Legislature(2013 - 2014)BARNES 124
02/21/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Lng Project - Memorandum of Understanding - Heads of Agreement | |
| HB230 | |
| HB300 | |
| HCR15 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 230 | TELECONFERENCED | |
| *+ | HB 300 | TELECONFERENCED | |
| *+ | HCR 15 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 230-AIDEA BONDS FOR PROCESSING FACILITIES
3:47:27 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 230, "An Act allowing the Alaska Industrial
Development and Export Authority to issue bonds for an oil or
gas processing facility; and creating the oil and gas
infrastructure fund to finance construction or improvement of an
oil or gas processing facility."
3:47:45 PM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, as the
prime sponsor, stated that HB 230 moves forward the strategy to
increase oil in the Trans-Alaska Pipeline System (TAPS) and
increase throughput. An impediment to increasing oil in TAPS
has been the difficulty in access to existing processing
facilities, including water and gas constraint within the
handling facilities. Also, companies want to reserve space for
their own product. This bill is to remove these impediments.
3:48:48 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute, (CS) for HB 230 labeled 28-LS1053\U, Martin,
2/10/14, as the working document.
REPRESENTATIVE JOSEPHSON objected for the purpose of discussion.
3:49:16 PM
REPRESENTATIVE SEATON explained that HB 230 would expand the
Alaska Industrial Development and Export Authority (AIDEA). It
are limited to $400 million bonding authority for all of its
projects. He said that oil and gas processing facilities are
expensive, and HB 230 will allow AIDEA to issue up to $200
million in bonds to fund projects without additional legislative
authority. He said this relieves constraint in two ways.
First, it isn't clear under the statutes that AIDEA has
authority to finance oil and gas processing facilities. Second,
it removes the monetary restraint. If the legislature approves
this bonding, it provides authority on a timeline for commercial
operations and accelerates the production of oil from smaller
fields into the pipeline. He stated that the current $10
million limit, in effect, means AIDEA must come back to the
legislature for approval, which means sometimes waiting until
the legislature is in session. Thus, this bill would allow
AIDEA to issue bonds up to $200 million for oil and gas
processing equipment and renovations.
3:51:07 PM
REPRESENTATIVE SEATON explained that HB 230 also creates the
[Oil and Gas Infrastructure Fund to assist in financing oil and
gas processing facilities on the North Slope]. The legislature
may decide to appropriate funds rather than use a bonding
authority. Historically, the state has negotiated with AIDEA
between 10 to 12 percent on bonds so the state will make money
on these loans and the new fund will be the repository of the
earnings, which will be used for oil and gas projects. The
current AIDEA fund can be used for any economic development.
Thus, if the legislature wishes to target the extra bonding
authority, it can do so.
REPRESENTATIVE SEATON stated that the bill defines oil and gas
processing as taking gas molecules out of oil. Additionally, it
allows gas to liquid (GTL) by chemical conversion as opposed to
phase conversion under liquefied natural gas (LNG). This would
make GTL available, necessary due to emission control areas.
Currently the state must import ultra-low sulphur diesel, but it
can be made in Alaska. He pointed out one provision was added
to SB 21 by the House Resources committee last year; however, it
would have required a title change. Additionally, the bill
duplicates the oil and gas [processing facility] tax credit
section for construction or improvement of modules. This
language was included in SB 21 and the tax credit duplicated in
HB 230 to be sure the greatest opportunity for building modules
is in the state. Thus, if modules are manufactured in Alaska
the tax credit will apply. He offered to provide additional
information on the service industry tax credit.
3:54:54 PM
REPRESENTATIVE JOSEPHSON asked whether the sponsor agreed with
the addition of the tax credit language.
REPRESENTATIVE SEATON answered yes. He indicated that a portion
targets Alaska jobs and provides an incentive for building the
modules in Alaska. He pointed out that one smaller operator
could have resulted in more oil in the pipeline if they could
have obtained financing at commercially reasonable terms to
build the facilities in the Matanuska-Susitna valley and truck
them. He acknowledged a number of smaller outfits would be in
line to put oil in the pipeline. He pointed out that processing
facilities don't make money if the company is processing its own
oil. Thus, it's not a profit center so it is more difficult on
a business relationship to build processing facilities than it
is for companies to undergo exploration.
3:56:53 PM
REPRESENTATIVE JOSEPHSON suggested that the tax credit is
designated for smaller independents. He asked whether larger
companies can use the credits.
REPRESENTATIVE SEATON answered that nothing limits the tax
credits to smaller companies. He explained that these tax
credits are not designed for projects the size of LNG plants.
However, if there was the necessity for larger companies to
renovate facilities they could approach AIDEA. Typically, the
large producers generally have better access to capital than
smaller outfits and AIDEA performs due diligence. He deferred
to AIDEA with respect to due diligence.
3:58:23 PM
REPRESENTATIVE JOSEPHSON related his understanding that the
conventional wisdom is that access problems for existing
processing facilities are access problems for independents. It
seems fairly circular. He said the controversy is whether the
"big three" are allowing access so to allow them to benefit from
the credit seems to exacerbate it.
REPRESENTATIVE SEATON clarified that this tax credit is not for
production; instead it is a "qualified oil and gas service
industry expenditure credit." The tax credits would apply if
molecules are built in Alaska instead of Japan. This credit is
exactly the same as the credit approved in SB 21 to incentivize
building facilities in Alaska, creating jobs in Alaska, and
driving Alaska's economy. He said that the combination cannot
exceed $10 million a year. Thus, this provision does not
provide an additional credit. In the event that SB 21 is
repealed, it would still allow stimulation of Alaska hire and
building modules in Alaska, he said.
4:00:33 PM
REPRESENTATIVE JOSEPHSON withdrew his objection. There being no
further objection, Version U was before the committee.
REPRESENTATIVE CHENAULT commented that Representative Seaton is
a man of many hats. He explained that in terms of access to
facilities a limitation exists. He described the oil process,
such that when a field is developed the initial oil wells
produces significant oil, a little gas, and water. As time goes
on, the percentages change, and sometimes wells can produce up
to 95 percent water. He pointed out that sometimes even major
oil companies are limited by the capacity of the facility itself
and by composition changes as the wells age. He said that the
facilities are expensive to build and operate and agreed that
this bill is not a "bad" bill.
CHAIR OLSON acknowledged many people would agree with him.
4:02:55 PM
REPRESENTATIVE JOSEPHSON asked about the maximum tax credits.
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), deferred to the expertise of the
Department of Revenue (DOR) to respond the question.
4:03:41 PM
REPRESENTATIVE JOSEPHSON asked whether it would be at the
discretion of AIDEA's board on whether to issue bonds.
MR. LEONARD misunderstood the question, noting he thought that
he was asking about tax credits.
4:04:21 PM
REPRESENTATIVE JOSEPHSON wondered whether the financing was
statutorily mandated or if the board meets. He acknowledged
that the LNG trucking was mandated, but he was trying to
understand whether this bill would operate under the AIDEA
board's discretion.
MR. LEONARD responded that under AIDEA's current statutes, AIDEA
invests in projects through direct financing or owning a portion
of a project. The board goes through a due diligence phase and
during the review process on projects decides what type of
capital structure will work and if it will issue bonds for a
project. Under the current statue anything over $10 million is
subject to legislative approval prior to the board issuing
bonds. He explained that the authority by the legislature is
not a mandate, but rather the legislature grants authority to
issue bonds. The AIDEA still goes through its complete due
diligence phase. Before AIDEA would issue bonds, the AIDEA
board will first approve the project and per statute identify a
finance plan to repay the bonds. In reality this bill would
increase the authority to issue up to $200 million in bonds,
which avoids the necessity for AIDEA to request bonding
authorization from the legislature every time the board might
consider investing in a facility.
4:06:54 PM
REPRESENTATIVE JOSEPHSON said he was curious how generous the
credits could become; however, he certainly liked the policy.
4:07:56 PM
REPRESENTATIVE JOSEPHSON asked how much the state would forego
in taxing authority if the potential for tax credits were
issued.
MATT FONDER, Director, Anchorage Office, Tax Division,
Department of Revenue (DOR), admitted he has just seen Version U
containing the tax credits this afternoon. He offered his
belief that bonding and tax credits are separate issues.
Proposed Sec. 2 and AS 43.20, the corporate income tax section,
set forth a new credit for oil and gas processing facilities.
He viewed the bonding and the tax credit as separate issues.
4:08:54 PM
REPRESENTATIVE JOSEPHSON asked if he could predict how many
people could take advantage of these credits.
MR. FONDER answered that "at first blush" the way the language
appears it could include any company with an oil and gas
processing facility on the North Slope, any company that would
like to build one, and any company working on an oil and gas
processing facility. Thus, it could be an oil and gas producer
or service provider on any of those facilities.
REPRESENTATIVE JOSEPHSON said he didn't know what the answer is
but he thanked Mr. Fonder.
REPRESENTATIVE SEATON explained the tax credit mirrors existing
law. He stated that SB 21 passed the legislature last year with
this language - 10 percent of the qualified oil and gas service
industry expenditures during the tax year or $10 million,
whichever is less. This bill includes language that this
existing tax credit can't be combined. He reiterated that this
is not a new tax credit; he just wanted to make sure that no
matter what the outcome of the [upcoming] referendum is, that
the tax credit to stimulate production of facilities in Alaska
will remain the same and will remain in place.
4:10:55 PM
REPRESENTATIVE JOSEPHSON said that Representative Seaton was
clear. He related his understanding that the projections by the
Office of Management & Budget and DOR projects under SB 21 would
continue regardless of the outcome of the August referendum.
REPRESENTATIVE SEATON answered yes.
4:11:36 PM
CHAIR OLSON said he would keep public testimony open.
[HB 230 was held over.]