Revenue, and to the
disclosure of certain information required to be furnished to
the Department of Revenue, under AS 43.55; relating to criminal
penalties for violating conditions governing access to and use
of confidential information relating to the oil and gas
production tax; relating to the deposit of money collected by
the Department of Revenue under AS 43.55; relating to the
calculation of the gross value at the point of production of oil
or gas; relating to the determination of the net value of
taxable oil and gas for purposes of a production tax on the net
value of oil and gas; relating to the definitions of 'gas,'
'oil,' and certain other terms for purposes of AS 43.55; making
conforming amendments; and providing for an effective date."
[Before the committee was the committee substitute (CS) for HB
488, version 24-GH2052\Y, Chenoweth, 3/15/06.]
12:41:12 PM
REPRESENTATIVE KAPSNER moved to adopt Amendment 9, as follows
[original punctuation provided]:
Delete Sec 27, page 16, line 23 through page 17, line
17.
REPRESENTATIVE KAPSNER said Amendment 9 deletes what used to be
Section 20 in the original bill, and for the CS, it deletes
Section 27. Those sections added new subsections to AS
43.55.150, and a number of people thought the new language was
not essential to the bill. She noted that some people felt that
it was Christmas tree language regarding the royalty settlement
methodology. She said the consultant expressed concern that
there would be ways that the state could lose money with this
section in the bill. She said it is not crucial to the proposed
profit-based petroleum production tax (PPT).
12:42:30 PM
DAN DICKINSON, Consultant to the Office of the Governor, said he
is the former director of the tax division in the Department of
Revenue. He said Representative Kapsner is right that the
provision is not essential to the PPT. "It is borne out of the
frustration that I felt as an administrator that we have one
group of very skillful folks sitting on the fifth floor and
another group sitting on the eighth floor of the Atwood Building
in Anchorage, and these dedicated folks spend their time looking
at the exact same set of transactions, one with a set of royalty
glasses on and one with a set of tax glasses on."
MR. DICKENSON said the royalty rules and tax rules are very
similar; they are both trying to get to the actual cost of
transportation between the market and the point of valuation.
He said differences have emerged, "and so we have folks who are
dedicated to pursuing those two paths. The reason this bill is
in here, is it gives the commissioner the discretion through
regulations to use other means of valuation other than the
single standards set out in the law. ... The commissioner would
make sure that they all met the tests that we have." He said if
there is one set of transactions already being computed, and it
meets the quality standards of the state, "we felt it was
appropriate to simply do that calculation once as opposed to
doing it twice." He said that with unlimited resources, a
second check would be good, but it is useful to "kill two birds
with one stone."
12:44:40 PM
CO-CHAIR SAMUELS surmised, "Your section takes what we use for
royalty and just uses the same value for tax."
MR. DICKINSON said it gives the commissioner the authority to
use that second royalty value. The commissioner could write
regulations incorporating aspects or all of the royalty
valuations, he stated.
12:45:12 PM
REPRESENTATIVE GATTO said on page 16, line 25 states that the
department may allow the producer to decide, not the
commissioner.
MR. DICKINSON said that is right. "What we say here is that the
commissioner will set up the rules and then presumably they'll
present an election to the taxpayer who can then opt to do it
under one or the other set."
12:45:58 PM
REPRESENTATIVE SEATON asked for an estimate of the financial
difference between the two sets of numbers.
MR. DICKINSON said he believed they would be very close. He
said "the problem in comparing them is, and one of the reasons
why we had all these rules for the commissioner is, when the
royalty settlement agreements were entered into in the early
1990s they only covered existing leases. So we've had a bunch
of production on the North Slope that isn't covered by them.
When you set your averages in, you'd have to be careful that you
were comparing apples and oranges." He said:
I think they're fundamentally, if I can quickly
identify for you the major differences, one of them
is, under law for tax under 020 (f) we set the tax
value either at what the oil and gas is sold for or
the prevailing value. Under the royalty settlement
agreements that are now in existence, the starting
point is simply a spot price-a fair value of the crude
as defined by ... national markers. That is a
difference. Clearly, whenever you have a 'higher of'
as we have in the tax statute, you're probably going
to come up with a higher number than you do when you
simply have one value applied consistently. My
argument to you on that would be, the differences are
not large, and I believe that the provisions for 020
(f) were written before there were transparent
markers, and I believe that looking at a transparent
marker and trying to use that to value petroleum when
it has landed on the West Coast, makes a lot of sense.
That is one potential difference. If the commissioner
felt that the marker was not doing as it could, that
could be one of the standards that he could write in
and say, 'we will not accept a royalty value if that
marker's not good.' The second difference has to do
with vessels and how the return on and of a vessel is
captured. A vessel is a long-lived asset...you are
going to use it for 20 years. The mechanics of that
are different between the two. And then the third
difference, of course, is when we have to correct for
... field costs, [which] are a portion of a royalty
settlement. They are not part of the tax. We would
make sure that they did not come in through the
royalty settlement agreements.
12:48:37 PM
REPRESENTATIVE SEATON surmised that the current system is taking
the higher number, and under the new system, it is up to the
commissioner to let the producer choose.
MR. DICKINSON said that under current tax law, 020 (f), the
department may use the higher prevailing value or the sales
price; it is not required to. The regulations create a safe
harbor so if the price that it is sold for is only a few cents
less than the marker, the adjustment won't be made. "If it was
$2 less, clearly we would go in and substitute the prevailing
value for that transaction. So that is how 020 (f) works under
current statute. What would be replaced is a system where, if
we decided to allow--if the commissioner decided to allow--a
royalty valuation all the way down to destination, at least as I
envision it--it clearly could be other things--the commissioner
would say 'as long as that royalty settlement agreement is in
place you may elect to use either that or this set of tax rules,
you cannot switch back and forth month to month, you can't,
every month, see which one is the higher and use that.' Now,
that's not in here. Clearly the commissioner could decide,
'we'll have it be every month'. I can't imagine that happening.
But what we tried to do is set out the broad outlines, and the
commissioner, by regulation, would establish the methodologies."
12:50:32 PM
REPRESENTATIVE SEATON said he wants an estimated value
difference between the two that are under the commissioner's
authority. It is per producer, which could create a disparity,
and he said he doesn't want to put the commissioner in that
position.
MR. DICKINSON said he doesn't have the numbers. He said the
purpose of giving that discretion to the commissioner is to
allow him or her to follow the market and to follow changing
Department of Natural Resources settlements. He said, "There
are re-opener processes in those so that things can be
renegotiated. If parties can't renegotiate, they go to an
arbitration." The Department of Law has been clear that the
taxpayer can't decide what to pay. "Our notion was, if there's
a method of calculating wellhead value that's already in place
and already makes sense, why have a parallel system?"
12:52:24 PM
CO-CHAIR SAMUELS said he maintains his objection. He said he
can't pretend that he knows more than people who do this for a
living.
MR. DICKINSON said this will not affect the royalty value.
12:52:55 PM
REPRESENTATIVE GATTO asked if it is better to have it set in
concrete.
MR. DICKINSON said that is a constant tension. He said
conditions change and he tried to strike the right balance.
"Clearly, the kinds of decisions that a commissioner can make,
just simply in terms of how much resources go to auditing, what
you do with audits once you've gotten them, whether you're going
to settle those audits or pursue them to the bitter end through
all the court systems. Those kinds of decisions probably are
going to have greater importance in the final analysis than the
direction that is here in Section 27."
12:54:45 PM
REPRESENTATIVE KAPSNER asked if Mr. Dickinson said the provision
is not fundamental to HB 488 and doesn't have to be in it.
MR. DICKINSON said, "The fundamental economic of encouraging
exploration and then getting a piece of the high side...is not
affected by this."
12:55:22 PM
REPRESENTATIVE SEATON said if this is defeated, he still wants
the calculations.
12:55:47 PM
A roll call vote was taken. Representatives Crawford and
Kapsner voted in favor of Amendment 9. Representatives Gatto,
Olson, Ramras, Samuels, Seaton, Elkins and LeDoux voted against
it. Therefore, Amendment 9 failed by a vote of 2-7.
12:57:26 PM
REPRESENTATIVE SEATON moved Amendment 14, 24-GH2052\Y.12,
Chenoweth, 3/17/06, as follows [original punctuation provided]:
Page 18, line 31, through page 19, line 1:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 28, line 10, following "TRANSITIONAL
PROVISIONS.":
Insert "(a) Notwithstanding any contrary
provision of AS 43.55.024(a), enacted by sec. 14 of
this Act, a producer or explorer may apply for a
credit under AS 43.55.024 based on a qualified capital
expenditure incurred on or after January 1, 2006."
Reletter the following subsections accordingly.
Page 29, line 21:
Delete "(f)(1)"
Insert "(g)(1)"
Page 29, line 23:
Delete "(f)(2)"
Insert "(g)(2)"
Page 29, line 25:
Delete "(f)(1)"
Insert "(g)(1)"
Page 29, line 26:
Delete "(g)(1)"
Insert "(h)(1)"
Page 30, following line 16:
Insert a new bill section to read:
"* Sec. 46. The uncodified law of the State of
Alaska is amended by adding a new section to read:
RETROACTIVITY OF CERTAIN EXPENDITURES USED TO
SUPPORT PRODUCTION TAX CREDIT CLAIM AND DETERMINATION
OF PRODUCTION TAX VALUE OF OIL AND GAS.
AS 43.55.160(c)(1), enacted by sec. 28 of this Act,
applies to allow a producer to claim as lease
expenditures certain expenditures incurred on or after
January 1, 2006, and before the effective date of
AS 43.55.160, added by sec. 28 of this Act, and sec.
43(a) of this Act applies to authorize a producer or
explorer to apply for a credit under AS 43.55.024,
enacted by sec. 14 of this Act, based on a qualified
capital expenditure incurred on or after January 1,
2006, and before the effective date of AS 43.55.024,
enacted by sec. 14 of this Act. To the extent these
provisions give legal effect to prior conduct, they
are retroactive to January 1, 2006."
Renumber the following bill sections accordingly.
Page 30, line 19:
Delete "sec. 48"
Insert "sec. 49"
Page 30, line 22:
Delete "46"
Insert "47"
Page 30, line 24:
Delete "sec. 47"
Insert "sec. 48"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE SEATON said Amendment 14 allows the deduction of
expenses and the generation of credits based on a calendar year.
He said, "It allows the entire calendar year from January 1,
2006 to be used for those expenses and deductions."
12:57:30 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 14 carried.
12:58:13 PM
REPRESENTATIVE SEATON moved Amendment 15, 24-GH2052\Y.13,
Chenoweth, 3/17/06, as follows [original punctuation provided]:
Page 4, line 8:
Delete "(g) of"
Page 4, lines 13 - 19:
Delete all material.
Insert "index as determined under this
subsection. The oil price index for a month is the
number equal to the average United States Gulf Coast
price determined under (h) of this section for that
month of West Texas Intermediate crude oil in dollars
per barrel, less 50. If the average price determined
under (h) of this section is not more than $50 per
barrel, the oil price index is zero.
(g) Notwithstanding calculation of the rate
of tax under (f) of this section, if the average price
determined under (h) of this section is at least $110
per barrel, the rate of tax under (f) of this section
is 37.5 percent."
CO-CHAIR SAMUELS objected.
REPRESENTATIVE SEATON said Amendment 15 tries to get to the
intent that at very high oil prices there will be an equal split
between the state and the producers. The crux is in lines 11
through 13, he noted. He said the way the surtax is calculated
is deductible against the PPT, so it will equal 80 percent of
the increasing percentage rate. To get to 50 percent of the
net, "we actually have the total percentage going to 37.5, and
that equals 30 percent of the net. So the 20 percent plus 30
percent means the state will get half and the producers would
get half. And this takes place at $110 a barrel, so this would
leave in the existing 3/10 of 1 percent per dollar escalating,
starting at $50. And would not affect the deductibility of
those from the PPT but would start at 110 and immediately go to
the equal split of net."
12:59:47 PM
REPRESENTATIVE KAPSNER said the amendment should say lines 14
through 19.
REPRESENTATIVE SEATON said this is a conceptual amendment based
on Version Y, as well as the previous amendment, because the
committee has been amending Version Y.
CO-CHAIR SAMUELS said the drafter will fix that.
REPRESENTATIVE KAPSNER said, "If we delete line 13, it will cut
out a section."
CO-CHAIR SAMUELS said the drafter will take care of that.
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 15 carried.
1:00:59 PM
REPRESENTATIVE CRAWFORD moved Amendment 16, 24-GH2052\Y.14,
Chenoweth, 3/17/06, as follows [original punctuation provided]:
Page 4, following line 31:
Insert a new subsection to read:
"(i) Notwithstanding any other provision of this
chapter, except as to oil or gas described in (e) of
this section, tax credits that are authorized against
the tax due under this section by this title,
AS 38.05.180, and AS 41.09 may not be applied to
reduce the producer's total tax due under this section
on oil and gas produced during a calendar year to less
than six percent of the production tax value of the
taxable oil and gas produced by the producer from all
leases or properties in the state, based on the gross
value of the oil and gas at the point of production
and determined without reference to adjustments
authorized by AS 43.55.160. In making the
determination required by this subsection, the
department shall exclude oil and gas produced, the
ownership or right to which is exempt from taxation."
REPRESENTATIVE CRAWFORD said he tried to make the amendment
several times, and he has problems getting exactly what he wants
because there is such a difference between a severance tax and a
net profits tax. He said his intent is to create safety and
protection to the state at low oil prices. He wants a minimum
floor or a minimum tax of 6 percent so the state has protection
when it needs it the most. He said from 1986 to 1989 the state
was in a serious bind, and went to the Economic Limit Factor
system (ELF), but it didn't fix the problem when oil is below
$20 to $30 per barrel. Mr. Dickinson said this amendment still
doesn't get us there, so he wants the amendment to conceptually
state that there is a 6 percent floor.
CO-CHAIR SAMUELS asked if that will be on gross values.
REPRESENTATIVE CRAWFORD said it would be the gross value at the
point of production.
1:03:35 PM
CO-CHAIR RAMRAS said he bought some restaurants out of
bankruptcy. The most onerous part of the problem was the lease
contained a percentage rent provision. There was a minimal rent
due, or the building owner would need to participate in the
income when it exceeded 7.5 percent of sales. The shopping mall
got the minimum when times were bad and got more money when
times were good. He said he has a fundamental objection to one-
way transactions. He said "this committee has been mindful of
its responsibility to participate to a significant extent when
times are good, and sharing windfalls that are generated by the
oil and gas industry." He said he wants to make sure that the
committee doesn't break the partnership by excluding the state's
participation when times are bad. At $22.50, BP said it loses
money on a barrel of oil, which is partially the tariff from the
Trans-Alaska Pipeline System that BP owns. If the state is
going to share in the high prices, it needs to share risk at low
oil prices.
1:06:36 PM
CO-CHAIR SAMUELS said he echoes that. When prices drop the
state will take risks. He said the key is to not spend all the
money the state makes when prices are high. He said the state
is moving to a system that will take the royalty off the top, so
it will still have that and the corporate income taxes, which
will also deteriorate at low prices. A floor on taxes would
mean that if cost recovery doesn't generate any profits, the
industry will still be taxed. "I understand the problem of a
future legislature...but if we're going take some of the high
end, we can't take the high end and then take the low end also.
He said he asked economists about a floor on the tax, and what
would be the trade off at the high end over the long run. He
said several answers, but none picked a figure, "but it was
problematic. One of the answers that came back was at 70
actually. If you stopped the progressivity at 70 then put the
floor in. To me, I think that I would rather take some more of
the risks rather than put in the floor."
1:09:10 PM
REPRESENTATIVE CRAWFORD said we have to look at the past and
know that we are going to run into a problem. He said the
legislature doesn't do a good job of saving money when the state
is flush. Legislatures will be looking back and saying what
were they thinking? "If we don't put protection for the state
in at the low end, we will rue the day."
CO-CHAIR SAMUELS said he appreciates Representative Crawford
bringing this issue forward. He said the committee never got
into the substance of the risk and reward. He said the
legislature needs to look at it as the bill moves forward.
1:10:51 PM
A roll call vote was taken. Representatives Crawford and
Kapsner voted in favor of Amendment 16. Representatives Gatto,
Olson, Ramras, Samuels, Seaton, Elkins and LeDoux voted against
it. Therefore, Amendment 16 failed by a vote of 2-7.
CO-CHAIR SAMUELS said he will raise these issues for the
legislature.
1:11:50 PM
CO-CHAIR RAMRAS noted Representative Kapsner's issue on the
energy fund. He said were oil to hit the $110 price, the people
of Alaska would be in trouble.
1:12:24 PM
REPRESENTATIVE CRAWFORD moved Conceptual Amendment 17 as follows
[original punctuation provided]:
Delete inclusion of gas in the new production tax;
retain current tax on gas.
REPRESENTATIVE CRAWFORD said oil and gas are two separate
animals, and leaving gas in the bill will severely damage
Alaska's competitiveness. He said he doesn't know if the
legislature will get to the next step, which was promised by the
administration. He said he was told that it would arrive and
make everything clear, "and I haven't seen anything yet." He
said he is skeptical about what is coming and when. He said
when he is told not to worry, that is the time to worry. It
will be a difficult amendment to write, but he wants to leave
gas in the current tax system.
1:14:47 PM
CO-CHAIR SAMUELS said there have been many discussions. The
basic concept of cost recovery becomes extremely difficult
because gas and oil come from the same hole. "How do you
allocate the costs between the two without getting gamed?" he
asked. He said some gas is reinjected, and how does on value
that? He said another amendment, Amendment 19, will address
some of Representative Crawford's concern.
1:16:06 PM
A roll call vote was taken. Representatives Crawford and
Kapsner voted in favor of Amendment 17. Representatives Gatto,
Olson, Ramras, Samuels, Seaton, Elkins and LeDoux voted against
it. Therefore, Amendment 17 failed by a vote of 2-7.
1:16:56 PM
CO-CHAIR SAMUELS said Amendment 18 was discussed yesterday in
the form of Amendment 11a.
REPRESENTATIVE CRAWFORD moved Amendment 18, 24-GH2052\Y.10,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 19, line 7, following "AS 38.05.132":
Insert ", and do not include, in connection with
a catastrophic oil discharge into the marine or inland
water of the state, the containment and clean up
expenses incurred by the producer, the incremental
expenses of transportation of oil due to loss or
damage incurred by the producer, and any damages or
penalties imposed on the producer"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE CRAWFORD said he doesn't believe the state should
subsidize, in any way, a catastrophic oil spill similar to the
Exxon Valdez. The language leaves lots of room for smaller oil
spills; this if for a big one, he said. The state should not be
subsidizing the oil industry's mistakes, he stated.
1:18:13 PM
CO-CHAIR SAMUELS asked about companies that invest in oil spill
cleanup booms, boats and other contingency equipment. "Are you
suggesting that we don't allow them to be written off?" He also
asked about the definition of catastrophic. The instance of
someone shooting a hole in the pipe was not the fault of TAPS
owners, he said, but there are those expenses. He assumes the
owners should be able to recoup their cost from that cleanup.
REPRESENTATIVE CRAWFORD said it is not his intent to change
current law, but just to make sure it is include in the new form
of taxation being discussed now. He said it wasn't his intent
to say a company couldn't charge off expenses for acts of god or
a shot to the pipeline. He told the drafter of Amendment 18 not
to change the current law.
1:20:18 PM
CO-CHAIR SAMUELS asked how the amendment relates to another
Exxon Valdez oil spill. He said he tends to agree with
Representative Crawford, but the devil is in the details.
1:20:58 PM
MR. DICKINSON said, "The way that we currently administer, and
again this will be downstream, is Clean Seas or a similar
organization would be an allowable deduction. In other words,
what you spend to be ready...clearly it was not intended to make
that more expensive." He said, "Where we have gotten into
issues is how those co-ops work when payments are made in and
when receipts come back. So there have been some audit issues,
but the fundamental notion here is those co-ops, the funding of
them, is a deductible expense." For Alyeska Pipeline Service
Company, "those costs will then get bundled into the tariff for
future years. The things that Alyeska does currently for
prevention or for mitigation...will be part of the tariff."
1:22:05 PM
CO-CHAIR SAMUELS surmised that if someone shoots a hole in the
pipeline, the tariff goes up, causing a rise in the
transportation costs.
MR. DICKINSON said that is how the situation is set up, "that
your actual costs will become part of the tariff adjustment. I
cannot speak for the specifics if there's; a shipper has to come
in and ask for that. Or a carrier has to come in and ask for
those costs to be brought in. Those can be reviewed by
regulatory bodies, but, in general, I can't imagine them
disallowing an actual cost."
1:22:41 PM
CO-CHAIR SAMUELS asked about another Exxon Valdez-type incident,
and how that relates to Alyeska and the deduction of costs under
the amendment.
MR. DICKINSON said, "My recollection is that there were issues
about whether this was in the...whose bailiwick the spill
occurred in, and I'm not going to speak to that because I'm not
sure. But, in general, if it is a downstream cost and it's a
catastrophic oil spill, which I believe is 100,000 barrels or
more, this would say you could not deduct those for calculating
your gross, and now this would extend it to say you cannot use
it for calculating your net as well."
1:23:37 PM
REPRESENTATIVE GATTO asked if a catastrophic spill related to an
earthquake or terrorism would be treated the same.
MR. DICKINSON said yes, and it could include a spill that was
less than 100,000 barrels but determined catastrophic under the
discretion of the governor.
1:24:17 PM
REPRESENTATIVE SEATON noted that it is in marine and inland
waters only.
MR. DICKINSON that is correct, but inland water of the state can
be expansive.
1:24:47 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 18 carried.
1:24:59 PM
CO-CHAIR RAMRAS moved Amendment 19, 24G-2, 3/17/06, 12:05 P.M.,
which reads as follows [original punctuation provided]:
Page 4, following line 31:
Insert the following material:
"(i) In addition to the taxes levied under (a),
(e), and (f) of this section, for each month for which
the gas price index determined under (j) of this
section is greater than zero, there is levied upon the
producer of gas a tax for all gas produced during that
month from each lease or property in the state, less
any gas the ownership or right to which is exempt from
taxation. The tax is equal to two percent of the gross
value at the point of production of the gas multiplied
by the gas price index as determined under (j) of this
section.
(j) The gas price index for a month is the
number equal to the average Henry Hub gas price
determined under (k) of this section for that month in
dollars per million British thermal units, less eight,
except that if the average price determined under (k)
of this section is
(1) not more than $8 per million British
thermal units, the gas price index is zero; and
(2) more than $23 per million British
thermal units, the gas price index is 15.
(k) For purposes of (i) and (j) of this section,
the department may calculate the average price or may,
by regulation, specify the method by which the average
price shall be calculated with reference to one or
more published sources of price information. If, in
the department's judgment, reliable published sources
of Henry Hub gas price information cease, or appear
likely to soon cease, to be available, or if, in the
department's judgment, the Henry Hub gas price ceases,
or appears likely to soon cease, to be a reliable
indicator of the general price level of gas, the
department shall, by regulation, specify a substitute
formula for computing the gas price index. The
substitute formula specified by the department under
this subsection must bear, as nearly as is reasonably
possible, the same relationship to the general price
level of gas as did the Henry Hub gas price."
Page 6, line 26:
Delete "and (f)"
Insert ", (f), and (i)"
Page 6, line 31:
Delete "and (f)"
Insert "(f), and (i)"
Page 17, line 24, following "AS 43.55.011(f)":
Insert "and (i)"
Page 29, line 12:
Delete "and (f)"
Insert ", (f), and (i)"
CO-CHAIR SAMUELS objected.
1:25:16 PM
CO-CHAIR RAMRAS said yesterday the committee made an excellent
decision to separate the progressivity of oil from gas. He
spoke of recent changes in gas and oil prices. He said he
consulted with Pedro van Meurs to get a formula for the
progressivity of natural gas tied to market conditions. He
distributed the formula, and said the amendment adopts the same
type of progressivity adopted for oil prices, but at different
numbers. Alaska may have natural gas for sale in large
quantities in the next 15 years. He said the stress price for
gas has been noted as being $3.50 per million BTUs [British
Thermal Unit], and now natural gas is in the low $7.00 range,
and after Hurricane Katrina the price went well over $15.00. He
selected $8.00 per million BTU and tied it to the Henry Hub,
which is a standard for natural gas prices. He removed the
dollar increment and converted it into a number to create a
formula, he stated. So it is the Henry Hub minus $8.00. He
said this would increase, by 2 percent for every dollar from
$8.00 through $9.00, requiring to reach the next dollar prior to
the trigger. The ratio is generally one to six between oil and
gas, he said. "So a $1.00 move in the price of 1 million BTUs
of gas would be the equivalent of $6.00 in the movement of the
price of a barrel of oil."
1:30:53 PM
CO-CHAIR RAMRAS said for every dollar increase, there would be a
multiplier of 2 percent until achieving a 30 percent tax, "which
would kick in at $23 per million BTUs. That would get us to the
50 percent equivalent that would have been in the equivalent at
$150 per barrel." He said Representative Seaton may want to
look at it. He thinks it protects the state, giving the House
Finance Committee the opportunity to explore the ramifications
of a progressivity formula for natural gas.
1:32:20 PM
CO-CHAIR SAMUELS asked if it would operate the same way as oil
except the trigger point is $8.00 Henry Hub.
CO-CHAIR RAMRAS said yes; the tax paid on the progressivity of
natural gas would become a deductible expense against the PPT.
1:32:46 PM
REPRESENTATIVE OLSON asked if line 14 should read "less than"
instead of "not more than".
1:33:20 PM
MR. MINTZ said he followed the same format as the prior bill; it
comes out the same.
1:34:11 PM
REPRESENTATIVE SEATON asked if prices are stated in BTUs or MCF
[million cubic feet].
MR. MINTZ said the Henry Hub prices are related to BTUs. He
said he was initially concerned because the production tax
statutes measure gas in cubic feet, but Henry Hub price is only
used for the index, and the index only affects the tax rate;
therefore, there is no problem in having two different units.
The committee took an at-ease from 1:35:21 PM to 1:43:57 PM.
CO-CHAIR RAMRAS said he feels more strongly about Amendment 19.
1:44:21 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment passed.
1:44:51 PM
CO-CHAIR RAMRAS moved Amendment 20, 24G-2, 3/17/06, 11:58 P.M.,
which reads as follows [original punctuation provided]:
Page 24, line 9:
Delete "$10,000,000"
Insert "$12,000,000"
Page 24, line 10:
Delete "$2,500,000"
Insert "$3,000,000"
Page 28, line 28:
Delete ""$10,000,000""
Insert ""$12,000,000""
Page 28, line 29:
Delete ""$7,500,000"
Insert ""$9,000,000""
CO-CHAIR SAMUELS objected.
CO-CHAIR RAMRAS said he is grateful to the committee and happy
with the bill, but he is troubled by heavy oil, Cook Inlet and
other issues not addressed by the committee. He said, "We were
so careful to incentivize the explorers, and that in many of the
improvements that we crafted to the governor's piece of
legislation, I'm afraid that we may have taken a backward step
with the explorers." He said Amendment 20 adds "a couple
million dollars per full year and then some fractional amounts
for 2006 and 2016 to the credit, the tax credit that is produced
annually." He said he recognizes it benefits producers and
explorers, but it sends the right signals to Anadarko Petroleum
Corporation and Pioneer. It moves the annual credit from $10
million up to $12,000 per year, he explained.
1:46:29 PM
CO-CHAIR SAMUELS said this is in reference to the change to the
$73 million allowance.
REPRESENTATIVE SEATON asked, "So this takes an equivalence of an
allowance on what amount?"
CO-CHAIR RAMRAS said it would be equivalent to a $60 million
credit down from the $73 million that was in the governor's
bill, and would get the explorers back to a better place. "It
puts a smile on the explorers faces; a $2 million-a-year smile."
1:47:47 PM
REPRESENTATIVE SEATON noted that this credit is available to
every producer.
CO-CHAIR RAMRAS said, for better or for worse, everybody
benefits equally.
CO-CHAIR SAMUELS said it is non-transferable and can't be
carried forward.
REPRESENTATIVE GATTO asked what is special about the year 2016.
CO-CHAIR SAMUELS said there is a 10-year sunset on the
provision, and the amount represents the fraction of the final
year.
1:48:48 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 20 passed.
1:49:02 PM
REPRESENTATIVE SEATON moved Amendment 21, which, from
handwritten notes read:
Page 1, line 16
Delete 23
Insert 18
Page 1, line 17
Delete 15
Insert 18.75
CO-CHAIR SAMUELS objected.
REPRESENTATIVE SEATON said Amendment 21 "is basically an
amendment to Amendment 19 that we just passed, and...it mirrors
what we did for oil in the progressivity. It changes the line
from 23 to 18, which was the equivalent of the 110-barrel, in
BTU amounts per oil. And it changes the next line; that the
index at 15...since it's deductible, to the 18.75, which gives
the equal split."
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 21 passed.
1:50:14 PM
REPRESENTATIVE KAPSNER said she didn't move Amendment 13, which
would have taken the tax and credit ratio up to 25/20. She said
she drafted the amendment to recognize the many hours of
testimony from economists who said that a 25/20 ratio would not
deter investment, and it would bring in $600 million more to the
state per year when oil is at $60 a barrel. But Representative
Seaton's Amendment 15 brings the tax rate up to 37.5 percent
when the price of oil is $110 per barrel. She said that was a
good concession, and she didn't have the votes for her amendment
anyway.
1:52:26 PM
REPRESENTATIVE GATTO moved to report HB 488, version 24-
GH2052\Y, Chenoweth, 3/15/06, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
1:52:46 PM
CO-CHAIR SAMUELS objected.
1:52:51 PM
REPRESENTATIVE CRAWFORD said his past comments show where he
stands; he doesn't agree with the taxation system. He didn't
agree with the fact that the governor negotiated an oil tax with
the oil industry. He said he didn't think the governor had the
authority to do so, "if fact he had explicit instructions not to
negotiate oil taxes in the context of a gas pipeline." He noted
that the Chair has explained that HB488 is separate, "but in a
few weeks we will understand all the other pieces when we see
the gas contract." He said he hasn't seen the other pieces and
he does not understand the whole picture. He doesn't agree with
a net profit based tax because it is not easily verifiable and
sets the state up for years of litigation. He noted that the
state went through years of litigation when it set up the
severance tax, and it is still going through court battles after
all these years. The efforts that the committee are making is
simply putting perfume or lipstick on a pig, and it is still a
pig. "I just don't agree with going away from something easily
verifiable." He said the world-renowned consultants promoted a
progressive severance tax because it is so much more easily
verifiable, and that would have been the way to go. He said the
committee is doing the best job it can, given the parameters the
governor gave them, "but I am opposed to it and will remain
opposed to it."
1:56:27 PM
CO-CHAIR SAMUELS said he regrets that the committee didn't
address incentivizing heavy oil. He said he doesn't agree with
everything in the CS, but he tried to find a balance. It is a
long process, and he shares Representative Crawford's concerns
regarding cost allocation. He will present those concerns and
will make sure the bill is tightened up as it moved forward. He
said the state needs to focus on a long-term fiscal plan. He
thanked his staff.
1:58:46 PM
CO-CHAIR SAMUELS removed his objection.
1:58:53 PM
A roll call vote was taken. Representatives Gatto, Olson,
Ramras, Samuels, Seaton, Kapsner, and Elkins voted in favor of
CSHB 488, version 24-GH2052\Y, Chenoweth, 3/15/06, as amended,
and Representative Crawford voted against it. Therefore, CSHB
488(RES) passed out of the House Resources Standing Committee by
a vote of 7 to 1. [Representative LeDoux was on teleconference
and therefore not allowed to vote.]
CO-CHAIR SAMUELS canceled the House Resources Standing Committee
meeting on the following Saturday and Monday.
2:00:39 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:00 PM.
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