00                       CS FOR HOUSE BILL NO. 57(O&G)                                                                     
01 "An Act amending the manner of determining the royalty received by the state on gas                                     
02 production as it relates to the manufacture of certain value-added products."                                           
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1.  AS 38.05.180(aa) is amended to read:                                                                 
05            (aa)  Within 90 days after the written request of a lessee of a lease issued under                           
06       this section or of a lessee of federal land from which the state is entitled under                                
07       applicable federal law to receive a share of the royalty on gas production, the                                   
08       commissioner shall enter into an agreement with the lessee to use or accept the price                             
09       for the gas established in the contract between the lessee and a gas or electric utility,                     
10       or between the lessee and a manufacturer of agricultural chemicals, as                                        
11       appropriate, as the value of the state's royalty share of gas production sold by the                          
12       lessee under the contract                                                                                         
13                 (1)  but only if                                                                                        
14                      (A)  for a contract between the lessee and a gas or electric                                   
01            utility, the primary function of the utility with which the lessee has entered                           
02            into the contract is to provide, either directly or by selling at wholesale to                               
03            another utility, gas or electricity to the general public, including residential                             
04            consumers, within the utilities' service areas, and the utility with which the                               
05            lessee has entered into the contract is not an affiliated interest, as that term is                          
06            defined in AS 42.05.990, with the lessee or with a subsequent purchaser of                                   
07            more than 10 percent of the utility's gas or electricity; or                                             
08                      (B)  for a contract between the lessee and a manufacturer of                                   
09            agricultural chemicals, the primary function of the manufacturer is to                                   
10            engage in the production of a value-added product, and the manufacturer                                  
11            with which the lessee has entered into the contract is not affiliated with the                           
12            lessee or with a subsequent purchaser of more than 10 percent of the                                     
13            manufacturer's value-added product; for purposes of this subparagraph,                                   
14            the parties to a contract or purchase are affiliated if, in the judgment of                              
15            the commissioner, one of the parties to the contract or purchase exercises                               
16            substantial influence over the policies and actions of the other as                                      
17            evidenced by relationship based on common ownership or family interest                                   
18            or by action taken in concert without regard to whether that influence is                                
19            based upon stockholdings, stockholders, officers, or directors; and                                      
20                 (2)  unless the commissioner makes a written finding, based on clear                                    
21       and convincing evidence, that                                                                                     
22                      (A)  the contract price is unreasonably low;                                                       
23                      (B)  the prospective reduction in royalty receipts would not be                                    
24            balanced in a contract entered into for a circumstance described                                         
25                           (i)  in (1)(A) of this subsection by increased benefits to                                
26                 in-state gas and electric consumers; or                                                             
27                           (ii)  in (1)(B) of this subsection by employment                                          
28                 opportunities or other tangible benefits to the state;                                              
29                      (C)  the lessee and the utility or manufacturer of agricultural                                
30            chemicals, as appropriate, are related in management, ownership, or other                                
31            aspect; and                                                                                                  
01                      (D)  the contract price is not in the best interest of the state.                                  
02    * Sec. 2.  AS 38.05.180(bb)(2) is amended to read:                                                                 
03                 (2)  "price for the gas established in the contract" includes tax                                       
04       reimbursement amounts, deliverability and other charges, and other forms of                                       
05       consideration paid by the gas or electric utility or by the manufacturer of                                   
06       agricultural chemicals, as appropriate, under the contract;                                                   
07    * Sec. 3.  AS 38.05.180(bb) is amended by adding a new paragraph to read:                                          
08                 (4)  "manufacturer of agricultural chemicals" means a person that is a                                  
09       business entity primarily engaging in the manufacturing of nitrogenous and phosphatic                             
10       based fertilizers, mixed fertilizers, pesticides, and similar chemicals for agricultural                          
11       purposes.