04/02/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB215 | |
| SB145 | |
| SB219 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 145 | TELECONFERENCED | |
| += | SB 219 | TELECONFERENCED | |
| += | SB 215 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 2, 2012
3:35 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Bert Stedman
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
Senator Linda Menard
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 215
"An Act requiring the Alaska Gasline Development Corporation to
construct a natural gas pipeline to deliver Cook Inlet natural
gas to Fairbanks and other communities between Cook Inlet and
Fairbanks that do not have access to a natural gas pipeline."
- MOVED SB 215 OUT OF COMMITTEE
SENATE BILL NO. 145
"An Act providing for a credit against the oil and gas
production tax for costs incurred in drilling certain oil or
natural gas exploration wells in the Nenana Basin."
- MOVED CSSB 145(RES) OUT OF COMMITTEE
SENATE BILL NO. 219
"An Act relating to the Alaska Land Act, including certain
lease, sale, and other disposal of state land and materials;
relating to production royalties from miners; relating to rights
to use state water; and providing for an effective date."
- MOVED CSSB 219(RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 215
SHORT TITLE: GASLINE DEV. CORP: IN-STATE GAS PIPELINE
SPONSOR(s): SENATOR(s) THOMAS
02/21/12 (S) READ THE FIRST TIME - REFERRALS
02/21/12 (S) RES, FIN
03/19/12 (S) RES AT 3:30 PM BUTROVICH 205
03/19/12 (S) Heard & Held
03/19/12 (S) MINUTE(RES)
03/23/12 (S) RES AT 3:30 PM BUTROVICH 205
03/23/12 (S) Heard & Held
03/23/12 (S) MINUTE(RES)
03/26/12 (S) RES AT 3:30 PM BUTROVICH 205
03/26/12 (S) Heard & Held
03/26/12 (S) MINUTE(RES)
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Scheduled But Not Heard
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
03/30/12 (S) Heard & Held
03/30/12 (S) MINUTE(RES)
04/02/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 145
SHORT TITLE: OIL/GAS PRODUCTION TAX CREDITS: NENANA
SPONSOR(s): SENATOR(s) WAGONER, COGHILL
01/17/12 (S) PREFILE RELEASED 1/6/12
01/17/12 (S) READ THE FIRST TIME - REFERRALS
01/17/12 (S) RES, FIN
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Heard & Held
03/28/12 (S) MINUTE(RES)
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
03/30/12 (S) Heard & Held
03/30/12 (S) MINUTE(RES)
04/02/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 219
SHORT TITLE: DISPOSALS OF STATE RESOURCES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/29/12 (S) READ THE FIRST TIME - REFERRALS
02/29/12 (S) RES, FIN
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Heard & Held
03/28/12 (S) MINUTE(RES)
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
03/30/12 (S) Heard & Held
03/30/12 (S) MINUTE(RES)
04/02/12 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
BILL WARREN, representing his daughter who lives in Fairbanks
Kenai, AK
POSITION STATEMENT: Supported SB 215.
MERRICK PEIRCE, representing himself
North Pole, AK
POSITION STATEMENT: Supported SB 215.
SENATOR JOE THOMAS
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 215.
JOMO STEWART
Fairbanks Economic Development Corporation (FEDC)
Fairbanks, AK
POSITION STATEMENT: Supported SB 215.
JOHANNA BALES, Deputy Director
Tax Division
Department of Revenue (DOR)
Anchorage, AK
POSITION STATEMENT: Related department's concerns about
Amendment 2 for SB 145.
JAMES MERY, Vice President
Lands and Natural Resources
Doyon, Ltd.
Fairbanks, AK
POSITION STATEMENT: Answered question on SB 145.
WYN MENEFEE, Chief of Operations
Division of Mining, Lands and Water
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Answered questions on SB 219.
CAMERON LEONARD, Assistant Attorney General
Civil Division
Environmental Section
Department of Law
Anchorage, AK
POSITION STATEMENT: Answer questions on SB 219 as needed.
MARY JACKSON, Staff
Senator Tom Wagoner
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Answered question about SB 219.
ACTION NARRATIVE
3:35:11 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:35 p.m. Present at the call to
order were Senators French, Wielechowski, McGuire, Stevens, Co-
Chair Wagoner and Co-Chair Paskvan.
SB 215-GASLINE DEV. CORP: IN-STATE GAS PIPELINE
3:36:13 PM
CO-CHAIR PASKVAN announced consideration of SB 215 and opened
public testimony.
3:37:08 PM
BILL WARREN, representing his daughter who lived in Fairbanks,
Kenai, AK, supported SB 215. He said Alaska is in an energy
crisis while ExxonMobil is making a killing in Qatar. He said
our number-one priority should be getting a 36 inch, 2.5 bcf gas
line from the North Slope to Fairbanks and then have an open
season and see what happens. They also need to run a 24 inch
pipeline from Cook Inlet to Palmer and Glennallen to Fairbanks
to catch all the military bases. "Then if miracles happen and we
get a big line and it comes down to Valdez, they loop the 24
inch into the 36 inch and away we go."
3:42:15 PM
MERRICK PEIRCE, Board Member, Alaska Gasline Port Authority
(AGPA), North Pole, AK, said he was speaking on his own behalf
in support of SB 215. He said the high cost of energy in the
Interior was crippling the economy. He was "delighted" the
sponsors of SB 215 recognized what the USGS scientists, the
Department of Energy and those in industry were telling them:
that Cook Inlet has as much as 24 tcf/gas, a 200 year supply for
Alaskans. He offered four suggestions for their consideration as
they develop this pipeline idea: look for redundancy,
integration, greatest population served and a minimal return on
equity.
MR. PEIRCE said in considering a small diameter pipeline from
Cook Inlet to Fairbanks it is important to route it through the
correct corridor and the best one is from Palmer to Glennallen
and Glennallen to Fairbanks. While it is longer by almost 100
miles, it serves a larger population with significant potential
industrial usage for mining. A longer line does not necessarily
mean more expensive gas. If the longer route serves a
substantially larger population the cost of gas could even be
less due to improved economies of scale.
The military bases need affordable gas, too, and reducing their
costs is very important Mr. Peirce said. For example, national
missile defense at Fort Greely runs their power plant on
expensive diesel fuel.
MR. PEIRCE said because earthquakes, fires, floods and tsunamis
all happen here, people need to think about how to build
redundancy with the gas grid for the same reasons as the power
grid. Being able to pull gas from Cook Inlet, the Copper River
Basin or the North Slope through an interconnected grid brings
that redundancy. The Cook Inlet gasline can be integrated into
the planning for the large diameter gasline, as well; the number
of wet gas take off points can be reduced from the large line if
the same populations are served through a gas-fed parallel spur
line. This would significantly reduce the Capex for the large
line gas take off points and if the infrastructure is provided
to allow gas to move to Valdez from the spur line to Glennallen,
this allows Cook Inlet drillers access to a deep water ice free
port where people expect to have an economical LNG export
facility.
He said that ANGDA had already created a gasline corridor for a
spur line to Glennallen and a final EIS was completed for the
Yukon Pacific version of the all-Alaska gasline adjacent to the
TAPS corridor, thus demonstrating that such a route is permit-
able reducing permitting risk.
Finally, he said to consider the benefits of little or no return
on equity saying the state does not ask for return on equity
with most public infrastructure like highways, airports and
ports. They provide great public benefit. The same logic should
apply to a gasline that serves Alaskans.
3:45:21 PM
A good example of what they must not do is seen with HB 9 where
the sponsors contemplated double digit return on about $3
billion in equity. With a 14 percent return, it would cost $420
million per year (built into the tariff) to support that equity
return. With an out of state owner, the $420 million would be
transferred per year out of the Alaskan economy. To provide a
sense of scale, this amount of money represents about half of
what is paid in annual Permanent Fund Dividends each year, and
they have a positive impact on Alaskan economy.
3:46:09 PM
JOMO STEWART, Fairbanks Economic Development Corporation (FEDC),
Fairbanks, AK, supported SB 215. It would help address
Fairbanks' energy cost issue as well as their PM2.5 issue. That
support is qualified because they believe this is one portion of
a multi-phased multi stage project that brings volume gas at an
affordable price to not only to Fairbanks and the Interior, but
hopefully kick starts broader energy distribution to the rest of
the state.
3:48:20 PM
CO-CHAIR PASKVAN, finding no further comments, closed public
testimony and invited the bill sponsor forward.
SENATOR MCGUIRE said she supported the concept in SB 215 and
that there are no bad ideas when it comes to considering how to
get energy to Fairbanks. Her only question was whether they
should consider removing the word "construct" on lines 1 and 9
on page 2, because maybe they want to be cautious about how far
they "push these guys" in AGDC with regard to the larger in-
state line. She was worried that language said they have to
construct it and maybe they should say they want them to study
it and come back with a proposal.
3:50:06 PM
SENATOR THOMAS, Alaska State Legislature, Juneau, AK, sponsor of
SB 215, said the word "construct" was used to avoid the word
"study," because they are studying that proposal right now. The
AGIA proposal might be a little bit more in play and this is
intended to make sure they are keeping on track. He didn't want
people to think they are starting over with a new study.
SENATOR MCGUIRE said she wanted to get that on the record and
she agreed.
SENATOR THOMAS said he appreciated the committee hearing the
bill and had no additional comments.
SENATOR FRENCH thanked him for this bill and noted that three
Anchorage Senators had signed onto this bill primarily because
it gets gas to Fairbanks as fast as possible.
CO-CHAIR WAGONER said he was going to vote to pass SB 215 from
the committee, but it's a question about knowing exactly how
much reserves Cook Inlet has to develop and send to Fairbanks.
This is a little premature, but he also saw the pain on peoples'
face in Fairbanks.
SENATOR THOMAS said everyone realizes that the resource has to
be proved up before moving forward.
3:53:52 PM
SENATOR WIELECHOWSKI said they think there is enough gas in Cook
Inlet to power the state for 200 years, and it's a lot cheaper
than bringing gas down from the North Slope, because you don't
need a conditioning plant or to go over tough terrain and the
Brooks Range. It also has a railroad for transporting goods.
But this is also good for Anchorage and Southcentral, Senator
Wielechowski said, because it will spur more exploration. Over
the years they have heard that the problem with Cook Inlet is if
you find gas there you have nowhere to sell it. If the line is
built to Fairbanks, they now have a market to Fairbanks, but it
also connects to the big line that is showing some promise of
being built. On the other hand, if it does turn out that Cook
Inlet has problems, and they do get a big line, they would have
a spur line into Anchorage and Southcentral. This is a win/win
for Southcentral, the Interior and for Fairbanks as well as for
more exploration in Cook Inlet.
CO-CHAIR PASKVAN echoed the sentiments and added that as a
matter of state policy, having a singular energy system from the
Kenai through Southcentral to Interior Alaska makes a lot of
sense.
3:56:04 PM
CO-CHAIR WAGONER moved to report SB 215, version \M, from
committee with individual recommendations and forthcoming fiscal
note. There were no objections and it SB 215 moved from the
Senate Resources Standing Committee.
3:56:33 PM
At ease from 3:56 to 4:00 p.m.
SB 145-OIL/GAS PRODUCTION TAX CREDITS: NENANA
4:00:37 PM
CO-CHAIR WAGONER announced consideration of SB 145 [Version D
was before the committee]. He said there was a request for
modeling at the last meeting, but it involved too much
speculation and too many hypotheticals to consider, so he
withdrew the request.
4:01:53 PM
SENATOR WIELECHOWSKI said his staff ran some modeling on SB 145
assuming 10,000 barrels a day at $110 to get a rough estimate of
a production tax value of $60 ($10 transportation costs, $20
OPEX and $20 CAPEX), and they came up with a production tax
value of about $190 million, which under ACES (backing out tax
credits and deductions) would generate a revenue of $38 million
to the state. The 4 percent gross tax under SB 145 appears to
generate a negative cash flow of $14 million to the company from
the state.
CO-CHAIR WAGONER said he appreciated that, but would feel more
comfortable with Legislative Research modeling or modeling from
Senator Stedman's consultants.
CO-CHAIR PASKVAN commented that he didn't want the committee to
get too bound up by the potential negative cash flow concept to
the state of Alaska, because Cook Inlet has had an annual
negative cash flow of $80 million for many years. The whole
concept of opening up the Nenana Basin is that the state puts
something into it in terms of reductions in costs and incentives
- as long as there are tight parameters on time.
4:05:57 PM
SENATOR WIELECHOWSKI moved Amendment 1.
27-LS1078\D.3
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AMENDMENT 1
OFFERED IN THE SENATE
BY SENATORS WIELECHOWSKI AND FRENCH
TO: CSSB 145( ), Draft Version "D"
Page 1, line 3, following "basins;":
Insert "relating to certain nontransferable oil
and gas production tax credits;"
Page 2, following line 8:
Insert a new bill section to read:
"* Sec. 3. AS 43.55.024(b) is amended to read:
(b) A producer may not take a tax credit under
(a) of this section for any calendar year after the
later of
(1) 2021 [2016]; or
(2) the ninth calendar year after the
calendar year during which the producer first has
commercial oil or gas production before May 1, 2021
[2016], from at least one lease or property in the
state outside the Cook Inlet sedimentary basin, no
part of which is north of 68 degrees North latitude,
if the producer did not have commercial oil or gas
production from a lease or property in the state
outside the Cook Inlet sedimentary basin, no part of
which is north of 68 degrees North latitude, before
April 1, 2006."
Renumber the following bill sections accordingly.
SENATOR WIELECHOWSKI explained applies statewide and expands the
small producer tax in AS 43.55.024(b) credit until 2021, because
some small producers were concerned that it may expire.
SENATOR FRENCH said the Revenue Sources Book said the net fiscal
effect of this credit was $38 million last year and that it
makes sense for people to be able to plan on it.
CO-CHAIR WAGONER, finding no objections, announced that
Amendment 1 was adopted.
4:08:12 PM
SENATOR WIELECHOWSKI moved Amendment 2.
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AMENDMENT 2
OFFERED IN THE SENATE
BY SENATORS WIELECHOWSKI AND FRENCH
TO: CSSB 145( ), Draft Version "D"
Page 1, line 3:
Delete "and"
Insert "relating to information concerning oil
and gas taxes, including information that must be
provided in order to claim an oil and gas production
tax credit for those expenditures, and to the
disclosure of that information;"
Page 1, line 4, following "latitude":
Insert "; and providing for an effective date"
Page 7, following line 2:
Insert new bill sections to read:
"* Sec. 6. AS 43.55.030(a) is amended to read:
(a) A producer that produces oil or gas from a
lease or property in the state during a calendar year,
whether or not any tax payment is due under
AS 43.55.020(a) for that oil or gas, shall file with
the department on March 31 of the following year a
statement, under oath, in a form prescribed by the
department, giving, with other information required by
the department under a regulation adopted by the
department, the following:
(1) a description of each lease or property
from which oil or gas was produced, by name, legal
description, lease number, or accounting codes
assigned by the department;
(2) the names of the producer and, if
different, the person paying the tax, if any;
(3) the gross amount of oil and the gross
amount of gas produced from each lease or property,
and the percentage of the gross amount of oil and gas
owned by the producer;
(4) the gross value at the point of
production of the oil and of the gas produced from
each lease or property owned by the producer and the
costs of transportation of the oil and gas;
(5) the name of the first purchaser and the
price received for the oil and for the gas, unless
relieved from this requirement in whole or in part by
the department;
(6) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170;
(7) the production tax values of the oil
and gas under AS 43.55.160;
(8) any claims for tax credits to be
applied; [AND]
(9) calculations showing the amounts, if
any, that were or are due under AS 43.55.020(a) and
interest on any underpayment or overpayment; and
(10) for each expenditure that is the basis
for a credit claimed under AS 43.55.023 or 43.55.025,
a description of the expenditure, a detailed
description of the purpose of the expenditure, and a
description of the lease or property for which the
expenditure was incurred; notwithstanding
AS 40.25.100(a) and AS 43.05.230(a), information
submitted under this paragraph may be disclosed to the
public and shall be disclosed to the legislature in a
report submitted within 10 days after the convening of
the next regular legislative session following the
date a statement is filed under this subsection.
* Sec. 7. AS 43.55.030(e) is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department on March 31 of the following
year a statement, under oath, in a form prescribed by
the department, giving, with other information
required by the department under a regulation adopted
by the department, the following:
(1) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170; [AND]
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount; and
(3) for each expenditure that is the basis
for a credit claimed under AS 43.55.023 or 43.55.025,
a description of the expenditure, a detailed
description of the purpose of the expenditure, and a
description of the lease or property for which the
expenditure was incurred; notwithstanding
AS 40.25.100(a) and AS 43.05.230(a), information
submitted under this paragraph may be disclosed to the
public and shall be disclosed to the legislature in a
report submitted within 10 days after the convening of
the next regular legislative session following the
date a statement is filed under this subsection.
* Sec. 8. Sections 6 and 7 of this Act take effect
July 1, 2012."
SENATOR WIELECHOWSKI explained that the amendment requires the
disclosure of three items: a description of the expenditure, a
detailed description of the purpose of the expenditure and a
description of the lease or property for which the expenditure
was incurred. That information will be made public. The
philosophy behind this is that the state is paying close to $1
billion each year in tax credits and they have no idea where it
is going. This will help find out what those credits are being
used for and it helps in managing the resource.
4:10:01 PM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue (DOR), Anchorage, AK, said she had a couple of concerns
with Amendment 2. The first primarily dealt with the language
and the way the amendment is constructed. It says:
"Notwithstanding, AS 40.25.100 and AS 43.05.230(a)" and the
department didn't believe that language allowed them to
completely not adhere to those statutes. Exception language
needs to be put in those statutes if they are going to open up
taxpayer information to public disclosure.
The other concern she explained was right now when they look at
tax credits specifically for audit purposes, they receive
millions of lines of data information just like they do for tax
returns, and when they conduct audits they look at categories of
credits. This amendment would require the department to look at
each expenditure and she assumed categorize it for disclosure.
But there is no language giving them any idea of how the sponsor
wanted those expenditures to be categorized.
MS. BALES said the second part of the amendment talks about a
detailed description of the purpose of the expenditure and they
were not entirely sure what the intention was.
Another concern Ms. Bales said they had was although this
amendment didn't require identifying the taxpayer, they could
have instances where a lease or property has only one of two
owners and by simply providing that information, they would have
disclosed the taxpayer. She didn't know if that was the
sponsor's intent either.
4:13:18 PM
MS. BALES said another issue would be the cost of being subject
to public records requests. The minute this information is made
public and subject to disclosures they would be required to
disclose this information for any individual that requested it
and that would be disincentive to companies to get these credits
if they are concerned that their proprietary information might
be disclosed.
SENATOR FRENCH asked if language on page 2, lines 17-24 (number
10 on a list of 9 other items), on types of information is sent
to the department by the producers.
MS. BALES answered yes; that was correct.
SENATOR FRENCH asked if the other nine items in that list were
disclosed to the public, too.
MS. BALES replied generally no, unless it has been aggregated,
and they aggregate at a high level.
SENATOR FRENCH asked if her concern was with language actually
in subsection (10) that says it may be disclosed to the public
because it's treated differently than the other nine items.
MS. BALES replied yes. Also, the language on line 17 says "for
each expenditure" and in their mind an expenditure is every
single line item of expense.
SENATOR FRENCH said that the language was modified to say "for
each expenditure that is the basis for a credit claimed under
.023 or .025."
MS. BALES replied that each expense item is the basis for a
credit. If they have to categorize and identify each and every
expense and identify the purpose of that expense, a little more
clarification would be needed on whether they wanted every
single expense item or categories of expenditures.
SENATOR FRENCH said if he were in her shoes, he would be saying
it's the producers' job to do the categorizations. But she was
saying it would be the department's job and he didn't want to
make her do that. He asked if there was language causing her
confusion about whose job it is.
MS. BALES replied that the producer would have to provide the
information, but she was confused as to what information and
what level of detail and assumed that the producers and
explorers would share that same confusion.
SENATOR FRENCH said they were big boys and could stick up for
themselves and he wanted the department's perspective on whether
this amendment would require them to detail things and to
categorize them.
MS. BALES answered that the department would have to do a
certain amount of detail and categorization, because if an
explorer or producer sent them information at the expense level
and provided the purpose of each expenditure, they would still
need to compile that data into a report.
SENATOR FRENCH said he thought they would be pulling information
out of one spreadsheet and inserting it into another until they
aggregated.
MS. BALES responded that would be true, and as simple as that
might sound, they get data in all sorts of different formats.
They don't have an automated system right now, so they would
have to look at how this information was provided and it would
be helpful to have a little bit more guidance about whether the
producers and explorers were providing them a report that the
department was providing to the legislature and the public as
requested.
SENATOR FRENCH said that was his intent, but he could see where
she would need a little more guidance.
4:19:18 PM
CO-CHAIR WAGONER said he wasn't that comfortable with this
either, for a little bit different reason. Let's say I'm a
charter business taking high end charters out and am forced by
APOC to disclose each one of those charters, because it's over
the maximum allowable. In doing that, he has just opened up his
entire list of business associates to his competitors. That is
why he couldn't support the amendment.
SENATOR WIELECHOWSKI withdrew Amendment 2 and said he would work
with Senator Wagoner, the Finance Committee and the department
to provide clear guidance and not have any unintended
consequences.
4:21:15 PM
SENATOR FRENCH moved Amendment 3.
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AMENDMENT 3
OFFERED IN THE SENATE
TO: CSSB 145( ), Draft Version "D"
Page 2, line 3:
Delete "seven"
Insert "four"
CO-CHAIR WAGONER objected for discussion purposes.
SENATOR FRENCH explained that this was part of a conversation he
had with the Nana folks to put some sidebar limit to the
extremely low tax provisions the state is offering under this
bill. They had talked about using a barrel a day limit, but the
drafter said it was too much. So he simply limited it down to
four years. He was comfortable with four years, but he would be
open to five. His idea was to limit the length of time under
which these extremely low tax provisions are offered; they might
need to look at Cook Inlet the same way.
SENATOR FRENCH moved to amend his amendment to insert "five"
instead of "four" on line 3.
CO-CHAIR PASKVAN asked if Doyon had been contacted about five
versus seven years.
CO-CHAIR WAGONER said he talked to them in the past a couple or
three times about it and didn't think they would object to going
to five.
4:23:47 PM
JAMES MERY, Vice President, Lands and Natural Resources, Doyon,
Limited, Fairbanks, AK, said it depends on the price of oil and
the size of the find, but the number "five" would work for them
in the larger context of trying to attract capital to these
projects. It's still a good period of protection during a
critical period of capital recovery.
SENATOR WIELECHOWSKI remarked that they were sort of shooting in
the dark without modeling and he would support the amendment,
but hoped it would get a thorough look in the Finance Committee.
CO-CHAIR WAGONER removed his objection and the amendment to
Amendment 3 was adopted. Finding no further objections, he
announced that Amendment 3 as amended was adopted.
CO-CHAIR WAGONER removed his objection to the CS.
CO-CHAIR PASKVAN moved to report CSSB 145( ), version\D, as
amended by Amendments 1 and 3, to the next committee of referral
with individual recommendations and attached fiscal note(s).
There were no objections and CSSB 145(RES) moved from the Senate
Resources Standing Committee.
4:27:32 PM
At ease from 4:27 to 4:29 p.m.
SB 219-DISPOSALS OF STATE RESOURCES
4:29:15 PM
CO-CHAIR WAGONER announced consideration of SB 219.
4:29:37 PM
WYN MENEFEE, Chief of Operations, Division of Mining, Lands and
Water, Department of Natural Resources (DNR), Juneau, AK, said
he was available to answer questions on SB 219.
CO-CHAIR WAGONER moved Amendment 1.
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AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR WAGONER
TO: SB 219
Page 1, line 1:
Delete "lease, sale and other disposal"
Insert "leases, sales, and other disposals"
Page 1, following line 4:
Insert a new bill section to read:
"* Section 1. AS 38.05.050 is amended to read:
Sec. 38.05.050. Disposal of land for private
ownership. The commissioner shall determine the land
to be disposed of for private use. The commissioner
shall determine the time and place of disposal. A
public [AN] auction sale, sale by sealed bid, a
lottery sale, or a disposal of land for homesites may
be held in a community that is near the land to be
sold or disposed of."
Page 1, line 5:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill sections accordingly.
Page 1, line 10:
Delete "no"
Insert "not [NO]"
Page 3, line 22:
Delete "only be renewed"
Insert "be renewed only"
Page 3, line 23:
Delete "no"
Insert "not"
Page 4, line 5, following "38.05.102,":
Insert "38.05.565,"
Page 5, following line 2:
Insert new bill sections to read:
"* Sec. 10. AS 38.05.075(e) is amended to read:
(e) The commissioner may require
prequalification of bidders for a lease to be issued
under AS 38.05.070. If the commissioner determines to
require prequalification, the procedures established
by this section and the notice including
prequalification [PRE-QUALIFICATION] requirements
required to be given under AS 38.05.945 shall be
completed within 75 days of the receipt of the first
lease application unless the commissioner grants
additional time for the completion of the procedures.
Within the 75-day period or the additional time
granted by the commissioner, the commissioner shall
complete
(1) classification under AS 38.05.300;
(2) the procedures required by
AS 38.05.035(e);
(3) any other action required by law for
the disposal of the lease to a bidder except survey,
appraisal, and the auction or sealed bid.
* Sec. 11. AS 38.05.075(g) is amended to read:
(g) Notice of an auction or sealed bid required
under this section shall be made by certified mail to
all prequalified bidders."
Renumber the following bill sections accordingly.
Page 5, following line 19:
Insert a new bill section to read:
"* Sec. 14. AS 38.05.115 is amended to read:
Sec. 38.05.115. Limitations and conditions of
sale. (a) The commissioner shall determine the timber
[AND OTHER MATERIALS] to be sold [,] and the
limitations, conditions, and terms of sale. The
limitations, conditions, and terms shall include the
utilization, development, and maintenance of the
sustained yield principle, subject to preference among
other beneficial uses. The commissioner may negotiate
sales of timber [OR MATERIALS] without advertisement
and on the limitations, conditions, and terms that are
considered to be in the best interests of the state.
Within a one-year period, the commissioner may not
negotiate a sale without advertisement to the same
purchaser of
[(1)] more than 500 M.B.M. or equivalent
other measure of timber [;
(2) EXCEPT AS PROVIDED IN (3) OF THIS
SUBSECTION, MORE THAN 25,000 CUBIC YARDS OF MATERIALS;
OR
(3) MORE THAN 100,000 CUBIC YARDS OF
MATERIALS TO A COMMON CARRIER HOLDING A LEASE UNDER
AS 38.35].
(b) Negotiated sales not exceeding 50 M.B.M. or
the equivalent other measure of timber [OR 2,500 CUBIC
YARDS OF MATERIALS] are exempt from the provisions of
AS 34.15.150.
(c) The limitations of this section are not
applicable to timber that [WHICH] becomes state
property under the provisions of AS 45.50.210 -
45.50.235."
Renumber the following bill sections accordingly.
Page 6, line 21:
Delete "14A"
Insert "13A"
Page 6, line 22:
Delete "in fee"
Page 7, line 13:
Delete "either"
Page 8, line 15:
Delete "per person within a one calendar year"
Insert "a person within a one-calendar-year"
Page 8, following line 17:
Insert a new subsection to read:
"(f) Notwithstanding (a) - (e) of this section,
for the purpose of creating incentives for the
development of peat as a source of heat or power, the
director may negotiate the sale of peat to
individuals, organized or unorganized communities,
tribal governments, or private profit or nonprofit
organizations. Under this subsection, the director may
provide
(1) for personal use by an individual, not
more than 200 cubic yards of peat a year at no cost;
(2) for commercial use, not more than
30,000 cubic yards of peat during a single 10-year
period at no cost; or
(3) for commercial use requiring more than
30,000 cubic yards of peat, the amount required by the
user during a 10-year period beginning when the user
uses more than 30,000 yards of peat at the price of
(A) 20 percent of the representative
regional sales price determined by the director under
AS 38.05.550(d)(1); or
(B) 20 percent of the fair market value
determined by an appraisal completed under
AS 38.05.550(d)(2), if the applicant provides the
appraisal at the applicant's expense and the appraisal
is approved by the commissioner."
Page 9, line 31:
Delete "section"
Insert "paragraph"
Page 10, line 1:
Delete "such a"
Insert "the"
Page 10, line 4:
Delete "section"
Insert "paragraph"
Page 11, line 3:
Delete "insure"
Insert "ensure [INSURE]"
Page 11, line 7:
Delete "which"
Insert "that [WHICH]"
Page 12, line 12:
Delete "[(i)]"
Page 13, line 16:
Delete "[(A)]"
Page 13, line 28:
Delete "sec. 18"
Insert "sec. 22"
Delete "further"
Page 15, line 23:
Delete "and quarry stone"
Insert "stone, pumice, and common clay"
Page 15, following line 23:
Insert a new bill section to read:
"* Sec. 25. AS 41.23.470(b) is amended to read:
(b) The commissioner may conduct only a
negotiated timber [OR MATERIAL] sale under
AS 38.05.115 to provide for personal use, including
house logs and firewood, or for a use incidental to
the construction of access, or for habitat
enhancement."
Renumber the following bill sections accordingly.
Page 16, line 5:
Delete "Article"
Insert "art."
Page 16, line 7:
Delete "catchline"
Insert "catch line"
Page 16, line 9:
Delete "Section 19"
Insert "Section 23"
Page 16, line 10:
Delete "sec. 23"
Insert "sec. 28"
CO-CHAIR PASKVAN objected for discussion purposes.
4:31:15 PM
CAMERON LEONARD, Assistant Attorney General, Civil Division,
Environmental Section, Department of Law, Anchorage, AK, said he
was available to answer questions on SB 219.
CO-CHAIR WAGONER invited Mr. Menefee to explain the amendment.
MR. MENEFEE explained that the majority of the following
amendments were crafting amendments. The Division of Legislative
Legal found a couple of things that needed to be brought into
conformance and there were a few other more substantial points.
He explained that the bill put all the "Auction and sealed bid"
provisions together for consistency, but a few places were
missed in sections 1, 10, 11 for AS 38.05.050, .075 and .075(g),
so those were modified to say "auction or sealed bid".
4:32:56 PM
Section 14 on page put the "timber sale" back in because it was
accidentally omitted when they removed "material sale" out of
the "timber sale" statutes.
4:33:51 PM
On page 1 another change dealt with pluralizing lease sale
disposal in the title to "leases, sales, and other disposals".
The second item adds "sealed bid" into section 1 in AS.3895.050.
Line 14 was a numbering issue and line 20 was a Legislative
Legal correction from "not" to "no". The next two changes on
page 2 were also from Legislative Legal.
4:34:57 PM
Line 9, page 2, of the amendment would go into page 4, line 5,
of the bill and provides exceptions when land might be sold for
less than the sealed bid amount. A part of AS 38.05.565 deals
with a less than fair market value sale and using the
representative regional sales price instead of the competitive
sales price had to be inserted in the list.
4:36:37 PM
On page 2, "or sealed bid" was added to lines 12 and 27 in
section 10 of .075(e) because it had been omitted. Legislative
Legal also found the "prequalification" spelled without the
hyphen and that was corrected to "pre-qualification".
4:37:22 PM
Language on page 3, line 4, put "and other materials" back into
the timber sale statutes in Section 14. Language on page 3, line
27, starts renumbering per Legislative Legal.
Language on page 3-4 of the amendment refers to page 6, line 22,
of the bill and talks about "all materials owned in fee by the
state" and "in fee" was removed, because the state does not
always own the entire fee simple estate. The idea here was as
long as the state owns the surface estate, it can dispose of the
materials; this clarifies that it doesn't have to be "in fee."
The language on page 7, line 13, was a crafting issue; the same
with the next amendment.
4:37:59 PM
SENATOR FRENCH stated that he felt his "inner Max Gruenberg
coming out" on page 4, lines 6-8, of the amendment addressing
page 8, line 15, of the bill, and wanted to say "per year," but
he would let it go.
4:39:27 PM
MR. MENEFEE moved on to page 4, lines 10-29, of the amendment
that dealt with peat. An amendment in the House incentivized
extracting peat for power and heat production; it also dealt
with private individuals getting 30,000 cubic yards of peat for
the first 10 years for free and 20 percent of the representative
sales or an appraisal price for the second decade - the idea was
to try to incentivize some sort of market to use peat in rural
villages by taking the startup cost part out of the equation.
On the bottom of page 4, top of page 5, "section" was changed to
"paragraph" and was a drafting error. The next statements were
all drafting issues that Legislative Legal said should be
another word.
He asked Ms. Jackson to fill in what Legislative Legal's
response was to the next section.
4:41:51 PM
MARY JACKSON, staff to Senator Wagoner, Alaska State
Legislature, explained that a technical renumbering revision "i"
was made per Legislative Legal on page 12, lines 25-29 where a
new section was inserted on "publication of a legal notice".
4:43:49 PM
MR. MENEFEE said the renumberings on page 5, line 26, were
because other things were renumbered further up. Changing
"quarry stone" to "stone, pumice, and common clay" was done
because they recognized that someone could construe the language
"materials" didn't really mean "pumice and common clay", but
they really want those included and thought it would be clearer
this way.
MR. MENEFEE said line 4, page 6, was another Legislative Legal
issue that referred to "material sales" in the recreation rivers
special designation area and those statutes were changed. The
new "material sales" statutes cover all this, so it's not needed
here. The rest of the amendment was all legislative crafting
issues.
4:46:09 PM
SENATOR WIELECHOWSKI asked him to explain the policy of not
charging anything for commercial use of not more than 30,000
cubic yards of peat during a single 10-year period on page 4,
lines 19 and 20, of the amendment.
MR. MENEFEE replied that this amendment came forward on the
House side and this language matches that. The discussion was at
least one company in rural Alaska (trying to create pellets out
of peat to burn in a stove, he thought) said the cost of
extracting the peat would be too exorbitant to ever start a
business and he proposed no cost for the first 10 year period
switching to 20 percent of either the original representative
sales price or an appraisal for the next 30,000 cubic yards of
peat in the next 10-year period. He reminded them that only one
appraisal had been done on peat, because there was no other peat
extraction to compare it to. So they have to look overseas. The
university did an appraisal and it may have resulted in too high
of a cost to start a business.
CO-CHAIR PASKVAN said then it's not the intent to give free peat
to use for lawns, but just for heating.
MR. MENEFEE clarified that line 13 [page 4] says "development of
peat as a source of heat or power" and it's not just for
personal use, but it could be for something like a school, too.
SENATOR WIELECHOWSKI went to lines 24 and 25 and asked if
getting the first 30,000 cubic yards for free was up to the
discretion of the director. What was the authority to say yours
is free but yours is $1 cubic yard?
MR. MENEFEE replied that these kinds of discretions are based
upon the need of the business that wants to get started. For
instance, somebody needs only 20,000 cubic yards or wants it for
a 12-year period or they only need it for 8 years.
SENATOR WIELECHOWSKI went to lines 24-29 and asked if over
30,000 yards you could get a million yards at 20 percent of the
fair market value.
4:50:58 PM
MR. MENEFEE answered that people do cut peat to use in their
stove, but not commercially. In this situation the volumes seem
large, but idea is if you are going to incentivize and get a
business started where they can regionally market this and start
shipping it around, it needs pretty large volumes. He was
correct that there wasn't an upper limit, but as soon as you
jump over the 30,000 cubic yards of peat in a 10-year period,
you get into this 20 percent category on line 22. Once you get
past that, you're into full price. By that time the idea was
that the market would be established by then and it could be
compared against market values at that point.
SENATOR WIELECHOWSKI asked if any regulations or laws were in
place for cutting peat now on state land - liking mining.
MR. MENEFEE replied not specifically for peat, but even if it's
free, they would still need to get an authorized amount from the
Corps of Engineers for so much peat from such and such a
location and reclaiming instructions. The way .550 is set up
they would have to designate a site as such and go through a
public process asking people if they know peat will be dug out
of the area.
4:53:26 PM
CO-CHAIR PASKVAN said when you extract gravel, peat often gets
extracted with it and he was trying to figure out what he meant
by saying there was no market for peat.
MR. MENEFEE responded when he talks about market he is speaking
specifically to the production of heat and power. He explained
that when a materials site is created it has a certain amount of
overburden that is usually used for reclamation. At times people
have sold that to create other types of organic material for
gardens and such and that doesn't fit this definition of being
used for heat and power. They do have prices for the overburden
if someone starts selling it; it would be a standard material
sale process.
He explained that if you find gravel, you probably don't have
peat, because it is typically created by an anaerobic wet
environment.
CO-CHAIR WAGONER said this amendment was made in the other body
that was looking for ways to create businesses in rural Alaska.
SENATOR WIELECHOWSKI said he didn't know enough about peat, but
it sounded like it could be good for rural communities. However,
30,000 cubic yards for free seemed like a lot.
CO-CHAIR WAGONER explained that his experience with peat was
that thousands or tons of it are eroding into Cook Inlet and
disappear. There is a lot of it and it's not used for much.
SENATOR FRENCH said he shared some of Senator Wielechowski's
concerns.
MR. MENEFEE shared what Representative Dick said: if it never
happens the state hasn't lost anything, but if you don't
incentivize it, a market will never get started and he wanted to
be overly generous in creating a new industry.
SENATOR WIELECHOWSKI said he wouldn't object, but he would find
out more about it.
CO-CHAIR WAGONER found no objection and announced that Amendment
1 was adopted.
SENATOR FRENCH moved Amendment 2.
27-GS2717\A.2
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AMENDMENT 2
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: SB 219
Page 3, line 23, following "lease.":
Insert "The director shall provide public notice
of the lease renewal decision."
CO-CHAIR WAGONER objected for discussion purposes.
SENATOR FRENCH said he didn't think DNR would oppose the
amendment, because it adjusts page 3, line 23, by adding "The
director shall provide public notice of the lease renewal
decision." DNR said it was their intent to provide public
notice, so this just makes it explicit.
CO-CHAIR WAGONER removed his objection and finding no further
objection said Amendment 2 was adopted.
SENATOR FRENCH said he was withdrawing Amendment 27-GS2717\A.3
because it had a drafting error. He noted that it could be
addressed in the next committee.
SENATOR FRENCH moved Amendment 3.
27-GS2717\A.4
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AMENDMENT 3
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: SB 219
Page 1, line 3:
Delete "relating to rights to use state water;"
Page 15, line 24, through page 16, line 1:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "sec. 23"
Insert "sec. 22"
CO-CHAIR WAGONER objected for discussion purposes.
SENATOR FRENCH explained that this makes some significant
adjustments to the bill; however it conforms with amendments
offered in the other body.
5:01:29 PM
CO-CHAIR PASKVAN confirmed that it removed section 21 of version
A on page 15 of the bill as it was removed in House Finance.
MR. MENEFEE said that was correct.
CO-CHAIR WAGONER removed his objection and finding no further
objection said that Amendment 3 was adopted.
5:02:10 PM
SENATOR WIELECHOWSKI moved Amendment 4.
27-GS2717\A.6
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AMENDMENT 4
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: SB 219
Page 6, lines 12 - 13:
Delete ". The department may exempt, by
regulation, small operations from the production
royalty otherwise required by this section"
CO-CHAIR WAGONER objected for discussion purposes.
SENATOR WIELECHOWSKI explained that this amendment deletes two
lines from page 6, lines 12-13. The current provision reads the
department that is contemplated being added may exempt by
regulation small operations from the production royalty
otherwise required by this section. A legislative Legal opinion,
dated April 2, 2012, says in essence that this would violate the
terms of the Statehood Act.
5:03:14 PM
At ease 5:03 to 5:04 p.m.
5:04:03 PM
SENATOR WIELECHOWSKI added that a Legislative Legal Memo, dated
April 2, stated that the Alaska Supreme Court decided that the
leasing requirements in section (6)(i) of the Alaska Statehood
Act considered in the context of the Schools Land Act, the
Mineral Leasing Act and other Statehood Minerals Act and Mineral
Leasing systems in other states mandates a system under which
the State of Alaska must receive rent or royalties for its
mining leases. The decision determined that the state could not
forego or fail to charge and collect rents and royalties. The
court stated that the State Hard Rock Mineral Leasing Laws that
did not require rents or royalties did not meeting the leasing
requirements of section (6)(i). It goes on to say the proposed
amendment to AS 38.05.212(a) apparently provides for a
circumstance where small operations would be exempt from
royalties. Therefore, it is likely to be found to violate the
terms of the Statehood Act and therefore, Amendment 4 simply
removes that provision to stay in compliance with the Statehood
Act.
MR. MENEFEE said they reviewed this with the Department of Law
(DOL), and the exemption was for people who in the end don't pay
royalty anyway because it is based upon net income not on gross
income. That's why they felt it wasn't a violation of the
Statehood Act and it got rid of the paperwork shuffle where
someone is not going to pay royalty. It's not a loss of revenues
to the state; it's the same amount.
MR. LEONARD said that was a good explanation of the intent to
cover operations that weren't paying royalties already because
of their small size, but he couldn't say if that ran afoul of
section (6)(i) or not.
CO-CHAIR PASKVAN asked if there was a limitation on the number
of years someone can report that they are not making any money.
MR. MENEFEE replied that no law could prevent someone from
failing to produce enough income to pay royalty for years on
end. What has happened is that hobby miners can go out and mine,
but they are not getting enough to pay royalty, because they can
deduct their costs for producing that gold. However there are
certain situations, like submerged mining leases, where you have
to produce in paying quantities or the terms will be changed.
5:08:36 PM
CO-CHAIR PASKVAN asked how many people were reporting they
weren't making any money.
MR. MENEFEE replied about 100 or so people.
CO-CHAIR WAGONER related that he had a mining claim on state
forest land, False Creek 1, and his wife remarked that he had
never worked so hard for so little and he they were trying to
address people like that.
SENATOR WIELECHOWSKI said he didn't dispute that, but a Supreme
Court case, the Statehood Act and a Legislative Legal opinion
appear to be right on point, and he didn't know how they could
do this without running afoul of multiple pieces of law.
MR. MENEFEE said this doesn't create additional work and they
were suggesting something that would limit the amount of work.
5:10:52 PM
CO-CHAIR PASKVAN asked if there was a limit for gross expenses
one can declare.
MR. MENEFEE replied that rent and expenses can be counted, but
they have to be justified. He didn't know if large mines had any
sort of cap.
MR. LEONARD said that the statute doesn't provide a cap, but
there is a relatively comprehensive regulatory scheme that
delves into calculating royalties, which he didn't have with
him.
CO-CHAIR PASKVAN said the question was if someone can extract a
thousand ounces and say they didn't make a penny for five years
in a row and the state doesn't get anything.
SENATOR WIELECHOWSKI said his staff just pointed out another
section of (6)(i) of the Statehood Act, which says, "any lands
or minerals hereafter disposed of contrary to the provisions of
this section shall be forfeited to the United States." He said
this amendment clearly violates those provisions and the
consequences appear to be quite severe.
5:14:38 PM
MR. MENEFEE said he understood what he was saying and he
wouldn't dispute the legal opinion.
SENATOR FRENCH said he had spent many hours this session reading
the statehood debates in US Congress, and this was one of the
larger questions that took place in both 1954 and 1957 - about
how the state would gain control of land that was then in the
hands of the US government.
5:16:08 PM
CO-CHAIR WAGONER removed his objection and finding no further
objections announced that Amendment 4 was adopted.
CO-CHAIR PASKVAN asked if the department could estimate the
number of ounces that are extracted that the state receives
nothing on.
MR. MENEFEE answered that they could go the state's royalty
records and find an example where a company starts up the first
year and doesn't produce that much and doesn't pay royalty.
Staff found at about 6 ounces of gold or about $10,000 worth of
income was the threshold where people weren't paying royalty.
CO-CHAIR PASKVAN said he wanted the gross amount that was being
written off per year.
5:18:16 PM
SENATOR FRENCH moved to report SB 219, as amended, from
committee with individual recommendations and attached fiscal
note(s) to next committee of referral. There were no objections
and therefore CSSB 219(RES) moved from the Senate Resources
Standing Committee.
5:18:38 PM
CO-CHAIR WAGONER adjourned the Senate Resources Standing
Committee meeting at 5:18 p.m.
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