Legislature(2011 - 2012)SENATE FINANCE 532

04/11/2012 01:00 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
= SB 25 AIDEA SUSTAINABLE ENERGY PROGRAM
Moved CSSSSB 25(FIN) Out of Committee
= SB 192 OIL AND GAS PRODUCTION TAX RATES
Moved CSSB 192(FIN) Out of Committee
+ HB 302 CONTRIBUTIONS FROM PFD: UNIV/AUDITS TELECONFERENCED
Scheduled But Not Heard
+ HB 366 DISASTER PLANNING AND SERVICES TELECONFERENCED
Scheduled But Not Heard
+= HCR 23 ALASKA ARCTIC POLICY COMMISSION TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      April 11, 2012                                                                                            
                         5:56 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
5:56:38 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stedman called the Senate Finance Committee                                                                            
meeting to order at 5:56 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lesil McGuire, Vice-Chair                                                                                               
Senator Johnny Ellis                                                                                                            
Senator Dennis Egan                                                                                                             
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Darwin  Peterson,  Staff,  Senate Finance  Committee;  Janak                                                                    
Mayer,    Manager,   Upstream    and   Gas,    PFC   Energy;                                                                    
Representative Les Gara; Gerald  Kepes, Partner, PFC Energy;                                                                    
Senator Hollis  French; Senator  Tom Wagoner;  Senator Linda                                                                    
Menard.                                                                                                                         
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 25     AIDEA SUSTAINABLE ENERGY PROGRAM                                                                                      
                                                                                                                                
          CSSB 25(FIN) was REPORTED out  of committee with a                                                                    
          "do pass"  recommendation and with  the previously                                                                    
          published  zero fiscal  note: FN2  (CED), one  new                                                                    
          fiscal  impact   note  from  the   Senate  Finance                                                                    
          Committee, and  one forthcoming zero  (EDC) fiscal                                                                    
          note.                                                                                                                 
                                                                                                                                
SB 192    OIL AND GAS PRODUCTION TAX RATES                                                                                      
                                                                                                                                
          SB 192 was REPORTED out of committee with a "do                                                                       
          pass" recommendation and with new fiscal impact                                                                       
          notes from the Department of Natural Resources,                                                                       
          the Department of Administration, and the                                                                             
          Department of Revenue.                                                                                                
                                                                                                                                
HB 302    CONTRIBUTIONS FROM PFD: UNIV/AUDITS                                                                                   
                                                                                                                                
          HB 302 was SCHEDULED but not HEARD.                                                                                   
                                                                                                                                
HB 366    DISASTER PLANNING AND SERVICES                                                                                        
                                                                                                                                
          HB 366 was SCHEDULED but not HEARD.                                                                                   
                                                                                                                                
HCR 23    ALASKA ARCTIC POLICY COMMISSION                                                                                       
                                                                                                                                
          HCR 23 was SCHEDULED but not HEARD.                                                                                   
                                                                                                                                
SENATE BILL NO. 25                                                                                                            
                                                                                                                                
     "An Act relating to participation by the Alaska                                                                            
     Industrial Development and Export Authority in energy                                                                      
     projects."                                                                                                                 
                                                                                                                                
5:57:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman  MOVED  to ADOPT  the  proposed  committee                                                                    
substitute for SB 25, Work Draft 27-LS0290\S.                                                                                   
                                                                                                                                
Co-Chair Stedman OBJECTED for purpose of discussion.                                                                            
                                                                                                                                
DARWIN PETERSON, STAFF,  SENATE FINANCE COMMITTEE, explained                                                                    
the changes for CS SB 25  version S. He stated that Sections                                                                    
3,4, and  5 had been  added to  the bill, and  would exclude                                                                    
the  value  of  the  lease  hold  interest  on  AIDEA  owned                                                                    
properties for the purpose of  determining the full and true                                                                    
value by the  state only if the local  government chooses to                                                                    
exempt that  property form the  taxation. He  furthered that                                                                    
AIDEA owned  5 major properties  in Alaska that  were leased                                                                    
to private  operators: the aircraft maintenance  facility at                                                                    
the  Ted  Stevens  International Airport,  the  Skagway  Ore                                                                    
Terminal,  the  Ketchikan Shipyard,  the  Red  Dog Road  and                                                                    
Port,  and  the  Snettisham   Hydroelectric  Dam  and  Power                                                                    
Station. He said  the full and true  value determination was                                                                    
important to municipal  governments in a number  of ways; it                                                                    
determined the magnitude of  the required local contribution                                                                    
component of  state education aid, it  impacted the required                                                                    
local share  for school construction and  major maintenance,                                                                    
it  effected  the amount  of  federal  impact aid  to  which                                                                    
municipal  school districts  were entitled,  and it  limited                                                                    
property taxing  capacity. He relayed that  the exemption of                                                                    
the  Red Dog  Road and  Port from  the determination  of the                                                                    
full  and  true  value  had  allowed  the  Northwest  Arctic                                                                    
Borough to  avoid a loss  of education funding  estimated at                                                                    
$1  million  annually.  He concluded  that  the  legislation                                                                    
would treat the rest of  the AIDEA owned properties equally,                                                                    
giving the  municipalities the  choice of  imposing property                                                                    
taxes or  opting for  the reduction  in the  local education                                                                    
contribution.                                                                                                                   
                                                                                                                                
Mr. Peterson discussed further changes in the bill:                                                                             
                                                                                                                                
     Section  6  The  following  changes were  made  to  new                                                                    
     section 6/old section 3:                                                                                                   
     1. No changes                                                                                                              
     Section  7  The  following  changes were  made  to  new                                                                    
     section 7/old section 4:                                                                                                   
     1. No changes.                                                                                                             
     Deletion  Section  5  (page  4  lines  1-15  of  the  X                                                                    
     version) was removed from the bill:                                                                                        
     1.    The   subsequent    sections   were    renumbered                                                                    
     accordingly.                                                                                                               
     Section  8  The  language  in  section  8  retains  the                                                                    
     language found in  section 6 of the X  version with the                                                                    
     following changes:                                                                                                         
     1.  Replaced "energy  project"  with "qualified  energy                                                                    
     development" on page 6, line 28 and page 7, line 23.                                                                       
     Section  9  The  language  in  section  9  retains  the                                                                    
     language found in  section 7 of the X  version with the                                                                    
     following change:                                                                                                          
     1.  Replaced "energy  project"  with "qualified  energy                                                                    
     development" on page 8, line 20.                                                                                           
     Section  10  The language  in  section  10 retains  the                                                                    
     language found  in section 8  of the X version  with no                                                                    
     changes.                                                                                                                   
     Section  11  The  language in  section  9  retains  the                                                                    
     language found  in section 9  of the X version  with no                                                                    
     changes.                                                                                                                   
     Section  12  The  language in  section  9  retains  the                                                                    
     language found in section 10  of the X version with the                                                                    
     following change:                                                                                                          
     1. Deleted  the word "energy" preceding  "loan" on page                                                                    
     9, line 17.                                                                                                                
     Section  13  The language  in  section  13 retains  the                                                                    
     language found in section 11  of the X version with the                                                                    
     following changes:                                                                                                         
     1. Deleted  the word "energy" preceding  "loan" on page                                                                    
     9, line 19.                                                                                                                
     2. Deleted  the word "energy" preceding  "loan" on page                                                                    
     9, line 28.                                                                                                                
     3. Deleted  the word "energy" preceding  "loan" on page                                                                    
     10, line 12.                                                                                                               
     Section  14  The language  in  section  14 retains  the                                                                    
     language found in section 12  of the X version with the                                                                    
     following change:                                                                                                          
     1. Deleted  the word "energy" preceding  "loan" on page                                                                    
     10, line 11.                                                                                                               
     Section  15  The language  in  section  15 retains  the                                                                    
     language found in  section 13 of the X  version with no                                                                    
     changes.                                                                                                                   
     Section  16  The language  in  section  14 retains  the                                                                    
     language found in section 14  of the X version with the                                                                    
     following changes:                                                                                                         
     1.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 11, line 9-10.                                                                                        
     2.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 12, line 2.                                                                                           
     3.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 12, line 3.                                                                                           
     4.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 12, line 7-8.                                                                                         
     5.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 12, line 13-14.                                                                                       
     6.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 12, line 17.                                                                                          
     7.  Inserted  New  Subsection (8)  granting  AIDEA  the                                                                    
     power to  pay off the  principal and interest  on bonds                                                                    
     issued  by a  municipal public  utility and  retain the                                                                    
     payments from the utility in a sinking fund.                                                                               
     8.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 13, line 1.                                                                                           
     9.  Replaced "energy  projects" with  "qualified energy                                                                    
     development" on page 13, line 8-9.                                                                                         
     Sect. 16 (Cont.)                                                                                                           
     10.  Replaced "energy  project" with  "qualified energy                                                                    
     development" on page 13, line 11-12.                                                                                       
     11.  Replaced "energy  project" with  "qualified energy                                                                    
     development" on page 13, line 14-15.                                                                                       
     Section 17  Section 17 retains the  language previously                                                                    
     found  in  section  15  of   the  X  version  with  the                                                                    
     following changes:                                                                                                         
     1.  Replaced "energy  project"  with "qualified  energy                                                                    
     development" on page 13 line 19.                                                                                           
     2. Inserted "conservation"  preceding "storage" on page                                                                    
     13, line 21.                                                                                                               
     3.  Removed  the conversion  of  natural  gas, coal  or                                                                    
     biomass to  liquids (page 11, line  8), the processing,                                                                    
     refining, or  upgrading of  oil (page  11, line  9) and                                                                    
     enhanced  oil recovery  or  carbon sequestration  (page                                                                    
     11, line  11) from the definition  of "qualified energy                                                                    
     development."                                                                                                              
     New Sect. 18 Added a  new section 16 repealing Sections                                                                    
     2 and 8 of ch. 10,  SLA 2010 (the language exempting an                                                                    
     integrated  transportation and  port facility  owned by                                                                    
     the  authority  from taxation  and  the  sunset of  the                                                                    
     exemption.)                                                                                                                
     Section 19  Section 19 retains the  language previously                                                                    
     found 16 of the X version.                                                                                                 
                                                                                                                                
6:02:31 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman WITHDREW  his  OBJECTION.  There being  no                                                                    
further objection Work Draft 27-LS0290\S was ADOPTED.                                                                           
                                                                                                                                
Senator  McGuire  remarked  that  the changes  in  the  bill                                                                    
correctly  reflected  the  current  financial  climate.  She                                                                    
relayed  interest  in  partnering with  venture  capitalists                                                                    
across  the  globe. She  hoped  that  the legislation  would                                                                    
contribute to the diversification of the state's economy.                                                                       
                                                                                                                                
6:04:13 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  clarified that  the legislation  created a                                                                    
stable  energy and  transmission supply  development program                                                                    
intended  to generate  more energy  and electricity  for the                                                                    
state.                                                                                                                          
                                                                                                                                
Co-Chair Stedman  noted the two  fiscal notes:  FN2 (DCCED);                                                                    
NEW FN  (SFIN). He  added that  a new  fiscal note  from the                                                                    
Department  of  Education  and Early  Childhood  Development                                                                    
that reflected the changes made in  Sections 3, 4, and 5 was                                                                    
forthcoming.                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  MOVED to report CS  SS SB 25 (FIN)  out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSB 25(FIN) was REPORTED out  of committee with a "do pass"                                                                    
recommendation  and  with   the  previously  published  zero                                                                    
fiscal note: FN2 (CED), one  new fiscal impact note from the                                                                    
Senate  Finance Committee,  and one  forthcoming zero  (EDC)                                                                    
fiscal note.                                                                                                                    
                                                                                                                                
6:05:36 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:07:56 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 192                                                                                                           
                                                                                                                                
     "An Act relating to the oil and gas production tax;                                                                        
     and providing for an effective date."                                                                                      
                                                                                                                                
6:08:09 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman MOVED  to ADOPT  Committee Substitute  for                                                                    
Senate  Bill  192,  Work Draft  27-LS1305\Y  (Nauman/Bullock                                                                    
4/11/12).                                                                                                                       
                                                                                                                                
Co-Chair Stedman OBJECTED for purpose of discussion.                                                                            
                                                                                                                                
6:08:57 PM                                                                                                                    
                                                                                                                                
Mr.  Peterson   discussed  the  changes  reflected   in  the                                                                    
committee substitute  (CS). He shared that  the first change                                                                    
was located on Page 5,  line 10, subsection (a), which dealt                                                                    
with  the incremental  production  rate  above the  producer                                                                    
targeted decline  rate. He stated that  the previous trigger                                                                    
price on  progressivity for incremental production  was $60;                                                                    
the same  as for existing  production, and had  been changed                                                                    
to $75. He  added that conforming changes could  be found on                                                                    
Lines 18  and 21. He relayed  that the next change  could be                                                                    
found  on  Page  5,  line  23,  which  extended  the  lowest                                                                    
progressivity rate  for new  production from  7 years  to 10                                                                    
years. He continued  that Line 31 reflected  the increase in                                                                    
the progressivity trigger  for the price of a  barrel of oil                                                                    
for  new production  to $90.  He concluded  that on  Page 6,                                                                    
section 4,  the adjustment  price for progressivity  for the                                                                    
calculation of the Consumer Price  Index (CPI) would include                                                                    
the  $75 trigger  price for  incremental production  and the                                                                    
$90 trigger price for new production.                                                                                           
                                                                                                                                
6:10:41 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman WITHDREW  his  OBJECTION.  There being  no                                                                    
further objection Work Draft 27-LS1305\Y was ADOPTED.                                                                           
                                                                                                                                
6:11:42 PM                                                                                                                    
                                                                                                                                
JANAK  MAYER,   MANAGER,  UPSTREAM  AND  GAS,   PFC  ENERGY,                                                                    
introduced the PowerPoint  Presentation, "Discussion Slides:                                                                    
Alaska  Senate Finance  Committee, April  11, 2012  (copy on                                                                    
file).                                                                                                                          
                                                                                                                                
Co-Chair  Stedman   requested  a  definition  of   the  term                                                                    
"upstream" as it would be used in the discussion.                                                                               
                                                                                                                                
Mr. Mayer explained  that "upstream" was a term  used in the                                                                    
oil industry  to refer  to all  activities from  the initial                                                                    
phases of  exploration; from the development  of projects to                                                                    
the  production  of  crude  oil.  Alternately,  "downstream"                                                                    
activities  were  considered  the  activities  onward,  from                                                                    
crude oil production to refinement.                                                                                             
                                                                                                                                
6:12:48 PM                                                                                                                    
                                                                                                                                
GERALD KEPES,  PARTNER, PFC ENERGY,  shared that  PFC Energy                                                                    
was  an  oil  and  gas  expertise  consultancy  with  global                                                                    
government entity, national oil  company, and private sector                                                                    
clients.                                                                                                                        
                                                                                                                                
6:13:39 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  looked at Slide 2:  CSSB 192-Approximated Company                                                                    
Decline-Based  Production  Targets.  He explained  that  the                                                                    
decline  curve analysis  on the  slide  multiplied the  most                                                                    
recent 2010 Department of Natural  Resources analysis by the                                                                    
working   interest  of   the  three   main  companies:   BP,                                                                    
ConocoPhillips, and  ExxonMobil. He stated that  the decline                                                                    
curve in  the bill  had been based  on the  methodology; any                                                                    
production above the green wedge  on the graph would receive                                                                    
the lower level  of progressive tax on gross.  He added that                                                                    
any production below that would  receive the full 20 percent                                                                    
capped rate.  He spoke of  the decline rate and  the forward                                                                    
bending curve,  which he believed  mirrored one  another. He                                                                    
said  that the  target, using  the equation  of a  6 percent                                                                    
decline  rate at  200  thousand barrels  per  day, would  be                                                                    
established by multiplying the 200  thousand barrels per day                                                                    
by 94 percent; or 1 minus the 6 percent decline rate.                                                                           
                                                                                                                                
6:17:43 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman interjected  that  the  equation used  the                                                                    
inverse  of the  year  date. Mr.  Mayer  responded that  the                                                                    
curve forecast  forward was to  the power of the  year date;                                                                    
determining the decline rate, the  inverse would be used. He                                                                    
furthered:                                                                                                                      
                                                                                                                                
          "Calculating the question: "What is the decline                                                                       
     rate?" It is the exact  inverse of that calculation. In                                                                    
     this  case taking  a fixed  number of  years, 2011  and                                                                    
     2008, and determining the  difference between those two                                                                    
     numbers.  We'll put  the later  number  over the  first                                                                    
     number and  raise it  to the inverse  of the  number of                                                                    
     years and  calculate what  that effective  decline rate                                                                    
     is.  It's doing  exactly the  opposite of  what we  did                                                                    
     when we  forecasted the curve  forward, and  again it's                                                                    
     the  same   math  that   goes  with   calculation  ones                                                                    
     effective interest rate on a mortgage payment."                                                                            
                                                                                                                                
6:18:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman explained  to  the committee  that he  had                                                                    
requested  that   Mr.  Mayer   present  a  slide   with  the                                                                    
production  numbers in  order to  review  the decline  curve                                                                    
calculation. He thought that the  formula had been presented                                                                    
as  complicated; he  believed  it was  straight forward.  He                                                                    
suggested  likening  the  formula to  compounding  interest,                                                                    
only backwards.                                                                                                                 
                                                                                                                                
6:19:48 PM                                                                                                                    
                                                                                                                                
Mr.  Mayer   stated  that  the   remaining  slides   in  the                                                                    
presentation focused on the economics  of how changes in the                                                                    
rates   applied   to   new   development   and   incremental                                                                    
production. He pointed  to Slide 3: ACES  ($34/bbl Capex New                                                                    
Development.)  Mr. Mayer  referred  to previous  discussions                                                                    
about the  cost of new  development and the  concerns voiced                                                                    
that moving to  the gross would increase  the sensitivity of                                                                    
the tax both  in terms of OPEX and CAPEX.  He noted concerns                                                                    
that due to  the high cost of  development, new developments                                                                    
should  be incentivized  as well  as  development in  legacy                                                                    
fields.  He  shared that  he  had  run projections  for  new                                                                    
development  using capital  expenses at  $34 per  barrel. He                                                                    
relayed   that  the   result  of   the  projections   looked                                                                    
challenging for industry; they were  net present value (NPV)                                                                    
negative  at  $100  per  barrel  and  faced  high  rates  of                                                                    
government take  under ACES. The government  take under ACES                                                                    
ranged  from  77 percent  over  the  lifecycle at  $100  per                                                                    
barrel, to  as high as 84  percent at levels above  $200 per                                                                    
barrel. He stated  that under the structure  of shifting the                                                                    
tax to  the gross,  high-cost fields  could look  even worse                                                                    
for industry  because of  the sensitivity  when the  tax was                                                                    
done on  the net. He stressed  that if the new  rate were to                                                                    
be  considered the  high-cost would  have to  be compensated                                                                    
for and significantly  lower rates should be  applied to new                                                                    
development.                                                                                                                    
                                                                                                                                
6:23:14 PM                                                                                                                    
                                                                                                                                
Mr.  Mayer  looked at  slide  4:  CS  SB  192 20%  Max  Rate                                                                    
($34/bbl  Capex New  Development.) He  explained that  under                                                                    
this scenario the levels of  government take were lower, but                                                                    
the economics were worse because  the instance of the tax in                                                                    
those first  years would  be high during  a time  of ongoing                                                                    
drilling  costs. He  warned  that a  higher  tax during  the                                                                    
crucial  first   economic  metric  years  would   cause  the                                                                    
economic impact to deteriorate.                                                                                                 
                                                                                                                                
6:24:49 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  discussed slide  5: CSSB 192  5 percent  Max Rate                                                                    
for 7  years ($34/bbl Capex  New Development.) He  said that                                                                    
dropping  the  max rate  to  5  percent  for 7  years  could                                                                    
marginally  improve  the  economics.   He  pointed  out  the                                                                    
scenario still  presented challenges  of being  NPV negative                                                                    
at a 10 percent discount rate.                                                                                                  
                                                                                                                                
6:25:23 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  looked at slide  6: CSSB  192 5 percent  Max Rate                                                                    
for  10 years  ($34/bbl Capex  New Development.)  He relayed                                                                    
that  to   further  stimulate   the  economics   within  the                                                                    
structure,  progressivity   on  new  development   could  be                                                                    
completely removed,  or the 5  percent rate period  could be                                                                    
extended. He shared that the  CS extended the 5 percent rate                                                                    
from 7  to 10 years,  which dropped the rates  of government                                                                    
take to 70  percent at the highest price  levels and reduced                                                                    
the NPV from negative 50 to negative 34.                                                                                        
                                                                                                                                
                                                                                                                                
6:26:26 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  discussed slide 7:  CSSB 192 5 percent  Max Rate,                                                                    
$90 Threshold,  for 10 yrs ($34/bbl  Capex New Development.)                                                                    
He explained  that the price  levels at  which progressivity                                                                    
kicked  in  could  be  adjusted.  He  relayed  that  the  CS                                                                    
increased  the  price level  to  $90  in  the first  5  year                                                                    
period. He stated that progressivity  would begin at the $90                                                                    
threshold and would  continue at the 0.5  rate until reached                                                                    
the 5 percent maximum.                                                                                                          
                                                                                                                                
6:26:57 PM                                                                                                                    
                                                                                                                                
Senator Ellis queried  how much the big  three oil companies                                                                    
would pay  at the  top rate in  2025 under  the legislation.                                                                    
He asked if it would be close to 227,000 barrels.                                                                               
                                                                                                                                
Mr.  Mayer agreed  to  provide the  information  at a  later                                                                    
date.                                                                                                                           
                                                                                                                                
6:27:41 PM                                                                                                                    
                                                                                                                                
Senator McGuire  wondered whether it would  be worthwhile to                                                                    
eliminate the 10  year cap. She queried what  the rate would                                                                    
revert  to after  10  years. She  understood  that it  would                                                                    
depend on the decline curve at the time.                                                                                        
                                                                                                                                
Mr. Mayer  replied that under the  CS the rate would  be the                                                                    
full 20 percent maximum.                                                                                                        
                                                                                                                                
Senator McGuire recommended that the  rate be reduced to the                                                                    
incremental level.  She worried that  a rate increase  in 10                                                                    
years would affect initial investment decisions.                                                                                
                                                                                                                                
6:28:55 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  requested an explanation on  the impact of                                                                    
the timing of the cash-flow as  the scenario moved from 7 to                                                                    
10 years.                                                                                                                       
                                                                                                                                
Mr.  Mayer  responded that  many  things  could be  done  to                                                                    
further  improve the  equation. He  shared that  the easiest                                                                    
solution would  be to remove  the time limit  altogether, or                                                                    
to extend  it further. He  stated that what happened  in the                                                                    
first  10  years would  be  most  crucial. He  relayed  that                                                                    
extending  the  time period  further  would  be easier  than                                                                    
changing the rate after 10 years.                                                                                               
                                                                                                                                
6:30:29 PM                                                                                                                    
                                                                                                                                
Senator  McGuire  stressed  that   industry  should  not  be                                                                    
penalized with a less attractive rate after 10 years.                                                                           
                                                                                                                                
6:31:41 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  requested   an   approximation  of   the                                                                    
sensitivity using a $30 and  $28 CAPEX, and with incremental                                                                    
dollars at $100 NPV.                                                                                                            
Mr. Mayer  divulged that  a $17  dollar per  barrel scenario                                                                    
had been run while working  with the profile of capital cost                                                                    
and production  represented in  the presentation.  He shared                                                                    
that  the result  had been  NPV positive,  with a  16 to  17                                                                    
percent rate  of return.  He added that  that was  the level                                                                    
that would  be required to  pass the threshold  hurdle rate,                                                                    
but would  probably not "set  the world ablaze" in  terms of                                                                    
competitiveness for  capital on  an international  basis. He                                                                    
furthered that  as capital costs  went up the NPV  and rates                                                                    
of  return lowered.  He cautioned  that the  undertaking was                                                                    
highly   stylized,  and   that  the   actual  spending   and                                                                    
production profiles  of anything being  currently considered                                                                    
were  well  north  of  $17. He  stressed  that  the  numbers                                                                    
reflected in  the slides were not  necessarily indicative of                                                                    
the projects  being considered by  any of the  companies. He                                                                    
reminded the committee  that the intent of  the analyses was                                                                    
to provide  indicative ideas of sensitivities  about how the                                                                    
numbers reflected  the different  rates of  government take.                                                                    
He thought that  any of the lower rates  for new development                                                                    
would  be an  improvement over  ACES however,  they did  not                                                                    
necessarily  make  high  cost developments  competitive  for                                                                    
capital.                                                                                                                        
                                                                                                                                
6:34:13 PM                                                                                                                    
                                                                                                                                
Mr.  Mayer  noted that  all  of  the slides  reflected  that                                                                    
despite  having   moved  the   threshold  up  to   $90,  the                                                                    
progressive  severance tax  on gross  still kicked  in above                                                                    
the $60  level. He said  that the figures  were undiscounted                                                                    
figures  that  ranged  across  the   30  life-cycle  of  the                                                                    
project. He furthered that the  10 year limit meant that the                                                                    
threshold became less  sensitive to movement in  the case of                                                                    
new  development. Because  there was  no time  limit on  the                                                                    
different rate  for the  incremental production,  moving the                                                                    
threshold had a greater affect.                                                                                                 
                                                                                                                                
6:35:28 PM                                                                                                                    
                                                                                                                                
Mr.   Mayer  discussed   Slide   8:   ACES  ($25/bbl   Capex                                                                    
Incremental Development.)  He explained  that a  higher cost                                                                    
new development,  assuming $25  per barrel in  capital costs                                                                    
for an incremental development,  would prove NPV positive at                                                                    
$100 per barrel with an 11 percent rate of return.                                                                              
                                                                                                                                
6:37:01 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  explained Slide 9:  CSSB 192 20 percent  Max Rate                                                                    
($25/bbl Capex Incremental Development.)  He stated that the                                                                    
full 20  percent maximum rate  resulted in little  change in                                                                    
the  economic metrics,  but an  overall slight  reduction in                                                                    
government take  at high levels  could be gleaned.  He noted                                                                    
that the  change was not great,  and in some cases  would be                                                                    
marginally worse at the given price levels.                                                                                     
                                                                                                                                
6:37:31 PM                                                                                                                    
                                                                                                                                
Mr. Mayer discussed  Slide 10: CSSB 192 10  percent Max Rate                                                                    
($25/bbl  Capex   Incremental  Development.)  He   said  the                                                                    
scenario  presented a  lower tax  burden and  a higher  cash                                                                    
flow at  the tail  end of production;  the only  costs being                                                                    
operating and maintenance, but a  slightly higher tax burden                                                                    
and lower cash flow in the early years.                                                                                         
                                                                                                                                
6:38:28 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  continued to  Slide 11: CSSB  192 10  percent Max                                                                    
Rate,    $70    Threshold   ($25/bbl    Capex    Incremental                                                                    
Development). He  explained that  the legislation  moved the                                                                    
threshold to the $75 level  at which progressivity at the 10                                                                    
percent  maximum   rate  kicked  in.  He   shared  that  the                                                                    
presentation did  not contain a  slide for $75, but  did for                                                                    
$70 and $80  [see Slide 12], and the  result would logically                                                                    
fall halfway in between. He  noted that slide 11 showed that                                                                    
when  the  threshold  was  moved   to  $70  the  progressive                                                                    
severance  tax on  the gross  kicked in  only above  the $70                                                                    
level.  He said  that when  the threshold  moved up  to $80,                                                                    
government take was further reduced.  He reiterated that the                                                                    
hypothetical showed  the numbers just approaching  the basic                                                                    
hurdle rate for capital;  not necessarily highly competitive                                                                    
on a broader basis, but an improvement.                                                                                         
                                                                                                                                
6:39:55 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman   requested  that   a  slide   be  created                                                                    
detailing  the  $75 threshold.  Mr.  Mayer  replied that  he                                                                    
would do so.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  noted the three  new fiscal notes:  NEW FN                                                                    
(DOR), NEW FN (DNR), NEW FN (DOA).                                                                                              
                                                                                                                                
Co-Chair  Hoffman MOVED  to report  CS SB  192 (FIN)  out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
SB  192 was  REPORTED  out  of committee  with  a "do  pass"                                                                    
recommendation  and with  new fiscal  impact notes  from the                                                                    
Department   of  Natural   Resources,   the  Department   of                                                                    
Administration, and the Department of Revenue.                                                                                  
                                                                                                                                
CS FOR HOUSE BILL NO. 302(FIN) am                                                                                             
                                                                                                                                
     "An  Act requiring  each campus  of  the University  of                                                                    
     Alaska  to apply  to be  included  on the  contribution                                                                    
     list for  contributions from permanent  fund dividends;                                                                    
     requiring a  university to pay  an application  fee for                                                                    
     each campus separately listed  on the contribution list                                                                    
     for  contributions from  permanent fund  dividends; and                                                                    
     repealing  certain  audit   requirements  for  entities                                                                    
     receiving    contributions    from    permanent    fund                                                                    
     dividends."                                                                                                                
                                                                                                                                
HB 302 was SCHEDULED but not HEARD.                                                                                             
                                                                                                                                
HOUSE BILL NO. 366                                                                                                            
                                                                                                                                
     "An Act  establishing an  Alaska intrastate  mutual aid                                                                    
     system  and  relating  to  the  duties  of  the  Alaska                                                                    
     division of homeland  security and emergency management                                                                    
     and the  duties of the Alaska  State Emergency Response                                                                    
     Commission."                                                                                                               
                                                                                                                                
HB 366 was SCHEDULED but not HEARD.                                                                                             
                                                                                                                                
CS FOR HOUSE CONCURRENT RESOLUTION NO. 23(FIN)                                                                                
                                                                                                                                
     Establishing and relating to the Alaska Arctic Policy                                                                      
     Commission.                                                                                                                
                                                                                                                                
HCR 23 was SCHEDULED but not HEARD.                                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                   
6:41:18 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 6:41 PM.                                                                                           
                                                                                                                                

Document Name Date/Time Subjects
Explanation of changes between HB 302 and CSHB 302 (FIN) am.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 Alaska Statute 43.23.062.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 bill history - BASIS.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 IRS form 990 for tax exmpt organizations.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 Letters of Support.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 PickClickGive Information.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 302 Sponsor Statement.pdf SFIN 4/11/2012 1:00:00 PM
HB 302
HB 366 EMAC Document.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB 366 FEMA Disaster Assistance Policy DAP9523.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB 366 Model Intrastate Mutual Aid Legislation.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB 366 NIMS Core pp 9-12 Perparedness.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB366 AFCA Letter to Sen Stedman.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB366 S.Statement.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB366 Sectional Analysis.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB366 Support Letters 2.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
HB366 Support Letters.pdf SFIN 4/11/2012 1:00:00 PM
HB 366
CSHCR23 Request and Sponsor.pdf SFIN 4/11/2012 1:00:00 PM
HCR 23
SB 192 PFC Presentation SFC - April 11 2012.pptx SFIN 4/11/2012 1:00:00 PM
SB 192
SB 192 CSSB 192 Version Y.pdf SFIN 4/11/2012 1:00:00 PM
SB 192