00 CS FOR HOUSE BILL NO. 519(RES) 01 "An Act authorizing priority treatment under the Right-of-Way Leasing Act for an 02 Alaska North Slope natural gas project; expanding the scope for the kinds of gas 03 development projects that may become qualified projects under the Alaska Stranded 04 Gas Development Act to natural gas projects, including an Alaska North Slope natural 05 gas pipeline and any spurs; extending the deadline for submitting applications under the 06 Alaska Stranded Gas Development Act; exempting an Alaska North Slope natural gas 07 project from state and municipal property taxes during construction; and providing for 08 an effective date." 09 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 10 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 11 to read: 12 FINDINGS AND INTENT. The legislature finds that 01 (1) a vast quantity of gas in Alaska is currently stranded from commercial 02 development, in part due to the cost associated with providing access to markets for that gas; 03 the Alaska North Slope has the largest known discovered natural gas resources, estimated to 04 be 35 trillion cubic feet, in the United States and has undiscovered gas resources estimated to 05 be in excess of 100 trillion cubic feet; 06 (2) demand for natural gas in the lower 48 states is expected to experience 07 record growth; the lower 48 states have an inadequate resource base to meet this expected 08 demand, and there is an urgency to make an Alaska natural gas pipeline project move forward 09 to fill this gap with North American gas rather than with gas from uncertain sources overseas; 10 (3) it is important for the United States to have a reliable and affordable source 11 of domestic natural gas for energy for its economy, for the well-being of its citizens, for the 12 growth of its businesses, and for the national security; 13 (4) the North Slope of Alaska is one of the few known locations in the United 14 States that can supply significant natural gas supplies to the lower 48 states for years to come; 15 (5) during the past three decades, several companies and entities have studied 16 different ways to commercialize Alaska North Slope gas and have been unsuccessful in 17 identifying an economic project; most recently, the three major producers, through their 18 Alaska Gas Producers Pipeline Team, have studied a southern route approximately following 19 a route along the Trans Alaska Pipeline System from Pump Station One to Delta Junction and 20 along the Alaska Highway through Alaska and Canada to the lower 48 states and a northern 21 route off the shore of the Arctic National Wildlife Refuge in the Beaufort Sea, and have 22 concluded that neither is sufficiently economic, given the magnitude of the risks associated 23 with the project; however, at least one producer has indicated a willingness to proceed further 24 if federal and state enabling legislation with provisions to mitigate long-term natural gas price 25 risks and for fiscal certainty and incentives is enacted; 26 (6) the major producers have proposed new federal enabling legislation that 27 they believe will expedite the construction and operation of a natural gas pipeline from the 28 North Slope to the lower 48 states; 29 (7) in addition to the state's receipt of revenue from taxes and royalties, 30 Alaskans will benefit from the commercialization of Alaska North Slope natural gas through 31 opportunities for in-state use of the natural gas and for participation by Alaskans in 01 construction, maintenance, and operation of a natural gas pipeline project; 02 (8) because of the high cost of providing access to markets for Alaska North 03 Slope gas, exploration efforts on the North Slope have historically focused on oil; recently, 04 some companies have expressed interest in gas exploration; if the infrastructure needed to 05 provide access to market for Alaska North Slope gas were available, new gas exploration 06 efforts might be initiated on the Alaska North Slope and in other basins that currently remain 07 largely unexplored for oil and gas; it is vital to the State of Alaska that there be continued and 08 robust exploration and development of natural gas resources on the Alaska North Slope; 09 (9) Alaskans need a portion of the gas from a natural gas pipeline project for 10 in-state use; however, it is unlikely that markets will develop within the state that would need 11 more than a relatively small portion of the volume of gas already discovered on the Alaska 12 North Slope; it is vital for economic development that Alaska communities and businesses 13 have access under fair and reasonable terms to the pipeline for in-state use of Alaska North 14 Slope natural gas; 15 (10) the construction and operation of a natural gas pipeline in the state and 16 the sale of Alaska North Slope gas is critical to the health and welfare of the state; 17 (11) for a natural gas pipeline project to become economically viable and 18 competitive, the estimated costs of constructing the project and the associated financial risk 19 must be reduced significantly; changes in the local, state, and federal tax structure may also be 20 necessary to make commercialization of the gas resources economically viable by, in part, 21 structuring tax and royalty incentives related to the project and providing as much clarity and 22 certainty as possible regarding the taxes that would apply to a project throughout its life; 23 (12) art. IX, sec. 4, Constitution of the State of Alaska, empowers the 24 legislature to create tax exemptions by general law, and the creation of tax exemptions to 25 make Alaska North Slope gas commercially viable and competitive is consistent with the 26 legislature's responsibility under art. VIII, sec. 2, Constitution of the State of Alaska; 27 (13) good faith efforts by producers and other companies engaged in the 28 design, construction, and operation of the natural gas pipeline voluntarily to provide 29 employment opportunities for Alaska residents and opportunities for Alaska businesses are in 30 the long-term interests of the state; 31 (14) there has been a history of costly disputes between producers of oil and 01 the state over the determination of the production taxes due for oil produced and sold, in part 02 because of disputes over the definition of terms pertinent to the calculation of the tax; 03 (15) it is in the state's best interest to provide clarity and certainty to the 04 process of determining a producer's tax and royalty liability, AS 43.82 (Alaska Stranded Gas 05 Development Act) provides, among other provisions, in AS 43.82.020, 43.82.200, and 06 43.82.210, mechanisms for the state and the sponsor of a North Slope natural gas pipeline 07 project to negotiate a contract that could provide that clarity and certainty and resolve other 08 important issues, including accommodating the interests of affected municipalities. 09 * Sec. 2. AS 38.35 is amended by adding a new section to read: 10 Sec. 38.35.240. Expeditious priority treatment by state officials and 11 agencies in support of development and construction of an Alaska North Slope 12 natural gas project under this chapter. (a) In the development and construction of 13 an Alaska North Slope natural gas project that requires the grant of a right-of-way 14 lease under this chapter, every state official and agency shall give full cooperation to 15 the commissioner, or to any official to whom delegation of the authority of the 16 commissioner is made by or under law, consistent with the provisions of the law 17 administered by the official or agency, by issuing or granting necessary permits, 18 certificates, authorizations, and similar actions required to be taken at the earliest 19 practicable date, with action to be taken on an expedited basis and, notwithstanding 20 any other provision of law, having precedence over any like matter pending before the 21 official or agency. 22 (b) In this section, "Alaska North Slope natural gas project" has the meaning 23 given to "North Slope natural gas pipeline" in AS 38.35.120(a)(1)(B), and related 24 facilities, to be constructed to follow generally a route that parallels the Trans Alaska 25 Pipeline System and the Alaska Highway to the Canadian border, or to tidewater for 26 liquefied natural gas, and any spur lines to serve people in the state, to transport 27 natural gas derived from the area of the state lying north of 64 degrees North latitude. 28 * Sec. 3. AS 43.56.020(a) is amended to read: 29 (a) The following are exempt from local taxes levied or authorized under 30 AS 43.56.010(b): 31 (1) property rights attached to or inherent in the right to explore for or 01 produce oil or gas; 02 (2) oil or gas leases or properties, whether producing or not; 03 (3) oil or gas in place; 04 (4) oil or gas produced or extracted in the state; 05 (5) the value of intangible drilling expenses and exploration expenses; 06 (6) an interest in property described in AS 43.55.017(a); 07 (7) an interest in taxable property that is part of an Alaska North 08 Slope natural gas project, whether or not, under AS 43.82, the project has been 09 determined by the commissioner of revenue to meet the requirements of 10 AS 43.82.100, from the project's construction commencement date, as determined 11 by the commissioner, until December 31 of the second calendar year after the 12 calendar year in which the project is placed in service; for purposes of this 13 paragraph, "Alaska North Slope natural gas project" has the meaning given in 14 AS 38.35.240. 15 * Sec. 4. AS 43.56.020(b) is amended to read: 16 (b) There is exempt from state taxes levied or authorized under 17 AS 43.56.010(a), 18 (1) before the construction commencement date, property that is 19 committed by contract or other agreement for use in this state primarily for the 20 production or pipeline transportation of gas or unrefined oil, or in the operation or 21 maintenance of facilities for the production or pipeline transportation of gas or 22 unrefined oil; and 23 (2) taxable property described in (a)(7) of this section, subject to 24 the procedures set out in (d) of this section. 25 * Sec. 5. AS 43.56.020 is amended by adding new subsections to read: 26 (d) For the Alaska North Slope natural gas project, the exemptions provided in 27 (a)(7) and (b)(2) of this section do not apply unless a taxpayer, or a person acting 28 under contract with the taxpayer or the project's sponsor, 29 (1) complies with all relevant requirements of 15 U.S.C. 717z (Natural 30 Gas Act) and 15 U.S.C. 719 - 719o (Alaska Natural Gas Transportation Act of 1976), 31 as applicable to the project; 01 (2) complies with all valid federal, state, and municipal laws relating to 02 hiring Alaska residents and contracting with Alaska businesses to work in the state in 03 the design, construction, and operation of the project to the extent the residents and 04 businesses are available and qualified; 05 (3) advertises for available positions in newspapers in the location 06 where the work is to be performed and in other publications distributed throughout the 07 state, including in rural areas, and uses Alaska job service organizations located 08 throughout the state and not just in the location where the work is to be performed in 09 order to notify Alaskans of work opportunities on the project; 10 (4) to the extent permitted by law, encourages the owner's contractors 11 to train and subsequently to hire state residents; 12 (5) recruits, to the extent permitted by law, and employs state residents 13 as workers on available jobs; the owner shall prepare and submit to the commissioner 14 of labor and workforce development 15 (A) on an annual basis, a report that sets out in detail the 16 specific measures that the owner and the owner's contractors have taken or are 17 planning to take 18 (i) to recruit qualified state residents for available jobs 19 and that describes job training opportunities; and 20 (ii) to use Alaska businesses; 21 (B) on a quarterly basis, a report concerning the use of state 22 residents, including the number of residents hired or employed during the 23 previous period; 24 (6) makes, to the extent permitted by law, reasonable efforts 25 (A) to employ Alaska firms that are available and qualified to 26 perform engineering and construction services; and 27 (B) to fabricate or manufacture in the state needed gas 28 production and pipeline modules and other facilities. 29 (e) The provisions of (d) of this section do not create or abridge individual 30 rights and do not create a private right of action or claim by any person. 31 * Sec. 6. AS 43.56.030 is amended to read: 01 Sec. 43.56.030. In place of other taxes. Except for those taxes imposed 02 under AS 43.55, the taxes levied or authorized under AS 43.56.010(b) are in place of 03 all other 04 (1) [ALL OTHER] ad valorem taxes or other taxes imposed by a 05 municipality on property subject to tax under this chapter or exempted from taxation 06 by AS 43.56.020; and 07 (2) [ALL OTHER] taxes imposed by a municipality on or with respect 08 to the property subject to tax under this chapter or exempted from taxation by 09 AS 43.56.020, including, but not limited to, 10 (A) taxes on the retail sale or use of the property except for the 11 retail sales tax on the first $1,000 of each sale; however, the exception for 12 retail sales or use taxes on the first $1,000 of each sale does not apply to a 13 retail sale or use involving property used or committed by contract or 14 other agreement for use in the development, construction, operation, or 15 maintenance of an Alaska North Slope natural gas project as that term is 16 defined in AS 38.35.240; 17 (B) taxes on the sale or use of gas or unrefined oil; 18 (C) taxes on the sale or use of services used in or associated 19 with the property or in its maintenance or operation except for the sales tax on 20 the first $1,000 of each sale; however, the exception for retail sales or use 21 taxes on the first $1,000 of each sale does not apply to a retail sale or use 22 involving services used in or associated with the property used or 23 committed by contract or other agreement for use in the development, 24 construction, operation, or maintenance of an Alaska North Slope natural 25 gas project as that term is defined in AS 38.35.240; 26 (D) taxes on or measured by gross or net income from the 27 property, including income from the exploration for, production of, or pipeline 28 transportation of gas or unrefined oil or property; and 29 (E) any license, excise, fee, charge, or other tax on or 30 pertaining to the property or services. 31 * Sec. 7. AS 43.56.210(2) is amended to read: 01 (2) "construction commencement date" means, for property subject 02 to tax under this chapter used in the exploration for, production of, or pipeline 03 transportation of unrefined oil through a facility the construction of which was 04 begun before April 1, 1974, the earlier of April 1, 1974, or the date the following 05 occur, and, for property subject to tax under this chapter used in the exploration 06 for, production of, or pipeline transportation of North Slope natural gas through 07 an Alaska North Slope natural gas project, as that term is defined in 08 AS 38.35.240, the date on which all of the following have occurred: 09 (A) there has been issued to the owner or an agent of the owner 10 right-of-way permits, leases, and title and other rights in land, and other 11 approvals, permits, licenses, and certificates, by federal, state, and local 12 agencies that a reasonable and prudent person would consider adequate to 13 commence construction of the facilities in the expectation that all other 14 approvals, permits, licenses, and certificates necessary for the completion of 15 facilities will be obtained; 16 (B) all approvals, permits, licenses, and certificates are in full 17 force and effect, unrevoked and without any modification that might jeopardize 18 the completion or continued construction of the facilities; and 19 (C) no order, judgment, decree, determination, or award of a 20 federal, state, or local court or administrative or regulatory agency enjoining, 21 either temporarily or permanently, the construction or the continuation of 22 construction of the facilities is in effect; 23 * Sec. 8. AS 43.82.100 is amended to read: 24 Sec. 43.82.100. Qualified project. Based on information available to the 25 commissioner, the commissioner may determine that a proposal for new investment is 26 a qualified project under this chapter only if the project 27 (1) is a project that principally involves 28 (A) the transportation of natural gas by pipeline to one or 29 more markets outside the state, including an Alaska North Slope natural 30 gas project as that term is defined in AS 38.35.240; or 31 (B) [FOR] the export of liquefied natural gas from the state to 01 one or more other states or countries; 02 (2) would produce at least 500,000,000,000 cubic feet of stranded gas 03 within 20 years from the commencement of commercial operations; and 04 (3) is capable, subject to applicable commercial regulation and 05 technical and economic considerations, of making gas available to meet the reasonably 06 foreseeable demand in this state for gas within the economic proximity of the project. 07 * Sec. 9. AS 43.82.170 is amended to read: 08 Sec. 43.82.170. Application deadline. The commissioner of revenue or the 09 commissioner of natural resources may not act on an application for a contract 10 submitted under AS 43.82.120 unless the application is received by the Department of 11 Revenue no later than June 30, 2005 [2001]. 12 * Sec. 10. The uncodified law of the State of Alaska is amended by adding a new section to 13 read: 14 RETROACTIVITY. Sections 8 and 9 of this Act are retroactive to July 1, 2001. 15 * Sec. 11. Sections 3 - 7 of this Act are effective January 1, 2003. 16 * Sec. 12. Except as provided in sec. 11 of this Act, this Act takes effect immediately under 17 AS 01.10.070(c).