Legislature(2005 - 2006)BUTROVICH 205

03/27/2006 03:30 PM RESOURCES


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03:42:20 PM Start
03:45:24 PM SB305
04:45:40 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
= SB 305 OIL AND GAS PRODUCTION TAX
Heard & Held
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 27, 2006                                                                                         
                           3:42 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
Senator Albert Kookesh                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 305                                                                                                             
"An Act repealing  the oil production tax and  gas production tax                                                               
and providing  for a production tax  on the net value  of oil and                                                               
gas; relating to the relationship  of the production tax to other                                                               
taxes; relating to the dates  tax payments and surcharges are due                                                               
under AS  43.55; relating  to interest  on overpayments  under AS                                                               
43.55; relating  to the treatment  of oil and gas  production tax                                                               
in a  producer's settlement with  the royalty owner;  relating to                                                               
flared gas, and to  oil and gas used in the  operation of a lease                                                               
or property, under AS 43.55;  relating to the prevailing value of                                                               
oil or gas under AS 43.55;  providing for tax credits against the                                                               
tax  due under  AS 43.55  for certain  expenditures, losses,  and                                                               
surcharges; relating to statements  or other information required                                                               
to be filed  with or furnished to the Department  of Revenue, and                                                               
relating  to the  penalty for  failure to  file certain  reports,                                                               
under  AS 43.55;  relating to  the  powers of  the Department  of                                                               
Revenue, and  to the disclosure  of certain  information required                                                               
to be  furnished to  the Department of  Revenue, under  AS 43.55;                                                               
relating   to  criminal   penalties   for  violating   conditions                                                               
governing access to and use  of confidential information relating                                                               
to the  oil and gas  production tax;  relating to the  deposit of                                                               
money  collected by  the Department  of Revenue  under AS  43.55;                                                               
relating to  the calculation of the  gross value at the  point of                                                               
production of  oil or gas;  relating to the determination  of the                                                               
net value  of taxable oil  and gas  for purposes of  a production                                                               
tax on the net value of  oil and gas; relating to the definitions                                                               
of 'gas,' 'oil,' and certain other terms for purposes of AS                                                                     
43.55; making conforming amendments; and providing for an                                                                       
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 305                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/21/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/21/06       (S)       RES, FIN                                                                                               
02/22/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/22/06       (S)       Heard & Held                                                                                           
02/22/06       (S)       MINUTE(RES)                                                                                            
02/23/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/23/06       (S)       Heard & Held                                                                                           
02/23/06       (S)       MINUTE(RES)                                                                                            
02/24/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/24/06       (S)       Heard & Held                                                                                           
02/24/06       (S)       MINUTE(RES)                                                                                            
02/25/06       (S)       RES AT 9:00 AM BUTROVICH 205                                                                           
02/25/06       (S)       -- Reconvene from 02/24/06 --                                                                          
02/25/06       (H)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
02/25/06       (S)       Heard & Held                                                                                           
02/25/06       (S)       MINUTE(RES)                                                                                            
02/27/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/27/06       (S)       Heard & Held                                                                                           
02/27/06       (S)       MINUTE(RES)                                                                                            
02/28/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/28/06       (S)       Heard & Held                                                                                           
02/28/06       (S)       MINUTE(RES)                                                                                            
03/01/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/01/06       (S)       Heard & Held                                                                                           
03/01/06       (S)       MINUTE(RES)                                                                                            
03/02/06       (S)       RES AT 1:30 PM BUTROVICH 205                                                                           
03/02/06       (S)       Heard & Held                                                                                           
03/02/06       (S)       MINUTE(RES)                                                                                            
03/02/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/02/06       (S)       Heard & Held                                                                                           
03/02/06       (S)       MINUTE(RES)                                                                                            
03/03/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/03/06       (S)       -- Meeting Canceled --                                                                                 
03/04/06       (S)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
03/04/06       (S)       Presentation by Legislative Consultants                                                                
03/06/06       (S)       RES AT 3:30 PM SENATE FINANCE 532                                                                      
03/06/06       (S)       Heard & Held                                                                                           
03/06/06       (S)       MINUTE(RES)                                                                                            
03/07/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/07/06       (S)       Heard & Held                                                                                           
03/07/06       (S)       MINUTE(RES)                                                                                            
03/08/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/08/06       (S)       -- Meeting Canceled --                                                                                 
03/09/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/09/06       (S)       -- Meeting Canceled --                                                                                 
03/10/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/10/06       (S)       -- Meeting Canceled --                                                                                 
03/11/06       (H)       RES AT 10:00 AM CAPITOL 106                                                                            
03/11/06       (H)       -- Meeting Canceled --                                                                                 
03/13/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/13/06       (S)       Heard & Held                                                                                           
03/13/06       (S)       MINUTE(RES)                                                                                            
03/14/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/14/06       (S)       Heard & Held                                                                                           
03/14/06       (S)       MINUTE(RES)                                                                                            
03/15/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/15/06       (S)       Heard & Held                                                                                           
03/15/06       (S)       MINUTE(RES)                                                                                            
03/16/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/16/06       (S)       -- Meeting Canceled --                                                                                 
03/17/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/17/06       (S)       Heard & Held                                                                                           
03/17/06       (S)       MINUTE(RES)                                                                                            
03/18/06       (H)       RES AT 10:00 AM CAPITOL 124                                                                            
03/18/06       (H)       -- Meeting Canceled --                                                                                 
03/19/06       (S)       RES AT 1:00 PM BUTROVICH 205                                                                           
03/19/06       (S)       Heard & Held                                                                                           
03/19/06       (S)       MINUTE(RES)                                                                                            
03/20/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/20/06       (S)       Heard & Held                                                                                           
03/20/06       (S)       MINUTE(RES)                                                                                            
03/21/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/21/06       (S)       -- Meeting Canceled --                                                                                 
03/22/06       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
03/22/06       (S)       -- Testimony <Invitation Only> --                                                                      
03/23/06       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
03/23/06       (S)       Above Bill continued from 03/22/06 Mtg                                                                 
03/24/06       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/24/06       (S)       <Pending Referral>                                                                                     
03/24/06       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
03/24/06       (S)       Heard & Held                                                                                           
03/24/06       (S)       MINUTE(RES)                                                                                            
03/25/06       (S)       FIN AT 10:00 AM SENATE FINANCE 532                                                                     
03/25/06       (S)       -- Meeting Canceled --                                                                                 
03/27/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE BALASH                                                                                                                      
Staff to the Legislative Budget & Audit Committee                                                                               
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on CSSB 305(RES).                                                                               
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting to  order at 3:42:20 PM.  Present were Senators                                                             
Ben Stevens,  Stedman, Seekins, Dyson,  Kookesh, Elton  and Chair                                                               
Wagoner.                                                                                                                        
                                                                                                                                
               SB 305-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                                
CHAIR   THOMAS  WAGONER   announced   SB  305   to   be  up   for                                                               
consideration.                                                                                                                  
                                                                                                                                
SENATOR STEDMAN moved to adopt CSSB 305(RES), Version I.                                                                        
                                                                                                                                
SENATOR BEN STEVENS objected.                                                                                                   
                                                                                                                                
CHAIR WAGONER said he didn't intend  to adopt the CS today anyway                                                               
and wanted  to go through it  thoroughly. He said they  needed to                                                               
finalize Administrative Amendment 1.                                                                                            
                                                                                                                                
3:45:24 PM                                                                                                                    
SENATOR STEDMAN moved to adopt Amendment Y [sic].                                                                               
                                                                                                                                
                          AMENDMENT Y                                                                                         
                                                                                                                                
OFFERED  IN THE  SENATE TO  CSSB 305(RES),  Version24-GS2052\I BY                                                               
SENATOR WAGONER                                                                                                                 
                                                                                                                                
     Page 19, line 19-23: delete all material, insert:                                                                        
     the use by  another person of a  production facility in                                                                    
     which  the producer  has an  ownership interest  or the                                                                    
     management  by the  producer of  a production  facility                                                                    
     under   a  management   agreement  providing   for  the                                                                    
     producer to receive a management fee;                                                                                      
                                                                                                                                
     Page  20,  line  2:  replace (o)  with  (n)  and  after                                                                  
     "2006;" insert:                                                                                                          
     For purposes of this  subsection, if a producer removes                                                                    
     from the  state, for  use outside  the state,  an asset                                                                    
     described in this subparagraph,  the value of the asset                                                                    
     at  the time  it  is removed  is  considered a  payment                                                                    
     received  by  the  producer for  the  transfer  of  the                                                                    
     asset;                                                                                                                     
                                                                                                                                
     Page 22,  line 13:  insert "(b),"  at the  beginning of                                                                  
     the line                                                                                                                 
                                                                                                                                
     Page 22, line 14: delete "or(d)(2)(O)"                                                                                   
                                                                                                                                
     Page 22,  line 16: delete "(d)(2)(N)  or (d)(2)(O)" and                                                                  
     insert (e)(3)(A)                                                                                                         
                                                                                                                                
     Page 22, lines 27 -  28: after due: delete all material                                                                  
     and insert:                                                                                                              
     If  a producer  fails to  comply with  a request  under                                                                    
     this   paragraph,  there   shall   be   added  to   any                                                                    
     underpayment  determined by  the department  under this                                                                    
     section a  penalty in  the amount of  5 percent  of the                                                                    
     underpayment.                                                                                                              
                                                                                                                                
     Page 22, line 29, through  Page 23, line 11: delete all                                                                  
     material and reorder                                                                                                     
                                                                                                                                
     Page  23,  lines  12  - 14:  delete  all  material  and                                                                  
     insert:                                                                                                                  
     (n)  For  purposes of  determining  the  amount of  the                                                                    
     adjustment  by  subtraction  that  must be  made  to  a                                                                    
     producer's  lease  expenditures  as  a  result  of  the                                                                    
     producer's   receiving  a   payment  or   credit  under                                                                    
     (e)(3)(A) of this section,                                                                                                 
                                                                                                                                
     Page  23,  lines  22  - 26:  delete  all  material  and                                                                  
     reorder                                                                                                                  
                                                                                                                                
                                                                                                                                
SENATOR BEN STEVENS objected for a point of order and asked if                                                                  
they were adopting an amendment to a work draft that hadn't been                                                                
adopted yet.                                                                                                                    
                                                                                                                                
CHAIR WAGONER said he was correct.                                                                                              
                                                                                                                                
SENATOR STEDMAN withdrew his motion.                                                                                            
                                                                                                                                
SENATOR BEN STEVENS asked if the amendment addressed Version I.                                                                 
                                                                                                                                
3:46:44 PM                                                                                                                    
JOE BALASH,  staff to the  Legislative Budget &  Audit Committee,                                                               
replied  that was  correct. "What  you have  in front  of you  is                                                               
Administrative Amendment  1 as approved  and with  the references                                                               
corrected to correspond to the I version of the CS."                                                                            
                                                                                                                                
3:47:14 PM                                                                                                                    
SENATOR  BEN STEVENS  called  a  point of  order  saying that  it                                                               
looked like Version I already incorporated the changes.                                                                         
                                                                                                                                
CHAIR  WAGONER  said  that  was right  even  though  that  wasn't                                                               
requested. He asked Mr. Balash if that was his recollection.                                                                    
                                                                                                                                
MR. BALASH replied that two  references were corrected in Version                                                               
I from revised Administrative Amendment 1  on lines 3 - 8 without                                                               
direction.  The rest  of the  items  the committee  did not  take                                                               
action on were not addressed in  the course of drafting.  He said                                                               
the page and lines are different, but the text is the same.                                                                     
                                                                                                                                
SENATOR BEN  STEVENS said he  needed time to comprehend  what had                                                               
been done.                                                                                                                      
                                                                                                                                
3:53:19 PM                                                                                                                    
CHAIR WAGONER said  the amendment he was offering  was similar to                                                               
Senator Stevens' amendment that he  offered on March 24. The only                                                               
difference is he inserted the following language:                                                                               
                                                                                                                                
     If  the   commissioner  completes  a   detailed  fiscal                                                                    
     analysis and determines that an  election by a producer                                                                    
     under this subsection would  serve the long-term fiscal                                                                    
     interests of the state.                                                                                                    
                                                                                                                                
He said  it leaves  the RSAs  [royalty settlement  agreements] in                                                               
the  process and  goes back  to  the language  in the  governor's                                                               
bill.                                                                                                                           
                                                                                                                                
SENATOR BEN STEVENS  compared page 14, line 7 of  Version I, with                                                               
line 9  of the amendment  and said that  language in (1)  and (2)                                                               
seemed redundant.                                                                                                               
                                                                                                                                
CHAIR WAGONER said  he tried to use the text  in Senator Stevens'                                                               
amendment [Y.23].                                                                                                               
                                                                                                                                
SENATOR ELTON said he didn't  think they could amend an amendment                                                               
to a bill they hadn't adopted.                                                                                                  
                                                                                                                                
CHAIR WAGONER explained  that Senator Stevens asked  for a review                                                               
of the amendments.                                                                                                              
                                                                                                                                
SENATOR   STEDMAN  said   his  amendment,   I.2,  addressed   the                                                               
progressivity formula and that, "if  the ANS West Coast price per                                                               
barrel of oil  during the month exceeds $40" was  the trigger for                                                               
the  escalator.  That language  clarifies  that  it's an  average                                                               
price per month.  Line 13 had a drafting error  in the definition                                                               
of what  the PPT is  and said  "property tax" instead  of "profit                                                               
tax".                                                                                                                           
                                                                                                                                
4:04:42 PM                                                                                                                    
SENATOR  SEEKINS asked  if  the  motion is  to  adopt  this as  a                                                               
working document, not a final document.                                                                                         
                                                                                                                                
CHAIR  WAGONER replied  yes,  and  then they  would  put the  two                                                               
amendments   into  it.   That  would   be  part   of  the   final                                                               
presentation.                                                                                                                   
                                                                                                                                
SENATOR STEDMAN  went to  page 21,  line 8,  [of Version  I] that                                                               
referenced  the  55,000  barrels,  and  asked  the  committee  to                                                               
carefully  consider the  formula on  line  14. He  asked them  to                                                               
remember that  the escalator calculation  imbedded on line  14 is                                                               
an after  tax rate.  So members  should make  sure that  the bill                                                               
doesn't  create an  ability  to  get a  double  deduction on  the                                                               
escalator portion, because it's already built into the formula.                                                                 
                                                                                                                                
CHAIR WAGONER  said he had  found another problem and  they would                                                               
talk about it on Wednesday.                                                                                                     
                                                                                                                                
SENATOR  SEEKINS  called the  question  on  adopting the  working                                                               
draft.                                                                                                                          
                                                                                                                                
SENATOR  BEN STEVENS  objected. Senators  Dyson, Stedman,  Elton,                                                               
Kookesh,  Seekins, and  Wagoner  voted yea;  Senator Ben  Stevens                                                               
voted nay; so CSSB 305(RES), Version  I, was adopted as a working                                                               
draft.                                                                                                                          
                                                                                                                                
4:09:03 PM                                                                                                                    
SENATOR SEEKINS moved to adopt amendment I.1.                                                                                   
                                                                                                                                
                                                      24-GS2052\I.1                                                             
                                                         Chenoweth                                                              
                                                                                                                                
                         AMENDMENT I.1                                                                                      
                                                                                                                                
OFFERED IN THE SENATE                        BY SENATOR WAGONER                                                                 
     TO:  CSSB 305(RES), Draft Version "I"                                                                                      
                                                                                                                                
     Page 14, lines 3 - 27:                                                                                                     
          Delete all material and insert:                                                                                       
          "(d)      Under   regulations   adopted   by   the                                                                    
     department,  if the  commissioner completes  a detailed                                                                    
     fiscal analysis  and determines that  an election  by a                                                                    
     producer under  this subsection  would serve  the long-                                                                    
     term fiscal interests of the  state, the department may                                                                    
     allow a producer, subject  to limitations prescribed by                                                                    
     the   department  as   to  the   frequency  of   making                                                                    
     elections,  to  elect  prospectively to  calculate  the                                                                    
     gross value  at the point  of production of oil  or gas                                                                    
     based in whole or part on                                                                                                  
               (1)  a royalty value determined under a                                                                          
     royalty settlement  agreement between the  producer and                                                                    
     the state, with adjustments if appropriate;                                                                                
               (2)  a formula prescribed by the department                                                                      
     that uses,  with adjustments if appropriate,  a royalty                                                                    
     value or valuation methodology accepted by the                                                                             
               (A)  Department of Natural Resources under                                                                       
     AS 38.05, in  the case of  oil and gas produced  from a                                                                    
     lease issued by the  Department of Natural Resources or                                                                    
     produced from  a lease  or property that  is part  of a                                                                    
     unit approved  by the Department of  Natural Resources;                                                                    
     or                                                                                                                         
               (B)  United States Department of the                                                                             
     Interior under  applicable federal oil and  gas leasing                                                                    
     statutes, in  the case of  oil and gas produced  from a                                                                    
     lease  issued by  the United  States Department  of the                                                                    
     Interior that  is not  part of a  unit approved  by the                                                                    
     Department  of Natural  Resources, or  produced from  a                                                                    
     lease or  property that is  part of a unit  approved by                                                                    
     the United  States Department of  the Interior  but not                                                                    
     approved by the Department of Natural Resources; or                                                                        
               (3)  another formula prescribed by the                                                                           
     Department  of  Revenue  that  reasonably  estimates  a                                                                    
     value for  the oil  or gas  at a  specific geographical                                                                    
     location such as  the point of tender  or delivery into                                                                    
     a common carrier pipeline; the  formula may use factors                                                                    
     such as  published price indices  for oil or gas  in or                                                                    
     outside  the state,  quality differentials  for oil  or                                                                    
     gas,   transportation   costs  between   markets,   and                                                                    
     inflation adjustments."                                                                                                    
                                                                                                                                
CHAIR WAGONER objected.                                                                                                         
                                                                                                                                
SENATOR BEN STEVENS moved a  friendly amendment to delete lines 9                                                               
and 10 on page 1 of  Amendment I.1 because they are redundant and                                                               
then  renumber appropriately.  There were  no objections  and the                                                               
motion carried.                                                                                                                 
                                                                                                                                
CHAIR WAGONER noted there was no further discussion and he                                                                      
removed his objection to Amendment I.1. Without further                                                                         
objection Amendment I.1 am was adopted.                                                                                         
                                                                                                                                
4:11:53 PM                                                                                                                    
SENATOR SEEKINS moved Amendment I.2.                                                                                            
                                                      24-GS2052\I.2                                                             
                                                         Chenoweth                                                              
                                                                                                                                
                         AMENDMENT I.2                                                                                      
                                                                                                                                
                                                                                                                                
OFFERED IN THE SENATE                        BY SENATOR STEDMAN                                                                 
     TO:  CSSB 305(RES), Draft Version "I"                                                                                      
                                                                                                                                
     Page 4, lines 15 - 23:                                                                                                     
          Delete all material and insert:                                                                                       
          "(g) In addition to the taxes levied under (e)                                                                        
     and (f) of this section,  if the average ANS West Coast                                                                    
     price per  barrel of  oil during  a month  exceeds $40,                                                                    
     there is  levied on the producer  of oil a tax  for oil                                                                    
     produced during that month from  each lease or property                                                                    
     in the  state, less any  oil the ownership or  right to                                                                    
     which  is exempt  from taxation.  The tax  levied under                                                                    
     this subsection is equal to                                                                                                
             [((ANS West Coast price - $40) x .002) x [ANS                                                                      
               wellhead price x (1 - PPT rate)]]                                                                                
        x (total taxable barrels of oil at the point of                                                                         
                          production)                                                                                           
          where                                                                                                                 
               (1)   "ANS   wellhead    price"   means   the                                                                    
     prevailing value  for oil produced in  the Alaska North                                                                    
     Slope area; and                                                                                                            
     (2) the  PPT, or  production property  tax, rate  is 25                                                                    
     percent."                                                                                                                  
                                                                                                                                
CHAIR WAGONER objected for discussion.                                                                                          
                                                                                                                                
SENATOR STEDMAN explained how the  intent was to clarify what was                                                               
already in  the bill, so they  could focus on the  escalator, its                                                               
trigger and  slope. He said line  3 of the amendment  inserts new                                                               
language  that says,  "if the  average ANS  West Coast  price per                                                               
barrel of  oil during a  month exceeds $40,"  and the $40  is the                                                               
trigger.  Also  the formula  had  some  potential differences  of                                                               
opinion on  what it  applied to;  so, on line  9 the  formula was                                                               
added after the  dollar amount of tax was calculated,  so one can                                                               
see exactly  what it applies  to, which is total  taxable barrels                                                               
of oil  at the point of  production. Brackets were added  so that                                                               
mathematics  were  cleaner.  A  drafting error  on  line  13  was                                                               
corrected  where the  word "property"  was inadvertently  used in                                                               
the definition of PPT instead of "profit".                                                                                      
                                                                                                                                
SENATOR SEEKINS  stated for the  record that his  motion included                                                               
inserting "profit" instead  of "property" on line 13  and that he                                                               
was  voting  for the  amendment  to  establish the  formula,  not                                                               
necessarily to establish the values on lines 4, 8, and 13.                                                                      
                                                                                                                                
SENATOR STEDMAN said that they  were working on the structure and                                                               
clearly  until the  bill is  finished the  tax rate,  the trigger                                                               
dollar amount and the slope were all open for discussion.                                                                       
                                                                                                                                
SENATOR BEN STEVENS maintained his  objection because line 8 used                                                               
the ANS  wellhead price as  the taxation  on the PPT  rate versus                                                               
the ANS  West Coast price.  He argued,  "Again if we're  going to                                                               
use a  tax derived  from a tax,  it should be  based on  the same                                                               
valuation methodology."  He also opposed continuing  to calculate                                                               
the  progressivity clause  as  tax deductible,  but  there is  no                                                               
provision  written  in  the  amendment or  bill  that  makes  the                                                               
additional tax  derived under Section 011(g)  tax deductible from                                                               
the PPT.                                                                                                                        
                                                                                                                                
SENATOR STEDMAN  said on line 8  it says "(1-PPT rate)";  that is                                                               
where  you get  the effect  of  the tax  deductibility. In  other                                                               
words it  is imbedded  in the  formula; so  it can't  be deducted                                                               
again.                                                                                                                          
                                                                                                                                
SENATOR BEN STEVENS said he didn't  interpret it that way; he saw                                                               
the formula was calculated to say  that it is deductible, but the                                                               
director  of the  Tax Division  stated on  Friday that  it wasn't                                                               
deductible. He still  maintained his objection, which  he said he                                                               
had registered earlier.                                                                                                         
                                                                                                                                
4:17:37 PM                                                                                                                    
SENATOR SEEKINS  said he  wanted someone  from the  Department of                                                               
Revenue to assure him that  deductibility was being accounted for                                                               
in the formula.                                                                                                                 
                                                                                                                                
SENATOR  SEEKINS moved  to table  the amendment  until Wednesday.                                                               
Senators  Ben  Stevens and  Seekins  voted  yea; Senators  Elton,                                                               
Kookesh, Dyson and Stedman voted nay; so the motion failed.                                                                     
                                                                                                                                
CHAIR WAGONER said the voted  didn't preclude that from happening                                                               
and he would get someone to do that.                                                                                            
                                                                                                                                
4:20:17 PM                                                                                                                    
CHAIR WAGONER asked if there  was further discussion on Amendment                                                               
I.2.  He asked  for a  roll call  vote. Senators  Kookesh, Dyson,                                                               
Stedman, Elton, and  Wagoner voted yea; Senators  Ben Stevens and                                                               
Seekins voted nay; so Amendment I.2 was adopted.                                                                                
                                                                                                                                
4:22:00 PM                                                                                                                    
CHAIR WAGONER  said that  Senator Ben Stevens  asked to  bring up                                                               
Amendments Y.18 and  Y.24 at a later date. He  noted that Y.18 is                                                               
on  page 10,  line 25-27  of Version  I and  in conjunction  with                                                               
that, a memo from Don Shepler dated March 19.                                                                                   
                                                                                                                                
SENATOR BEN STEVENS  noted, as a point of procedure,  the date of                                                               
the memo is March  19 and this is the first  time anyone has seen                                                               
it.                                                                                                                             
                                                                                                                                
CHAIR WAGONER responded that's why  he thought they might want to                                                               
wait  and   take  this  amendment  up   with  the  administrative                                                               
amendment.                                                                                                                      
                                                                                                                                
SENATOR  BEN STEVENS  said  again  that he  needed  more time  to                                                               
absorb this language.                                                                                                           
                                                                                                                                
CHAIR WAGONER said  it would be okay to set  Amendment Y.18 aside                                                               
until Wednesday.                                                                                                                
                                                                                                                                
SENATOR  SEEKINS  tried  to understand  the  question,  which  he                                                               
thought was if the construction  costs of the gas treatment plant                                                               
are allowed to be deducted under  the PPT, could those same costs                                                               
be used in  establishing a tariff on  the downstream construction                                                               
of a pipeline provided that the  same entity owns the pipe and is                                                               
the builder  of the gas treatment  plant that was applying  for a                                                               
tariff rate from FERC.                                                                                                          
                                                                                                                                
4:26:45 PM                                                                                                                    
SENATOR BEN  STEVENS agreed  with Senator  Seekins' understanding                                                               
of the question, but he  thought section (h) needed clarification                                                               
on page 10, line 11. It said:                                                                                                   
                                                                                                                                
     (h) A producer or explorer may  not elect to take a tax                                                                    
     credit  under  this  section for  a  lease  expenditure                                                                    
     under AS 43.55.160 that is  an expenditure incurred for                                                                    
     -  directly related  to a  pipeline facility  or assets                                                                    
     that's regulated by either FERC or the RCA."                                                                               
                                                                                                                                
He  wanted  to know  how  many  assets  on  the North  Slope  are                                                               
currently  under  FERC  or  the  RCA and  if  in  inserting  this                                                               
provision  the   state  is   excluding  a   large  part   of  the                                                               
infrastructure that is already there  or will be built for future                                                               
oil production from the 20 percent credit.                                                                                      
                                                                                                                                
     That's why  I have concern  over this - if  we're going                                                                    
     to  exclude facilities  from the  20 percent  credit. I                                                                    
     don't  have   the  answer  to  that   because  it's  my                                                                    
     understanding that there are  several feeder lines from                                                                    
     satellite fields  that are regulated under  the RCA for                                                                    
     existing  production.   And  if  they  are   there  for                                                                    
     existing production,  then they will probably  be there                                                                    
     if we  bring on  new satellite fields  for oil  and not                                                                    
     just oil, but also gas....                                                                                                 
                                                                                                                                
SENATOR  SEEKINS added  that reflected  his concern  as well.  He                                                               
wanted to  determine where the  PPT starts  and stops as  well as                                                               
where the tariff starts. He wasn't  sure which assets fell in the                                                               
category under lines 25-27 on page 10 [Version I].                                                                              
                                                                                                                                
CHAIR WAGONER said the other amendment  was Y.24 and that was now                                                               
on page 18, line 10 of Version I.                                                                                               
                                                                                                                                
SENATOR BEN STEVENS said in  Version I, Amendment Y.24 deals with                                                               
language that  is inserted all  the way down  to page 24,  line 8                                                               
where  the  470  Fund  begins.   He  said  the  new  version  has                                                               
substantial  new language  and he  would like  time to  see it  -                                                               
specifically new  language in  section (i) on  page 21,  line 20,                                                               
and sections (n) and (o) on pages 22 and 23.                                                                                    
                                                                                                                                
SENATOR  DYSON  asked  Senator   Stevens  to  summarize  what  he                                                               
intended to accomplish with this amendment.                                                                                     
                                                                                                                                
SENATOR  BEN  STEVENS   replied  his  intent  was   to  take  the                                                               
provisions back  to the  original version of  SB 305,  which says                                                               
the   costs  for   third-party  transactions   or  arm's   length                                                               
transactions  are allocated  under ordinary  and necessary  costs                                                               
provided  under the  U.S. IRS  provision. The  current limitation                                                               
says  there is  already a  system in  place that  says how  arm's                                                               
length transactions are dealt with.  The evolving language is all                                                               
about arm's length transactions and  relates to some IRS code and                                                               
it's  more restrictive  and  he questioned  whether  it was  more                                                               
effective.                                                                                                                      
                                                                                                                                
He highlighted again that  (n) on page 22 and (o)  on page 23 had                                                               
been substantially  changed and the definition  of "necessary and                                                               
ordinary  in section  (p) had  been entirely  removed. He  stated                                                               
that Mr.  Chenoweth's memo  said (p) was  removed from  the bill,                                                               
but in  reality, language on  page 16, line 12,  allows necessary                                                               
and ordinary  costs for exploring  for gas deposits, but  not for                                                               
producing.  "Again  there  is   some  delineation  between  costs                                                               
associated with  production versus costs associated  with ongoing                                                               
development or production."                                                                                                     
                                                                                                                                
4:36:19 PM                                                                                                                    
CHAIR WAGONER related  a thumbnail sketch of  why the legislature                                                               
went through the  process it did. One of  the legislature's hired                                                               
tax consultants said  that these changes were  necessary in order                                                               
to give  the administration another  tool in its toolbox  to stop                                                               
any gaming  in the tax  area of  different processes they  can go                                                               
through for pieces of equipment et cetera.                                                                                      
                                                                                                                                
4:36:59 PM                                                                                                                    
SENATOR DYSON  said it was  his intention for the  legislature to                                                               
do the best it can to  give incentives for new production and new                                                               
exploration and  not allow  producers to write  off work  they do                                                               
that just maintains old production.                                                                                             
                                                                                                                                
4:38:38 PM                                                                                                                    
CHAIR  WAGONER  said the  administration  sent  a letter  to  the                                                               
legislature  that addressed  that and  he distributed  it in  the                                                               
last   meeting.   He   felt  the   changes   just   allowed   the                                                               
administration  more tools  in  the toolbox  to  avoid that  from                                                               
happening and it was the legislature's policy call.                                                                             
                                                                                                                                
SENATOR DYSON recalled it was  the administration's intent to not                                                               
give incentives for maintaining existing production.                                                                            
                                                                                                                                
CHAIR WAGONER said he couldn't say one way or the other.                                                                        
                                                                                                                                
SENATOR BEN STEVENS  said his interpretation of the  bill is that                                                               
investments for  maintaining production  do qualify. There  is no                                                               
difference   between   enhanced   oil  recovery   production,   a                                                               
development  of  an existing  field  or  exploration for  the  20                                                               
percent credit.                                                                                                                 
                                                                                                                                
SENATOR SEEKINS agreed with Senator Stevens' interpretation.                                                                    
                                                                                                                                
SENATOR BEN STEVENS  went back to page 20, line  31, through page                                                               
21, lines 1 - 3 and said  it was his understanding that was going                                                               
to be deleted.  He explained that it was a  limitation on the $40                                                               
in the transition.                                                                                                              
                                                                                                                                
CHAIR  WAGONER replied  yes, he  was right.  On another  note, he                                                               
said the  report came  back from DEC  showing what  the different                                                               
funding levels do in the 470 Fund.                                                                                              
                                                                                                                                
4:43:35 PM                                                                                                                    
SENATOR  ELTON said  he had  a feeling  that Y.18  and Y.24  were                                                               
going to be  offered again and asked if the  committee could have                                                               
the new line references on Wednesday.                                                                                           
                                                                                                                                
CHAIR WAGONER agreed.                                                                                                           
                                                                                                                                
SENATOR BEN STEVENS  said the entire sections of  (h) through (o)                                                               
in Version Y are changed substantially  in Version I. He said his                                                               
amendments would  address the previous  version, since  Version I                                                               
hadn't  been  adopted,  and  would  take the  bill  back  to  the                                                               
original version.                                                                                                               
                                                                                                                                
CHAIR WAGONER noted there was  no further discussion and recessed                                                               
the meeting at 4:45:40 PM to a call of the chair on Wednesday.                                                                
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects