Legislature(2009 - 2010)
04/14/2010 03:19 PM Senate FIN
| Audio | Topic |
|---|---|
| Start | |
| SB4 | |
| HB280 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
April 14, 2010
3:19 p.m.
3:19:15 PM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 3:19 p.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Larry Hartig, Commissioner, Department of Environmental
Conservation; Representative Mike Hawker, Sponsor; Marsha
Davis, Deputy Commissioner, Department of Revenue; Dan
Sullivan, Mayor, Anchorage; Tadd Owens, Director,
Government and Public Affairs, Pioneer Natural Resources
PRESENT VIA TELECONFERENCE
Kevin Banks, Director, Division of Oil and Gas, Department
of Natural Resources
SUMMARY
SB 4 COASTAL MANAGEMENT PROGRAM
CSSB 4 (FIN) was REPORTED out of Committee with a
"do not pass" recommendation and with a new
fiscal note by the Department of Revenue and a
new fiscal note by the Department of
Environmental Conservation.
SB 309 GAS EXPLORATION\DEVELOPMENT TAX CREDIT
SB 309 was scheduled but not heard.
HB 365 FISH PROCESSOR FEES, LICENSES, RECORDS
HB 365 was scheduled but not heard.
HB 424 G.O. BONDS:EDUC./LIBRARY/RESEARCH FACIL.
HB 424 was scheduled but not heard.
HB 280 NATURAL GAS: STORAGE/ TAX CREDITS
HB 280 was heard and HELD in Committee for
further consideration.
SENATE BILL NO. 4
"An Act relating to the Alaska coastal management
program; and establishing the Alaska Coastal Policy
Board."
3:19:43 PM
LARRY HARTIG, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL
CONSERVATION, stated that the bill is important to the
committee, as well as to the sponsors. The Department of
Environmental Conservation works with the North Slope
Borough and other communities on Village Safe Water
Projects. He stressed that the department understands how
important this bill is to rural communities and to all
Alaskans. He related that the bill provides for a
fundamental change in state policy to allow for the
transfer of Alaskan resource projects from state agencies
to local boards. He expressed respect for the community
leaders in coastal communities, but maintained that the
department has a fundamental difference in policy.
Commissioner Hartig emphasized that the state believes that
the decisions on major projects, like oil, gas, and port
projects, must reside with state agencies. One reason for
this belief is fairness throughout the state. The same
rules should apply to every community. Every Alaskan is
entitled to the same level of environmental protection and
each community should have the same standards in order to
be assured of protection from the consequences from a
project. He stated that the department has research and
studies available to them. He noted that the projects are
not easy and come with a lot of pressure and opposing
interests. He maintained that fair, open, and impartial
decisions would be difficult to make at a community level.
Mr. Hartig concluded that the bottom line, with a shift in
policy that SB 4 represents, is that the administration
does not support transferring the authority and creating
the risk just described.
3:24:45 PM
Mr. Hartig reported that the governor and the
administration would like to see communication continue,
but does not see the legislation as the vehicle toward the
objective because of the differences in philosophy as to
how decisions are made. The department could not come to
terms with the language in the bill. He wished to keep
communication open. He spoke of respect for local issues.
Co-Chair Hoffman took issue with the words "continue the
dialogue" saying that he had requested dialogue with the
governor's office, as has the mayor of the North Slope
Borough, and no dialogue has taken place. He suggested that
the dialogue needs to begin. He asked what changes in
Version S need to be addressed.
3:27:15 PM
Mr. Hartig maintained that the governor's door is always
open. He thought there was a misunderstanding and he
apologized. As far as changes, until the administration
comes to terms with the philosophical underpinnings,
especially regarding large resource projects that affect
the whole state, not much can be accomplished. He did not
want to close the door on communication.
Senator Olson thanked the commissioner for coming. He
thought it was not a good indication of the
administration's good will to not have a representative in
the discussion. He stressed that prior to 2003 when the
Coastal Management Plan was gutted, there was plenty of
development money. He wanted to get back to the previous
model. He talked about the issue of fairness. He emphasized
the level of frustration felt by his district.
3:30:47 PM
Senator Olson MOVED to report CSSB 4 (FIN) out of Committee
with individual recommendations and the accompanying fiscal
notes.
Senator Huggins OBJECTED for discussion purposes. He
commented on the extreme frustration regarding this
legislation.
Senator Huggins WITHDREW his OBJECTION.
There being NO further OBJECTION, it was so ordered.
CSSB 4 (FIN) was REPORTED out of Committee with a "do not
pass" recommendation and with a new fiscal note by the
Department of Revenue and a new fiscal note by the
Department of Environmental Conservation.
RECESSED 3:33:14 PM
RECONVENED 5:16:58 PM
CS FOR HOUSE BILL NO. 280(FIN) am
"An Act relating to a gas storage facility; relating
to the Regulatory Commission of Alaska; relating to
the participation by the attorney general in a matter
involving the approval of a rate or a gas supply
contract; relating to an income tax credit for a gas
storage facility; relating to oil and gas production
tax credits; relating to the powers and duties of the
Alaska Oil and Gas Conservation Commission; relating
to production tax credits for certain losses and
expenditures, including exploration expenditures;
relating to the powers and duties of the director of
the division of lands and to lease fees for a gas
storage facility on state land; and providing for an
effective date."
REPRESENTATIVE MIKE HAWKER, SPONSOR, explained his reasons
for proposing HB 280, the "Cook Inlet Recover Act". It
addresses a very critical issue that all communities in the
Railbelt are facing. Consumer energy is based nearly 100
percent on natural gas from Cook Inlet. The productivity of
those fields has reached its natural decline point and peak
demands won't be met within two winters becoming a life
safety issue. It is a lead priority of Anchorage's
administration. Stakeholders have reached conclusions as to
what is needed to meet and to resolve this issue.
5:20:58 PM
Representative Hawker referred to a study that listed seven
immediate needs for Cook Inlet. HB 280 addresses four of
those needs. Most importantly, there is a need to develop
major gas storage facilities for new gas and increasing
deliverability in order to meet peak requirements. The bill
provides a Facilities Development Credit against income
taxes. He emphasized that the facilities would be
delivering gas for utilities.
5:22:38 PM
Representative Hawker explained the credit would become a
mandatory "flow through" to reduce the cost of gas to the
consumers.
Representative Hawker discussed the storage facilities and
whether they would be regulated by the Regulatory Authority
of Alaska (RCA). The bill defines RCA's responsibilities.
The bill also provides for storage for a company's own gas,
which is not RCA regulated. It also provides for technical
requirements.
5:25:46 PM
Representative Hawker spoke of the difficulty RCA has had
in approving long-term contracts. The bill provides
guidance when evaluating such contracts. The Regulatory
Commission of Alaska is directed to consider the impact on
consumers if it rejects a proposed contract - the
"consequence of saying no" provision. The RCA is also
directed to recognize the value of a utility holding a
diversified portfolio of gas supply contracts with
different pricing mechanisms. The bill provides for the
Regulatory Affairs and Public Advocacy Division of the
Department of Law (RAPA) to peruse the proposed contracts
and abide by the same requirement to consider the
consequence of denying a contract.
5:28:20 PM
Representative Hawker stated that the bill provides for
increased access to existing development incentives the
state offers in current statute. This will help promote the
exploration of remaining gas in Cook Inlet, which exists in
much smaller concentrations than in previous "domes", and
costs more to extract.
Representative Hawker added that the bill eliminates the
Cook Inlet penalty, which was built around North Slope
issues. He recalled the ELF process and the allowing of ELF
to apply to Cook Inlet, which does not have a progressivity
feature. Cook Inlet has a lower tax rate than the North
Slope and the penalty should not apply. The ELF provision
is counterproductive to Cook Inlet. The bill allows "a
dollar spent and credits earned" in Cook Inlet to be
applied universally across the state as anyone else's
credit.
5:34:29 PM
Representative Hawker talked about production credit
amortization. The bill allows credits to be amortized in
full the year incurred, instead of over a two-year period.
The bill also allows for CAPEX credit for well enhancement
and recovery work. That language has been carefully drafted
with the Department of Revenue.
Representative Hawker noted that the bill eliminates tiered
credit and goes straight to 40 percent. Cook Inlet is a
small region that is in need of promotion. Production
credits are allowed to be sold back to the state in order
to capitalize explorers. The Cook Inlet region is not
particularly attractive to international companies. The
bill intends to attract the appropriate scale of explorers
and developers.
5:38:43 PM
Senator Thomas asked if the tax credits could be applied to
a producer in Prudhoe Bay or sold. Representative Hawker
clarified that the benefit of having a credit is in order
to receive a tax refund. He added that the credit section
of the bill is for Cook Inlet; however, the gas facility
development section would apply to the North Slope, as well
to anyone developing gas storage facilities.
Senator Thomas asked if it was for storage, not drilling.
Representative Hawker said credits apply to Cook Inlet
only. Senator Thomas asked for the reason. Representative
Hawker noted concern about expanding credits across the
state. The intent of the bill is to leave that issue to a
statewide bill.
5:42:06 PM
Senator Thomas noted some are concerned about not drawing
and storing gas consistently and the loss of a percentage
of gas when shutting down. He wondered if exporting is the
solution to maintaining consistency. Representative Hawker
replied that it is a multi-faceted approach issue. Storage
is one element. Maintaining an export component is a
production buffer. He said that gas wells don't turn up and
turn down well. It would be ideal to maintain a continuous
flow. The export buffer expires March 31, 2011.
ConocoPhillips said they would pursue an extension of the
export permit. He suggested that storage facilities were
needed in order to meet peaking demands.
Co-Chair Stedman noted the remaining agenda would be taken
up in the morning.
5:46:26 PM
Senator Egan asked how many facilities are needed.
Representative Hawker did not know. Anecdotally, DOT
envisions one large, open access facility and other
facilities to address storage requirements. He spoke of
credit limits which determine facility size, and other
sidebars.
5:49:06 PM
Co-Chair Stedman noted four zero fiscal notes: Department
of Natural Resources, Department of Commerce, Community and
Economic Development, Department of Administration, and
House Finance Committee.
MARSHA DAVIS, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
introduced herself.
Co-Chair Stedman asked why the committee should pass the
bill. Ms. Davis explained that the department was satisfied
with the size criteria for the gas storage facility, the
capital credit, and the reinvestment requirements.
5:50:58 PM
Co-Chair Stedman asked if the administration supports the
bill. Ms. Davis said it did.
Co-Chair Stedman referred to page 7 and requested more
information about the jack up drill. He wondered if the
credits could "go negative" with the state ending up paying
over 100 percent. Ms. Davis asked if he was referring to SB
309. Co-Chair Stedman said yes. Ms. Davis explained that a
review of the jack up rig has been done and the department
is satisfied with it. It would cost up to $54 million for
the three rigs with the potential for the state to receive
a 50 percent reimbursement of about $27 million.
Co-Chair Stedman asked if Kevin Banks supported the bill.
KEVIN BANKS, DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT
OF NATURAL RESOURCES (via teleconference), related the
department's view of HB 280. The bill expands tax credits
to pay for the kinds of wells needed in Cook Inlet. Under
today's tax system, only exploration wells would have
received a credit. He commented that the department has
spent a good deal of time on the storage facility language
and has reached a compromise regarding how storage leases
would be administered.
5:55:01 PM
DAN SULLIVAN, MAYOR, ANCHORAGE, testified in support of the
bill. He said energy is of critical concern to his area. He
highlighted the current lack of gas in Cook Inlet and the
creation of a task force to find solutions. He said it was
a top priority. Gas storage is one solution on high demand
days. He noted that HB 280 addresses three of the task
force's goals: storage and credit for storage, incentives
and credits for production, and working with RCA on
deliverability and contract terms.
5:57:44 PM
Mr. Sullivan spoke of the uniqueness of Cook Inlet and the
challenges there of a small, expensive, isolated market. He
thought the bill was a short-term solution for about 10 to
15 years. He restated the key components of the bill.
Mr. Sullivan spoke of the balance between the state's needs
and producers' needs. He maintained that people in
Southcentral are willing to pay more for gas as long as
they have reliability.
5:59:54 PM
TADD OWENS, DIRECTOR, GOVERNMENT AND PUBLIC AFFAIRS,
PIONEER NATURAL RESOURCES, listed his company's projects
and history. He suggested Cook Inlet could be a valuable
asset in spite of its challenges. He testified in support
of HB 280.
6:02:31 PM
Co-Chair Stedman asked Senator Thomas if there were
amendments forthcoming. Representative Hawker noted that
the administration is working with ENSTAR to extend a line
to Homer. The administration is proposing an amendment to
that affect.
HB 280 was heard and HELD in Committee for further
consideration.
SENATE BILL NO. 309
"An Act amending and extending the exploration and
development incentive tax credit under the Alaska Net
Income Tax Act for operators and working interest
owners directly engaged in the exploration for and
development of gas from a lease or property in the
state; providing for an effective date by amending the
effective date for sec. 2, ch. 61, SLA 2003; and
providing for an effective date."
SB 309 was scheduled but not heard.
HOUSE BILL NO. 365
"An Act relating to sharing records regarding fish
purchased by fish processors with certain federal
agencies, to requirements to obtain and maintain a
fisheries business license, and to payment of industry
fees required of fish processors; and providing for an
effective date."
HB 365 was scheduled but not heard.
CS FOR HOUSE BILL NO. 424(FIN) am
"An Act providing for and relating to the issuance of
general obligation bonds for the purpose of paying the
cost of design and construction of library, education,
and educational research facilities; and providing for
an effective date."
HB 424 was scheduled but not heard.
ADJOURNMENT
The meeting was adjourned at 6:03 PM.
| Document Name | Date/Time | Subjects |
|---|