Legislature(2015 - 2016)BARNES 124
04/17/2015 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB70 | |
| SJR18 | |
| HB191 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 70 | TELECONFERENCED | |
| + | SJR 18 | TELECONFERENCED | |
| *+ | HB 191 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 17, 2015
1:03 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Bob Herron
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Craig Johnson
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 70(FIN)
"An Act relating to exceptions from designation as a special
purpose site under art. VIII, sec. 7 of the Constitution of the
State of Alaska for portions of Denali State Park, Captain Cook
State Recreation Area, Nancy Lake State Recreation Area, and
Willow Creek State Recreation Area to allow leasing a right-of-
way for a natural gas pipeline."
- MOVED HCS CSSB 70(RES) OUT OF COMMITTEE
CS FOR SENATE JOINT RESOLUTION NO. 18(RES)
Supporting the leases issued by the United States Department of
the Interior to Royal Dutch Shell in the Chukchi and Beaufort
Seas; urging the Governor of the State of Washington, the
Seattle City Council, and other public officials in the State of
Washington to refrain from destructive attacks on the economy,
jobs, and lives of the people of this state and the State of
Washington and to look first at closing the Boeing production
facilities to reduce emissions of carbon dioxide from commercial
activity; inviting Royal Dutch Shell to use a port in this state
as the homeport of its Arctic drilling fleet if the lease with
the Port of Seattle is terminated; and requesting that the
Alaska Congressional delegation support restricting the Export-
Import Bank of the United States to lending only to small
businesses.
- MOVED CSSJR 18(RES) OUT OF COMMITTEE
HOUSE BILL NO. 191
"An Act relating to the oil and gas corporate income tax; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 70
SHORT TITLE: GAS PIPELINE RIGHT-OF-WAY;PARKS;REC AREAS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/06/15 (S) READ THE FIRST TIME - REFERRALS
03/06/15 (S) RES, FIN
03/09/15 (S) RES AT 3:30 PM BUTROVICH 205
03/09/15 (S) Heard & Held
03/09/15 (S) MINUTE(RES)
03/30/15 (S) RES AT 3:30 PM BUTROVICH 205
03/30/15 (S) Moved CSSB 70(RES) Out of Committee
03/30/15 (S) MINUTE(RES)
03/31/15 (S) RES RPT CS 3DP 3NR SAME TITLE
03/31/15 (S) DP: GIESSEL, COSTELLO, COGHILL
03/31/15 (S) NR: WIELECHOWSKI, STEDMAN, STOLTZE
04/10/15 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/10/15 (S) Heard & Held
04/10/15 (S) MINUTE(FIN)
04/13/15 (S) FIN RPT CS 5DP 2NR SAME TITLE
04/13/15 (S) DP: KELLY, MACKINNON, MICCICHE, BISHOP,
HOFFMAN
04/13/15 (S) NR: DUNLEAVY, OLSON
04/13/15 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/13/15 (S) Moved CSSB 70(FIN) Out of Committee
04/13/15 (S) MINUTE(FIN)
04/14/15 (S) TRANSMITTED TO (H)
04/14/15 (S) VERSION: CSSB 70(FIN)
04/15/15 (H) READ THE FIRST TIME - REFERRALS
04/15/15 (H) RES
04/17/15 (H) RES AT 1:00 PM BARNES 124
BILL: SJR 18
SHORT TITLE: SUPPORT SHELL PORT OF SEATTLE LEASE
SPONSOR(s): RESOURCES
04/13/15 (S) READ THE FIRST TIME - REFERRALS
04/13/15 (S) RES
04/15/15 (S) RES AT 3:30 PM BUTROVICH 205
04/15/15 (S) Moved CSSJR 18(RES) Out of Committee
04/15/15 (S) MINUTE(RES)
04/16/15 (S) RES RPT CS 6DP SAME TITLE
04/16/15 (S) DP: GIESSEL, COSTELLO, COGHILL,
MICCICHE, STEDMAN, STOLTZE
04/17/15 (H) RES AT 1:00 PM BARNES 124
BILL: HB 191
SHORT TITLE: OIL AND GAS CORPORATE TAXES
SPONSOR(s): SEATON
04/11/15 (H) READ THE FIRST TIME - REFERRALS
04/11/15 (H) RES, FIN
04/17/15 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
BEN ELLIS, Director
Division of Parks & Outdoor Recreation
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Introduced CSSB 70(FIN) on behalf of the
Walker Administration, sponsor.
JOHN HUTCHINS, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division (Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding CSSB 70(FIN).
CHARLES MCKEE
Anchorage, Alaska
POSITION STATEMENT: Testified during the hearing on CSSB
70(FIN).
FRANK RICHARDS, P.E., Vice President
Engineering and Program Management
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding CSSB 70(FIN).
JULIE MORRIS, Staff
Representative David Talerico
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on CSSB 70(FIN)
explained the provisions proposed in Amendment 1.
KARI NORE, Staff
Senator Cathy Giessel
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced CSSJR 18(RES) on behalf of
Senator Giessel, sponsor.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions related to HB 191.
ACTION NARRATIVE
1:03:05 PM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives Seaton,
Josephson, Tarr, Talerico, and Nageak were present at the call
to order. Representatives Olson, Herron, and Hawker arrived as
the meeting was in progress.
SB 70-GAS PIPELINE RIGHT-OF-WAY;PARKS;REC AREAS
1:04:00 PM
CO-CHAIR NAGEAK announced that the first order of business is CS
FOR SENATE BILL NO. 70(FIN), "An Act relating to exceptions from
designation as a special purpose site under art. VIII, sec. 7 of
the Constitution of the State of Alaska for portions of Denali
State Park, Captain Cook State Recreation Area, Nancy Lake State
Recreation Area, and Willow Creek State Recreation Area to allow
leasing a right-of-way for a natural gas pipeline."
1:04:33 PM
BEN ELLIS, Director, Division of Parks & Outdoor Recreation,
Department of Natural Resources (DNR), introduced CSSB 70(FIN)
on behalf of the Walker Administration, sponsor. He explained
that the bill is necessary to open a corridor through four state
legislatively designated areas - Denali State Park, and Willow
Creek, Nancy Lakes, and Captain Cook state recreation areas -
through the Right-of-Way Leasing Act for the purposes of
construction of a natural gas pipeline from the North Slope.
MR. ELLIS projected a map provided by DNR of Denali State Park
depicting the proposed right-of-way corridor. He explained that
of the four areas it is the only area with the potential of
having either the Alaska Liquefied Natural Gas Project (Alaska
LNG Project or AK LNG) pipeline or the Alaska Stand Alone
Pipeline (ASAP) within the corridor. The green squared-off area
down the middle of the map delineates the sections included in
the bill, and this proposed area is wide enough to accommodate
either gasline, or even both, coming from the North Slope.
MR. ELLIS displayed a map provided by DNR of the Nancy Lakes
State Recreation Area. He pointed out that the red line which
denotes the ASAP route touches the Nancy Lakes State Recreation
Area in a few places, but not nearly as much as in Denali State
Park. Drawing attention to the left side of the map he said the
corridor that is depicted is where the AK LNG gasline would go,
but that the Nancy Lakes Recreation Area would only be impacted
by the ASAP gasline.
MR. ELLIS showed a map provided by DNR of the Willow Creek State
Recreation Area. He explained that the red line going through
the area colored in light green is the area included in the bill
and is for the ASAP gasline, and to the left of it on the map is
the AK LNG gasline.
MR. ELLIS presented a map provided by DNR of the Captain Cook
State Recreation Area, explaining that this map focuses only on
the AK LNG gasline because the ASAP gasline would have stopped
north of Anchorage.
1:08:45 PM
MR. ELLIS said CSSB 70(FIN) would accomplish the following
primary objectives: 1) Authorize the issuance of a right-of-way
lease under AS 38.35, the Pipeline Right-of-Way Leasing Act, for
a natural gas pipeline in an identified corridor through Denali
State Park, and Willow Creek, Nancy Lakes, and Captain Cook
state recreation areas. 2) The corridor will be adequate for
either the AK LNG or the ASAP project. 3) Requires the corridor
to be managed as parkland or recreation area until a right-of-
way lease is issued under AS 38.35; upon termination of the
lease the corridor returns to original parkland and recreation
area management. 4) Provides supplemental requirements to
reserve traditional means of public access and minimize the
impact of a pipeline on the specific values of park and
recreation areas. 5) Clarifies that the DNR commissioner's
power to delegate condemnation authority to the lease does not
apply within the bounds of the park and recreation areas. 6)
Requires the gas pipeline lease to be issued before January 1,
2025, and pipeline construction to begin within 10 years of the
effective date of the lease.
MR. ELLIS explained the bill is needed because the parks at
issue are special-use sites, reserved from the public domain by
the legislature. General state land is open to multi-purpose
use and leases are appropriate; there are many leases under
general state land, also known as Title 38 lands. But, when a
parkland or recreation area is created by the legislature, that
land is pulled out of general state land and put into a special-
use area, in this case it is for recreation, called Title 41
land. Neither a director nor a commissioner has authority to
lease Title 41 land and that is the basic reason for bringing
forward this bill. A director can give a short-term contract to
a user in an area of concessionaire, but usually that is for a
period of 5-10 years. State game refuges and Susitna Basin
recreational rivers are not included in the bill because these
areas aren't closed to leasing under AS 38.35 where a lease
would be compatible with the purposes of the reserves.
1:12:01 PM
MR. ELLIS stated the corridor specified in the bill would
suffice for both the ASAP and the AK LNG projects. The Alaska
LNG Project and the Alaska Gasline Development Corporation
(AGDC) have worked cooperatively to select a common alignment
for both projects; AGDC has completed its route revisions to the
common alignment and is calling it Rev. 6.1. Field efforts for
both projects have changed to reflect the common alignment as
evidenced in the geo-technical site locations currently being
conducted within Denali State Park and these efforts are close
to being completed at this point in time.
MR. ELLIS said the changes made in CSSB 70(FIN) from the bill as
introduced are as follows: 1) CSSB 70(FIN) expands references
in three of the four recreation area sections to include
authorization to issue right-of-way leases under the Pipeline
Right-of-Way Leasing Act in Denali State Park, Captain Cook
State Recreation Area, and Nancy Lakes State Recreation Area.
No change was needed for Willow Creek State Recreation Area. 2)
CSSB 70(FIN) changes the survey language by removing "including
land that would lie within the described parcels but for a U.S.
survey," and replacing it with "state or federal survey does not
remove land from the parcels described in (a) of this section."
3) In an effort to provide for ample time for a right-of-way
leasing on the project, CSSB 70(FIN) deletes in four locations
of the original bill the language "provide for termination of
the lease if commercial operation of the pipeline has not begun
five years after the effective date of the lease" and replaces
it with "provide for termination of the lease if construction of
the pipeline has not begun 10 years after the effective date of
the lease." 4) Also in an effort to provide for ample time,
CSSB 70(FIN) in four locations of the bill extends the date of
the lease to become effective from January 1, 2020, to January
1, 2025. It was done in four locations because each park or
recreation area has a section in the bill, so if the language is
changed in one it must be changed in all four of the references.
1:14:57 PM
MR. ELLIS pointed out that CSSB 70(FIN) does not identify a
right-of-way. It opens a sufficient amount of acreage to the
Pipeline Right-of-Way Leasing Act within which a right-of-way
can be selected. The corridor designated by CSSB 70(FIN) would
be adequate for the final engineering determinations as to where
the exact right-of-way is issued. The right-of-way within the
area authorized by CSSB 70(FIN) will be approximately 120 feet
wide for construction reduced to 53 feet wide for operation for
the ASAP Project, and approximately 180 feet for construction
and 100 feet for operation for the Alaska LNG Project. No
Native allotments are within the corridor proposed in CSSB
70(FIN) for Denali State Park, and Willow Creek, Nancy Lakes,
and Captain Cook state recreation areas. Further, CSSB 70(FIN)
will not affect hunting and fishing in any way, the access will
be secured. Until such time as a right-of-way corridor is
leased, access will be the same as it is today. Once a right-
of-way is leased and construction begins there may be some
temporary restrictions on hunting and fishing for construction
purposes, but only in the areas that are under construction at
that particular time. The bill provides for full return of the
land to the park when it is no longer needed for pipeline
purposes. Two releases of land are anticipated. First, once
construction is complete, the construction right-of-way will
contract to operating right-of-way. This will result in the
release of land, which would become fully part of the park again
without further action by the legislature. Second, at the end
of the pipeline life, the lessee will be required to return the
land to a condition acceptable to the commissioner of the
Department of Natural Resources and upon completion of this the
land will be released and returned to the park.
1:17:34 PM
REPRESENTATIVE SEATON inquired whether the granting of the lease
would change the availability of that corridor for oil and gas
exploration, drilling, and development.
JOHN HUTCHINS, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division (Juneau), Department of Law, replied
that currently the land is parkland and not part of the public
domain and that he doesn't think oil and gas exploration and
development is authorized in parkland to begin with.
REPRESENTATIVE SEATON asked whether creation of the lease
corridor without a restriction or change on it alters that
designation so that it would then be available for oil and gas
exploration and production.
MR. HUTCHINS responded no, the statute as drafted limits
disposal of the land in the corridor to leasing for a right-of-
way for a gas pipeline from the North Slope and that is the only
reason that land within this corridor can be disposed of or used
in any manner other than park purposes.
1:19:12 PM
REPRESENTATIVE SEATON noted there has been some question about
access and road access along the corridor once the pipeline is
built. He inquired whether the road that will be along the
pipeline will be available for public use and what will be the
standard of roadway.
MR. ELLIS answered that once the pipeline is in the ground an
access road will be built on top of the pipeline area. The
discussion as to the requirements of how vigorous that access
road would be has not yet taken place. He understood the access
road would provide for the need of access to the pipeline
necessary for the health of the pipeline. He further
understood, and his vision is, that it would provide all-terrain
vehicle (ATV) access along that area, which is not currently
had. He said he can also see the road providing snow machine
access in the wintertime for recreational use, which is not
available now. Unlike the Trans-Alaska Pipeline System (TAPS)
corridor where the pipeline is above ground and that area
limited to the amount of access, this pipeline is below ground
and the access should be as free as it is today once the
pipeline is in place.
REPRESENTATIVE SEATON understood it is not anticipated that the
access road would be a roadway for regular vehicle traffic that
would then divide the park.
MR. ELLIS replied correct, it would be an access road to provide
for the checking of the pipeline and it would not be a road as
such. He reiterated that he envisions it being used for
recreational activities within the park of ATVs in the summer,
which currently there is none, and of snow machines north and
south, again which currently there is none. The access road
will come by or near a lot of the Parks Highway right-of-way and
that will play a part into all of this as well.
1:22:12 PM
REPRESENTATIVE TARR observed that the map produced by AGDC for
the Denali State Park withdrawals depicts the DNR additions to
SB 70 in red and the proposed additions to withdrawal in blue.
She further observed that the maps produced by DNR reflect the
DNR additions, but the proposed additions to withdrawal are not
reflected.
MR. ELLIS responded the [DNR] maps were provided through the SB
70 process, starting with the Senate Resources Standing
Committee followed up by the Senate Finance Committee. The
[AGDC] map has not been introduced to DNR and, while DNR is
aware of it, he cannot comment on it at this time.
1:23:30 PM
REPRESENTATIVE JOSEPHSON related he has visited and backpacked
in the park and recreation areas in question and the Captain
Cook State Recreation Area has massive trees along the
shoreline. He noted he is a great supporter of this project,
but asked whether the trees will be removed before there is a
definitive natural gas plan.
MR. ELLIS answered that CSSB 70(FIN) allows for a right-of-way,
which for the Captain Cook State Recreation Areas is a 2,000-
foot corridor because it deals with the AK LNG line. At
whatever point a gasline is determined to be constructed, if it
is the ASAP line then Captain Cook Recreation Area won't be
affected at all. If it is the AK LNG line, then there will be
further testing as to where in that 2,000-foot corridor the
construction corridor would be created. He anticipated that in
that phase there would be no tree removal. He also anticipated
the possibility of some seismic testing for soil samples and so
forth, much like what there currently is in Denali State Park.
Once the construction corridor of 180 feet is determined that
area will be cleared. After construction that corridor will be
reduced to 100 feet and the other 80 feet will go back to
natural regrowth. He understood there will be no issuance of
right-of-way that would allow for anything to happen in the area
until such time a determined route was decided upon and the
party or parties would then go forward in asking to have a
right-of-way through the Pipeline Right-of-Way Leasing Act for
these four park and recreation areas.
1:26:52 PM
CO-CHAIR NAGEAK opened public testimony.
1:27:21 PM
CHARLES MCKEE testified he has acreage on the Parks Highway in
the vicinity of mile 88 and is concerned about how the right-of-
way might affect that particular area. He noted he was injured
on the job and now has a much reduced income and could therefore
lose his land for lack of payment to the bank.
1:31:45 PM
CO-CHAIR NAGEAK requested AGDC to respond to the question about
tree removal within the proposed corridor.
FRANK RICHARDS, P.E., Vice President, Engineering and Program
Management, Alaska Gasline Development Corporation (AGDC),
replied that the cutting of trees along a pipeline right-of-way
doesn't come into play until actually into the construction
mode. The granting to DNR of the ability to provide a corridor
or right-of-way for AGDC in the planning efforts in no way means
AGDC is going to go out and start cutting trees. Only at the
point that a pipeline route has been selected, funding and
financing procured, and a final investment decision (FID) made,
would AGDC go out and with a defined right-of-way route of [180]
feet start removing trees.
1:33:08 PM
CO-CHAIR TALERICO moved to adopt Amendment 1, labeled 29-
GS1820\N.1, Shutts, 4/15/15, which read:
Page 2, following line 11:
Insert "Section 5: E1/2"
Page 2, following line 16:
Insert "Section 29: SW1/4"
Page 2, following line 22:
Insert "Section 4: SE1/4"
Page 3, following line 13:
Insert "Section 21: NW1/4"
Page 3, line 29:
Delete ": NE1/4, S1/2"
Page 4, line 3:
Delete "SE1/4"
Insert "S1/2, NE1/4"
Page 4, following line 8:
Insert "Section 25: SE1/4"
REPRESENTATIVE SEATON objected for discussion purposes.
1:34:20 PM
JULIE MORRIS, Staff, Representative David Talerico, Alaska State
Legislature, explained Amendment 1 would add small pieces to the
right-of-way. She read through the legal descriptions provided
in the amendment and drew attention to the map prepared by the
Alaska Gasline Development Corporation (AGDC), which depicts in
blue these proposed additions to withdrawal for the proposed
right-of-way.
1:36:58 PM
REPRESENTATIVE JOSEPHSON inquired whose idea is the amendment
and asked what the purpose is of these additions.
MS. MORRIS offered her understanding that this section of the
right-of-way needs to be wide enough to have both the AK LNG and
the ASAP pipelines. The amendment widens the corridor.
REPRESENTATIVE JOSEPHSON asked whether this is DNR's request.
MS. MORRIS responded DNR is aware of the amendment.
REPRESENTATIVE JOSEPHSON understood, then, that DNR is aware of
the amendment but it is not DNR's amendment.
MS. MORRIS deferred to DNR to provide an answer.
1:38:15 PM
REPRESENTATIVE TARR said it appears that there are not amended
areas to include all of the parcels indicated in blue on the
AGDC map. She requested that DNR respond in this regard.
MR. RICHARDS answered that the map prepared by AGDC is based on
AGDC's knowledge of the request for additional parcels, which is
what AGDC has represented in blue. He said he believes those
line up with what is identified in Amendment 1.
REPRESENTATIVE TARR observed that Amendment 1 includes seven
additions, but the map indicates eight or nine parcels.
CO-CHAIR TALERICO replied that line 18 of the amendment is for
two separate portions and said anywhere there is a comma in the
amendment [it is a separate portion]. So, there are actually 10
in the amendment and they should coincide with each area on the
map. He explained that this is a kind of flexibility to allow
the folks to find the best location for the pipeline. Sections
are in squares but the pipeline direction runs at a diagonal, so
it is an effort to expand the potential footprint to find the
best laydown area for the pipeline. It widens the corridor in
areas that appear to be very narrow.
1:40:57 PM
CO-CHAIR NAGEAK requested Mr. Ellis to comment.
MR. ELLIS responded that Amendment 1 did not originate in DNR,
but DNR was aware of it and DNR's opinion was that the right-of-
way as described was wide enough. That said, he added, DNR is
not opposed to the additions.
CO-CHAIR NAGEAK inquired about how much [acreage] it is for each
of those areas.
MR. ELLIS deferred to Mr. Hutchins for an answer.
MR. HUTCHINS answered that a full section is approximately 640
acres and each of these is a quarter section, so each of the
blue squares on the map is 160 acres.
1:43:01 PM
REPRESENTATIVE TARR observed the right-of-way will come close to
Byers Lake, a high value recreation area. She asked whether DNR
anticipates any problems with that.
MR. ELLIS replied DNR does not anticipate any negative impacts
upon Byers Lake or Byers Lake Campground during this process.
1:43:45 PM
REPRESENTATIVE SEATON removed his objection. [Amendment 1 was
treated as adopted.]
1:43:53 PM
CO-CHAIR NAGEAK closed public testimony after ascertaining no
one else wished to testify.
1:44:37 PM
CO-CHAIR TALERICO moved to report CSSB 70(FIN), as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, HCS CSSB
70(RES) was reported from the House Resources Standing
Committee.
The committee took an at-ease from 1:45 p.m. to 1:48 p.m.
1:48:09 PM
CO-CHAIR NAGEAK clarified that Amendment 1 was adopted and that
CSSB 70(FIN), as amended, is reported from committee.
SJR 18-SUPPORT SHELL PORT OF SEATTLE LEASE
1:48:15 PM
CO-CHAIR NAGEAK announced the next order of business is CS FOR
SENATE JOINT RESOLUTION NO. 18(RES), Supporting the leases
issued by the United States Department of the Interior to Royal
Dutch Shell in the Chukchi and Beaufort Seas; urging the
Governor of the State of Washington, the Seattle City Council,
and other public officials in the State of Washington to refrain
from destructive attacks on the economy, jobs, and lives of the
people of this state and the State of Washington and to look
first at closing the Boeing production facilities to reduce
emissions of carbon dioxide from commercial activity; inviting
Royal Dutch Shell to use a port in this state as the homeport of
its Arctic drilling fleet if the lease with the Port of Seattle
is terminated; and requesting that the Alaska Congressional
delegation support restricting the Export-Import Bank of the
United States to lending only to small businesses.
1:48:40 PM
KARI NORE, Staff, Senator Cathy Giessel, Alaska State
Legislature, introduced CSSJR 18(RES) on behalf of Senator
Giessel, sponsor. She explained the resolution is in support of
Royal Dutch Shell's Port of Seattle leases. The resolution
urges Washington to stop interfering with Alaska's economic
development, especially when it comes to the development of the
oil and gas deposits in the Beaufort and Chukchi seas, as well
as the economic development in Alaska's Arctic region. The
resolution offers ports in the state of Alaska as other possible
ports for Royal Dutch Shell to base its operations if Seattle
decides to move forward with its attempts to nullify Shell's
current leases at the port.
1:49:48 PM
CO-CHAIR NAGEAK opened public testimony, then closed it after
ascertaining that no one wished to testify.
1:50:36 PM
REPRESENTATIVE JOSEPHSON commented that there is an outstanding
article in today's Bristol Bay Times written by Mayor Brower of
the North Slope Borough in which she puts forth some good
arguments. He reminded committee members that he has already
indicated on the House floor that he has real concerns with
Shell as an institution because its record in 2012 was really
bad. He said he thinks drilling in the Chukchi Sea is a riskier
proposition than drilling in the Beaufort Sea. While the
resolution is a clever argument in some ways and he takes the
point about Boeing, he doesn't know how helpful any of this is.
1:51:38 PM
CO-CHAIR TALERICO offered his appreciation and support for the
resolution. He said he has read much of the documentation from
the governor of Washington and is disappointed with the
discussion of Arctic policy without the mention of Alaska. The
only reason the U.S. is an Arctic nation is because of Alaska.
There was complete misrepresentation in that letter with
absolutely no mention of Alaska or Alaska's economy, he said, so
he takes offense to what was produced with no prior
communication. There could have been some outreach and contact
with Alaska's administration. Further, he is disappointed by
the letter from Washington that went to Sally Jewell, Secretary
of Interior.
1:53:24 PM
REPRESENTATIVE HERRON agreed it is a clever resolution and said
he has read Mayor Brower's letter to the governor of Washington
and the mayor of Seattle and the city council, which he thinks
was appropriate. He reported that Mayor Brower gave the same
kind of speech when she spoke to Secretary Jewell in Kotzebue.
Many people, including Secretary Jewell, didn't realize that in
her polite speech Mayor Brower kicked Secretary Jewell in the
rear end. The Washington government entities are biting off
their nose to spite their face because Alaska is not a colony.
This conversation between the state of Alaska and the state of
Washington is an issue that Alaska is going to face elsewhere as
well. He related that while he was before Congress, Minnesota
U.S. Senator Al Franken asked him whether he understands the
irony that Alaska wants to drill for its future yet contribute
to the carbon footprint so that Alaska's coastal communities
will go under water. He said he does not take his vote lightly
to pass CSSJR 18(RES) because the resolution emphasizes Alaska's
difficult realities in maintaining sustainable communities and
to have a vibrant economy for the residents of Alaska.
1:56:21 PM
REPRESENTATIVE SEATON said he appreciates the last resolve
clause that the legislature invite Royal Dutch Shell to use a
port in the state of Alaska. However, he added, he has a
question about the second to last resolve clause regarding the
legislature requesting the congressional delegation of the state
to support restricting the Export-Import Bank of the United
States to only small businesses. He noted that this resolve
relates to the last whereas clause on page 2 regarding the
financing of Boeing by that bank. He said he thinks there are a
lot of other things the Export-Import Bank can do and he is not
wanting there to be an impact on Alaska businesses or other
businesses that are not involved in this dispute. He urged it
be put on the record that it is for one company and not a
general statement for all import/export activity across the U.S.
1:58:11 PM
REPRESENTATIVE TARR noted that the Alaska State Legislature
hasn't asked other states when it considers resolutions that
pertain to another state; for example, the resolution for New
York's Central Park and the resolution for the proposed Keystone
pipeline. She urged the legislature to tread carefully in
relationships with Alaska's economic partners and to not be
confrontational, but rather find ways to resolve the state's
concerns in constructive ways in recognition that each
legislature is representing its constituents. The Alaska State
Legislature needs to hold itself to the same standards that it
is asking the other states to uphold.
2:01:21 PM
REPRESENTATIVE JOSEPHSON added that Mayor Brower's article was
well considered. An irony, though, is that Mayor Brower talks
about Alaska needing to buildout the Arctic so search and rescue
can be done for hunters drifting on the ice, while the push back
from Washington is that there isn't going to be any ice.
2:02:03 PM
CO-CHAIR NAGEAK offered a reminder about the history between
Alaska and Washington, especially Seattle. In the past Alaska
and Washington were closely tied together by the economics and
proximity of Alaska to Washington. Seattle used to tout itself
as the gateway to Alaska because everything going up to Alaska
came through Seattle. U.S. Senator Magnuson from Washington and
U.S. Senator Stevens from Alaska created the Magnuson-Stevens
Act on fisheries, a relationship of the two states that
continues today. Washington depends on Alaska as seen by the
crab fishermen from Washington who fish in Alaska waters.
Therefore, he said, he was upset when the City of Seattle
starting writing resolutions. The two states used to work
together and now they are working against each other and that is
not good for either state or for Seattle. Alaska is a huge
economy for Seattle and this is how Seattle is paying back
Alaska. He said he is glad Mayor Brower responded accordingly.
2:06:14 PM
CO-CHAIR TALERICO moved to report CSSJR 18(RES) out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, CSSJR 18(RES) was reported from
the House Resources Standing Committee.
The committee took an at-ease from 2:06 p.m. to 2:10 p.m.
HB 191-OIL AND GAS CORPORATE TAXES
2:10:19 PM
CO-CHAIR NAGEAK announced that the final order of business is
HOUSE BILL NO. 191, "An Act relating to the oil and gas
corporate income tax; and providing for an effective date."
CO-CHAIR NAGEAK noted the committee will not take any action on
HB 191 and the bill will be held over for future discussion.
2:10:43 PM
REPRESENTATIVE SEATON, sponsor, introduced HB 191 using a
PowerPoint presentation. He said HB 191 would ensure fair and
equitable treatment among [corporate] taxpayers, whether they
are multi-national companies or Alaska companies producing oil
or gas only in Alaska. He addressed slide 2, explaining that
worldwide apportionment attributes a percentage of a
corporation's total worldwide expenses to each jurisdiction and
treats the [parent] company and all of its subsidiaries as a
single entity for tax purposes. The problem is that when a
corporation's subsidiaries outside of Alaska are less profitable
than they are inside of Alaska, it reduces the taxes the company
pays to Alaska to account for the expenses incurred overseas or
in the Lower 48. He noted he is using the word profit a little
vernacular; everyone understands what that means - people are
often talking about net margin, which means profit before taxes.
Continuing, he explained that under separate accounting each
jurisdiction is looked at separately. The difference between
the revenue generated in a jurisdiction and the expenses
attributed to generation of that revenue in a jurisdiction is
the net margin/profit. The method of separate accounting means
that everybody is going to pay the same. A corporation that
exists solely in Alaska, producing oil and gas in Alaska, with
all expenses related to Alaska, will pay 9.4 percent tax on its
profit. Historically under worldwide apportionment, the multi-
national corporations pay much less than 9.4 percent tax because
they can write off their overseas expenses against the profits
they made in Alaska.
2:14:07 PM
REPRESENTATIVE SEATON turned to slide 3, "History of Separate
Accounting," reporting that Alaska originally began with
worldwide apportionment and found it was not collecting what it
felt was its fair share from revenues generated in Alaska. The
state subsequently changed its system to separate accounting,
using this system from 1978-1981, but the state was sued by oil
companies. The fear was the amount of money the state would
have to pay to the oil companies if the state lost the lawsuit
because the companies would be paying less under worldwide
apportionment, so the legislature went back to worldwide
apportionment. The state ended up winning on all counts in the
Alaska Supreme Court. This was appealed to the U.S. Supreme
Court, but the U.S. Supreme Court dismissed the case because it
didn't bring up any issues of federal importance. He moved to
slide 4 to show the cover page of the lawsuit case [in the
Alaska Supreme Court]. Displaying slide 5 he pointed out that
during the years 1978-1981, inclusive, the total difference
between separate accounting and worldwide apportionment was $1.8
billion. Fearing Alaska might have to repay this amount, the
legislature repealed separate accounting. Representative Seaton
explained that slide 6 is from a presentation made by Dan
Dickinson of the Department of Revenue in 1999. Between 1982
and 1997 the state collected $4.6 billion less by using
worldwide apportionment than it would have collected using
separate accounting. He clarified that the only thing being
talked about is deduction of expenses from overseas, the tax
rate would not be changed and would remain at 9.4 percent. He
noted slide 7 is a graphic representation of Mr. Dickinson's
report. The blue bars are what the state actually collected and
the grey bars are what would have been collected at the same tax
rate under separate accounting, with the difference between the
quite large.
2:17:36 PM
REPRESENTATIVE SEATON related that an argument heard is that
separate accounting is difficult to do. He displayed a synopsis
(slide 8) of the two states (Oklahoma and Mississippi) and the
80 countries that use separate accounting, drawing attention to
the companies that operate in Alaska as well as those two states
and the other countries. [Companies operating in both Alaska
and Mississippi include Anadarko Petroleum, Apache Corporation,
Aurora Exploration, Chevron USA, ExxonMobil, Hilcorp Energy
Company, Shell Oil, Tesoro, and Ultra Oil & Gas; Companies
operating in both Alaska and Oklahoma include Anadarko
Petroleum, Apache Corporation, BP Exploration & Production,
Chevron USA, ConocoPhillips, ExxonMobil Corporation, and XTO
Energy]. He pointed out that it is more difficult for the
companies to do separate accounting in Oklahoma and Mississippi
because there are close adjoining states where the companies are
also doing oil and gas development, while Alaska is thousands of
miles away from another state. Regarding the 80 oil-producing
countries, he reported that for nonresident corporations in
these countries the vast majority of the companies must use
separate accounting. [Companies operating in both Alaska and
other countries include Anadarko Petroleum, Apache Corporation,
BP Exploration & Production, Chevron USA, ConocoPhillips, Eni
Petroleum, ExxonMobil Corporation, Repsol, Shell Oil Company
(Royal Dutch Shell), and Statoil]. Thus, these companies
already are doing separate accounting. Ten states in the U.S.
allow a company to choose whether to use worldwide apportionment
or separate accounting, he added, and almost always the
companies choose worldwide apportionment. However, that doesn't
mean the companies aren't calculating it all the time because
they will swap back and forth when it is beneficial.
2:19:33 PM
REPRESENTATIVE SEATON reviewed the tax rates and net income for
the top five oil companies paying taxes to Alaska for tax years
2006-2013 (slides 9-12). He explained ConocoPhillips is
separated out [slides 11-12] because it is the only corporation
required to separate its Alaska production, thus it is the only
company that reports it to the Securities and Exchange
Commission (SEC). Because tax data in Alaska is confidential,
data for the top five companies in Alaska is combined into an
aggregate rather than individually for each of those companies.
Turning to slide 10, "Top Five Oil Companies - Corporate Income
Tax Comparison," he pointed out that in 2013 the tax paid under
worldwide apportionment was $355 million less than what it would
have been under separate accounting. Further, between 2006 and
2013 the effective tax rate paid to Alaska by these five multi-
national companies declined [from 10.1 percent] in 2006, when
there was a change in tax rate halfway through the year, to 4.4
percent in 2013. However, an Alaska-only company pays 9.4
percent corporate income tax.
2:21:40 PM
REPRESENTATIVE SEATON brought attention to slide 11, "Table 2:
ConocoPhillips Exploration and Production Net Income per Barrel
of Oil Equivalent by Selected Jurisdictions." He noted that the
average net income per barrel [for the years 2000-2014] is
$18.73 for Alaska, $7.66 for the Lower 48, and $10.95 for the
global total. Those differences in net income per barrel of oil
equivalents is explained by the taxes being paid to Alaska being
less than half of what would be required of an Alaska-only
producer. There is a problem with mixing oil and gas because
gas is generally less profitable. However, the companies have
never separated their oil production from their gas production;
they have been asked to do so, but they have declined.
Displaying slide 12, a graphic representation of the numbers on
slide 11 for ConocoPhillips, he noted the huge difference in net
income per barrel that is seen on the graph.
2:23:32 PM
REPRESENTATIVE SEATON moved to slide 13 to continue addressing
ConocoPhillips and Alaska. He explained he isn't picking on
ConocoPhillips, but since ConocoPhillips is the only corporation
required to make reports to the SEC [the information is
available]. Bringing attention to slide 14 depicting a 2011
article from Petroleum News, he noted that Greg Garland, the
ConocoPhillips senior vice president for exploration and
production in the Americas, states that ConocoPhillips likes the
Eagle Ford [shale play in Texas] because [the $45 per barrel
margin] was twice that of Conoco's global portfolio, meaning the
global portfolio was about $23 per barrel. Looking at Alaska's
oil economics in 2011 (slide 15), Representative Seaton pointed
out that the net margin [of $43.50] per barrel of oil was
essentially the same as the Eagle Ford net margin [of $45] that
ConocoPhillips said it liked. Alaska's 2011 margins were twice
ConocoPhillips' global average, which shows how Alaska's taxes
get diluted. Moving to slide 16, he noted that ConocoPhillips
is very bullish on Alaska: making a final investment decision
on expanding the 1H drill site at West Sak and going to viscous
oil production, sanctioning construction of site 2S at Kuparuk
River, and so forth. The question is how that relates to Alaska
versus other oil economics (slide 17). He pointed out that the
[total] rig count for Alaska increased between 2008 and 2015 as
did the rig count just for ConocoPhillips in Alaska, whereas the
rig count in the Lower 48 and in Canada went down between [2012
and 2015]. Oil companies are not investing in new exploration
and production in the Lower 48 because they are investing for
profit, he said. They are investing in Alaska because it is
more profitable - without separate accounting that lower
profitability in the Lower 48 reduces their Alaska taxes.
2:26:33 PM
REPRESENTATIVE JOSEPHSON said he is interested in this but is
inclined to play a bit of devil's advocate. Noting that
Representative Seaton is talking about how Alaska's investment
climate is better due to worldwide apportionment, he asked
whether this isn't the Senate Bill 21 argument all over again.
He further asked what the difference is from the oil industry's
perspective.
REPRESENTATIVE SEATON replied there is quite a bit of difference
because it is corporate income tax that is being talked about,
which is based on profitability of the oil company, not oil
production tax as in Senate Bill 21. He clarified he isn't
saying the companies are more profitable here because of
worldwide apportionment, rather the state is reducing its taxes
because Alaska is more profitable than the other places. From
the historical data it can be seen that there was only one time
when worldwide apportionment would have gotten Alaska a little
more money than separate accounting. Exploration and
production, which Alaska is heavy in, is generally more
profitable than retail oil sales and refining.
2:28:49 PM
REPRESENTATIVE JOSEPHSON reiterated that HB 191 is intriguing to
him and noted that he voted against Senate Bill 21, but said it
seems that all of last summer's ads on television and in print
could have been cut and "corporate income tax" pasted in and
statements made about how it would suppress interest in
development and the positive economics of development, even
though it is a different topic.
REPRESENTATIVE SEATON responded he doesn't believe so - the
profits are there and then the taxes are applied. He said he
doesn't think it is the tax differential that is driving
investment in Alaska, the tax differential actually subsidizes
investment in lower-profit areas. For example, a company could
go into an area where its profit isn't quite as good because the
expenses are higher, but those would be somewhat offset because
it would reduce the company's taxes in Alaska. It is to
Alaska's detriment, not its benefit, that that happens.
2:30:16 PM
REPRESENTATIVE SEATON displayed slide 18, "Estimated average oil
industry 'margin' per taxable barrel in Alaska for FY16." He
pointed out that [under the current production tax method] the
company margin before state and federal income tax is $11.04.
He opined that companies "are still investing here; the point of
this is that rigs are being laid down all over in the Lower 48
and other places, whereas current investment is going here
because it's more profitable, if you're more profitable than the
other regions then you are going to reduce your taxes here for
the expenses that are occurring elsewhere."
REPRESENTATIVE SEATON drew attention to slide 19, pointing out
that for tax year 2013 the top five oil companies paid taxes of
4.4 percent, whereas under separate accounting they would have
paid the statutory rate of 9.4 percent. Thus, under worldwide
apportionment rather than separate accounting, Alaska's loss in
2013 was $355 million. The average loss over the last few years
is $220 million and $220 million a year is significant given the
fiscal times that Alaska is in.
2:31:44 PM
REPRESENTATIVE JOSEPHSON inquired whether a policy call was made
by either the Hammond Administration or the Sheffield
Administration in the early and mid-1980s to come off the
corporate income throttle and come down harder on gross income
tax or severance tax.
REPRESENTATIVE SEATON answered he doesn't believe so. When he
came to the legislature there was the Economic Limit Factor
(ELF), which was totally broken. Under the Murkowski
Administration the second largest oil field wasn't paying
anything. There was not a balance made of increasing taxes,
there was only a lowering of those and not going back to
separate accounting even though there was an Alaska Supreme
Court decision telling the legislature that that was an adequate
and appropriate way to tax. History has shown that the state
would be better off under a [separate accounting] tax regime
with a 9.4 percent tax rate, but the legislature for one reason
or another has not changed its tax policy and that is why HB 191
is before the committee. The bill would ensure that the taxes
are fairly and equitably apportioned to international oil
companies as well as Alaska-only oil companies; under separate
accounting a tax rate of 9.4 percent would be applied to both
types of companies. So, the question before the legislature is
whether to charge double taxation on Alaska-only companies,
given the tax rate for Alaska-only companies is 9.4 percent and
the tax rate for international companies has been 4.4 percent.
2:34:33 PM
REPRESENTATIVE TARR asked whether, in relation to activities on
the Alaska Liquefied Natural Gas Project (Alaska LNG Project or
AK LNG), under separate accounting oil development activities
would be accounted for separate from the corporate activities
related to AK LNG or would all of that be considered Alaska.
REPRESENTATIVE SEATON replied that oil and gas properties
generally are consolidated as being Alaska operations in the oil
and gas. He deferred to the Department of Revenue for an answer
as to whether the transportation is going to be separated.
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
responded to Representative Tarr's question by explaining that
Alaska's corporate income tax taxes activities within Alaska.
It doesn't tax them directly because the relative profitability
for those Alaska activities, which includes the profit on the
production, the profit on the transportation, and so forth, gets
run through this formula of apportionment where it gets compared
with the relative numbers in other parts of the world. He said
he doesn't envision any difference inside AK LNG. The state's,
the corporations', and the partners' in AK LNG's profits would
be subject to this tax just as they currently are. In the
conversations before the body last year, say, during debate of
Senate Bill 138, the property tax and the corporate income tax
were sort of outside the in-kind conversation. The expectation
was that the State of Alaska would be taking its royalties and
its production taxes in-kind and the state would own that gas
and run it through that project. Whatever the companies'
profits were on their portions of AK LNG would then be subject
to corporate income tax. He said he doesn't see where HB 191
would change that mechanism in any way.
2:38:39 PM
REPRESENTATIVE JOSEPHSON requested Mr. Alper to provide a few
sentences on the foundational philosophy between royalty, a
gross severance tax, be it profit or through some other method,
and corporate income tax.
MR. ALPER answered that the royalty is the landowner's share.
In most parts of North America oil and gas are produced from
privately owned land so the royalty would go to the owner of
that land. Alaska is fortunate in that most of the oil and gas
that has been developed on the North Slope is on land that is
owned and selected by the state, so the state gets to take that
piece as the landowner, regardless of the state's role as the
sovereign. The severance tax is the state's right as the
sovereign. Because it is a nonrenewable resource that's being
severed from the ground, the state is being compensated in some
form for the one-time removal of something that fundamentally
belongs to the state, a subsurface resource. A corporate income
tax is separate from the natural resource world. It is the
state's taxation power, also a sovereign power as the state, for
the privilege of doing business within Alaska's borders in
exchange for the services the state provides. The state
collects a tax on the profit of corporate entities. It is a
broad tax, it goes beyond the corporations that produce oil and
gas; it applies to other large companies that meet the threshold
of the corporate income tax.
2:40:45 PM
REPRESENTATIVE JOSEPHSON commented that the corporate income tax
is literally the fact that the state is enforcing laws and
contracts, has a court system, all those privileges that the
state affords a corporation.
MR. ALPER concurred. The fact that there is an apportionment
mechanism is in many ways a simplifying factor, he said, a way
in which the various states and their tax administrations
cooperate with each other to balance the deck. Where HB 191
goes is to recognize that there are some inherent imbalances
specifically in the oil and gas world, perhaps because the
nature of the production in Alaska is very different from what
happens in the Lower 48.
2:41:30 PM
REPRESENTATIVE SEATON pointed out that nothing in the bill would
affect credits. All of the credits that would be applicable to
the current income tax that is being paid are transferred and
are applicable to the tax here. There is no slight-of-hand
trying to eliminate or impact credits. Credits are mentioned in
the bill only so that all of the credits are available and none
of them are available twice: in the year that a credit would be
there, it could not be claimed on both the old and new income
tax.
2:42:41 PM
REPRESENTATIVE TARR inquired whether the accounting system
proposed in HB 191 could lead to increased investment, given
that a company is balancing credits and investments against each
other.
MR. ALPER replied that the suite of credits currently available
against the corporate income tax are somewhat different in
nature than the credits on, say, the oil and gas production tax.
The credits tend to be targeted to very specific activities,
such as manufacturing, value-added, refinery, education. The
corporate income tax, because it has a broad taxpayer base, has
been used as a place where credits can be used for desired
activity. For example, many of the companies earning a film
credit don't pay income tax in the state of Alaska because they
are not Alaskan companies, but those credits would then be sold
and used by corporate income tax payers. He said HB 191 would
maintain all of that structure. All of those taxes,
transferable and otherwise, could be used against either the
traditional corporate income tax, which would continue to be
apportioned, or this new oil and gas corporate income tax, which
would use a separate accounting mechanism.
[HB 191 was held over.]
2:47:24 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:47 p.m.