SB 85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT  CO-CHAIR WAGONER announced the consideration of SB 85. [Version 27-LS0484\E was before the committee.] 3:32:41 PM CO-CHAIR PASKVAN moved to withdraw version E and adopt CSSB 85, labeled 27-LS0484\X ("version X"), as the working document. CO-CHAIR WAGONER objected for discussion purposes. 3:33:26 PM MICHAEL PAWLOWSKI, staff to Senator McGuire, stated that CSSB 85, version X, makes two substantive changes. The first is in Section 2, page 2, lines 2-4. The timeframe for the Sec. 43.55.026 development cost credit was changed to within 24 months after completion of the first development well for a qualifying pool, lease or property. This responds to the earlier concern that the way the credit was established could have incentivized producers to delay the beginning of production. 3:34:10 PM The second substantive change is the addition of new sections 3 and 4. Section 3 amends AS 43.55.160(a), on page 3, lines 17-18, by referring to a new subsection (f) in AS 43.55.160. Section 4, [page 5, line 31 through page 6, lines 1-5,] adds the new subsection (f). It increases the production tax value by the value of the development cost credit under Sec 43.55.026. This addresses the concern that qualified development expenditures could be deducted from a person's tax liability, which would essentially overcome the sponsor's intent of a 100 percent limit on the credit. MR. PAWLOWSKI said the other changes are largely conforming, and based on moderate language suggestions by the Department of Revenue (DOR). One of the most important is on page 2, line 16. The development cost credit under Sec. 43.55.026 is 100 percent of the qualified capital expenditures less other credits that a producer would get under the current tax system. Now the exploration credits under Sec 43.55.025 are included in the calculation. If there is delineation work after the first development well is drilled, this ensures that credit, too, will be subtracted in determining the 100 percent. Sections 6, 7, and 8 were renumbered to accommodate the new sections. SENATOR FRENCH asked if he had an estimate on the fiscal impact of the changes. MR. PAWLOWSKI answered no, but subsection (g), on page 3, lines 2-7, tightens the allocation language to clarify that the credit earned under Sec. 43.55.026 can offset a person's tax liability proportional to the volume of oil and gas produced that is attributable to the pool or lease from which the credit was earned. The goal is that the tax credit is only usable on revenue the state isn't getting under current production. 3:37:44 PM SENATOR WIELECHOWSKI joined the committee. SENATOR FRENCH mused that this does a good job of ring-fencing the credit, and he appreciates the focus. CO-CHAIR WAGONER asked Senator McGuire to discuss Section 6. SENATOR MCGUIRE asked the members to review the bill in detail to better prepare to respond to those people who believe that modification of the fiscal system is in order. She noted that the Senate version of the bill does not have a progressivity element, but it could be added. She emphasized that the Senate is listening and that her goal is to ensure that Alaska remains the number one oil and gas province in the nation. Tweaking the tax code isn't difficult for her to accept, and this should be the committee that is expert at doing that. 3:41:19 PM SENATOR MCGUIRE explained that the proposal in Section 6 is to establish an "Oil and Gas Competitiveness Review Board" to maintain focus on the single largest revenue source that supports the state. This board will consist of nine members: one senator appointed by the president of the Senate; one representative appointed by the speaker of the House of Representatives; five public members appointed by the governor, including one petroleum engineer, one geologist, one economist, and one who is a member of an environmental or conservation group; the commissioner of natural resources or their designee; and the commissioner of revenue or their designee. The legislative members will be co-chairs and each member will serve for the duration of the Legislature during which he or she is appointed. Each public member will serve three years and may be reappointed. Vacancies will be filled in the manner of the original appointment. Board members may be replaced at the discretion of the person appointing that member. Public members will not be compensated, but will receive per diem and travel expenses, as authorized for boards and commissions under AS 39.20.180. The board may contract for professional services and may hire administrative support staff. 3:44:44 PM SENATOR MCGUIRE said the duties of the board set out in Sec. 44.99.610 are based on what the Province of Alberta did, when it assessed the competitiveness of the province in terms of its fiscal and regulatory regime. The board will be tasked with reviewing the historical, current, and potential levels of investment in the state's oil and gas sector on an ongoing basis. Alaska currently does not have the necessary data in one readily accessible location. The board will also identify factors that affect investment in oil and gas exploration, development, and production in this state, including the tax structure, rates, and credits; royalty requirements; infrastructure; workforce availability; and regulatory requirements. She explained that this is meant to compliment Alaska's Clear and Equitable Share (ACES), and to highlight the need to have a board that is continually tracking the state's overall competitiveness. The board will review the competitive position of the state to attract and maintain investment in the oil and gas sector as compared to the competitive position of other regions with oil and gas resources. She referenced the Wood Mackenzie report and emphasized that members should be continually tracking the updates to see how Alaska compares on a worldwide basis. Another duty of the board will be to establish procedures to accept and keep confidential information that is beneficial to the work of the board. This includes creating a secure data room and confidentiality agreements that will be signed by individuals that have access to the confidential information. 3:50:47 PM The board will make written findings, recommendations and suggest legislation before December 1 of each year regarding: changes to the state's regulatory environment that would encourage investment while protecting the interests of the people and the environment; changes to the state's fiscal regime to encourage new and ongoing long-term investment and development of the state's oil and gas resources; and alternative means for increasing the state's ability to attract and maintain investment and development of the state's oil and gas resources. SENATOR MCGUIRE said Sec. 44.99.620 states that all commissioners who are responsible for information related to oil and gas investment and activity in this state shall provide any information that the board requires to carry out its duties. She noted that legislation passed last year that directed the Department of Natural Resources (DNR) to give a license on the instate line returned great dividends. Except for information that is confidential under AS43.05.230, a commissioner may disclose information to the board that is otherwise confidential. SENATOR MCGUIRE welcomed suggestions with regard to Section 6 and opined that regardless of the viewpoint, Alaska is well behind the times in adopting some sort of board to assess the its competitiveness. She directed attention to a March 2011 report by Commonwealth North urging a competitiveness review. CO-CHAIR WAGONER announced he would hold SB 85 in committee.