Legislature(1997 - 1998)

1998-02-10 Senate Journal

Full Journal pdf

1998-02-10                     Senate Journal                      Page 2465
SB 288                                                                       
SENATE BILL NO. 288 BY THE SENATE RULES COMMITTEE                              
BY REQUEST OF THE GOVERNOR, entitled:                                          

1998-02-10                     Senate Journal                      Page 2466
SB 288                                                                       
An Act relating to contracts with the state                                   
establishing payments in lieu of other taxes by a                              
qualified sponsor or qualified sponsor group for                               
projects to develop stranded gas resources in the                              
state; providing for the inclusion in such contracts                           
of terms making certain adjustments regarding                                  
royalty value and the timing and notice of the                                 
states right to take royalty in kind or in value from                          
such projects; relating to the effect of such contracts                        
on municipal taxation; and providing for an effective                          
was read the first time and referred to the Resources and Finance              
Fiscal notes published today from Department of Natural Resources,             
Department of Revenue.                                                         
Governors transmittal letter dated February 9:                                 
Dear President Miller:                                                         
Today I am transmitting the Alaska Stranded Gas Development Act                
to advance the development of Alaska's vast supply of North Slope              
natural gas. This legislation follows the recommendations of the               
North Slope Gas Commercialization Team which was established by                
legislation last year to build a framework to improve the economic             
feasibility and competitiveness of a North Slope gas project.                  
The bill authorizes the state to negotiate contracts with project              
sponsors to improve the economic feasibility of developing stranded            
gas on the North Slope. Contract payments would replace some or                
all of the state and municipal taxes applicable to the gas project             
including: 1) state and municipal ad valorem property taxes; 2)                
production or severance taxes; and 3) state corporate taxes. The               
state's royalty share of produced gas would not be subject to such a           
contract.  Contract  payments  would be designed to improve project            

1998-02-10                     Senate Journal                      Page 2467
SB 288                                                                       
economics by "back-end loading" tax liabilities to allow project               
investors to begin to recoup some of their investment before facing            
a heavy tax burden. The contract payments would also be designed               
to provide the state with an increased share of the project's revenue          
if energy prices increase or if the sponsors are able to substantially         
decrease anticipated project construction costs.                               
Such contract payments were envisioned in both the House                       
Concurrent Resolution relating to North Slope gas and the gas                  
commercialization team bill passed last year. While the bill is unique         
in many respects, there are precedents for this type of incentive. For         
example, the LNG project on the Kenai Peninsula, which provides                
significant jobs and production and property tax revenue, benefited            
directly from the Alaska Industrial Incentive Act which provided tax           
advantages critical for development.                                           
There are several major benefits to the approach authorized in the             
bill. Fiscal arrangements can be tailored to the specific economics of         
a gas project. Contractual payments are more likely to provide                 
predictability for potential investors in a project. This method also          
addresses the critical element of local taxes by providing a                   
mechanism for ensuring a steady payment stream to municipalities               
over the life of the contract.                                                 
Local hire and the use of local businesses in any project are also             
stressed in the legislation. Employers participating in the project are        
required to advertise locally for available positions, use Alaska job          
service organizations, and employ qualified Alaska residents and               
Alaska-owned businesses to the full extent permitted by law.                   
Any contract negotiated by the Administration would be subject to              
legislative review and public hearing. Additionally, I would                   
encourage the legislature to require legislative approval of a contract        
because of the appropriate role of the legislature in such a unique            
and significant decision. Furthermore, if such a contract in lieu of           
taxes was considered a tax, the legislature may well be required to            
approve such action by law.                                                    

1998-02-10                     Senate Journal                      Page 2468
SB 288                                                                       
The bill recognizes that in the process of negotiating a contract it           
may be necessary to review confidential company data if the state's            
best interests are to be advanced. The bill strikes a balance between          
the public's right to review the basis for the contract and the                
company's right to protect proprietary information from their                  
competitors. Confidentiality of proprietary information is limited to          
items that, if revealed, would both affect a company's competitive             
position and significantly diminish the commercial value of the                
The Stranded Gas Development Act is a critically important step in             
our efforts to realize the benefits of the enormous gas resources on           
the North Slope. While it is true a number of other factors must be            
addressed before a North Slope gas project becomes a reality, such             
as project cost reductions, market conditions, and the need for more           
favorable federal tax laws, this bill lays the necessary groundwork            
for our success. I urge your prompt and favorable action on this               
						Tony Knowles