Legislature(2015 - 2016)BUTROVICH 205

04/05/2016 03:30 PM RESOURCES

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Audio Topic
03:30:51 PM Start
03:31:47 PM Confirmation Hearing
03:45:00 PM SB130
03:48:23 PM Continuation of Dor Overview of Alaska Oil and Gas Tax Reform
04:32:36 PM SB129
05:17:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Consideration of Governor's Appointee: TELECONFERENCED
Alaska Gasline Corporation Board of Directors:
Joey Merrick
-- Public Testimony on Appointee --
+ HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
<Pending Referral> -- Invited Testimony Only --
+= SB 130 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
*+ SB 129 AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 5, 2016                                                                                          
                           3:30 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Cathy Giessel, Chair                                                                                                    
Senator Mia Costello, Vice Chair                                                                                                
Senator John Coghill                                                                                                            
Senator Peter Micciche                                                                                                          
Senator Bert Stedman                                                                                                            
Senator Bill Stoltze                                                                                                            
Senator Bill Wielechowski                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Dan Ortiz                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CONFIRMATION HEARGING                                                                                                           
                                                                                                                                
     Alaska Gasline Development Corporation                                                                                   
          Joey Merrick                                                                                                          
                                                                                                                                
     - CONFIRMATION ADVANCED                                                                                                    
                                                                                                                                
HOUSE BILL NO. 247                                                                                                              
"An Act  relating to confidential  information status  and public                                                               
record status  of certificates  from the oil  and gas  tax credit                                                               
fund; relating  to a  minimum for gross  value at  information in                                                               
the  possession  of  the  Department   of  Revenue;  relating  to                                                               
interest the point of production;  relating to lease expenditures                                                               
and  tax  credits for  municipal  applicable  to delinquent  tax;                                                               
relating  to disclosure  of  oil and  gas  production tax  credit                                                               
entities;   adding   a    definition   for   "qualified   capital                                                               
expenditure"; adding  a definition  for information;  relating to                                                               
refunds for  the gas storage  facility tax credit,  the liquefied                                                               
"outstanding  liability  to the  state";  repealing  oil and  gas                                                               
exploration incentive  credits; natural gas storage  facility tax                                                               
credit,  and the  qualified in-state  oil refinery  repealing the                                                               
limitation on  the application of  credits against  tax liability                                                               
for  lease infrastructure  expenditures tax  credit; relating  to                                                               
the minimum tax for certain  oil and expenditures incurred before                                                               
January  1,  2011;  repealing  provisions   related  to  the  gas                                                               
production; relating  to the minimum tax  calculation for monthly                                                               
installment monthly  installment payments  for estimated  tax for                                                               
oil and gas  produced before payments of  estimated tax; relating                                                               
to interest on  monthly installment payments of  January 1, 2014;                                                               
repealing the  oil and  gas production  tax credit  for qualified                                                               
capital   estimated  tax;   relating  to   limitations  for   the                                                               
application of tax credits; relating  to oil and expenditures and                                                               
certain well expenditures; repealing  the calculation for certain                                                               
lease  gas   production  tax  credits  for   certain  losses  and                                                               
expenditures;   relating   to    limitations   for   expenditures                                                               
applicable before January 1,  2011; making conforming amendments;                                                               
and nontransferable oil  and gas production tax  credits based on                                                               
oil  production  and  the  providing   for  an  effective  date."                                                               
alternative tax credit  for oil and gas  exploration; relating to                                                               
purchase of tax credit                                                                                                          
                                                                                                                                
     - <PENDING REFERRAL>                                                                                                       
                                                                                                                                
SENATE BILL NO. 130                                                                                                             
"An Act  relating to confidential  information status  and public                                                               
record status  of certificates  from the oil  and gas  tax credit                                                               
fund; relating  to a  minimum for gross  value at  information in                                                               
the  possession  of  the  Department   of  Revenue;  relating  to                                                               
interest the point of production;  relating to lease expenditures                                                               
and  tax  credits for  municipal  applicable  to delinquent  tax;                                                               
relating  to disclosure  of  oil and  gas  production tax  credit                                                               
entities;   adding   a    definition   for   "qualified   capital                                                               
expenditure"; adding  a definition  for information;  relating to                                                               
refunds for  the gas storage  facility tax credit,  the liquefied                                                               
"outstanding  liability  to the  state";  repealing  oil and  gas                                                               
exploration incentive  credits; natural gas storage  facility tax                                                               
credit,  and the  qualified in-state  oil refinery  repealing the                                                               
limitation on  the application of  credits against  tax liability                                                               
for  lease infrastructure  expenditures tax  credit; relating  to                                                               
the minimum tax for certain  oil and expenditures incurred before                                                               
January  1,  2011;  repealing  provisions   related  to  the  gas                                                               
production; relating  to the minimum tax  calculation for monthly                                                               
installment monthly  installment payments  for estimated  tax for                                                               
oil and gas  produced before payments of  estimated tax; relating                                                               
to interest on  monthly installment payments of  January 1, 2014;                                                               
repealing the  oil and  gas production  tax credit  for qualified                                                               
capital   estimated  tax;   relating  to   limitations  for   the                                                               
application of tax credits; relating  to oil and expenditures and                                                               
certain well expenditures; repealing  the calculation for certain                                                               
lease  gas   production  tax  credits  for   certain  losses  and                                                               
expenditures;   relating   to    limitations   for   expenditures                                                               
applicable before January 1,  2011; making conforming amendments;                                                               
and nontransferable oil  and gas production tax  credits based on                                                               
oil  production  and  the  providing   for  an  effective  date."                                                               
alternative tax credit  for oil and gas  exploration; relating to                                                               
purchase of tax credit                                                                                                          
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 129                                                                                                             
"An  Act  creating the  oil  and  gas infrastructure  development                                                               
program and  the oil and  gas infrastructure development  fund in                                                               
the Alaska Industrial Development  and Export Authority; relating                                                               
to the  interest rates of  the Alaska Industrial  Development and                                                               
Export   Authority;   relating    to   the   sustainable   energy                                                               
transmission  and supply  development  and Arctic  infrastructure                                                               
development  programs of  the Alaska  Industrial Development  and                                                               
Export  Authority;   relating  to   dividends  from   the  Alaska                                                               
Industrial   Development  and   Export   Authority;  and   adding                                                               
definitions  for 'oil  and  gas  development infrastructure'  and                                                               
'proven reserves.'"                                                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 130                                                                                                                  
SHORT TITLE: TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                                 
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (S)       RES, FIN                                                                                               
04/04/16       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/04/16       (S)       Heard & Held                                                                                           
04/04/16       (S)       MINUTE(RES)                                                                                            
04/05/16       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SB 129                                                                                                                  
SHORT TITLE: AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (S)       RES, FIN                                                                                               
04/05/16       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOEY MERRICK                                                                                                                    
Eagle River, Alaska                                                                                                             
POSITION STATEMENT: Appointee to the Alaska Gasline Development                                                               
Corporation (AGDC).                                                                                                             
                                                                                                                                
RANDALL HOFFBECK, Commissioner                                                                                                  
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Answered questions on SB 130.                                                                             
                                                                                                                                
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Continued the overview of Alaska oil and gas                                                              
tax reform and commented on SB 130.                                                                                             
                                                                                                                                
JOHN SPRINGSTEEN, Executive Director                                                                                            
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented SB 129.                                                                                        
                                                                                                                                
GENE THERRIAULT, staff                                                                                                          
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Commented on SB 129.                                                                                     
                                                                                                                                
FRED PARADY, Deputy Commissioner                                                                                                
Department of Commerce, Community and Economic Development                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions on SB 129.                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:30:51 PM                                                                                                                    
CHAIR  CATHY   GIESSEL  called  the  Senate   Resources  Standing                                                             
Committee meeting  to order at 3:30  p.m. Present at the  call to                                                               
order were Senators Stedman,  Stoltze, Coghill, Wielechowski, and                                                               
Chair Giessel.                                                                                                                  
                                                                                                                                
^Confirmation Hearing                                                                                                           
                      Confirmation Hearing                                                                                  
             Alaska Gasline Development Corporation                                                                         
                                                                                                                                
3:31:47 PM                                                                                                                    
CHAIR   GIESSEL  announced   consideration   of  the   governor's                                                               
appointment to the Alaska  Gasline Development Corporation (AGDC)                                                               
and  invited  Joey Merrick  to  review  his  work history  as  it                                                               
relates to the AGDC Board.                                                                                                      
                                                                                                                                
3:31:53 PM                                                                                                                    
JOEY  MERRICK,  Eagle  River, Alaska,  appointee  to  the  Alaska                                                               
Gasline Development  Corporation (AGDC),  said his  background in                                                               
gas  and  oil-related  work  started  in  1989  when  he  was  an                                                               
apprentice  through  the  Laborers'  Union.  He  worked  on  many                                                               
pipelines on the North Slope ranging  from gas to water to oil at                                                               
every stage of development. He was  there to unload the pipe and,                                                               
at the  end of  the day,  to hydro test  and complete  the entire                                                               
project.                                                                                                                        
                                                                                                                                
3:33:10 PM                                                                                                                    
SENATOR COSTELLO joined the committee.                                                                                          
                                                                                                                                
MR.  MERRICK  said  he  also  worked a  lot  on  the  TransAlaska                                                               
Pipeline System (TAPS)  from Pump Station 1 to  Valdez, and ended                                                               
up  in Valdez  for a  number  of years  overseeing several  major                                                               
projects from  2000 to  2001. Mr.  Merrick said  he is  also very                                                               
involved in  workforce development; he  is a trustee on  both the                                                               
Laborer's Training Trust  and on the Pipeline  Training School in                                                               
Fairbanks. He  is president  of both  the Alaska  Petroleum Joint                                                               
Craft Council  (APJCC) and the  District Council of  Laborers. He                                                               
covers the North  Slope as well as the  pipeline, refinery, power                                                               
plants, and everything else in the construction industry.                                                                       
                                                                                                                                
He negotiates contracts with industry  and the AGDC and knows how                                                               
important it  is that everybody  gets a fair  deal at the  end of                                                               
the  day. Some  of his  strengths relate  to knowing  how to  put                                                               
those  good deals  together. Mr.  Merrick said  it's an  honor to                                                               
serve on  the board and to  work on getting the  best project for                                                               
Alaskans.                                                                                                                       
                                                                                                                                
CHAIR  GIESSEL said  many of  them know  Mr. Merrick  who has  an                                                               
impressive resume. She  knows that the AGDC board takes  a lot of                                                               
one's time  and asked  how he  manages to  balance that  with his                                                               
family life and other commitments.                                                                                              
                                                                                                                                
MR. MERRICK  responded that he  has a  very busy life.  His three                                                               
kids are  very involved in  athletics and  school. He said  it is                                                               
also true  that his job at  the Laborers' Union is  demanding. He                                                               
has a good team  both at work and at home. He  thinks this is the                                                               
most important  thing he could be  doing for the members  that he                                                               
represents, the  people of  Alaska, and his  family. He  wants to                                                               
make  sure that  they have  the  same opportunities  he has  been                                                               
afforded.                                                                                                                       
                                                                                                                                
CHAIR  GIESSEL,  finding  no  one to  testify  on  Mr.  Merrick's                                                               
appointment, closed public testimony.                                                                                           
                                                                                                                                
SENATOR  STOLTZE reflected  on  the skill  balance  of the  other                                                               
members and  asked what strengths  and skills Mr.  Merrick brings                                                               
to the board that the others lack.                                                                                              
                                                                                                                                
MR.   MERRICK   answered   that   his   construction   experience                                                               
complements other expertise on the  board. His negotiating skills                                                               
would also be an asset to the  board, as well as his history with                                                               
workforce development.                                                                                                          
                                                                                                                                
3:40:19 PM                                                                                                                    
SENATOR STOLTZE  said it  seems like the  bulk of  his petroleum-                                                               
related  work  was done  from  1991  to  2003  and asked  him  to                                                               
specifically  elaborate on  his  experience in  petroleum-related                                                               
work.  He noted  Mr.  Merrick  might have  worked  with a  mutual                                                               
acquaintance, Wade Blasingame.                                                                                                  
                                                                                                                                
MR.  MERRICK said  he worked  with Wade  Blasingame with  Houston                                                               
Contracting and  Houston NANA,  H.D. Price,  and Price  Ahtna. He                                                               
has worked  at every project stage:  as a laborer on  the ground,                                                               
as  a   foreman  and  general   foreman  on  the  crew,   as  the                                                               
superintendent, and as  a manager in Valdez. He  worked at Alpine                                                               
and actually put  in a mile-long pipe under  the Coleville River,                                                               
one of the biggest bores ever done  under a river at the time. He                                                               
has  been on  numerous jobs  on  the North  Slope with  a lot  of                                                               
different pipelines. Later on in 2000-2002 he worked in Valdez.                                                                 
                                                                                                                                
MR. MERRICK  said most of his  work was done on  the North Slope;                                                               
he worked at  Atigun Pass during the reroute and  was the general                                                               
foreman doing  the bypass  of Pump  Station 3.  He worked  on big                                                               
projects in  Valdez including the  fire water system  and ballast                                                               
water projects,  berth work, valve replacement,  and tearing down                                                               
tanks and bringing them back up.                                                                                                
                                                                                                                                
SENATOR STOLTZE related  that he knew Mr. Merrick who  had been a                                                               
great community  contributor in youth sports  and other community                                                               
activities.                                                                                                                     
                                                                                                                                
CHAIR GIESSEL said in accordance  with AS 39.05.080 the Resources                                                               
Committee  reviewed  and   recommends  forwarding  the  following                                                               
appointment  to a  joint session  for  consideration: the  Alaska                                                               
Gasline Development Corporation Board  of Directors: Joey Merrick                                                               
II,  Eagle River,  appointed 9/14/2015,  term expires  9/13/2020.                                                               
This does  not reflect an  intent by any  of the members  to vote                                                               
for  or against  the confirmation  of the  individual during  any                                                               
further sessions.                                                                                                               
                                                                                                                                
CHAIR GIESSEL recognized Representative Ortiz in the audience.                                                                  
                                                                                                                                
           SB 130-TAX CREDITS;INTEREST;REFUNDS;O & G                                                                        
                                                                                                                                
                [Contains discussion of HB 247.]                                                                              
                                                                                                                                
3:45:00 PM                                                                                                                    
CHAIR GIESSEL announced  consideration of SB 130  and invited Mr.                                                               
Alper to  continue the Department of  Revenue's presentation that                                                               
will begin on slide 31.                                                                                                         
                                                                                                                                
^Continuation of DOR overview of Alaska Oil and Gas Tax Reform                                                                  
RANDALL  HOFFBECK,  Commissioner,  Department of  Revenue  (DOR),                                                               
Juneau,   Alaska,  said   Director   Alper   will  continue   the                                                               
presentation, but he was available for questions on SB 130.                                                                     
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
Juneau, Alaska, said  slide 31 has the title  "Impact on Specific                                                               
Industry Sectors." Slide 32 points  out how particular sectors of                                                               
the  oil  and gas  economy  would  be  impacted by  the  specific                                                               
provisions of  the bill  at different price  points. He  said the                                                               
provisions  of  SB  130  do  not impact  the  North  Slope  major                                                               
producer at  higher prices (generally above  $85/barrel where the                                                               
minimum tax kicks in). Below that  level is where the minimum tax                                                               
tends to  take precedence over the  35 percent net tax.  The bill                                                               
attempts to raise the minimum tax from 4 percent to 5 percent.                                                                  
                                                                                                                                
In a period  of very low prices such as  now, and especially into                                                               
a second consecutive year, the  issue of using net operating loss                                                               
(NOL)  credits to  reduce payments  below the  minimum tax  floor                                                               
comes into  play, and SB  130 would prevent that  from happening.                                                               
It would cause those additional  NOL credits to be rolled forward                                                               
and be  added to  the stack of  NOL credits for  use in  a future                                                               
year after the price has recovered.                                                                                             
                                                                                                                                
CHAIR  GIESSEL  asked at  what  price  the 12.5  percent  royalty                                                               
begins to spiral upward to over 100 percent.                                                                                    
                                                                                                                                
MR.  ALPER answered  that happens  when the  profits begin  to be                                                               
very constrained at anywhere less than $50/barrel.                                                                              
                                                                                                                                
3:48:23 PM                                                                                                                    
SENATOR STEDMAN asked  what taking the floor from 4  to 5 percent                                                               
means in dollars and what the trigger  point is to get out of it.                                                               
At  some point,  he also  wanted a  discussion on  the per-barrel                                                               
sliding credit  when the floor  gets triggered, which  the Senate                                                               
hadn't heard, because it was put  in by the House. He also wanted                                                               
to know  if they had NOL  credit figures for FY15/16/17  and what                                                               
the expectations are for them getting paid off.                                                                                 
                                                                                                                                
MR.  ALPER  explained  that  he would  try  to  "unpack"  Senator                                                               
Stedman's  questions.  First off,  he  would  deliver details  of                                                               
raising the  floor from 4 to  5 percent and the  trigger point in                                                               
his  follow-up  presentation  tomorrow,  but  under  the  current                                                               
system, $78 is the cross-over  point of existing the minimum tax.                                                               
Because of  the way the cost  and tax curves work  the higher the                                                               
minimum tax  gets, the  higher the cross-over  gets. It's  in the                                                               
high $70s at  the 4 percent level  and it will be in  the $80s at                                                               
the 5 percent level.                                                                                                            
                                                                                                                                
The fiscal note to the original  bill did not delve into stacking                                                               
up  of net  operating  loss (NOL)  credits,  because the  numbers                                                               
didn't  became apparent  until the  spring  revenue forecast.  An                                                               
updated  fiscal note  currently attached  to the  House companion                                                               
bill, CSHB  247, has numbers for  both the original bill  and the                                                               
amended bill. Hardening the floor  raises revenue by $150 to $200                                                               
million a year at these prices, but  the NOL that is forced to be                                                               
carried over  due to the floor  hardening and raising goes  up to                                                               
about  $700 million  in  a  couple of  years  and  to about  $1.5                                                               
billion by 2019/20.                                                                                                             
                                                                                                                                
SENATOR STEDMAN  followed up  saying a verbal  answer is  kind of                                                               
okay, but  it would be  beneficial for  the committee to  see the                                                               
current NOL operating  and capital numbers for  FY16/17 on paper.                                                               
Lawmakers,  as  policy  makers, need  to  clearly  recognize  the                                                               
magnitude of what they are dealing  with. He also needs help with                                                               
how much  of the non-deductible  capital costs are  applicable to                                                               
the carry-forward credits, and a  clear understanding of how Cook                                                               
Inlet and  Middle Earth  are being  treated differently  than the                                                               
North Slope.                                                                                                                    
                                                                                                                                
MR. ALPER  said Mr. Stickle was  back in the office  taking notes                                                               
as they speak, and  the stacking up of the NOL  credits is in the                                                               
most current  fiscal note, which  is on BASIS. He  clarified when                                                               
he says $700  million or $1.5 billion, that's in  credits - after                                                               
the  multiplication  of  whatever   the  much  larger  loss  was,                                                               
multiplying times the credit percentage.                                                                                        
                                                                                                                                
3:54:19 PM                                                                                                                    
Slide  33 shows  that the  North Slope  new or  smaller producers                                                               
that have  built the newer  fields will  see no change  at higher                                                               
oil prices,  but a more  substantial impact below the  85 percent                                                               
range.  Because  of the  nature  of  the  GVR,  the new  oil  tax                                                               
provisions of SB  21, their per-barrel credit is  allowed to drop                                                               
taxes  to  zero   (the  production  from  those   fields  is  not                                                               
susceptible to the  minimum tax).  SB 130 attempts  to harden the                                                               
floor by making new oil susceptible  to the minimum tax, as well.                                                               
So, effectively  there is an increase  in some cases from  a zero                                                               
to  a 5  percent gross  tax that  would substantially  impact the                                                               
smaller  producers more  than the  major producers.  Likewise, if                                                               
the  company is  an  operating loss,  the  gross value  reduction                                                               
(GVR) that is used  for the benefit of new oil  cannot be used to                                                               
increase the size of an NOL. The  intent is that the NOL would be                                                               
limited to  35 percent of the  actual cash flow loss  and not the                                                               
more synthetic calculated loss that includes the GVR.                                                                           
                                                                                                                                
SENATOR STEDMAN asked  if a company has a $27  million credit for                                                               
FY17, if any  interest accrues. How is it treated  once it exists                                                               
and is not turned into cash?                                                                                                    
                                                                                                                                
MR.  ALPER answered  that he  wasn't sure  what provision  he was                                                               
referring  to, but  the floor  hardening and  the requirement  of                                                               
having an  operating loss carry  forward for the  major producers                                                               
is very much  deferring of an obligation (because  it would still                                                               
need to  be issued;  the deductions  would simply  be taken  in a                                                               
future  year), but  the third  bullet on  slide 33  would be  the                                                               
elimination of  a benefit  (it would not  roll forward).  If that                                                               
number is  $27 million, it  means that the companies  in question                                                               
would have  an operating  loss credit that  would be  $27 million                                                               
less than it  would be if they  were able to use the  GVR in that                                                               
calculation.                                                                                                                    
                                                                                                                                
3:57:10 PM                                                                                                                    
Slide 34  talks about the impacts  to a new project  developer on                                                               
the North  Slope building its  first oil field but  not currently                                                               
producing oil and  gas. The NOL credit is baked  in at 35 percent                                                               
as  a provision  of SB  21. That  is not  changed. The  credit is                                                               
earned, and  the question then becomes  how to cash it  out. Here                                                               
there is a little fork in the  road. If it's a large company with                                                               
global revenues  in excess of  $10 billion, the state  won't cash                                                               
out that credit. They can sell  it to another company or they can                                                               
hold it  until they have  a liability. For the  smaller companies                                                               
with revenues  below $10  billion, an annual  cap of  $25 million                                                               
per company  that would  be paid  out in a  single year  is being                                                               
proposed.  Any  credits  in  excess   of  that  number  would  be                                                               
effectively rolled forward  to a future year  and continue adding                                                               
to the stack of unpaid credits.                                                                                                 
                                                                                                                                
SENATOR STEDMAN said  he assumed they would see  some modeling on                                                               
credits under  both the  current statute  and under  the proposed                                                               
changes,  so they  can visualize  how the  treasury was  going to                                                               
deal with the NOLs two or three years out.                                                                                      
                                                                                                                                
MR. ALPER said he is talking  about two different stacks of NOLs:                                                               
the ones that  are not refundable, because they are  owned by the                                                               
major producers,  a number that  gets quite high, and  the earned                                                               
credits  that  are cashable,  but  capped  annually, stacking  up                                                               
alongside them.  He would bring  a slide tomorrow that  would put                                                               
some  numbers on  it. He  explained that  the fiscal  note has  a                                                               
negative number in  savings in some years. That is  the result of                                                               
credits being  earned in one year  and the state saving  money by                                                               
not cashing  them out  since cashable credits  are capped  at $25                                                               
million/year,  roll  forward to  be  paid  out in  another  year.                                                               
However, there  are circumstances in  years three or  four, based                                                               
on  available information,  when the  state is  cashing out  more                                                               
credits  than  it otherwise  would  have  under the  status  quo,                                                               
because some  of the older ones  that rolled forward stack  up on                                                               
top of each other.                                                                                                              
                                                                                                                                
SENATOR STEDMAN  rephrased his previous question;  when he talked                                                               
about the  creation of NOL  carry forwards, he was  talking about                                                               
companies  with less  than $10  billion in  one category  and the                                                               
others in  another category, but  the Revenue Sources  Book lumps                                                               
them all together.                                                                                                              
                                                                                                                                
MR. ALPER said he will provide  those numbers to him, and the Tax                                                               
Division would help get him whatever he is looking for.                                                                         
                                                                                                                                
4:02:13 PM                                                                                                                    
He  explained  that  in  Cook  Inlet,  (slide  35)  the  existing                                                               
producer who  is selling oil  and gas generally to  the Anchorage                                                               
bowl and  the Southcentral utility  market is paying low  to zero                                                               
taxes due to the tax caps that  have been in place since 2006 and                                                               
will  be  there  through  2021.  Those  companies  are  currently                                                               
eligible for repurchase  of their QCE and WLE credits  in the 20-                                                               
40 percent range. A typical project  is around 30 percent, so the                                                               
state is effectively paying 30 percent of that spending.                                                                        
                                                                                                                                
SB 130  repeals those  specific credits.  In a  broad sense  if a                                                               
company is  not in  an operating  loss situation,  it's perfectly                                                               
reasonable that they  pay zero tax, but refunding  the credits to                                                               
the company that is paying zero  tax while earning a profit seems                                                               
a little bit  unnecessary, or possibly even  excessive, given the                                                               
state's current fiscal  situation. They are not  looking to touch                                                               
upon the tax  caps themselves, which remain on  the books through                                                               
the end of 2021.                                                                                                                
                                                                                                                                
4:03:46 PM                                                                                                                    
Slide  36  captures  the  new Cook  Inlet  field  developer  that                                                               
currently gets  a 25 percent  NOL credit that gets  stacked along                                                               
with what he  described for the producers in  the previous slide.                                                               
Those  two credits  taken  together  tend to  mean  the state  is                                                               
providing reimbursement in the neighborhood  of 50-60 percent for                                                               
ongoing  work in  the Cook  Inlet right  now. By  repealing those                                                               
capital and  well credits,  the intent of  the legislation  is to                                                               
reduce the state's level of ongoing support to 25 percent.                                                                      
                                                                                                                                
MR. ALPER  explained that  the 50  percent level  seems excessive                                                               
given  the  fiscal realities  and  the  need to  prioritize.  The                                                               
choice  was made  to  prioritize the  operating  loss credit  and                                                               
continue  the support  at  35  percent. Of  that  25 percent  NOL                                                               
credit, the  same limitations on  repurchase kick in as  those on                                                               
the previous  slide.  The  larger companies, should that  kind of                                                               
multi-national be operating  in Cook Inlet, would not  be able to                                                               
cash  those  certificates  and the  smaller  companies  would  be                                                               
limited by  the $25 million  annual cap. Everything in  excess of                                                               
that gets carried forward.                                                                                                      
                                                                                                                                
4:05:17 PM                                                                                                                    
Slide  37 covered  the Interior/Frontier  area, or  Middle Earth,                                                               
that is  getting 65 percent  credits for exploration.  That means                                                               
the 40 percent exploration credit  under most circumstances and a                                                               
25 percent NOL.  In development they are in the  same paradigm as                                                               
the  Cook Inlet  folks:  the  25 percent  NOL  plus the  weighted                                                               
average  of  the  capital  and well  credits.  By  repealing  the                                                               
capital  credits the  developer, once  they are  proven and  have                                                               
found something,  fall under  the same  25 percent  category that                                                               
the Cook Inlet  developer does. However, because there  is a need                                                               
to find  that resource in the  first place and because  there has                                                               
been a previous legislative decision  made to encourage people to                                                               
find and  explore for  oil and  gas in  the Interior  basins, the                                                               
exploration credits  have been previously extended  through 2022.                                                               
That is not  being touched in the legislation  before them, which                                                               
means the state will continue  to support exploration work at the                                                               
65 percent level in Nenana and Glennallen.                                                                                      
                                                                                                                                
4:06:25 PM                                                                                                                    
SENATOR COGHILL said these credits  have been pretty much dormant                                                               
and the  expectation is the  other credits that apply  within the                                                               
Cook Inlet have been more valuable.                                                                                             
                                                                                                                                
MR. ALPER  said these credits are  the ones that have  been used.                                                               
The  dormant ones  are  the  super credits  (80  percent for  the                                                               
Interior and  75 percent for  seismic) that were created  in 2012                                                               
and those  are scheduled for  sunset. Although one  explorer, the                                                               
Ahtna Corporation, has talked about an extension.                                                                               
                                                                                                                                
SENATOR STEDMAN asked what other  basins are doing in response to                                                               
the lower prices  and what kind of credits or  fiscal health they                                                               
have extended  to the  industry over the  last several  years. He                                                               
also wanted some comparative work done on Texas or North Dakota.                                                                
                                                                                                                                
CHAIR  GIESSEL replied  that enalytica  had responded  to similar                                                               
questions in other  committees and she would ask  them to provide                                                               
that information to this committee.                                                                                             
                                                                                                                                
SENATOR COSTELLO wanted to know  the driving principles behind SB                                                               
130.                                                                                                                            
                                                                                                                                
COMMISSIONER HOFFBECK  explained that they looked  at the credits                                                               
in three categories: ones that  weren't used, ones that were used                                                               
differently than  intended, and  ones that  had worked  well. The                                                               
ones  that didn't  work the  way they  were intended  were either                                                               
credits that  weren't used or when  the focus of the  use was not                                                               
where it was intended. A prime  example is some of the Cook Inlet                                                               
Recovery Act credits that were put  in place to try and deal with                                                               
energy security in Southcentral  Alaska, but were equally applied                                                               
to  oil  exploration  and development.  Everything  was  done  to                                                               
preserve the  Net Operating  Loss Credit, but  with some  caps on                                                               
it. There  are no  taxes on  oil in  Cook Inlet  and there  is no                                                               
energy security issue there now, either.                                                                                        
                                                                                                                                
SENATOR  COSTELLO asked  if  the  administration's other  revenue                                                               
generating  bills   have  an  overall  driving   principle.  Were                                                               
decisions made based on modeling that was done first?                                                                           
                                                                                                                                
COMMISSIONER  HOFFBECK answered  that  the  entire reason  behind                                                               
these bills is revenues and being able to afford the credits.                                                                   
                                                                                                                                
4:11:27 PM                                                                                                                    
SENATOR WIELECHOWSKI  said the real  behavior they have  tried to                                                               
incentivize is  gas exploration in  Cook Inlet, the  Interior and                                                               
the frontier  areas to have  gas for local communities,  but what                                                               
seems to be  happening is that a  lot of money is  being used for                                                               
oil exploration  and development and  asked if it is  possible to                                                               
develop a system that provides incentives for gas only?                                                                         
                                                                                                                                
MR. ALPER answered  it's doable. They started looking  at it this                                                               
year when the  question started to be asked about  the oil versus                                                               
gas  split. The  department  looked through  historic Cook  Inlet                                                               
credits and  came up with roughly  a two-thirds/one-third metric.                                                               
Sometimes it's a  question of the bill's construction;  it has to                                                               
be  worded  in a  way  that  focuses on  gas.  That  is when  the                                                               
drafters get nervous,  because there is a tendency  "to not ring-                                                               
fence."  It's similar  to  cost allocation  issues  on the  North                                                               
Slope and why the gross value  reduction is structured the way it                                                               
is  as  part  of  gross  rather   than  part  of  net.  The  most                                                               
technically complicated  maneuver is how  to divide up  the lease                                                               
expenditures.  In some  ways, it  is a  more solvable  problem in                                                               
Cook  Inlet because  the taxes  are already  broken out  by field                                                               
(it's a  multiplier by field),  more like the ELF  was structured                                                               
on the  North Slope in the  past. It's a challenge,  but it's not                                                               
impossible, he said.                                                                                                            
                                                                                                                                
SENATOR  WIELECHOWSKI asked  for rough  numbers on  how much  the                                                               
state  would save  if they  would allow  the continuation  of gas                                                               
credits but not oil credits in Cook Inlet.                                                                                      
                                                                                                                                
MR. ALPER answered  that the overall savings would  be about one-                                                               
third of  that amount  because about two-thirds  of the  money is                                                               
currently  supporting gas.  That changes  from year  to year  and                                                               
scenario to scenario.                                                                                                           
                                                                                                                                
COMMISSIONER  HOFFBECK said  this  has almost  become a  backward                                                               
looking  analysis  of the  credits,  because  going forward  when                                                               
people look for gas, sometimes they  find oil and vice versa, and                                                               
generally they  find them  together. So, there  would have  to be                                                               
some kind of allocation of the credits based on the productions.                                                                
                                                                                                                                
4:14:21 PM                                                                                                                    
MR. ALPER said  slides 38 & 39  are a very high  level summary of                                                               
some  of  the  fiscal  note information  for  both  the  original                                                               
version  and  the  latest  modifications   based  on  the  spring                                                               
forecast.  So,  at  the  time   they  introduced  the  bill  they                                                               
estimated it to be about a  $500 million piece of legislation, at                                                               
least  in  its initial  year.  Of  that,  about $200  million  in                                                               
reductions comes  from the repeal  of certain provisions  as well                                                               
as the  elimination of "loopholes or  unforeseen circumstances in                                                               
statute." A second  $200 million comes from  deferred payments on                                                               
credits. The great  bulk of that was in the  $25 million caps and                                                               
similar provisions  that said companies  are going to  be earning                                                               
certificates  but the  state was  not going  to be  fully funding                                                               
them in  the first  year. A  couple of  other provisions  fall in                                                               
that  category.  Finally,  there  is additional  revenue  in  the                                                               
neighborhood  of about  $100  million  between strengthening  the                                                               
minimum  tax, which  was worth  about $50  million, and  then the                                                               
increase to 5 percent from 4  percent brings in about another $50                                                               
million.                                                                                                                        
                                                                                                                                
MR. ALPER said a little bit  of additional revenue comes from the                                                               
proposed  interest  rate  reform,  but  interestingly,  only  the                                                               
revenue  from  non-oil  and  gas taxes.  He  explained  that  the                                                               
interest rate statutes  are in the general  revenue statutes that                                                               
apply to all 24 taxes. If that  change is made and the state gets                                                               
a  little bit  more  interest money  from a  cigarette  tax or  a                                                               
corporate income  tax, that show up  in the fiscal note  going to                                                               
the General  Fund (GF), but the  oil and gas tax  assessments end                                                               
up going into  the Constitutional Budget Reserve,  so they aren't                                                               
in the fiscal note as going to the GF.                                                                                          
                                                                                                                                
MR.  ALPER said  the department  did a  much more  granular model                                                               
once they had  the spring forecast and prepared a  fiscal note in                                                               
a   table   format  more   comparable   to   what  the   previous                                                               
administration did  during the SB  21 hearings and this  model is                                                               
very  much a  work  in progress.  Based on  that  and the  latest                                                               
information   on  some   revised  company   spending  information                                                               
including in  Cook Inlet,  the actual  elimination part  was only                                                               
going to  eliminate about $50 million  a year at first,  but then                                                               
the  deferral went  up to  $550 million.  This is  from a  lot of                                                               
ongoing work in larger projects that  would get capped at the $25                                                               
million  level. That's  about $600  million in  immediate revenue                                                               
savings with some of that rolling into future years.                                                                            
                                                                                                                                
A big reason  for the jump in NOL credits  is that some companies                                                               
were  losing more  money than  they  thought they  were going  to                                                               
lose.  A second  big  reason, which  took them  a  little bit  by                                                               
surprise, was  that the  exploration numbers  for last  year were                                                               
far  larger  than  originally anticipated.  And  that  is  simply                                                               
because  of the  credit sunsetting.  If people  were planning  on                                                               
exploration  work in  the next  five or  10 years,  it was  worth                                                               
their while to front-load that work  and get it done now, because                                                               
on  the North  Slope, in  particular,  the state  has 85  percent                                                               
credit  support  for exploration  work.  Companies  leapt at  the                                                               
opportunity.                                                                                                                    
                                                                                                                                
Meanwhile, on the revenue side,  Mr. Alper said, hardening of the                                                               
floor would bring  in about $185 million, about  $50 million more                                                               
than thought,  mainly because  more of  the major  producers have                                                               
operating losses and will therefore  pay more money above that to                                                               
get to  the minimum  tax that the  department had  calculated six                                                               
months ago.                                                                                                                     
                                                                                                                                
4:18:10 PM                                                                                                                    
Now  the state  is  seeing  a bill  of  well  over $700  million,                                                               
although that  number drops off  dramatically in the  next couple                                                               
of years.  Part of that is  because of the inadequacies  of their                                                               
credit  forecasting. They  simply don't  know what  companies are                                                               
going to be  doing workwise two or three years  from now, because                                                               
the  companies themselves  don't  know. The  department uses  the                                                               
same  somewhat  conservative  methodology   that  goes  into  its                                                               
production forecast  based on what  companies tell them.  They go                                                               
out to  them twice a  year and ask what  wells they are  going to                                                               
drill and  what projects they  are going to  do and try  to build                                                               
that into  some sort of a  forecast both of spending  and revenue                                                               
production. It's  all tied  together in the  same data  set along                                                               
with the credit forecast.                                                                                                       
                                                                                                                                
4:18:38 PM                                                                                                                    
SENATOR MICCICHE joined the committee.                                                                                          
                                                                                                                                
MR. ALPER  said the bill  was written  with an effective  date of                                                               
July  1, 2016,  essentially next  fiscal year,  but honoring  all                                                               
existing credits  meant they would be  paid in full prior  to the                                                               
effective date,  and the department  wants to make sure  there is                                                               
adequate funding to  pay for those credits  before messing around                                                               
with any caps or changes.                                                                                                       
                                                                                                                                
He recapped  that there  is the $200  million through  the credit                                                               
veto  from the  previous session  when the  Governor limited  the                                                               
credit  repurchase  to  $500 million.  The  department's  revised                                                               
estimate for FY17  is $575 million in credits  ($575 million plus                                                               
the $200 million  carry over) that will be fully  paid before any                                                               
of the  provisions of the  bill kick  in. Anything earned  in the                                                               
first  half of  this calendar  year prior  to the  effective date                                                               
would also  come in under  the old system, and  therefore, enough                                                               
money is needed to pay those.                                                                                                   
                                                                                                                                
The bill contemplates a $1  billion transition fund in a one-time                                                               
appropriation to the Tax Credit  Fund. The number $926,575,000 is                                                               
in a  fund cap  fiscal note  attached to this  bill. There  is no                                                               
magic to  that number;  it is simply  the difference  between the                                                               
$73.4 million in the operating  budget and around $1 billion. The                                                               
expectation is, were  the bill fully implemented  as written, the                                                               
annual  cost   of  refundable  tax   credits  would  be   in  the                                                               
neighborhood of  $100 million  and could be  part of  the regular                                                               
appropriation process going forward.                                                                                            
                                                                                                                                
4:20:47 PM                                                                                                                    
SENATOR  STEDMAN asked  the difference  in  making the  effective                                                               
date of July  1, 2016, January 1, 2016 or  January 1, 2017, since                                                               
January 1, 2016, is extremely retroactive.                                                                                      
                                                                                                                                
COMMISSIONER  HOFFBECK responded  that the  thought process  on a                                                               
fairly  immediate  effective date  was  to  prevent a  flight  to                                                               
credits with a January 1, 2017  effective date. They have heard a                                                               
lot of testimony in the  last few committees about the importance                                                               
of the summer season particularly in  Cook Inlet, and the July 1,                                                               
2016  effective date  may have  been too  aggressive. Having  the                                                               
retroactive effective  date was not  seen as being useful  in the                                                               
process.                                                                                                                        
                                                                                                                                
MR. ALPER added  that he got some push back  from his staff based                                                               
on changing anything in other  than a calendar year. He explained                                                               
that for parts of the bill that  are referred to when a credit is                                                               
earned for  an activity (capital  credit, for example),  any date                                                               
on the  calendar is fine  as long as they  get the work  done and                                                               
can  effectively show  receipts. However,  those that  impact the                                                               
overall tax calculation  - changes to operating  loss credits and                                                               
that sort of  thing - is where there is  tremendous resistance to                                                               
anything other than a calendar  year based change, because of the                                                               
nature of  the production tax  filings. There have been  a couple                                                               
of  years  when  the  department   had  to  effectively  split  a                                                               
company's  tax returns  in  two  and do  them  both in  parallel,                                                               
because of a tax change in the middle of the calendar year.                                                                     
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  the state  would be  honoring the                                                               
existing  estimated $625  million  in credits  to  be earned  and                                                               
payable in FY17.                                                                                                                
                                                                                                                                
COMMISSIONER HOFFBECK  answered that  those credits  were already                                                               
earned in CY15 and come due on July 1, 2016, which is FY17.                                                                     
                                                                                                                                
4:24:05 PM                                                                                                                    
MR. ALPER said  slide 44 shows how this fits  into the Governor's                                                               
overall fiscal  plan. He explained  that the  Governor introduced                                                               
10  bills at  the beginning  of this  session: 8  traditional tax                                                               
bills:  the  income  tax,  the   3  consumption  taxes  (tobacco,                                                               
alcohol, motor  fuel), 3  business taxes  (fish, mining,  and the                                                               
cruise ship  head tax), plus  the Permanent Fund  Protection Act,                                                               
and  the  Alaska  Industrial  Development  and  Export  Authority                                                               
(AIDEA) loan bill. The intent  of those bills taken together with                                                               
the budget  cuts were proposed to  balance the budget for  FY19 -                                                               
to transition  the state  from the structural  deficits it  is in                                                               
now  to  something where  it  can  consistently have  a  balanced                                                               
budget in place by two years  from now - based on projections, at                                                               
least,  at  the  time  last  fall when  they  were  putting  this                                                               
together. This broader package,  specifically this tax credit, is                                                               
looking at  some sort  of certainty.  Industry knows  the current                                                               
situation  is  unstable  and  they know  something  is  going  to                                                               
change. The  administration wants  to change it  and get  it over                                                               
with and let them have a little bit of certainty going forward.                                                                 
                                                                                                                                
Likewise, Mr. Alper said, the  governor's fiscal plan offers some                                                               
funding certainty  to the financing  community if there is  a big                                                               
delta between what  the state is offering in credits  and what it                                                               
will be able to repay. They  learned that last year with just the                                                               
line item  veto and it could  potentially get a lot  worse if the                                                               
situation  doesn't  get  better.   Meanwhile,  as  the  state  is                                                               
withdrawing some  support for  ongoing development,  they thought                                                               
this companion  AIDEA loan  bill (SB 129)  would be  an important                                                               
feature. It creates a fourth fund  at the AIDEA to concentrate on                                                               
oil and gas development loans.                                                                                                  
                                                                                                                                
MR. ALPER  said that  AIDEA has  given loans in  the oil  and gas                                                               
industry;  it  invests  throughout   Alaska's  economy.  But  the                                                               
Revolving Loan Fund  attempts to be a  diversified portfolio that                                                               
touches upon all  sectors of the economy. Oil and  gas loans tend                                                               
to be quite  large and a diversified portfolio  could very easily                                                               
become  unbalanced with  them. The  thought was  to create  a new                                                               
fourth fund  in addition to  the Revolving Loan Fund,  the Energy                                                               
Transmission  Fund, and  the  Arctic  Infrastructure Fund.  Quite                                                               
specifically,  development  loans  are for  proven  reserves  not                                                               
exploration. They  envision that the resource,  itself, the value                                                               
in the  ground, would  be part  of the  collateral that  could be                                                               
offered on those loans.                                                                                                         
                                                                                                                                
A fiscal note capitalizes the fund  with $200 million to make the                                                               
first loans. One of the features  in that legislation is that all                                                               
repayments could  be deferred for  several years, the  idea being                                                               
to make  a loan for  building an  oil field, for  instance, which                                                               
might take  five years. Once it  is in production, they  would be                                                               
able to start making payments, and  it's a revolving fund so that                                                               
money could  come back and be  used to make other  loans. That is                                                               
how the fiscal  plan ties together with  SB 130 as one  of the 10                                                               
pieces.                                                                                                                         
                                                                                                                                
4:27:53 PM                                                                                                                    
Meanwhile the  DOR must administer all  of this. It has  a fairly                                                               
complex and  comprehensive Tax Revenue Management  System that is                                                               
in  its  final  stages  of  development.  Its  portal  is  called                                                               
"Revenue Online" and it allows for  online filing. All of the tax                                                               
types are currently  functional within what is  called "TRMS." He                                                               
thanked  the  legislature,   particularly  Senator  Stedman,  who                                                               
chaired Senate  Finance at that  moment in 2011 when  $34 million                                                               
got  appropriated to  buy the  system. It  has been  very much  a                                                               
successful software megaproject for the State of Alaska.                                                                        
                                                                                                                                
So, talking to  the software developer about  the legislation and                                                               
the many changes before them, they  are estimating it will take a                                                               
little  over $1  million in  a one-time  cost -  for programming,                                                               
testing, and use  of staff. They don't  anticipate any additional                                                               
changes  to  administer  the program;  staffing  needs  will  not                                                               
change. A fairly robust amendment  process will start this summer                                                               
to  implement any  changes in  this legislation  as well  as some                                                               
other oil and  gas regulatory changes that have  been building up                                                               
over the last couple of years.                                                                                                  
                                                                                                                                
4:29:31 PM                                                                                                                    
Finally, he said, all their  presentations are out on BASIS where                                                               
staff has access to them.                                                                                                       
                                                                                                                                
4:30:27 PM                                                                                                                    
SENATOR STEDMAN remarked that the  Senate had never been asked to                                                               
look at  other committee presentations before,  particularly ones                                                               
in the House.                                                                                                                   
                                                                                                                                
MR.  ALPER  said he  would  provide  the presentations  to  Chair                                                               
Giessel  so  that they  could  be  put  online  as part  of  this                                                               
committee's record and be easy to find for everybody.                                                                           
                                                                                                                                
CHAIR GIESSEL,  finding no further  questions, said SB  130 would                                                               
be held in committee.                                                                                                           
                                                                                                                                
4:31:18 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
         SB 129-AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND                                                                     
                                                                                                                                
4:32:36 PM                                                                                                                    
CHAIR GIESSEL announced consideration of SB 129.                                                                                
                                                                                                                                
JOHN   SPRINGSTEEN,   Executive   Director,   Alaska   Industrial                                                               
Development  and  Export  Authority  (AIDEA),  Anchorage,  Alaska                                                               
introduced himself.                                                                                                             
                                                                                                                                
GENE THERRIAULT, staff, Alaska  Industrial Development and Export                                                               
Authority (AIDEA), Anchorage, Alaska, introduced himself.                                                                       
                                                                                                                                
FRED  PARADY,   Deputy  Commissioner,  Department   of  Commerce,                                                               
Community  and Economic  Development (DCCED),  Anchorage, Alaska,                                                               
introduced himself.                                                                                                             
                                                                                                                                
MR.  SPRINGSTEEN said  the focus  of SB  129 is  adding tools  to                                                               
AIDEA  to support  oil  and gas  developers.  This bill  requests                                                               
creating an  Oil and Gas Infrastructure  Development Program/Fund                                                               
to  support the  oil and  gas industry  by making  investments in                                                               
supporting  infrastructure  to  include  roads,  pads,  gathering                                                               
system, camps,  and other  facilities. This bill  is not  to make                                                               
investments in wells and reservoir development.                                                                                 
                                                                                                                                
The infrastructure would provide support  to increase oil and gas                                                               
production,  bring new  fields on  line, attract  new investment,                                                               
increase future state revenues,  royalties and taxes, and support                                                               
energy security for the state.                                                                                                  
                                                                                                                                
4:34:50 PM                                                                                                                    
SENATOR   WIELECHOWSKI  said   this  is   supporting  the   basic                                                               
infrastructure that nobody  else wants to do,  because they don't                                                               
get a return on  it, and asked what kind of  return AIDEA gets on                                                               
a road, for instance, that they invest in.                                                                                      
                                                                                                                                
MR. SPRINGSTEEN  answered that returns  are deal by deal,  but it                                                               
ranges  from  6  percent  to  12  percent,  or  potentially  more                                                               
depending on  what partner they are  working with and what  is on                                                               
the other side.                                                                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI asked  why AIDEA would not  invest in wells,                                                               
for example.                                                                                                                    
                                                                                                                                
MR. SPRINGSTEEN answered there is  "an expression of disinterest"                                                               
by  oil and  gas developers  for AIDEA  to participate  below the                                                               
ground in the reservoir development.                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI said that didn't  make sense to him, because                                                               
that's where the money is, and  asked why the state would want to                                                               
take away its ability to make extraordinary rates of return.                                                                    
                                                                                                                                
MR. SPRINGSTEEN  answered that  AIDEA provides  a lot  of support                                                               
for industrial developments in the  State of Alaska and has other                                                               
vehicles for  making those kinds  of returns through  royalty and                                                               
tax revenue.                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  he would  object to  an amendment                                                               
that  allowed AIDEA  the  ability  to invest  in  those sorts  of                                                               
things.                                                                                                                         
                                                                                                                                
MR. SPRINGSTEEN answered that it's  a measure of what risks AIDEA                                                               
would engage  in, what  type of collateral  is available  for the                                                               
project, and  what type  of partners they  have on  the financing                                                               
side. There  could be potential  for that kind  of participation,                                                               
but  generally it's  been  AIDEA's role  to  provide support  for                                                               
industrial  development   in  Alaska   rather  than   the  actual                                                               
development itself. The  Red Dog Mine road to  port, for example,                                                               
is a partnership  between the state and the  Teck mining company,                                                               
where they focus  on the resource development,  because they have                                                               
specific  expertise  in  it. AIDEA  supports  the  infrastructure                                                               
consisting  of the  road, the  port system,  and the  warehousing                                                               
system.                                                                                                                         
                                                                                                                                
4:37:28 PM                                                                                                                    
SENATOR  MICCICHE asked  if AIDEA  has any  commercial industrial                                                               
loans  with  a  variable  rate  based  on  profitability  of  the                                                               
person/company holding the loan.                                                                                                
                                                                                                                                
MR.   SPRINGSTEEN   answered   that  AIDEA   has   entered   into                                                               
transactions  where  they finance  a  deal  and adjust  the  rate                                                               
considering the types  of risks and collateral,  but in deference                                                               
to  its 735,000  shareholders, they  need to  be conservative  in                                                               
their stewardship of the AIDEA funds.                                                                                           
                                                                                                                                
SENATOR  MICCICHE said  he specifically  asked  about a  variable                                                               
return rate based  on profitability, which is  a little different                                                               
than risk.                                                                                                                      
                                                                                                                                
MR. SPRINGSTEEN  replied that generally  AIDEA enters  into fixed                                                               
rate loans,  but in the  case of the Red  Dog Mine road  and port                                                               
facility, an annual assessment is  part of the arrangement; there                                                               
is also some participation in terms  of a kicker for an uptick in                                                               
zinc prices,  for instance. It  is gauged  to the metrics  of the                                                               
particular  industry   rather  than  the  profitability   of  the                                                               
company, which is out of their control.                                                                                         
                                                                                                                                
SENATOR MICCICHE  said he  would like to  learn more  of whatever                                                               
AIDEA   can  share   about  the   difference  between   risk  and                                                               
profitability for the Red Dog arrangement.                                                                                      
                                                                                                                                
MR.  SPRINGSTEEN   responded  that   he  will  provide   what  is                                                               
publically  available and,  under their  confidentiality statute,                                                               
they can  provide additional information  as long as  he complies                                                               
with the statute.                                                                                                               
                                                                                                                                
4:39:50 PM                                                                                                                    
MR.  SPRINGSTEEN said  in  his view,  AIDEA  has roughly  735,000                                                               
shareholders,  the population  of the  State of  Alaska, who  are                                                               
represented  by the  Alaska State  Legislature, an  institutional                                                               
shareholder in  the governor, a  seven-member board  appointed by                                                               
the institutional  shareholder, and the AIDEA  staff managing the                                                               
day-to-day  business. AIDEA  currently  has three  funds and  two                                                               
special  appropriation projects.  Today the  majority of  AIDEA's                                                               
core  day-to-day business  of  providing  capital and  partnering                                                               
with industry to help drive  the state's economic engines is done                                                               
through its Revolving Loan Fund.  He explained that the Revolving                                                               
Loan Fund has investments across  the state, which are relatively                                                               
aligned with industry and commerce in the state.                                                                                
                                                                                                                                
CHAIR GIESSEL said  that Senator Micciche noted that  he left the                                                               
Kenai Peninsula off of his map of investments.                                                                                  
                                                                                                                                
SENATOR STOLTZE  noted that  was to ensure  the fish  could reach                                                               
the Mat-Su area.                                                                                                                
                                                                                                                                
MR. SPRINGSTEEN said he would  adjust that. He said the Revolving                                                               
Loan Fund has  a diversified portfolio of  investments and Alaska                                                               
businesses and operates  under the prudent investor  rule. It has                                                               
historically  made select  investments that  support oil  and gas                                                               
development in  the state: a loan  for a drill rig  in Cook Inlet                                                               
with Blue  Crest, road and  pad construction on the  North Slope,                                                               
and a  loan for  a camp in  Deadhorse. Additional  investments by                                                               
the  Revolving Loan  Fund in  projects that  support oil  and gas                                                               
development  could  outweigh  what  is  currently  a  diversified                                                               
portfolio.                                                                                                                      
                                                                                                                                
4:41:39 PM                                                                                                                    
SENATOR MICCICHE said  he was unaware that AIDEA  had invested in                                                               
a car wash.                                                                                                                     
                                                                                                                                
MR. SPRINGSTEEN replied that there  are multiple Alaska Laser Car                                                               
Washes and many are in  Anchorage; they participate through their                                                               
loan participation  program primarily.  He said  the oil  and gas                                                               
industry continues to  be a crucial contributor to  the state and                                                               
for AIDEA to  continue supporting it, it would  be beneficial for                                                               
it to have a separate tool  and fund solely focused on supporting                                                               
oil and gas development by  making investments in infrastructure.                                                               
Infrastructure  investment means  roads, camps,  pads, processing                                                               
facilities,  gathering  systems,   and  similar  above-the-ground                                                               
assets. Among  the criteria AIDEA  uses to qualify  projects, the                                                               
infrastructure  investment  must  be  for  a  field  with  proven                                                               
reserves, because that serves as part of the collateral.                                                                        
                                                                                                                                
He  said  the  definition  in  the  bill  uses  the  Society  for                                                               
Petroleum   Engineers  definition.   Representative  Hawker   and                                                               
industry  representatives  want   this  definition  aligned  with                                                               
Alaska statute and the SEC definition.                                                                                          
                                                                                                                                
4:43:36 PM                                                                                                                    
MR. SPRINGSTEEN said  SB 129 has an opt-out  provision in section                                                               
12.  If a  developer  uses  this program,  he  would  opt out  of                                                               
certain  tax credits  going forward.  He knew  from conversations                                                               
with  industry representatives  that they  are resistant  to this                                                               
provision. However, use of the program would be at their option.                                                                
                                                                                                                                
SENATOR  COSTELLO asked  if that  provision exists  for companies                                                               
that are accessing AIDEA loans in the diversified portfolio.                                                                    
                                                                                                                                
MR. SPRINGSTEEN replied that it does not exist currently.                                                                       
                                                                                                                                
SENATOR COSTELLO asked if there  are federal guidelines dictating                                                               
what a diversified portfolio has to look like.                                                                                  
                                                                                                                                
4:45:12 PM                                                                                                                    
MR. SPRINGSTEEN answered the fund  is managed using conversations                                                               
with  their chief  financial officer,  ratings  agencies and  the                                                               
board  about maintaining  a well-diversified  portfolio following                                                               
the prudent investor rule; it's not a strict federal guideline.                                                                 
                                                                                                                                
CHAIR GIESSEL said  he alluded to the "proven  reserves" term and                                                               
asked if  it was correct  that companies  asked to use  the state                                                               
statute definition.                                                                                                             
                                                                                                                                
MR.  SPRINGSTEEN answered  yes;  they were  asked  to align  with                                                               
existing statutory definitions.                                                                                                 
                                                                                                                                
CHAIR GIESSEL asked if they had  not offered any amendment to the                                                               
legislation in the other body.                                                                                                  
                                                                                                                                
MR.  SPRINGSTEEN  said  that  is   correct.  He  said  that  it's                                                               
important for AIDEA  to evaluate the risks of  a project, itself,                                                               
in  terms  of interest  rates.  Among  these are:  the  operating                                                               
performance of the field, the  size of the field, projected costs                                                               
and  cash flow,  capabilities of  the operation,  borrower credit                                                               
worthiness, commitments  by the  owner and by  financing partners                                                               
who  are  backing the  field  development,  their expectation  of                                                               
financial returns, collateral to be  made available to AIDEA, and                                                               
the benefit to the state,  including tax and royalty revenue, and                                                               
employment.                                                                                                                     
                                                                                                                                
CHAIR  GIESSEL asked  what  capacity AIDEA  has  to evaluate  the                                                               
project itself under review for investment.                                                                                     
                                                                                                                                
MR. SPRINGSTEEN answered  because AIDEA has a  broad portfolio of                                                               
investments throughout the  state, it has some  amount of limited                                                               
expertise,  but   sometimes  they  call  in   specific  technical                                                               
expertise for  reservoir evaluation  and evaluation of  the plans                                                               
for development that don't exist within AIDEA.                                                                                  
                                                                                                                                
SENATOR COSTELLO  said language  on page 5,  section 9,  makes it                                                               
sound  like AIDEA  can  have different  interest  rates for  each                                                               
program, and his  explanation made it sound like  the entire fund                                                               
would have a  particular interest rate. She asked if  there was a                                                               
problem with the language.                                                                                                      
                                                                                                                                
MR. SPRINGSTEEN  responded that the  interest rates are  based on                                                               
each particular project, but that language would be clarified.                                                                  
                                                                                                                                
4:48:39 PM                                                                                                                    
He  said  language in  the  Sustainable  Energy Transmission  and                                                               
Supply    (SETS),   the    Arctic   Infrastructure    Development                                                               
Program/Fund and  the oil and  gas infrastructure  programs allow                                                               
investment of up to  50 percent or guarantee of a  loan up to $25                                                               
million   for  an   eligible  project.   The   SETS  and   Arctic                                                               
Infrastructure current limits are 33  percent or $20 million with                                                               
legislature  approval  for  amounts  above that.  He  handed  the                                                               
presentation over to Mr. Therriault to do a sectional analysis.                                                                 
                                                                                                                                
4:49:13 PM                                                                                                                    
MR. THERRIAULT said  the real meat of the bill  in setting up the                                                               
new  fund is  in section  12. Sections  1-3 add  the new  fund to                                                               
AIDEA's existing  suite of funds  with respect to  calculation of                                                               
the dividend to the state.                                                                                                      
                                                                                                                                
Sections 4-9 also  add the new fund into the  sections of statute                                                               
that  talk about  the  interest that  is to  be  charged for  the                                                               
different  programs.  Sections  4-8 are  all  existing  statutory                                                               
language. Section 9  is where specific language is  added to give                                                               
AIDEA the  flexibility through regulations to  set interest rates                                                               
reflecting  the risk  on the  particular project  they are  being                                                               
asked to invest in.                                                                                                             
                                                                                                                                
4:50:54 PM                                                                                                                    
CHAIR GIESSEL  noted that  the Working Group  spoke with  ING and                                                               
Bank  of America  last summer,  and that  is something  they take                                                               
into account as well.                                                                                                           
                                                                                                                                
MR.  THERRIAULT said  sections 10-11  propose to  adjust existing                                                               
limits for  SETS and the  Arctic development  Program/Fund. Right                                                               
now the  limits are for  projects above 33  percent participation                                                               
or a loan guarantee above $20  million. For the new fund they are                                                               
proposing a limit of  up to 50 percent or a  loan guarantee of up                                                               
to  $25 million.  AIDEA thinks  there is  some benefit  to having                                                               
consistent  limitations  across  the different  investment  tools                                                               
just for  ease in  understanding where  the limits  are. However,                                                               
this is a separate policy call for the legislature to make.                                                                     
                                                                                                                                
Section  12 establishes  the new  fund.  The statutory  framework                                                               
follows  along  with  the  framework   that  was  used  when  the                                                               
legislature   established   the   SETS  Fund   and   the   Arctic                                                               
Infrastructure Development Program/Fund.  A provision specific to                                                               
this fund is  the requirement that a project  proposer would have                                                               
to select  between using  this loan  mechanism and  continuing to                                                               
access oil  and gas  credits. That  is also  spelled out  in this                                                               
section.                                                                                                                        
                                                                                                                                
Section 13  provides definitions. Fleshing out  the definition of                                                               
"proven reserve"  is one of  the things they anticipate  doing by                                                               
taking proposed  language back to the  House Resources Committee.                                                               
He explained  that a concern  with the SEC definition  of "proven                                                               
reserves"  is that  it looks  at the  previous 12-year  price for                                                               
commodities.  Some House  members also  want to  look forward  at                                                               
what  the anticipated  price  is  going to  be,  if  in fact  the                                                               
reserves are going  to be used as part of  the collateral for the                                                               
loan. The final portion of section  13 says the definition of oil                                                               
and gas  infrastructure is surface infrastructure  and for proven                                                               
reserves. That is the end of the bill.                                                                                          
                                                                                                                                
4:55:03 PM                                                                                                                    
CHAIR GIESSEL found no questions on the sectional analysis.                                                                     
                                                                                                                                
MR.  SPRINGSTEEN said  AIDEA performs  its due  diligence process                                                               
prior  to  investment.  These  include  technical  due-diligence,                                                               
reviewing the  field and reserves, the  operator, the development                                                               
plan, what type  of infrastructure is being  requested to support                                                               
the developments, financial due  diligence, which includes a look                                                               
at   credit   worthiness,    commitments,   collateral,   project                                                               
economics, and  financial stress  testing. Equally  important are                                                               
benefits to the  state for job creation and  revenue. In addition                                                               
to AIDEA  staff, they  hire financial  and technical  experts and                                                               
the AIDEA board makes the final investment decision.                                                                            
                                                                                                                                
He explained the four phases of their decision-making process:                                                                  
1. Suitability assessment for alignment with AIDEA's mission                                                                    
2. Project feasibility analysis                                                                                                 
3. Structuring a  deal and performing detailed  due diligence for                                                               
the project.                                                                                                                    
4. Finalizing closing agreements and contracts.                                                                                 
                                                                                                                                
4:56:28 PM                                                                                                                    
In terms of financing repayment  generally, Mr. Springsteen said,                                                               
upon  the  establishment of  the  fund,  AIDEA makes  investments                                                               
based on  market rates  to reflect project  risk and  benefits to                                                               
the  state. Loans  are  repaid  with interest  and  AIDEA pays  a                                                               
dividend to the state.                                                                                                          
                                                                                                                                
He  walked them  through AIDEA's  general framework  for best-fit                                                               
products (slide  15). On  the bottom axis  was the  project stage                                                               
going from  concept to development to  construction to operation.                                                               
The left  axis is risk and  cost of capital (which  generally run                                                               
together).  The  curve represents  the  idea  that as  one  moves                                                               
through the different project stages,  the risk is being reduced,                                                               
so one should be eligible  for less expensive sources of capital.                                                               
The  line  on  the  top   bar  represents  early  stage  projects                                                               
(generally   equity  heavy)   and   late   stage  projects   (can                                                               
accommodate more debt).                                                                                                         
                                                                                                                                
The orange  boxes on the  curve delineate the different  types of                                                               
capital  available at  different stages  of the  project. In  the                                                               
concept stage there  is seed capital, which can take  the form of                                                               
grants  or equity.  Then as  a project  is de-risked,  it becomes                                                               
available  for venture  finance, which  is still  very expensive,                                                               
but for projects going through  concept to development maybe less                                                               
expensive  than   the  initial   equity.  Further  down   in  the                                                               
construction  stage  a project  may  be  eligible for  a  private                                                               
equity  investment  and, as  it  moves  through the  process,  be                                                               
eligible for  longer term construction  loans and  long-term debt                                                               
and bonds, which can be less expensive.                                                                                         
                                                                                                                                
The big blue  box illustrates what AIDEA looks for  in a best fit                                                               
project  near the  construction  stage. So,  generally these  six                                                               
factors  are: operation  experience, capital  contribution (stuff                                                               
that  has   been  done  previously),  final   design  (plans  and                                                               
specifications),  complete permits,  signed purchase  agreements,                                                               
and  signed  sales agreements.  It's  generally  much easier  for                                                               
developers  with  signed  sales   agreements  to  raise  capital,                                                               
because they  have a destination for  a product as opposed  to an                                                               
"if you build it they will come" type of approach.                                                                              
                                                                                                                                
4:59:07 PM                                                                                                                    
In  summary,  Mr. Springsteen  said,  this  bill will  support  a                                                               
specific program in AIDEA to  finance oil and gas infrastructure.                                                               
The  fields for  which infrastructure  would be  built must  have                                                               
proven  reserves  and meet  AIDEA's  criteria  based on  its  due                                                               
diligence   process.   Finance   terms  would   be   market-based                                                               
considering the  project risks, commitments, and  benefits to the                                                               
state.                                                                                                                          
                                                                                                                                
He  said  that AIDEA  originally  submitted  a zero  fiscal  note                                                               
saying  it would  absorb program  costs with  existing resources,                                                               
but they understand the legislature  is considering HB 247 and SB                                                               
130,  which  if  approved,  would direct  $200  million  to  this                                                               
program. The board believes that the  program in and of itself is                                                               
valuable,  but  any  capitalization   would  just  make  it  more                                                               
effective.                                                                                                                      
                                                                                                                                
CHAIR  GIESSEL, referring  to slide  15, asked  if oil  companies                                                               
have signed sales agreements.                                                                                                   
                                                                                                                                
MR. SPRINGSTEEN  answered that would  be one of the  first things                                                               
that AIDEA  would look  at for  other industries  and developers.                                                               
It's  less of  an issue  in  this circumstance  with a  commodity                                                               
market  able to  sell at  ANS West  Coast price  or some  similar                                                               
price. Slide 15 illustrated the  general framework for vetting of                                                               
all projects.                                                                                                                   
                                                                                                                                
SENATOR MICCICHE said  when one thinks about  overall state risk,                                                               
he wondered with  the two bill numbers right next  to each other,                                                               
why SB  129 wasn't a  piece of SB 130.  Because SB 129  risks the                                                               
legislature encumbering the state  with another $200 million, but                                                               
not touch credits. Did they consider  that as another risk to the                                                               
state, because he does?                                                                                                         
                                                                                                                                
MR. SPRINGSTEEN answered,  on behalf of the board,  that there is                                                               
an interest in having this be  a separate program, because of the                                                               
increasing balance and diversification  issues in their Revolving                                                               
Loan  Fund. Having  this program  move forward  was an  important                                                               
step for the Authority, the funding being a separate question.                                                                  
                                                                                                                                
SENATOR MICCICHE asked if AIDEA  has the ability to do everything                                                               
in this bill  without the carrot on page 8,  lines 15-22 (Section                                                               
12), and why,  because it would have been a  simpler bill to move                                                               
this  section  into SB  130.  He  was  trying to  understand  the                                                               
strategy.                                                                                                                       
                                                                                                                                
5:02:38 PM                                                                                                                    
FRED  PARADY,   Deputy  Commissioner,  Department   of  Commerce,                                                               
Community and Economic Development  (DCCED), Juneau, Alaska, said                                                               
he serves  on AIDEA's  board, and explained  that the  package of                                                               
bills arose  out of  board direction. AIDEA  monitors what  is in                                                               
slide 4  in the  context of  diversification of  their portfolio.                                                               
The basic premise  is that with oil and gas  risk tipping up over                                                               
14   percent,  it's   become  the   dominant   factor  in   their                                                               
diversification.  The  block  for mining,  which  represented  20                                                               
percent of the  fund, is almost exclusively the  Red Dog Project,                                                               
which is  a maturing  concern, and  does not  pose the  same risk                                                               
profile.  The idea  was to  create a  separate fund  so the  risk                                                               
could be  separate and not  have it overwhelm the  Revolving Loan                                                               
Fund.                                                                                                                           
                                                                                                                                
MR. SPRINGSTEEN added that the  Revolving Loan Fund supports some                                                               
other  very  important programs  for  the  state including  their                                                               
Commercial   Finance  Program,   where   they   engage  in   loan                                                               
participations.  A  federal credit  union  or  a commercial  bank                                                               
works directly  with borrowers  and AIDEA  can provide  very cost                                                               
effective financing for up to 90 percent of a loan.                                                                             
                                                                                                                                
SENATOR  MICCICHE   said  he  didn't   want  to   remotely  sound                                                               
confrontational, but  the percentage of total  existing, approved                                                               
capacity  projects  has  several  sectors in  the  10-11  percent                                                               
range.                                                                                                                          
                                                                                                                                
MR. PARADY  said looking forward,  and seeing the turmoil  in the                                                               
oil and  gas industry,  and the  kind of  projects coming  in the                                                               
door for  evaluation, this  sector appears  to be  significant to                                                               
the  board. AIDEA  has  already been  working  with Brooks  Range                                                               
Petroleum on  the Mustang  Project, and  BlueCrest Energy  on the                                                               
Cosmopolitan  Project. AIDEA  has already  been involved  in this                                                               
sector. The opportunity  is significant, as well,  but they don't                                                               
want to  unbalance the  basic composition  of the  Revolving Loan                                                               
Fund.                                                                                                                           
                                                                                                                                
SENATOR MICCICHE said he didn't  have a problem with the concept,                                                               
but he  worries that with  AIDEA some  things have gone  good and                                                               
some things  have gone bad. It's  the nature of the  business. He                                                               
is trying to  understand the focus and worries  about the state's                                                               
additional exposure.                                                                                                            
                                                                                                                                
CHAIR GIESSEL  said the  fiscal note  is dated  April 1,  and the                                                               
last sentence  is, "Capitalization of  the fund is  contingent on                                                               
the passage of SB  130 or HB 247." She said  the $200 million was                                                               
not in  a fiscal  note before  and asked if  the $200  million is                                                               
still in the other two bills.                                                                                                   
                                                                                                                                
MR. SPRINGSTEEN answered yes.                                                                                                   
                                                                                                                                
5:07:03 PM                                                                                                                    
CHAIR GIESSEL asked  if they could pull $200 million  from SB 130                                                               
because it's actually in SB 129.                                                                                                
                                                                                                                                
MR. THERRIAULT explained that the  original fiscal note that came                                                               
with the  bill from AIDEA was  zero, because it was  just setting                                                               
up  the mechanism  and they  know AIDEA  can absorb  all of  that                                                               
cost, because  it has  been through the  process twice  with SETS                                                               
and the Arctic Fund. The  modified fiscal note was to acknowledge                                                               
that there was this other  legislation out there, plus a proposed                                                               
budget amendment  that would actually appropriate  money into the                                                               
fund. But that  appropriation is clearly a  separate policy call.                                                               
This  new  updated fiscal  note  acknowledges  that the  cost  of                                                               
setting up the  fund is still zero, but through  other action the                                                               
legislature  takes,  money  may  be  put  into  the  fund.  AIDEA                                                               
believes there is  value to the creation of the  fund, itself. If                                                               
money is put into the fund it becomes a more valuable tool.                                                                     
                                                                                                                                
SENATOR COGHILL asked if the 50  percent in sections 10 and 11 is                                                               
for all  three funds and  if there had  been pressure to  go from                                                               
one-third to  50 percent in  the other funds  and it there  is an                                                               
actual project out there looking for 50 percent participation.                                                                  
                                                                                                                                
5:09:04 PM                                                                                                                    
MR. SPRINGSTEEN  answered the conversations  are for AIDEA  to be                                                               
an  equal  partner rather  than  a  minority partner  in  program                                                               
development,  whether it's  Arctic infrastructure,  SETS, or  oil                                                               
and gas infrastructure development.                                                                                             
                                                                                                                                
SENATOR WIELECHOWSKI  said the  bill mentions  Arctic development                                                               
and asked how "Arctic" is defined.                                                                                              
                                                                                                                                
MR. SPRINGSTEEN  answered that it  runs along the Yukon  and down                                                               
to the  Aleutian Chain roughly. It  is a line through  the middle                                                               
of   the   state.  However,   a   provision   under  the   Arctic                                                               
Infrastructure  Development  Program/Fund supports  financing  of                                                               
port   developments  in   south   Alaska   that  support   Arctic                                                               
development.                                                                                                                    
                                                                                                                                
5:10:33 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if he means all of Alaska.                                                                           
                                                                                                                                
MR. SPRINGSTEEN answered "sort-of."                                                                                             
                                                                                                                                
CHAIR  GIESSEL said  it  sounds like  the  federal Arctic  Policy                                                               
Commission definition of the Arctic  is being used, but somewhere                                                               
something  is  written  down  that   it  includes  the  reach  of                                                               
infrastructure outside of that defined Arctic area.                                                                             
                                                                                                                                
MR.  SPRINGSTEEN   said  yes.  The   idea  that  ports   are  not                                                               
necessarily independent  of each other that  there is cooperation                                                               
between the  different types of facilities  that ultimately ports                                                               
in Southeast  Alaska are  beneficial and  can support  the Arctic                                                               
area.                                                                                                                           
                                                                                                                                
CHAIR GIESSEL added  that Seward was an example  of an industrial                                                               
port and Vigor operates a shipyard in Ketchikan.                                                                                
                                                                                                                                
5:11:50 PM                                                                                                                    
SENATOR  MICCICHE said  he needed  to go  to another  meeting and                                                               
wanted  to make  a final  statement.  He worries  about what  the                                                               
executive director  of the Alaska  Municipal Bond Bank  told them                                                               
at  the last  Finance  Committee meeting:  that Alaska's  bonding                                                               
capacity is maxed out. He  worries about being further encumbered                                                               
with the current  $4.1 billion problem they are  dealing with and                                                               
has  become   extremely  conservative  on  creating   new  funds.                                                               
However, he would keep an open mind.                                                                                            
                                                                                                                                
MR.  SPRINGSTEEN  mentioned that  AIDEA  has  a long  history  of                                                               
issuing  conduit  revenue  bonds  where AIDEA  is  named  as  the                                                               
issuer,  but  the  bonds  themselves are  backed  solely  by  the                                                               
project revenue. Those were the  first tools used by AIDEA before                                                               
it had  an account  of its  own. AIDEA's  Revolving Loan  Fund is                                                               
separate from  the state and  it has maintained its  AA-plus bond                                                               
rating,  a  fact  that  was recently  affirmed  by  Standard  and                                                               
Poor's.                                                                                                                         
                                                                                                                                
SENATOR MICCICHE thanked him for  the explanation and said he was                                                               
more worried about the initial fund capitalization.                                                                             
                                                                                                                                
5:13:33 PM                                                                                                                    
SENATOR  COGHILL  said   Alaska  would  be  doing   oil  and  gas                                                               
development for  a long  while, but he  struggles with  the reach                                                               
into SB 130 and asked about industry's perspective.                                                                             
                                                                                                                                
MR.  SPRINGSTEEN  answered  there was  resistance  from  industry                                                               
representatives  to  not being  eligible  for  tax credits  going                                                               
forward if the AIDEA program was utilized.                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI said he sees  that AIDEA gets two things out                                                               
of this investment:  the return on the investment, which  is 6 to                                                               
12 percent,  but also potential  jobs being created and  new oil.                                                               
He asked  if Mr.  Springsteen had  some sort  of analysis  on how                                                               
much  other   benefits  the  state   has  accrued   from  AIDEA's                                                               
investments and a forward-looking forecast.                                                                                     
                                                                                                                                
MR.  SPRINGSTEEN responded  that  they do  track  jobs that  come                                                               
along  with AIDEA  funding as  well as  the returns  it receives.                                                               
They  have not  performed  an analysis  of  additional taxes  and                                                               
royalties, but they could do that.                                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI   said  the   sooner  he  could   get  that                                                               
information the more helpful it would be to his case.                                                                           
                                                                                                                                
MR.  THERRIAULT  added  that  he  will  supply  a  definition  of                                                               
"Arctic." He clarified  that SB 129 sets up the  fund. The fiscal                                                               
note acknowledges  a proposal to  put money into it,  but passage                                                               
of  this legislation  by itself  doesn't endow  it with  the $200                                                               
million. That is contingent on other policy calls.                                                                              
                                                                                                                                
SENATOR COSTELLO followed up on  her earlier question about using                                                               
the "program" in section 5, because  the SETS Fund and the Arctic                                                               
Fund  are referred  to in  statute as  "the AIDEA  programs," and                                                               
said she found that "program" was used correctly.                                                                               
                                                                                                                                
5:17:34 PM                                                                                                                    
CHAIR GIESSEL  adjourned the Senate Resources  Standing Committee                                                               
meeting at 5:17 p.m.                                                                                                            

Document Name Date/Time Subjects
AGDC Board Factsheet.pdf SRES 4/5/2016 3:30:00 PM
AGDC Board
AGDC-Resume-Joey Merrick.pdf SRES 4/5/2016 3:30:00 PM
AGDC Board
SB129 ver A.PDF SRES 4/5/2016 3:30:00 PM
SB 129
SB129 Transmittal Letter.pdf SRES 4/5/2016 3:30:00 PM
SB 129
SB129 Sectional Analysis.pdf SRES 4/5/2016 3:30:00 PM
SB 129
SB 129 Presentation to SRES 4.5.16.pdf SRES 4/5/2016 3:30:00 PM
SB 129
DOR Presentation to SRES-4-2-2016.pdf SRES 4/5/2016 3:30:00 PM
SB 130
SB129 Fiscal Note-DCCED-AIDEA-04-01-16.pdf SRES 4/5/2016 3:30:00 PM
SB 129