Legislature(2005 - 2006)BUTROVICH 205

03/29/2006 03:00 PM RESOURCES


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03:20:46 PM Start
03:23:20 PM SB305
04:47:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Uniform Rule 23 Waived
-- Time Change --
-- Continued from 03/27/06 --
+= SB 305 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Moved CSSB 305(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 29, 2006                                                                                         
                           3:20 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                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Lyda Green                                                                                                              
                                                                                                                                
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."                                                                                                                
     MOVED CSSB 305(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
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)       Heard & Held                                                                                           
03/04/06       (S)       MINUTE(RES)                                                                                            
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                                                                           
03/27/06       (S)       Heard & Held                                                                                           
03/27/06       (S)       MINUTE(RES)                                                                                            
03/29/06       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/29/06       (S)       RES AT 3:00 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE BALASH                                                                                                                      
Staff to the Legislative Budget and Audit Committee                                                                             
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 305.                                                                                      
                                                                                                                                
MARY JACKSON                                                                                                                    
Staff to the Senate Resources Committee                                                                                         
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 305.                                                                                      
                                                                                                                                
ROBYNN WILSON, Director                                                                                                         
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Answered questions related to SB 305.                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS WAGONER  reconvened  the  3/27/06 Senate  Resources                                                             
Standing Committee meeting  on 3/29/06 at 3:20:46  PM. Present at                                                             
the call  to order were  Senators Ben Stevens,  Stedman, Seekins,                                                               
Dyson, Elton and Chair Wagoner.                                                                                                 
                                                                                                                                
               SB 305-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                              
CHAIR WAGONER announced that the committee would continue                                                                       
working on CSSB 305(RES), work draft Version I and that                                                                         
Amendment Y.18 was up for consideration.                                                                                        
                                                                                                                                
SENATOR BEN STEVENS said he  received an email message saying the                                                               
committee wasn't going to discussion amendments today.                                                                          
                                                                                                                                
CHAIR WAGONER  clarified that the committee  wouldn't discuss new                                                               
amendments.  He reminded  Senator Stevens  that he  had asked  to                                                               
have Y.18 and  Y.24 held for today's meeting so  he was extending                                                               
a courtesy.                                                                                                                     
                                                                                                                                
3:23:20 PM                                                                                                                    
SENATOR  BEN STEVENS  explained  that Amendment  Y.18 relates  to                                                               
Version Y and  the cross reference in Version I  is found on page                                                               
10, lines  25-27, and  page 18,  lines 26-29.  It relates  to the                                                               
March 19, 2006 memo Mr. Balash circulated from Don Shepler.                                                                     
                                                                                                                                
SENATOR BEN STEVENS moved Amendment Y.18.                                                                                       
                                                                                                                                
                                                     24-GS2052\Y.18                                                             
                                                         Chenoweth                                                              
                                                                                                                                
                         AMENDMENT Y.18                                                                                     
                                                                                                                                
OFFERED IN THE SENATE            BY SENATORS STEDMAN AND                                                                        
     TO:  CSSB 305(RES), Draft Version "Y"                                                                                      
                                                    BEN STEVENS                                                                 
                                                                                                                                
     Page 12, line 20:                                                                                                          
          Delete ";"                                                                                                            
          Insert "."                                                                                                            
                                                                                                                                
     Page 12, lines 21 - 29:                                                                                                    
          Delete all material.                                                                                                  
                                                                                                                                
CHAIR WAGONER objected.                                                                                                         
                                                                                                                                
SENATOR BEN STEVENS explained that  Mr. Shepler's memo relates to                                                               
the  ability to  use tax  credits against  investments in  a FERC                                                               
regulated  asset. He  had  two concerns  with  the language.  The                                                               
first has to do with existing  assets on the North Slope that are                                                               
FERC or RCA  regulated. If the new language  were inserted, those                                                               
facilities could  not use the tax  credit in the future.  He said                                                               
Mr. Shepler's memo  is inconclusive; it says that  "FERC may take                                                               
into  consideration the  credits  or they  may  not." He  thought                                                               
about  that  and came  to  the  conclusion  that by  putting  the                                                               
language in,  the state would never  be able to benefit  from the                                                               
credit  methodology  that's  in   place.  He  reasoned  that  all                                                               
infrastructure  on  the North  Slope  is  eligible for  a  credit                                                               
except for the pieces that are regulated.                                                                                       
                                                                                                                                
     Now,  we know  that  FERC uses  cost methodology;  they                                                                    
     take  the capital  asset, the  cost of  the asset,  the                                                                    
     amount to  operate and then  they derive a  tariff. And                                                                    
     the  tariff is  deducted  back to  the wellhead  value,                                                                    
     which  royalty oil  is  derived from  as  well as  what                                                                    
     taxable  oil  is   derived  from.  So  if   we  say  to                                                                    
     ourselves,  just  to use  an  instance,  a $10  million                                                                    
     pipeline, FERC  will say it  cost $10 million  to build                                                                    
     and it  costs so  much to operate  and they  derive the                                                                    
     tariff. But  if we  say you've  got a  credit mechanism                                                                    
     and  if, in  fact, FERC  says okay  you've only  got $8                                                                    
     million in that  line and costs to  operate, the tariff                                                                    
     will go down.  Therefore our value will  go up; royalty                                                                    
     oil value will  go up and tax value will  go up because                                                                    
     you  have less  of a  deduction.  But if  we, in  fact,                                                                    
     enact this  legislation and this language,  we'll never                                                                    
     be able  to do that. The  state would never be  able to                                                                    
     benefit,  because that's  really the  only way  we ever                                                                    
     benefit from  the credit -  is by saying the  tariff is                                                                    
     lower and the  value of oil is higher.  And because Mr.                                                                    
     Shepler's  conclusion is  non-conclusive; it  says FERC                                                                    
     may do  it, but then  again, they  may not do  it. They                                                                    
     may  roll in  reduced rates  to  the tariff  or to  the                                                                    
     ratepayer, but then again, they  may not. But this will                                                                    
     say we'll never be able to get it.                                                                                         
                                                                                                                                
3:27:38 PM                                                                                                                    
SENATOR KOOKESH arrived.                                                                                                        
                                                                                                                                
3:27:57 PM                                                                                                                    
SENATOR BEN STEVENS  opined if the state is going  to give credit                                                               
mechanisms, it ought to be able  to benefit from it in the future                                                               
through  lower tariffs  and therefore,  higher royalty  value and                                                               
higher taxable value.                                                                                                           
                                                                                                                                
SENATOR  BEN  STEVENS  said  the  second  piece  of  language  he                                                               
objected to is  outlined in the first statement  of Mr. Shepler's                                                               
memo, which says:                                                                                                               
                                                                                                                                
     You asked whether proposed net  profits tax credits and                                                                    
     deductions  associated  with  investments  in  a  North                                                                    
     Slope  Gas  Treatment  Plant  (GTP)  would  be  flowed-                                                                    
     through to customers who ship gas through the plant.                                                                       
                                                                                                                                
SENATOR BEN STEVENS said he has  always been in the position that                                                               
this bill  should focus on  existing production,  facilities that                                                               
are going  to be built to  enhance current production in  oil and                                                               
gas and not  take something in the future  into consideration. He                                                               
said:                                                                                                                           
                                                                                                                                
     Because in the future, we'll  see the whole picture; we                                                                    
     don't  see  that  picture  now.   And  so  we've  taken                                                                    
     something  from the  front and  we  put something  into                                                                    
     this picture and  said you can't do that,  but we don't                                                                    
     know what it means. And  for those reasons I would move                                                                    
     that Y.18  strikes the language  in Y  version [Version                                                                    
     I] on page 10, at the  bottom, lines 25-27 and again on                                                                    
     page 18, lines 26-29.                                                                                                      
                                                                                                                                
3:29:11 PM                                                                                                                    
SENATOR STEDMAN asked if the reference is to Version I.                                                                         
                                                                                                                                
CHAIR WAGONER answered yes Version I.                                                                                           
                                                                                                                                
3:29:42 PM                                                                                                                    
SENATOR STEDMAN said he had  a similar concern with the paragraph                                                               
because he didn't want to preclude  that credit in the future. He                                                               
noted that  this committee  hadn't talked a  whole lot  about the                                                               
effect of the tariff  and how it plays in with  the credits so he                                                               
would suggest  that they avoid  a tactical error by  modifying it                                                               
and dealing with it at a later date.                                                                                            
                                                                                                                                
3:31:05 PM                                                                                                                    
SENATOR ELTON said  his concern is if that is  taken out and FERC                                                               
does not  consider the  credit in setting  the tariff,  what they                                                               
have essentially  done is set up  a system in which  the taxpayer                                                               
gets a double  benefit. They would get the  increased tariff plus                                                               
the credit. He  said it's easier to leave the  language in and if                                                               
it becomes a problem address it  then rather than assume the flip                                                               
side.                                                                                                                           
                                                                                                                                
3:31:54 PM                                                                                                                    
SENATOR SEEKINS said  it's a policy decision and  it doesn't have                                                               
anything to do with how FERC will  treat that in the end. If FERC                                                               
ignores the  credit and  takes 100  percent of  the value  of the                                                               
asset  and rolls  it into  the  tariff, he  understands that  the                                                               
state would own 20 percent of the pipe.                                                                                         
                                                                                                                                
     So, in effect, the people  of the State of Alaska would                                                                    
     get  20 percent  of the  tariff over  a long  term. So,                                                                    
     there's some income stream that  comes to the people of                                                                    
     the State  of Alaska there.  However, where we  cut off                                                                    
     where that gathering system is  before it gets into the                                                                    
     main  pipe itself,  that adds  some incentive  to being                                                                    
     able   to  construct   that  facility,   construct  the                                                                    
     collections process, get it to  the gas treatment plant                                                                    
     and do that, I think  that's a worthwhile investment as                                                                    
     well -  because we basically  give a 20  percent credit                                                                    
     against that  capital investment and it's  an incentive                                                                    
     to get  that process moving.  I'm not so sure  that the                                                                    
     oil companies  - I  think that the  State of  Alaska by                                                                    
     doing this  doesn't really  have that  much to  risk in                                                                    
     being able to  give that credit as far  down-line as we                                                                    
     want to  regardless of how  FERC treats it. And  I'd be                                                                    
     in favor of striking the language.                                                                                         
                                                                                                                                
3:33:52 PM                                                                                                                    
SENATOR  STEDMAN   said  after   listening  to   Senator  Elton's                                                               
comments, he believes there is some confusion.                                                                                  
                                                                                                                                
     If  there's a  credit  applied  to some  infrastructure                                                                    
     that there's going  to a tariff charged  on, the tariff                                                                    
     is charged  on the  equity position,  not on  the debt.                                                                    
     And  if we,  the  state,  give a  credit  to lower  the                                                                    
     equity position,  we should in  turn see a  lowering of                                                                    
     the tariff....                                                                                                             
                                                                                                                                
3:34:38 PM                                                                                                                    
SENATOR ELTON  countered that  may be  true if  the state  has an                                                               
equity  position, but  if it's  a FERC-regulated  asset that  the                                                               
state doesn't have  an equity position in, then  that wouldn't be                                                               
the case.                                                                                                                       
                                                                                                                                
3:35:05 PM                                                                                                                    
SENATOR STEDMAN  said even  if the state  had no  equity interest                                                               
and it grants  credits, it wouldn't be advantageous  to the state                                                               
to  grant  credits   and  not  get  a  movement   in  the  tariff                                                               
calculation.                                                                                                                    
                                                                                                                                
3:35:45 PM                                                                                                                    
SENATOR ELTON said he appreciated the byplay, but:                                                                              
                                                                                                                                
     If  FERC  doesn't  set  the tariff  in  a  manner  that                                                                    
     reflects the credit, the royalty  product that is going                                                                    
     through that the  state owns is going to  be paying the                                                                    
     higher credit. At  the same time, the  taxpayer is able                                                                    
     to  use  the credit  to  lower  their payments  to  the                                                                    
     state. So, the  state could end up giving  a credit for                                                                    
     a tariff  that doesn't  reflect the  credit and  end up                                                                    
     paying more  for the transportation of  the product the                                                                    
     state owns going through that pipe.                                                                                        
                                                                                                                                
3:36:27 PM                                                                                                                    
SENATOR SEEKINS expressed  the opinion that it  could happen, but                                                               
it isn't likely.                                                                                                                
                                                                                                                                
3:36:37 PM                                                                                                                    
SENATOR   BEN  STEVENS   referred   members   to  Mr.   Shepler's                                                               
"Conclusion" on the final page of his memo that says:                                                                           
                                                                                                                                
     I  have  not found  any  clear  binding precedent  that                                                                    
     answers  the question  you posed.  However, since  FERC                                                                    
     bases  rates  on  the costs  incurred  to  provide  the                                                                    
     services,  the  fact  that  project  sponsors  received                                                                    
     quantifiable  state tax  credits  and  deductions as  a                                                                    
     direct result of investing in  a GTP suggests that FERC                                                                    
     would be  inclined to require those  benefits be flowed                                                                    
     through to the  shippers who make use of  the GTP. This                                                                    
     would be the result I would expect.                                                                                        
                                                                                                                                
SENATOR BEN  STEVENS closed  his argument  saying he  thought the                                                               
bill should  focus on  projects that  would enhance  existing oil                                                               
production  or gas  associated with  that production.  He thought                                                               
they should leave the questions about  FERC and the GTP to a date                                                               
when it is in front of them.                                                                                                    
                                                                                                                                
CHAIR WAGONER maintained his objection.                                                                                         
                                                                                                                                
A roll  call vote  was taken  and the  motion to  adopt Amendment                                                               
Y.18  passed with  5  yeas  and 2  nays.  Senator Dyson,  Senator                                                               
Stedman,  Senator  Ben  Stevens,   Senator  Seekins  and  Senator                                                               
Wagoner  voted in  favor and  Senator Elton  and Senator  Kookesh                                                               
voted against.                                                                                                                  
                                                                                                                                
SENATOR BEN STEVENS asked, as a  point of order, if the reference                                                               
was with both sections in the bill.                                                                                             
                                                                                                                                
CHAIR WAGONER replied, "Right."  He announced that Amendment Y.24                                                               
was before the committee.                                                                                                       
                                                                                                                                
3:39:25 PM                                                                                                                    
SENATOR BEN  STEVENS withdrew amendment Y.24  and Senator Stedman                                                               
concurred.                                                                                                                      
                                                                                                                                
SENATOR  BEN  STEVENS  spoke  to   the  reason  he  withdrew  the                                                               
amendment,  which relates  to Section  43.55.160 (d)(2)(M)  costs                                                               
that are  not to be included  when determining value. He  said he                                                               
agrees with Mr.  Chenoweth's memo indicating that  the section is                                                               
unwieldy  and he  intends to  recommend that  the next  committee                                                               
break it into subsections instead of subparagraphs.                                                                             
                                                                                                                                
CHAIR WAGONER agreed. He asked Mr. Balash to present Amendment                                                                  
1B.                                                                                                                             
                                                                                                                                
SENATOR SEEKINS moved Amendment 1B.                                                                                             
                                                                                                                                
                          AMENDMENT 1B                                                                                        
                                                                                                                                
OFFERED IN THE SENATE TO: CSSB 305(RES), draft version 24-                                                                      
GS2052\I. BY SENATOR WAGONER                                                                                                    
                                                                                                                                
     Page 19, lines 19-23: delete all material, insert                                                                        
     (1)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 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                                                                    
                                                                                                                                
3:43:02 PM                                                                                                                    
SENATOR BEN STEVENS objected.                                                                                                   
                                                                                                                                
JOE BALASH, staff to the  Legislative Budget and Audit Committee,                                                               
explained that Amendment  1B is the product of  an effort between                                                               
the committee's tax counsel, Mr.  Marvin Kirsner, and his partner                                                               
Carolyn Fanaroff, with  the firm of Greenberg  Traurig along with                                                               
the  Department of  Law and  Department of  Revenue to  make sure                                                               
everything is  captured correctly  in Section  43.55.160, Section                                                               
22  of the  bill.  Mr. Kirsner  had  raised a  few  areas in  his                                                               
analysis of the governor's legislation  which he thought could be                                                               
tightened to  reduce potential write offs  for deduction purposes                                                               
in the PPT. This section deals with those deductions.                                                                           
                                                                                                                                
He said  the first part of  the amendment, page 19,  lines 19-23,                                                               
deals  with the  scenario where  a company  is receiving  revenue                                                               
from a different  company for production facilities'  use and Mr.                                                               
Kirsner recommended  that that be  broadened to include  the type                                                               
of  event where  somebody divests  themselves of  that asset  and                                                               
then receives  a management fee -  that that be counted  as well.                                                               
After discussion on  the phone, Mr. Mintz and  Mr. Kirsner worked                                                               
out this agreeable language for easier reading.                                                                                 
                                                                                                                                
MR. BALASH said language on page  20 fits in with another section                                                               
of the amendment to reorder  language so that it's more efficient                                                               
in the  application and administration  of the statute.  It takes                                                               
care  of  the  situation  where   somebody  purchases  an  asset,                                                               
collects the  deduction, and then  moves that asset out  of state                                                               
for use out of state. It  requires that value to be recaptured by                                                               
the state.                                                                                                                      
                                                                                                                                
The third  item on page 22,  line 13, requests insertion  of (b).                                                               
That  was   a  technical  administrative  point   the  department                                                               
requested and it doesn't make any substantive changes.                                                                          
                                                                                                                                
MR. BALASH  said that language  on page  22, line 14,  deals with                                                               
subsection (m) and  directs the agency to  look at determinations                                                               
of  cost that  occur  in  (d)(2)(N) for  the  purposes of  making                                                               
subtractions.  That  language  is  in the  lease  adjustments  in                                                               
subsection (e). To get language to  read properly on page 14, the                                                               
words  "or (d)(2)(O)"  are deleted.  Then  on line  16, the  very                                                               
first  words, "(d)(2)(N)  or (d)(2)(O)"  need to  be deleted  and                                                               
replaced with "(e)(3)(A)".                                                                                                      
                                                                                                                                
Further down  page 22, lines  27-28, is clarifying  language that                                                               
the department requested.  It sets a penalty in the  event that a                                                               
taxpayer fails  to comply with  a request for information  by the                                                               
department. In previous versions of  this amendment, it was at 20                                                               
percent  and the  chair requested  that it  reflect 5  percent to                                                               
match with similar civil penalties on tax forms.                                                                                
                                                                                                                                
MR. BALASH said  beginning on page 22, line 29,  through page 23,                                                               
line 11,  subsection (n) is going  to be deleted entirely.  It is                                                               
an area  that duplicated  an item  in the  (d)(2) list  of things                                                               
that are excluded from direct costs.                                                                                            
                                                                                                                                
On  page 23,  lines  12-14, is  language that  Mr.  Mintz at  the                                                               
Department of  Law recommended to  make it clearer and  easier to                                                               
understand.  It   says  subsection   (n)  because   the  previous                                                               
subsection (n)  is going to  be deleted  and that helps  with the                                                               
reordering.                                                                                                                     
                                                                                                                                
Finally, on page 23, lines  22-26, is the recapture mechanism for                                                               
the  transfer of  assets outside  the  state. It  was added  into                                                               
(e)(3)(A) and is no longer needed in the new subsection (n).                                                                    
                                                                                                                                
3:50:40 PM                                                                                                                    
SENATOR  STEDMAN  referenced  the  last sentence  of  the  second                                                               
paragraph of  the second  page of  the Kirsner/Fanaroff  memo and                                                               
asked if  there is some  lack of  support from the  department on                                                               
some of the insertions.                                                                                                         
                                                                                                                                
3:50:48 PM                                                                                                                    
MR. BALASH replied:                                                                                                             
                                                                                                                                
     The  one area  which we  covered in  the teleconference                                                                    
     which   the  department   continued  to   maintain  its                                                                    
     objection to  or failed  to agree  with Mr.  Kirsner on                                                                    
     the need  for, were  the audit  powers -  and in  the I                                                                    
     version,  that  appears  as   subsection  (m)  where  a                                                                    
     standard is set for how  to treat transactions that are                                                                    
     not  at  arm's length.  It  directs  the department  to                                                                    
     adopt  regulations  that  would incorporate  the  audit                                                                    
     powers  of section  482 of  the Internal  Revenue Code.                                                                    
     These are audit powers,  which the department feels may                                                                    
     not be  necessary. Our tax  counsel continues  to think                                                                    
     that they would potentially be.                                                                                            
                                                                                                                                
SENATOR STEDMAN asked to hear from the department on that issue.                                                                
                                                                                                                                
3:51:16 PM                                                                                                                    
ROBYNN  WILSON, Director,  Tax  Division,  Department of  Revenue                                                               
(DOR),  referenced  a  letter  from   the  department  that  says                                                               
insertion isn't critical. She said  if, on the advice of counsel,                                                               
the committee  includes that's okay,  but if doing so  it somehow                                                               
derails the main point of  the legislation then the department is                                                               
more neutral.                                                                                                                   
                                                                                                                                
3:52:13 PM                                                                                                                    
CHAIR WAGONER asked if another way  of saying it is that it isn't                                                               
needed, but including it would provide  a tool that could be used                                                               
at some point.                                                                                                                  
                                                                                                                                
Ms. WILSON  replied yes. Under  the rules of  ordinary, necessary                                                               
and  direct she  would argue  that  something in  excess of  fair                                                               
market value  is not  necessary or  direct or  ordinary. However,                                                               
she noted, an attached legal  memo counters that argument so that                                                               
discussion could  take place  at a later  time. If  the committee                                                               
elects  to  leave  it  out,  DOR  will  argue  for  ordinary  and                                                               
necessary. If  the committee elects to  leave it in, it  would be                                                               
an additional tool. She acknowledged  that IRS Section 482 audits                                                               
are cumbersome, but  the benefit is that they  provide ranges and                                                               
guidance  for  arm's  length  values   for  particular  kinds  of                                                               
services, assets and so forth.  She reiterated it doesn't have to                                                               
be  included  if  it  distracts   from  the  main  point  of  the                                                               
legislation.                                                                                                                    
                                                                                                                                
CHAIR  Wagoner   asked  if  there   was  further   discussion  or                                                               
objection.                                                                                                                      
                                                                                                                                
SENATOR BEN STEVEN maintained his objection.                                                                                    
                                                                                                                                
A roll call  vote was taken and the motion  to adopt Amendment 1B                                                               
passed with  6 yeas  and 1 nay.  Senator Stedman,  Senator Elton,                                                               
Senator  Kookesh, Senator  Seekins,  Senator  Dyson, and  Senator                                                               
Wagoner voted in favor and Senator Ben Stevens voted against.                                                                   
                                                                                                                                
CHAIR WAGONER  asked Ms. Jackson  to outline the  changes between                                                               
Version Y and Version I.                                                                                                        
                                                                                                                                
SENATOR SEEKINS asked  for clarification that Version  I had been                                                               
adopted as the working document.                                                                                                
                                                                                                                                
CHAIR WAGONER said yes. [work  draft Version I was adopted during                                                               
the 3/27/06 meeting.]                                                                                                           
                                                                                                                                
3:55:28 PM                                                                                                                    
MARY JACKSON,  staff to the Senate  Resources Committee, outlined                                                               
the changes in work draft Version I from Version Y.                                                                             
                                                                                                                                
Page 1 includes title changes,  which are the result of deletions                                                               
such as  the Cook Inlet feature,  and insertions such as  the new                                                               
claw back and progressivity.                                                                                                    
                                                                                                                                
Page  2,  Section  1,  line  12,  references  Section  11  of  AS                                                               
43.55.020(f) and Version Y referenced Section 14.                                                                               
                                                                                                                                
Page 2, Sections 2, 3 and 4, have no changes.                                                                                   
                                                                                                                                
Page   3,   Section   5,  pertains   to   private   royalty   and                                                               
Progressivity.  In  Version Y  that  section  contained the  Cook                                                               
Inlet provision, which was deleted from Version I.                                                                              
                                                                                                                                
Page 3,  line 25,  contains the  new phrase,  ".... from  a lease                                                               
that is in  effect on the effective date of  this subsection." It                                                               
is the result of adopting Amendment Y.40.                                                                                       
                                                                                                                                
Page 4, line 6, the phrase,  "except as otherwise provided in (4)                                                               
of this  subsection," was deleted. Page  4, lines 12, 13,  and 14                                                               
is a  new subsection (4).  Ms. Jackson said  that is a  result of                                                               
adopting Amendment Y.40.                                                                                                        
                                                                                                                                
The new  progressivity features on page  4 and the top  of page 5                                                               
were  corrected by  the committee  and  replaced on  Monday as  a                                                               
result of adopting Amendment I.2.                                                                                               
                                                                                                                                
3:59:14 PM                                                                                                                    
SENATOR SEEKINS  referenced page  4, line 23,  and asked  if that                                                               
was amended from property tax to profits tax.                                                                                   
                                                                                                                                
MS. JACKSON said yes, there  were several of those amendments. It                                                               
was done again in Amendment I.2                                                                                                 
                                                                                                                                
Page 5, Section 6, is a Cook  Inlet section in Version Y that was                                                               
eliminated. She  said this is  basically Section 9 of  Version Y.                                                               
Section 9.                                                                                                                      
                                                                                                                                
Page 5, Section 7, contains  technical changes on lines 25-30. It                                                               
was an insert that reads, "after  the last day of the third month                                                               
following  the calendar  quarter of  production, as  described in                                                               
this subsection,  ..." She  said it's  clean-up language  that is                                                               
needed because of the true up. It is Version Y, Section 10.                                                                     
                                                                                                                                
Page 6, Section  9, has no changes. It is  the Version Y, Section                                                               
12.                                                                                                                             
                                                                                                                                
Page 6, Section 10, has no changes. It is Version Y, Section 13.                                                                
                                                                                                                                
Page 6,  Section 11, line  28, inserts the terms,  "produced but"                                                               
and  "produced  and"  so  that  both sides  of  the  phrase  were                                                               
captured with the  term "produced". That is a  result of adopting                                                               
Amendment Y.34, Ms. Jackson said.                                                                                               
                                                                                                                                
Page 7,  Section 12, is  required for private  royalty reference.                                                               
It is Version Y, Section 15.                                                                                                    
                                                                                                                                
Page  7, Section  13,  has tax  credits for  which  there were  a                                                               
number of  changes. Unfortunately,  there were  also a  number of                                                               
changes that  were not made. The  5,000-barrel amendment replaced                                                               
the $73 million standard deduction  and the Cook Inlet provision.                                                               
Mr. Mintz  drew up the amendment  and neglected to remove  all of                                                               
the Cook  Inlet provisions  so some show  up here.  For instance,                                                               
page 7, lines 15-19 relating to  20 percent and 30 percent should                                                               
have been  removed and was not.  She suggested to the  chair that                                                               
this would be  a good time advise the committee  that there is an                                                               
amendment that clears the language up.                                                                                          
                                                                                                                                
4:03:31 PM                                                                                                                    
CHAIR WAGONER explained the amendment.  On page 7, line 14, after                                                               
"amount of" insert  "20 percent of that  expenditure." and delete                                                               
all of lines 15-19.                                                                                                             
                                                                                                                                
SENATOR  BEN   STEVENS  asked   if  that   includes  development,                                                               
production, and exploration.                                                                                                    
                                                                                                                                
CHAIR WAGONER said it includes all three.                                                                                       
                                                                                                                                
4:04:14 PM                                                                                                                    
MS. JACKSON continued.                                                                                                          
                                                                                                                                
Page 7,  line 25, contains  drafting changes.  Also, subparagraph                                                               
(B) on  line 30 contains  some of  the 30 percent  provision that                                                               
was to be deleted. She noted  that the amendment that members had                                                               
would delete page 7, lines 30-31 and page 8, lines 1-2.                                                                         
                                                                                                                                
Page 8, lines  10-18, is also language related to  the 30 percent                                                               
that should have  been deleted and was not. It  is subsection (b)                                                               
and (c).  Ms. Jackson noted  that those  are included in  the new                                                               
amendment.                                                                                                                      
                                                                                                                                
Page  8, line  19, reads  "A producer  may elect..."  Ms. Jackson                                                               
said  the   committee  amended  Amendment  Y.12   to  insert  "or                                                               
explorer"  after  "A  producer"  on  page  8,  line  19  and  "or                                                               
explorer's" after "A producer's" on  line 24. She said she didn't                                                               
have that on  her sheet so it wasn't included  in this draft, but                                                               
it does  need to  be inserted.  Page 2, lines  19-26, is  the new                                                               
language from Amendment Y.12.                                                                                                   
                                                                                                                                
Page  9,  lines 17-27,  reflect  the  changes made  in  Technical                                                               
Amendment 1.                                                                                                                    
                                                                                                                                
Page  10,   line  26,  inserted   "economically"  so   it  reads,                                                               
"economically regulated".                                                                                                       
                                                                                                                                
CHAIR  WAGONER   advised  that  that  language   was  removed  in                                                               
Amendment Y.18.                                                                                                                 
                                                                                                                                
MS. JACKSON acknowledged that.                                                                                                  
                                                                                                                                
4:08:27 PM                                                                                                                    
Page 11,  Section 14, has  no changes.  It is Version  Y, Section                                                               
18. She noted  that Version Y, Section 14 was  deleted in the new                                                               
5,000 barrel.                                                                                                                   
                                                                                                                                
Page 11,  Section 15, has  no changes.  It is Version  Y, Section                                                               
19.                                                                                                                             
                                                                                                                                
Page  12,  Section 16,  contains  new  language  as a  result  of                                                               
adopting of  Technical Amendment 1.  The language is  relevant to                                                               
the true up.                                                                                                                    
                                                                                                                                
Page 12,  Section 17,  language is  the same  except on  page 13,                                                               
lines  2-3,  which  was  changed  as  a  result  of  adoption  of                                                               
Amendment  Y.21. The  Version Y  language read,  "the use  of the                                                               
information to use  for the purpose of  determining or contesting                                                               
the producer's tax obligation;"                                                                                                 
                                                                                                                                
Page 13,  Section 18, has  no changes.  It is Version  Y, Section                                                               
22.                                                                                                                             
                                                                                                                                
Page 13,  Section 19, has  no changes.  It is Version  Y, Section                                                               
23.                                                                                                                             
                                                                                                                                
Page 13, Section 20, line 30, the word "or" was deleted.                                                                        
                                                                                                                                
Page 14, Section 21, line  2, has slight nomenclature changes. It                                                               
previously  read, "new  subsections"  and now  it  reads, "a  new                                                               
subsection". She noted that this  section was amended as a result                                                               
of adopting Amendment I.1 on Monday, March 27, 2006.                                                                            
                                                                                                                                
Page 14,  Section 22, page  15, lines  4-6, subsection (2)  is an                                                               
insert from Substantive Amendment 2.                                                                                            
                                                                                                                                
Page 15, line  28 "under (g)(3)" is a  revision under Substantive                                                               
Amendment 2.                                                                                                                    
                                                                                                                                
Page 15,  line 31 through page  16, line 5, is  new language that                                                               
the administration requested.                                                                                                   
                                                                                                                                
Page 17,  lines 11-14,  is new  language from  the administration                                                               
that was adopted as a result of Administrative Amendment 1.                                                                     
                                                                                                                                
Page 17, line 22, the language "of capital assets" was deleted.                                                                 
                                                                                                                                
Page 18,  lines 17-24, contains new  language. The administration                                                               
identified sub-subparagraph  (i), which relates  to proportionate                                                               
allocation  of  costs  for abandonment,  as  a  problematic.  Ms.                                                               
Jackson said she forwarded the  requested language to legislative                                                               
legal and it was inserted instead  of making it an amendment. She                                                               
advised the committee that it  could leave the language or delete                                                               
it, but it was a request from the administration.                                                                               
                                                                                                                                
4:13:28 PM                                                                                                                    
                                                                                                                                
Page 18,  lines 25-29, reflect  changes as a result  of Amendment                                                               
Y.18.                                                                                                                           
                                                                                                                                
Page 18,  line 31,  was changed to  read, "amounts  incurred," at                                                               
the request of the administration.                                                                                              
                                                                                                                                
Page 19,  lines 5-6,  language was changed  to read,  "whether or                                                               
not  the transaction  is treated  as  an asset  sale for  federal                                                               
income tax  purposes." Ms.  Jackson noted  that the  language was                                                               
previously adopted in an administrative amendment.                                                                              
                                                                                                                                
Page 19,  line 7-18, inserts  new language so it  reads, "certain                                                               
payments  or credits  received by  the producer,  as provided  in                                                               
this  subsection.   If  one  or  more   ..."  The  administration                                                               
requested the language.                                                                                                         
                                                                                                                                
Page 20, line 14, contains the  new April 1, 2001 date to conform                                                               
to the new claw back.                                                                                                           
                                                                                                                                
Page 20,  line 19, "on or  after January 1, 2003"  was deleted to                                                               
conform the new times and dates for the new claw back.                                                                          
                                                                                                                                
Page 20, line 21, "multiplied by" was deleted.                                                                                  
                                                                                                                                
Page 20, lines 22-30, is the new claw back section.                                                                             
                                                                                                                                
Page 20, line 31 through page 21,  line 3 needs to be deleted. It                                                               
has to do with the transitional investments.                                                                                    
                                                                                                                                
4:16:58 PM                                                                                                                    
Page 21  relates to the  new 5,000  barrel that replaces  the $73                                                               
million deduction.                                                                                                              
                                                                                                                                
Page 22,  lines 14-16,  and line 26  contain changes  the drafter                                                               
made.                                                                                                                           
                                                                                                                                
Page 23,  line 5, changes  reference to "(d)(2)(O)".  The drafter                                                               
made the correction.                                                                                                            
                                                                                                                                
Page  24,  Section  22,  at  the end  of  the  section  the  term                                                               
"ordinary" needs to be reinserted.  That is in the amendment, Ms.                                                               
Jackson said; the drafter deleted it.                                                                                           
                                                                                                                                
Page 24,  Section 23, has  no changes.  It is Version  Y, Section                                                               
27.                                                                                                                             
                                                                                                                                
Section 24 has no changes. It is Version Y, Section 28.                                                                         
                                                                                                                                
Page 25,  Section 26, has  no changes.  It is Version  Y, Section                                                               
30.                                                                                                                             
                                                                                                                                
Page 25,  Section 27, has  no changes.  It is Version  Y, Section                                                               
32.                                                                                                                             
                                                                                                                                
Page 25, Section 28, has no changes.                                                                                            
                                                                                                                                
Page 26,  Section 29, has  no changes.  It is Version  Y, Section                                                               
33.                                                                                                                             
                                                                                                                                
Section 30,  contains a  new (17) definition  for the  Cook Inlet                                                               
basin. It references back to  the private royalty provisions that                                                               
were inserted. There are no changes in subsections (18) or (19).                                                                
                                                                                                                                
Page  27,  Section  31, contains  the  repealers  reflecting  the                                                               
revisions that were made.                                                                                                       
                                                                                                                                
Page 27, Section 32, is  the applicability. It contains the dates                                                               
that apply to the specific sections.                                                                                            
                                                                                                                                
Page 27, Section 33, contains the transitional provisions.                                                                      
                                                                                                                                
Page 27,  line 31, and page  28, lines 1-3, needs  to be deleted.                                                               
It's a continuation  of the 30 percent credit  that wasn't picked                                                               
up.                                                                                                                             
                                                                                                                                
4:21:18 PM                                                                                                                    
SENATOR ELTON  asked for verification  that the language  on page                                                               
18, lines 17-24,  was added by the drafter and  not as the result                                                               
of an amendment or direction from the committee.                                                                                
                                                                                                                                
MS. JACKSON said  yes. The administration raised  the question of                                                               
how to tell  the proportionate costs with  abandonment before and                                                               
after the bill. The administration  provided the language and due                                                               
to a miscommunication with the  drafter, it was inserted into the                                                               
work draft instead of written as an amendment.                                                                                  
                                                                                                                                
4:22:58 PM                                                                                                                    
SENATOR ELTON  asked if the  net effect  of the language  is that                                                               
abandonment becomes a cost that can  be used to reduce tax margin                                                               
after  the  effective  date  of  the  bill  but  not  before.  He                                                               
questioned   the  impact   that  might   have  because   previous                                                               
discussion  assumed that  abandonment  would not  be allowed.  He                                                               
called it a  significant policy shift simply  because the drafter                                                               
inserted it in the bill.                                                                                                        
                                                                                                                                
MS. JACKSON responded that provision was already included.                                                                      
                                                                                                                                
4:23:41 PM                                                                                                                    
BEN STEVENS  said it  is still  a part of  (d)(2)(M) and  all the                                                               
subsections are exclusions from the deduction.                                                                                  
                                                                                                                                
CHAIR  WAGONER   clarified  they  are  excluded   from  allowable                                                               
deductions.                                                                                                                     
                                                                                                                                
4:24:51 PM at ease 4:26:12 PM                                                                                               
                                                                                                                                
SENATOR SEEKINS moved Amendment 2B.                                                                                             
                                                                                                                                
                          AMENDMENT 2B                                                                                        
                                                                                                                              
OFFERED IN THE SENATE TO CSSB 305(RES), draft version 24-                                                                       
GS2052\I (dated 3/27/06)                      BY SENATOR WAGONER                                                                
                                                                                                                                
     Page 7, line 14, after "amount of" insert:                                                                                 
     "20 percent of that expenditure."                                                                                          
                                                                                                                                
     Page 7, lines 16 - 19, delete all material.                                                                                
                                                                                                                                
     Page  7,  line  30  -  page  8,  line  18,  delete  all                                                                    
     material.                                                                                                                  
                                                                                                                                
     Page  10,   lines  26-27,  following   "Federal  Energy                                                                    
     Regulatory Commission," insert:                                                                                            
     "the"                                                                                                                      
                                                                                                                                
     Page  18, line  25,  following  "a pipeline,  facility"                                                                    
     insert:                                                                                                                    
     "other asset"                                                                                                              
                                                                                                                                
     Page 18, line 28, following "successor" insert:                                                                            
     "regulatory"                                                                                                               
                                                                                                                                
     Page  20, lines  12  -  page 21,  lines  3, delete  all                                                                    
     material and  insert deleted materials into  Section 13                                                                    
     on page 10, line 28 as new subsection (i)                                                                                  
                                                                                                                                
     Page 10, line 28, renumber accordingly.                                                                                    
                                                                                                                                
     Page  20,  line  31  -  page 21,  line  3:  delete  all                                                                    
     material.                                                                                                                  
                                                                                                                                
     Page 24, line 5: Insert new (s):                                                                                           
     "(2)  "ordinary and  necessary" has  the meaning  given                                                                    
     "ordinary  and necessary"  in 26  U.S.C. 162  (Internal                                                                    
     Revenue  Code)  and   regulations  adopted  under  that                                                                    
     section;                                                                                                                   
                                                                                                                                
     Page 24, line 5, renumber accordingly.                                                                                     
                                                                                                                                
     Page 27,  lines 31-32, and  page 28, lines  1-3, delete                                                                    
     all material.                                                                                                              
                                                                                                                                
CHAIR  WAGONER objected  for discussion  purposes  and asked  Ms.                                                               
Jackson to go through the amendment.                                                                                            
                                                                                                                                
MS.   JACKSON  read   Amendment   2B.  Explanations,   questions,                                                               
comments, discussion and motions follow.                                                                                        
                                                                                                                                
Page  7,  lines  15-19,  relate  to  correcting  the  30  percent                                                               
provision.                                                                                                                      
                                                                                                                                
Page 7, line  30, through page 8, line 18,  relates to correcting                                                               
the 30 percent provision.                                                                                                       
                                                                                                                                
SENATOR SEEKINS moved  to amend Amendment 2B to  delete lines 8-9                                                               
of.  There  being  no  objection, Amendment  1  to  Amendment  2B                                                               
passed.                                                                                                                         
                                                                                                                                
4:28:32 PM                                                                                                                    
MS. JACKSON  asked that Senator  Seekins' amendment  delete lines                                                               
8-16.                                                                                                                           
                                                                                                                                
SENATOR  SEEKINS moved  Amendment  2 to  Amendment  2B to  delete                                                               
lines 10-15. There  being no objection, Amendment  2 to Amendment                                                               
2B passed.                                                                                                                      
                                                                                                                                
4:30:33 PM                                                                                                                    
Page  20,  line 12  through  page  21,  line  3, the  purpose  of                                                               
deleting the  material is to  move the subsection out  of Section                                                               
22 and insert it in tax credits in Section 13.                                                                                  
                                                                                                                                
CHAIR  WAGONER explained  that is  to allow  a 20  percent credit                                                               
instead of a 25 percent deduction.                                                                                              
                                                                                                                                
4:31:44 PM                                                                                                                    
SENATOR BEN  STEVENS asked if the  correction is made so  the new                                                               
section can be calculated against the determination.                                                                            
                                                                                                                                
CHAIR  WAGONER said  that  hasn't been  addressed,  but he  would                                                               
assume so.  Basically it was  transferred from  the determination                                                               
of production tax  value in Section 22 to tax  credits in Section                                                               
13.  If the  language remained  in Section  22 it  would allow  a                                                               
deduction of 25  percent instead of a credit of  20 percent under                                                               
Section 13.                                                                                                                     
                                                                                                                                
BEN  STEVENS  expressed  confusion  because  he  thought  the  25                                                               
percent was for  loss carried-forward and he  didn't believe that                                                               
producers that would exercise  the transitional expenditures have                                                               
a loss carried-forward.                                                                                                         
                                                                                                                                
CHAIR WAGONER reminded  him they discussed this last  week and he                                                               
thought they reached concurrence.                                                                                               
                                                                                                                                
SENATOR  BEN STEVENS  replied he  concurs  it shouldn't  be a  25                                                               
percent rate.  He mentioned the  loss carried-forward on  page 8,                                                               
line  19, and  said he'd  look it  over and  get back  if he  had                                                               
concerns.                                                                                                                       
                                                                                                                                
ROBYNN WILSON said  the 25 percent credit referred to  on page 8,                                                               
line 19,  talks about loss  carried-forward, but it is  a special                                                               
section within the  general credit section. It starts  on page 7,                                                               
line 9, and  it gives a 20 percent credit.  She said she believes                                                               
the  25  percent Senator  Stevens  referred  to applies  to  loss                                                               
carried-forward and the general credit amount is 20 percent.                                                                    
                                                                                                                                
In Version I  it is a deduction  so with the 25  percent tax rate                                                               
it's worth  25 percent. Moving  it into the credit  section would                                                               
give a  benefit of 20  percent rather  than 25 percent.  She said                                                               
she understands that to be the intention.                                                                                       
                                                                                                                                
SENATOR BEN STEVENS said his  understanding is that the only time                                                               
you  get 25  percent  credit is  when there  is  a loss  carried-                                                               
forward and he wouldn't classify a transition as a loss.                                                                        
                                                                                                                                
4:37:35 PM                                                                                                                    
Page  20,  line 31  through  page  21,  line  3, relates  to  the                                                               
transition that wasn't removed.                                                                                                 
                                                                                                                                
Page 27,  line 31 through  page 28, lines  1-3 relates to  the 30                                                               
percent deduction that should have been deleted.                                                                                
                                                                                                                                
CHAIR  WAGONER   asked  if  there   were  further   questions  or                                                               
discussion on Amendment 2B.                                                                                                     
                                                                                                                                
4:40:26 PM                                                                                                                    
SENATOR DYSON asked why the  30 percent deduction for exploration                                                               
was removed.                                                                                                                    
                                                                                                                                
CHAIR WAGONER  explained that was  part of an earlier  Cook Inlet                                                               
provision  that called  for a  20 percent  tax and  a 30  percent                                                               
credit. When  it was  changed to  5,000 barrels  both were  to be                                                               
removed. For some reason, reference  to the 30 percent credit has                                                               
appeared in subsequent drafts.                                                                                                  
                                                                                                                                
CHAIR  WAGONER   removed  his   objection.  Finding   no  further                                                               
objection he announced that Amendment 2B was adopted.                                                                           
                                                                                                                                
SENATOR SEEKINS moved  CSSB 305(RES), Version I  as amended, from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
notes.                                                                                                                          
                                                                                                                                
SENATOR BEN STEVENS objected.                                                                                                   
                                                                                                                                
A roll call  vote was taken and the motion  to move CSSB 305(RES)                                                               
from  committee passed  with 5  yeas and  2 nays.  Senator Elton,                                                               
Senator  Kookesh, Senator  Dyson,  Senator  Stedman, and  Senator                                                               
Wagoner voted  for and  Senator Ben  Stevens and  Senator Seekins                                                               
voted against.                                                                                                                  
                                                                                                                                
4:43:25 PM at ease 4:47:09 PM                                                                                               
There being  no further  business to  come before  the committee,                                                               
Chair Wagoner adjourned the meeting at 4:47:21 PM.                                                                            
                                                                                                                                

Document Name Date/Time Subjects