Legislature(1993 - 1994)
04/18/1994 09:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE April 18, 1994 9:10 a.m. TAPES SFC-94, #71, Side 2 (250-000) SFC-94, #73, Side 1 (000-end) SFC-94, #73, Side 2 (end-350) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 9:10 a.m. PRESENT In addition to Co-chairs Pearce and Frank, Senators Rieger, Kerttula, and Sharp were present. Senator Kelly joined the meeting after it was in progress. Senator Jacko was absent from the meeting. ALSO ATTENDING: Senator Randy Phillips; Representative Gary Davis; Representative Fran Ulmer; Josh Fink, aide to Senator Kelly; Alyce Hanley, Commissioner, Alaska Public Utilities Commission (APUC), Department of Commerce & Economic Development; Bob Lohr, Executive Director, APUC, Department of Commerce & Economic Development; Ray Gillespie, Lobbyist, Petro-Marine; Dana Tindall, Senior Vice President of Regulatory Affairs, GCI; Jimmy Jackson, regulatory attorney, GCI, former hearing officer of the APUC; Gary Lucken, Acting General Manager, Anchorage Telephone Utility (ATU); Michael Burns, Chairman of the Board of Directors, Anchorage Telephone Utility (ATU); Mark Foster, private consultant in utility issues, engineer, former APUC Commissioner; Gerald L. Gallagher, Director, Division of Mining, Department of Natural Resources; David Rogers, and Kent Dawson, lobbyists, Council of Alaska Producers; Jetta Whittaker, fiscal analyst, Mike Greany, Director, Legislative Finance Division; representatives of the media, aides to committee members and other members of the legislature. VIA TELECONFERENCE: Steve Borell, Executive Director, Alaska Miner's Association, testified from Anchorage. SUMMARY INFORMATION CSSB 213(JUD): An Act extending the Alaska Public Utilities Commission; and relating to regulation of public utilities and to regulatory cost charges; and providing for an effective date. Alyce Hanley, Commissioner, Alaska Public Utilities Commission (APUC), Department of Commerce & Economic Development, and Bob Lohr, Executive Director, APUC, Department of Commerce & Economic Development, testified and asked the committee to delete Section 1 of CSSB 213(JUD). Josh Fink, aide to Senator Kelly spoke to the CS. Dana Tindall, Senior Vice President for Regulatory Affairs, GCI, and Jimmy Jackson, regulatory attorney, GCI, former hearing officer of the APUC, spoke in favor of amendment 2. Michael Burns, Chairman of the Board of Directors, Anchorage Telephone Utility (ATU), and Gary Lucken, Acting General Manager, Anchorage Telephone Utility (ATU), testified in opposition to amendment 2 proposed by GCI. Mark Foster, private consultant, engineer, former APUC Commissioner, spoke in support of CSSB 213(JUD). CSSB 213(JUD) and amendments 1, 2, and 3, were HELD in committee until April 19, 1994, and Co- chair Frank and Senator Kerttula were asked to research language in amendment form that would address concerns of the committee. CSHB 453(FIN): An Act establishing, for purposes of the levy and collection of the motor fuel tax and for a limited period, a different tax levy on residual fuel oil used in and on certain watercraft; and providing for an effective date. Representative Gary Davis, sponsor of HB 453, spoke in support of the bill. Discussion was had by Co-chair Frank, Senators Kerttula and Kelly regarding a sunset provision, and the effect of the bill on state revenue. CSHB 453(FIN) was HELD in committee. (Note SB 327 is the Senate's companion bill.) SB 333: An Act relating to disclosure of close economic associations by certain state employees and to the prohibition against nepotism in the executive branch of state government; and providing for an effective date. Scheduled but not heard. SB 350: An Act relating to a defendant's violation of conditions of release; and providing for an effective date. Scheduled but not heard. CSSB 371(RES): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. Steve Borell, Executive Director, Alaska Miner's Association, testified, via teleconference from Anchorage, in support of SB 371. Gerald L. Gallagher, Director, Division of Mining, Department of Natural Resources, spoke to the concerns of the department with the bill. David Rogers, and Kent Dawson, lobbyists, Council of Alaska Producers, spoke in support of the bill. CSSB 371(RES) was HELD in committee for amendments from Senators Kelly and Kerttula. SB 371 was scheduled for April 19, 1994. (HB 498 is the House companion bill.) CSHB 119(JUD) am: An Act authorizing a sentencing court to impose a sentence of a day fine instead of a sentence of imprisonment on a defendant convicted of a misdemeanor; directing the Alaska Supreme Court to develop and implement a day fine plan; requiring the Alaska Court System to report to the legislature on the use of day fines; amending Alaska Rule of Criminal Procedure 32; and providing for an effective date. Scheduled but not heard. CS FOR SENATE BILL NO. 213(JUD): An Act extending the Alaska Public Utilities Commission; and relating to regulation of public utilities and to regulatory cost charges; and providing for an effective date. CO-CHAIR PEARCE announced that SB 213 was before the committee. She invited Alyce Hanley and Bob Lohr to join the members at the table. ALYCE HANLEY, Commissioner, Alaska Public Utilities Commission (APUC), Department of Commerce & Economic Development, asked the committee to consider an amendment to delete Section 1 of CSSB 213(JUD). She went on to speak to the language "liberally construed." She said it was not unique language in public utilities commissions (PUCs) and the Alaska PUC was fairly new, organized in 1972. The major portions of the APUC statutes came from Oregon, and commissions across the country enjoy the same powers afforded by the language "liberally construed." She shared a few examples where the APUC had used that language. One had to do with the garbage in Healy. The person that had the certificate to pick up the trash had not picked up garbage for two months. APUC members went to Healy, had a consumer input hearing, and determined a public necessity. Temporary certificates were awarded to two other companies so that they could begin trash pickup and address a major health hazard. In the statutes, the Commission did not have the ability to award temporary certificates but authority for such an incident was drawn from the term "liberally construed." Ms. Hanley went on to say that sometimes it could benefit a utility. A utility could come to the Commission and explain that fuel and insurance costs had increased and it was not earning enough to continue operation. The Commission could temporarily review the situation, and allow the utility to increase its rates on an interim and refundable basis. Again, the authority for this came from "liberally construed." She reminded the committee that the utilities they dealt with were not all sophisticated ones. She also felt removing the "liberally construed" language could cause problems because of increased competition. It would be more difficult for APUC to respond in a timely manner. By restricting the APUC's authority, she felt the legislature would assume more of the regulatory authority and have more questions and problems. In court cases, it could change the way the APUC authority would be interpreted. Instead of looking at the stated purpose of the APUC, the courts would look at specific mention of a particular power. She urged the committee to delete Section 1 and instead to target specific problems that were perceived with the APUC rather than remove the "liberally construed" language. SENATOR KERTTULA asked who recommended the proposed amendments. BOB LOHR, Executive Director, APUC, Department of Commerce & Economic Development, said the Alaska Rural Electrical Coop Association (ARECA) had been promoting the deletion of the "liberally construed" language and the phrase found in Section 1 of the bill which would narrow the APUC's authority within those areas. In answer to Senator Kerttula, Mr. Lohr said that Ms. Hanley had touched on one problem, temporary operating authority. The second problem would be interim refundable rates. Currently, the law clearly authorized the Commission to establish a rate that was subject to refund and to require a bond of the utility in order to cover the difference between the permanent rate and the interim rate. The Commission had "liberally construed" that authority to mean that interim refundable rates, without requiring a bond of the utility, were appropriate. Without Section 1, that assumption would probably not hold up in court. The utilities had benefited and acknowledged it. In roughly 50 percent of the eight cases that had gone to the Supreme Court, interpreting the phrase "liberally construed", four had been to the benefit of the utilities. CO-CHAIR FRANK said in a "perfect world" he would agree with the "liberally construed" language, but the Constitution limited the power of government and the laws limited the power of regulatory agencies. He believed the existing language was too broad and proposed language may be too narrow. He would like to find a way to speak to the areas where the power should be liberal and limit those powers in some way. Mr. Lohr said that Co-chair Frank had made an excellent point and agreed there might be a middle ground. The common area of discussion had been issues within the specific powers and duties that were conferred that may deserve legislative attention. He read a quote from the original court case, Homer Electric Association versus the City of Kenai, "this provision (talking about "liberally construed") represents two guiding principles determining the extent of the APUC jurisdiction under specific provisions of the Act. On the one hand it includes a principle of limitation restricting the APUC's power to the specific jurisdictional areas of its stated purposes. On the other hand, it includes a principle of expansion mandating that the APUC's power to act within its specific areas of jurisdiction 'is to be liberally construed.'" He went on to say it did not confer any powers that were not already there. He admitted there may have been a few years of bureaucratic foot dragging, and that the APUC took too many years to take a position, but the "leading liberal construed" would have the affect of giving the Commission a better excuse for not acting. It could say "our hands are tied, go to the legislature." Mr. Lohr believed, in looking for terms of specific powers or specific areas of agreement, if the legislature, through intent language or otherwise, directed the Commission to work with the associations representing the utilities/cooperatives to do a review of the specific powers and duties, and come back with recommendations next year with some kind of deadline, it would be very beneficial. SENATOR SHARP asked in relation to interim tariffs subject to refund, which basically were ordered with the suspension of a tariff filing, had there ever been an interim rate tariff set so high that there had ever been a refund order. Mr. Lohr said there had been and could supply details. Senator Sharp believed in most cases the interim rates would be set considerably below the tariff filing and that time period was not subject to recoupment. Senator Sharp went on to speak to "liberally construed." He felt it had been used to the detriment of consumer-owned utilities, and pictured it as a blank check for the Commission. Mr. Lohr said "liberally construed" had only appeared in the text of court cases eight times. Senator Kerttula pointed out that this act was initiated in 1962-64 and modified again in 1971-72. It had always been supported strongly by those who now have a problem with this provision. He questioned that since the other 49 states had a similar program, maybe there was an artful form of modification of these powers as Co-chair Frank had suggested. Mr. Lohr answered that state statutes for state agencies had been researched and there was a range of phrases that accomplished the broad result of "liberally construed." He said there were about 12 states that actually used the phrase "liberally construed," and others ran the gamut from broad to strict phrases. Discussion continued by Senator Kerttula and Mr. Lohr regarding new language. JOSH FINK, aide to Senator Kelly, chairman of Labor & Commerce Committee, sponsor of SB 213, said that the two differences of the Labor & Commerce CS and the Senate Judiciary CS was that the Judiciary CS deleted "liberally construed" and also mandated regulation of cable unless the consumer opted out. Previously, in law, the consumers would have to petition the APUC to be regulated under cable. He then went through each section. Section 1 deleted "liberally construed." Section 2 and 11 raised the maximum regulatory cost charge from .61 percent to .8 percent. The reason for the change may be found in Section 3. Section 3 explained that the cost of power was deleted from the gross revenues of electrics in determining the regulator cost charge. When the cost of power was deleted, the remaining had to be increased. In answer to Co-chair Pearce, Mr. Fink said ARECA made the argument that in comparing the time the Commission spent with electric utilities and with other utilities, electric utilities were paying a disportionate amount of the Commission's budget. The auditor recommended a time-keeping system be established but realized it would be costly. The percentage change was a "rough cut" at making an adjustment to the regulatory cost charge but it did bring electric more in line with the amount of time spent by the commission. Again in answer to Co-chair Pearce, he said every regulated utility would see an increase of about 30 percent. The remaining revenues from electrics would see about a 30 percent increase as well. Section 4 instructed the Department of Administration to earmark the money collected from the regulatory cost charge that was in excess or an overcharge. He explained the money from the fourth quarter came in after the end of the fiscal year, so if they had overcharged (which would not be known until the end of the fiscal year), the money currently lapsed into the general fund. It would earmark the money for program receipts for next year's budget. The following sections related to recommendations from the auditor. Currently, certain utilities, depending on the gross revenues and type, were exempt from regulation. In an exempted utility, the consumers may opt to be regulated by petition. In the new provisions, the opting in and opting out provisions were identical. Section 5 contained the application for electric and telephone utilities. Section 6 exempted electric and telephone utilities with gross revenues not exceeding $500,000 (currently it was $325,000). Section 7 referred to utilities other than telephone or electric and raised the threshold to $150,000. Section 8, for the collection of trash, raised the threshold from $200,000 to $300,000. Section 9 was amended to automatically regulate cable companies unless consumers opt to exempt themselves. Section 10 was a conforming amendment clarifying that procedures for opting in and out were the same. Section 11 had been explained earlier. Section 12 referred to earmarking the RCC collected from pipelines addressed in Section 11. Section 13 extends the APUC to 1998. Section 14 repealed the sunset of the regulatory cost charges that were recommended by the Commission. The reasoning was that the Commission was up for sunset review every four years and at that time the legislature could address regulatory cost charge concerns. Section 15 staggered the terms of the Commission members. Currently, there were two seats that expired at the same time but it would not affect any existing members, terms would just run out. Section 17 put an effective date on the "liberally construed" deletion of July 1, 1995. Section 16 made clear that any proceeding that was started prior to July 1, 1995, the "liberally construed" powers would apply. Section 18 contained the effective date. Discussion was had by Senator Rieger and Mr. Fink regarding Section 5 and 10, the opting in and opting out provisions. Mr. Fink referred to Section 7.12 for clarification. Mr. Fink said there were two ways of exempting out, if you were a small utility and revenues were under the threshold, or, if revenues exceeded the threshold, consumers could sign a petition and opt out. Co-chair Pearce invited Dana Tindall, Senior Vice President of Regulatory Affairs, GCI, and Jimmy Jackson, regulatory attorney, GCI, former hearing officer of the APUC, to join the members. DANA TINDALL said she would give a general policy introduction in support of both the "liberally construed" language and the amendment GCI supported on the power of the Commission to fix rates. She said GCI supported the existing language in the statute of granting the Commission "liberally construed" powers to carry out their mandate. It believed the Commission had used it to good effect in the past and it was necessary in order to carry out their mandate to insure that competition was fair to competitors and consumers alike. Ms. Tindall said she would speak to the policy behind the amendment GCI supported under Section 42.05.431(a), power of Commission to fix rates. The genesis was ATU's announcement to enter both the long distance and the video program market in the next three to five years. GCI had concerns about ATU competing with them in the long distance market because of their existing monopoly over the local exchange network but that was not really why she was speaking today. She wanted to speak to the rate payers of ATU. GCI and Alascom account for about 60 percent of ATU's revenues in the form of access charges. GCI must pay for the privilege of going through ATU to both originate and terminate all calls. The way their rates were set was based on allocating ATU's total costs between the different services. GCI was concerned about ATU's proposal because it believed the ventures proposed were risky, would increase ATU's total costs, would increase GCI rates as access payers, and if failed, would force all regulated rate payers to pick up all failed costs of the venture. She went on to explain the reasons she felt GCI's ventures were risky. End SFC-93 #71, Side 2 Begin SFC-93 #73, Side 1 JIMMY JACKSON said that the amendment proposed by GCI was logged in as amendment 2. This amendment gave municipally- owned utilities a protection which other private utilities did not have. The protection was that the APUC must set rates to insure that the bond covenants of a municipality- owned utility were never reached. A similar provision had been added for cooperatives a few years ago. When it was added for cooperatives, the statute said that new bonds were required to be approved by the Commission. That had never been added for municipally-owned utilities. He pointed out that existing statutes said that if ATU entered into ventures and any of them failed, APUC would be required to raise rates to GCI and local rate payers in Anchorage to cover those losses. GCI opposed this law. Amendment 2 targeted this issue. SENATOR RIEGER questioned testimony that the request for municipally-owned utilities would be changed to be the same as the cooperatives. Mr. Jackson said it would not be the same and referred amendment 2 to Senator Rieger. It was a restriction but not the same restriction. Mr. Jackson cited the statement regarding bonds in amendment 2. He said this section was comparable to sections being proposed in federal law. Ms. Tindall said the federal legislation would permit the Bell operating companies to go into new services like computer information services, previously forbidden. While permitting them to enter those services, the regulation would not let them incur debt for these services that would put the regulated services at risk. Mr. Jackson said ATU had premised their entry into these new markets on the fact that this federal legislation was pending and believed that it was going to pass. Amendment 2 would not allow these companies to use their regulated monopoly as collateral for new businesses, or put their basic services at risk by going into new ventures. In answer to Senator Kerttula, Mr. Jackson said they should be able to get money because a business should stand on its own two feet. Mr. Jackson said that press releases from ATU had stated that this legislation would prohibit them from going into competition or issuing bonds. He said that was not the intent. In answer to Senator Sharp, Mr. Jackson said there were different degrees of separation in other states by utilities when entering unregulated businesses. Ms. Tindall added that under present statute, APUC would be required to set rates for its main business to cover any default of the separate subsidiary. She went on to say the intent of the proposed amendment 2 was to put ATU and other municipally- owned utilities that are rate regulated by the APUC on the same footing as anyone else going to the bond market. Mr. Jackson felt the legislature did not envision utilities going into competitive services and had offered that protection when utilities gave very basic service. MICHAEL BURNS, Chairman of the Board of Directors, Anchorage Telephone Utility (ATU), introduced Gary Lucken, Acting General Manager, Anchorage Telephone Utility (ATU), and thanked the committee for the opportunity to speak to SB 213. He said the Board of Directors for ATU was created by the voters of Anchorage in 1991. At that time the voters chose not to sell the company but establish the Board of Directors which indicated a desire that the company be operated and compete in accordance with prevailing industry practices. In February of this year, ATU announced that the company intended to complete five fibre rings in Anchorage, enter the long distance business through a separate subsidiary, and begin a pay-for-view video project. He believed this was in keeping with the instruction from the people in Anchorage. Prior to that announcement, a survey was done and convinced ATU that was the wish of the voters. Mr. Burns said there were several reasons for ATU entering the long distance market. First, analysis indicated it would be profitable. He said ATU lowered its long distance charges last year and none of the money made its way back to consumers in Anchorage. He said federal legislation that could be passed this year would accomplish three major goals. One, open local markets to competition, two, remove the prohibition against telephone companies and cable companies from entering each other's businesses, and three, free the Bell operating companies from restrictions on their entry into long distance and other businesses. He said ATU's competitors and ATU's desire to access Anchorage to the information super highway were reasons ATU was so adamant about entering these fields. Mr. Burns said ATU opposed amendment 2 for Constitutional reasons and because of the mandate from the voters. MCI and GCI had publicly announced their intention to enter the local markets and now were asking the legislature to restrict ATU's ability to compete. He maintained that ATU must be allowed to compete in accordance with prevailing industry practices or the people of Anchorage would see their asset value reduced substantially. Finally, the pending federal legislation he had mentioned earlier, would open the local market to competition, and, if this amendment passed, it would be successful in restricting ATU's ability to compete in all areas. He again urged the committee not to pass amendment 2. In answer to Senator Kelly, Mr. Burns said that none of the costs related to MacTel (ATU's cellular phone subsidiary) were passed on to the customer. MARK FOSTER, private consultant in utility issues, engineer, and former APUC Commissioner, said the "liberally construed" clause represented a fair and level balance between the utilities and the Commission, and was consistent with most of the statutory authority in commissions across the country. He felt a specific example would help address the situation. In reference to the bond covenant in amendment 2, what the amendment did was protect monopoly rate payers from subsidizing services they did not receive, and protected competitors from predatory pricing. He felt Mr. Burns had made an argument in support of amendment 2 when he indicated MacTel's losses had not found their way into the regulated side of the house. This amendment would statutorily make sure that did not happen. Under existing statute, if those expansions were bond funded, they could have put some of those losses to the regulated rate payers. He encouraged adoption of amendment 2 as reasonable and consistent to federal legislation. In answer to Senator Kerttula, Mr. Foster posed the question "would you allow a firm that has a monopoly base, to leverage that base of rate payers, and use the borrowing power available, to get into competitive services?" He pointed out that the Consumer Federation of America and the American Association of Retired Persons had made this issue one of their top priorities in legislation. He said he was testifying for public interest and had not been hired by anyone. In answer to Senator Rieger, Mr. Foster said the traditional approach, when there was a monopoly and a competitive market within the same firm, was to try and separate the profits and losses out so there were no cross subsidies. Mr. Foster said it was consistent with federal provisions in pending legislation. He cited voice mail as a good example. Many small entrepreneurs were trying to get into the business of providing voice mail and voice mail services in Anchorage. This kind of entrepreneur was not protected if large utilities were allowed the flexibility to cross subsidize their services and offer services like voice mail at near or below cost because they had monopoly rate payers to cover those losses. He encouraged the committee to retain the "liberally construed" language and adopt amendment 2. Co-chair Frank asked if there was any statute that would prohibit ATU from setting up a subsidiary and moving some amount of net worth into that subsidiary and borrow against that equity. Mr. Foster said he did not know if he could answer that question today. He said there could be arguments where the equity would be coming from -- whether it was either from the monopoly rate payers or retained earnings as property of the shareholders. They continued to discuss this situation. Co-chair Pearce announced that SB 213 would be HELD in committee and asked Co-chair Frank and Senator Kerttula to research new language for a committee substitute. CS FOR HOUSE BILL NO. 453(FIN): An Act establishing, for purposes of the levy and collection of the motor fuel tax and for a limited period, a different tax levy on residual fuel oil used in and on certain watercraft; and providing for an effective date. Co-chair Pearce announced that HB 453 was before the committee and invited Representative Gary Davis to join the members at the table. She said that HB 453 could not be moved today because the Senate version of the bill, SB 327 had been noticed instead of HB 453. REPRESENTATIVE GARY DAVIS said that CSHB 453(FIN) was the same bill as companion bill, SB 327. He felt it was a good economic development bill that promoted Alaska's product, established jobs, and promoted some additional taxable infrastructure. He pointed out reducing the motor fuels tax on residual oil seemed untimely but that 5 cents tax was stifling sales of residual oil. The prime use of residual oil was by cruise ships. The CS of HB 453 carried a guarantee that the state would not lose revenue from sales of residual oil. The cruise lines used it as bunker fuel which was a blend of residual oil plus #2 diesel, on a 1 to 9 ratio. There would be the potential of selling 40M plus gallons to the cruise lines. Senator Kerttula asked if a sunset provision should be added to this bill. Representative Davis said that there was a four year sunset in the bill. He agreed that it was a good clause so the legislature could review assumptions made in this bill. In answer to Co-chair Frank, Representative Davis said there was a tourist year in the bill rather than a FY or CY. Co-chair Pearce announced that CSHB 453(FIN) would be HELD in committee. CS FOR SENATE BILL NO. 371(RES): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. Co-chair Pearce announced that SB 371 was before the committee. At this time the meeting was joined by Steve Borell, Executive Director, Alaska Miner's Association, via teleconference from Anchorage. End SFC-93 #73, Side 1 Begin SFC-93 #73, Side 2 STEVE BORELL said he would testify in support of SB 371. He said the stages of a project were broken down into exploration, development, and actual production. It had been estimated that for every project that becomes an operating mine, major mining companies would investigate at least 1,000 exploration targets. If the results of the initial investigation were encouraging the evaluation effort was expanded to include more tests and drilling was increased to smaller spacing. Drilling was necessary to prove minable deposits. Once the drilling had defined the deposit to be economical, bulk samples of several tons would be taken and tested for metallurgical recovery and to define the type of milling and recovery process that would be required. At this point, there was still no mine or any guarantee that there would be one. The exploration stage of the project then ends when a feasible study was complete which could convince the financial markets to provide funding to build the project. At that point, the project moved into the development stage. The bill would no longer apply to this part of the project. He talked to people at the Red Dog Mine, and, in general terms, from 1977-86, approximately $25M was spent on exploration work. In 1987-89, the development period, $350M was spent on actual construction of facilities (not including the road which was an additional $100M+). From November 1989 to present, during the operating mode, there has been an annual payroll of $25M a year, operating supplies and services of about $35M a year, and fuel costs of about $10M for a total annual cost of $70M a year. Mr. Borell went on to explain that this credit was a minimal amount of money but significant because of where it appeared (in the exploration stage) and the encouragement it could give a company. Senator Kerttula agreed that mining was a tough occupation. He said he was worried about school taxes and would like to figure out a way to recover those costs. Since there was no state income tax, it was harder to do that. He did not agree with giving any credit for non-residents. In response to Senator Kerttula's remarks, Mr. Borell said the only people hired that were non-residents were highly technical people that might not be able to be found in the state. In the case of big companies, one technical person might follow projects all over the world. Senator Kerttula still was opposed to giving non-residents credit in development. GERALD L. GALLAGHER, Director, Division of Mining, Department of Natural Resources, said the department had some concerns about SB 371. The primary problem was that the mining industry contributes so little to the general fund and creating a back door out of the general fund did not seem like good policy. He felt this type of credit would become the new "floor" and after six months or a year it would be forgotten that it was an incentive. One example was the mining license tax that changed about a decade ago to give the mining industry a 3-1/2 year exemption at start- up from paying that fee. The intent was to let them recover their initial costs. He pointed out that the royalties of locatable minerals was 3 percent of net again. The Department was concerned that incentives would become the new "floor". Senator Kerttula agreed that Alaska was very developmentally minded and encouraging in these programs. Mr. Gallagher said the state royalty on coal was 5 percent of the adjusted gross or about $1/ton depending on the deposit. That was the low or middle of what most states charge for coal. The royalty on relocatable minerals was 3 percent of the net and that was very low in comparison to other states. In answer to Senator Rieger, Mr. Gallagher said that he thought the bill would not include credit for drilling at the edge of a deposit to prove or delineate additional reserves since that was development and not exploration. DAVID ROGERS, lobbyist, Council of Alaska Producers, a non- profit corporation that consisted of a number of the large hardrock mining companies doing business in the state, said they supported SB 371. He pointed out that the Department of Natural Resources was taking a different view of the bill than they had previously expressed in the House. He also wanted to point out that the emphasis on the general fund was misleading. He thought it was not clear if the impact would be positive or negative. In answer to Senator Rieger's previous question of developmentally drilling, Mr. Rogers thought those issues should be clarified in regulations. Senator Kelly suggested those issues be outlined in the bill. Mr. Rogers did not object to that. Discussion was had by Co-chair Frank, Senator Kelly, and Kerttula regarding tax policy for resource development in the state. KENT DAWSON, also a lobbyist with the Council of Alaska Producers, said the state of Alaska owned a lot of land, there were minerals out there, and the idea was to encourage exploration and be competitive with the rest of the world in the development and production stages of a project. Senator Kelly pointed out that SB 371 would cover private as well as state land. Mr. Dawson said the state's tax structure also effected all land so the state was in charge of adjusting that structure. In answer to Senator Rieger, Mr. Rogers said according to his memory, the annual exploration budget of firms operating in Alaska was approximately $28M last year and was decreasing. Mr. Dawson said that companies made choices and decisions and one factor depended on the regulatory climate and the apparent willingness of the jurisdiction for acceptance. He had heard a positive response to the possibility of an incentive credit available in Alaska for exploration. Senator Kerttula made his point again that he was opposed to hiring non-residents and he did not want to encouragement it in any way. Mr. Rogers said that it was a cost of doing business and that cost should not be penalized. Senator Kerttula reiterated his opposition to giving credit for non- resident hire. Senator Kelly requested that Mr. Rogers draft new language delineating what would qualify for exploration credit. Senator Kerttula said he would like to propose an amendment to modify or reduce the non-resident credit. Co-chair Pearce announced SB 371 would be HELD until new language or amendments could be drafted. SCHEDULED BUT NOT HEARD: SENATE BILL NO. 333: An Act relating to disclosure of close economic associations by certain state employees and to the prohibition against nepotism in the executive branch of state government; and providing for an effective date. SENATE BILL NO. 350: An Act relating to a defendant's violation of conditions of release; and providing for an effective date. CS FOR HOUSE BILL NO. 119(JUD) am: An Act authorizing a sentencing court to impose a sentence of a day fine instead of a sentence of imprisonment on a defendant convicted of a misdemeanor; directing the Alaska Supreme Court to develop and implement a day fine plan; requiring the Alaska Court System to report to the legislature on the use of day fines; amending Alaska Rule of Criminal Procedure 32; and providing for an effective date. ADJOURNMENT The meeting was adjourned at approximately 11:05 a.m.