04/04/2018 01:00 PM House RESOURCES

        HB 397-SURCHARGE ON CRUDE OIL;ARCTIC TRANS. FUND                                                                    
                                                                                                                                
                                                                                                                                
7:16:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR announced that the  next order of business would be                                                               
HOUSE  BILL NO.  397,  "An Act  relating to  a  surcharge on  oil                                                               
produced  in the  state; establishing  the Arctic  transportation                                                               
and resource access fund; and providing for an effective date."                                                                 
                                                                                                                                
7:16:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL  SEATON, Alaska State Legislature,  read from                                                               
the  "Letter of  Intent for  HB 397,"  included in  the committee                                                               
packet, as follows [original punctuation provided]:                                                                             
                                                                                                                                
     It  is the  intent  of the  committee  in creating  the                                                                    
     Arctic Transportation  and Resource Access  Fund (ATRA)                                                                    
     that the initial project funded  from the fund will aid                                                                    
     in  the  construction  of  approximately  15  miles  of                                                                    
     gravel  road  from  the  Colville  River  East  to  the                                                                    
     Kuparek  [sic]  road   network,  replacing  the  annual                                                                    
     temporary ice road.                                                                                                        
                                                                                                                                
     Furthermore,  it is  the intent  of the  committee that                                                                    
     commercial  tolls be  collected  from the  use of  this                                                                    
     road. All  tolls collected will  be deposited  into the                                                                    
     ATRA fund.  Proceeds from these  tolls are  intended to                                                                    
     be  used to  offset future  state maintenance  costs of                                                                    
     this  initial  project,  as well  as  construction  and                                                                    
     maintenance  costs of  other projects  constructed from                                                                    
     this fund source.                                                                                                          
                                                                                                                                
REPRESENTATIVE  SEATON  explained that  the  goal  is to  improve                                                               
efficiency on the North Slope; yet,  a fund source is needed.  He                                                               
stated that  the 9  per barrel  charge on all oil  refined in the                                                               
U.S. was  terminated as of  January 1,  2018.  He  suggested that                                                               
during  the  time the  federal  government  puts this  charge  in                                                               
abatement, the state  could collect the 9  per barrel  and put it                                                               
into a fund used to improve the efficiencies on the North Slope.                                                                
                                                                                                                                
REPRESENTATIVE  SEATON continued  with  the use  of a  PowerPoint                                                               
presentation,  entitled "HB  397 Surcharge  on Crude  Oil; Arctic                                                               
Trans Fund," dated  4/4/18 and included in  the committee packet.                                                               
Referring  to  slide  2,  entitled  "HB  397  -  Background,"  he                                                               
reiterated that the  federal 9  per barrel tax  at the refineries                                                               
applies to all  oil refined in the U.S.  and, therefore, includes                                                               
Alaska oil.   The funds are deposited into the  federal Oil Spill                                                               
Liability Trust Fund (OSLTF), which  is used for cleanup; the tax                                                               
generates about  $500 million  per year;  and the  fund currently                                                               
contains about $5.7  billion.  He offered that  since the federal                                                               
government  has abated  the fund,  it  is a  potential source  of                                                               
funding for Alaska - generating about $16 million per year.                                                                     
                                                                                                                                
REPRESENTATIVE SEATON turned to slide  3, entitled "HB 397 - What                                                               
the  bill does,"  and relayed  that the  proposed legislation  is                                                               
proactive  and was  drafted after  the federal  government abated                                                               
its  program.     The  intent   was  to  collect   the  surcharge                                                               
retroactively and cease  to collect it if  the federal government                                                               
reinstated  the tax.   He  continued by  saying that  the federal                                                               
program was reauthorized effective  March 1, 2018.  Consequently,                                                               
a  committee  substitute  (CS)   was  introduced,  which  has  no                                                               
retroactivity or transition.   The CS states that  in the future,                                                               
if  the federal  government stops  collecting the  surcharge, the                                                               
state  would collect  the surcharge  for as  long as  the federal                                                               
government is  not collecting  it; or  if the  federal government                                                               
does not collect  the full 9  per barrel, the  state will collect                                                               
the balance.   He added  that HB  397 would establish  the Arctic                                                               
Transportation  and Resource  Access Fund  (ATRA) to  be used  to                                                               
improve efficiency on the North Slope.                                                                                          
                                                                                                                                
7:21:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON turned  to  slide 4,  entitled  "HB 397  -                                                               
History  of  Federal  Fund,"  and pointed  out  the  sunsets  and                                                               
reinstatements of  the fund to  demonstrate the potential  for an                                                               
on-and-off source  of money for  Alaska.   He said that  with the                                                               
low oil  company taxes that  Alaska receives currently,  there is                                                               
no [other]  source of money for  Alaska to invest [in  the fund].                                                               
He  stated  that  the  U.S.   Bipartisan  Budget  Act  [of  2018]                                                               
temporarily reinstated the tax effective  March 1, 2018; however,                                                               
the tax expires December 31, 2018.                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON  turned to the  graph on slide  5, entitled                                                               
"Projected  Revenue," to  demonstrate the  projected revenue  for                                                               
Alaska under the proposed legislation,  if the federal program is                                                               
not reinstated beyond December 31,  2018.  He maintained that the                                                               
charges and  lowering of the  price for Alaska North  Slope (ANS)                                                               
West  Coast  is  already  occurring and  built  into  the  price;                                                               
therefore, if the 9  per barrel  is not collected [by the federal                                                               
government],  then  Alaska  should  use   it  to  help  with  the                                                               
infrastructure of the North Slope.                                                                                              
                                                                                                                                
7:23:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR moved  to adopt  the CS  for HB  397, labeled  30-                                                               
LS1310\O, Nauman,  3/30/18, as the working  document, referred to                                                               
as "Version  O".  There being  no objection Version O  was before                                                               
the committee.                                                                                                                  
                                                                                                                                
7:24:22 PM                                                                                                                    
                                                                                                                                
ARNOLD LIEBELT,  Staff, Representative Paul Seaton,  Alaska State                                                               
Legislature,  pointed out  that  Version O  is  identical to  the                                                               
original  version   for  Sections  1-8;  Section   9,  containing                                                               
transitional  language,  was   removed;  Section  10,  addressing                                                               
retroactivity back to  January 1, 2018, was  removed; and Section                                                               
11,  containing an  immediate effective  date, was  removed.   He                                                               
paraphrased  from the  sectional  analysis for  Version O,  which                                                               
read as follows [original punctuation provided]:                                                                                
                                                                                                                                
     Section 1 (page  1, line 4)   Adds new  surcharge to AS                                                                    
     43.55.023(c) preventing tax  credits under this section                                                                    
     from offsetting this surcharge.                                                                                            
                                                                                                                                
     Section 2 (page  2, line 4)   Adds new  surcharge to AS                                                                    
     43.55.023(e) preventing tax  credits under this section                                                                    
     from offsetting this surcharge.                                                                                            
                                                                                                                                
     Section 3 (page 2, line 27)    Adds new surcharge to AS                                                                    
     43.55.025(h) preventing tax  credits under this section                                                                    
     from offsetting this surcharge.                                                                                            
                                                                                                                                
     Section 4  (page 3,  line 14)    Adds new  surcharge to                                                                    
     the  list  of  expenditures   in  AS  43.55.165(e)  not                                                                    
     deductible   for  the   purpose   of  calculating   net                                                                    
     production tax                                                                                                             
                                                                                                                                
     Section  5 (page  6, line  15)    Makes clear  that all                                                                    
     three surcharges are cumulative.                                                                                           
                                                                                                                                
     Section  6 (page  6, line  21)    Makes clear  that all                                                                    
     three surcharges are cumulative.                                                                                           
                                                                                                                                
     Section  7 (page  6, line  27)    Adds  new section  AS                                                                    
     43.55.350 Alaska Conditional Surcharge on Oil                                                                              
                                                                                                                                
     Subsection  (a) (page  6, line  29) Creates  a new  per                                                                    
     barrel  surcharge  equal to  9c  per  barrel, less  the                                                                    
     amount of any imposed under 26 USC 4611 (c) (2) (B).                                                                       
                                                                                                                                
     Subsection  (b)  (page  7,  line  4)  States  that  the                                                                    
     surcharge  under  section (a)  is  in  addition to  tax                                                                    
     imposed   by  AS   43.55.011  and   the  two   existing                                                                    
     surcharges  under  AS  43.55.201  and  43.33.300.  Also                                                                    
     states the surcharge imposed is  due on the last day of                                                                    
     the month on oil produced during the preceding month.                                                                      
                                                                                                                                
     Subsection (c)  (page 7, line 8)  Requires reporting of                                                                    
     production  by  the  producer  on  March  31st  of  the                                                                    
     following  calendar year  as required  for tax  imposed                                                                    
     under AS 43.55.011  43.55.180                                                                                              
                                                                                                                                
     Subsection (d)  (page 7, line  11) Exempts for  the new                                                                    
     surcharge oil used for operation  of a lease or for re-                                                                    
     pressuring  determined to  be waste  by the  Alaska Oil                                                                    
     and Gas Conservation Commission.                                                                                           
                                                                                                                                
     Subsection (e) (page 7, line  14) The surcharge will be                                                                    
     deposited in the general fund.                                                                                             
                                                                                                                                
     Subsection  (f)   (page  7,  line  16)   describes  the                                                                    
     conditional imposition  of the surcharge.  Requires the                                                                    
     commissioner to determine if  the federal government is                                                                    
     collecting  a tax  under 26  USC 4611  (c) (2)  (B) and                                                                    
     impose or suspend the surcharge as appropriate.                                                                            
                                                                                                                                
     Subsection  (g)  (page  8, line  6)  makes  clear  that                                                                    
     failure of  the commissioner  to notify  producers does                                                                    
     not waive the surcharge under this section.                                                                                
                                                                                                                                
     Subsection (h)  (page 8,  line 8)  makes clear  that if                                                                    
     the surcharge under this section  and a federal tax are                                                                    
     imposed simultaneously because  of retroactivity of the                                                                    
     federal tax, the surcharge paid will not be refunded.                                                                      
                                                                                                                                
     Subsection  (i) (page  8, line  11) surcharge  proceeds                                                                    
     will  be accounted  for separately  and deposited  into                                                                    
     the  Arctic Transportation  and  Resource Access  Fund,                                                                    
     created under AS 43.55.360                                                                                                 
                                                                                                                                
     Section 7  (page 8, line  14)    Adds a new  section AS                                                                    
     43.55.360  establishing the  Arctic Transportation  and                                                                    
     Resource Access  Fund (ATRA) as  a separate  account in                                                                    
     the general  fund. Describes the fund  as proceeds from                                                                    
     the surcharge  and tolls collected  from infrastructure                                                                    
     constructed  with funds  from  the  ATRA fund.  Clearly                                                                    
     states that the legislature  may appropriate the actual                                                                    
     balance of  the fund for infrastructure  projects north                                                                    
     of 68 degrees.                                                                                                             
                                                                                                                                
     Section  8  (page  8,  line  24)     Defines  the  term                                                                    
     surcharge  as   used  in  the  AS   43.550.350  and  AS                                                                    
     43.55.360.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  referred  to the  Department  of  Natural                                                               
Resources  (DNR)   PowerPoint  presentation,  dated   4/4/18  and                                                               
included in the committee packet;  it reports on the condition of                                                               
the arctic  roads, which  have been  deteriorating in  the winter                                                               
seasons.  He  mentioned that the construction of  the gravel road                                                               
from Colville River  to the North Slope pad would  cost about $27                                                               
million.                                                                                                                        
                                                                                                                                
7:31:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH posed  the  question:   Why  not leave  the                                                               
money  in the  industry's hands  and  let them  build the  roads?                                                               
Additionally,  he  pointed  out  that if  the  Stand  for  Salmon                                                               
initiative  passes,  there  would  be   no  road  building.    He                                                               
suggested  that  the  $8-9 million  in  prospective  receipts  be                                                               
redirected to the Stand for Alaska initiative.                                                                                  
                                                                                                                                
REPRESENTATIVE TARR  responded that,  of course,  the legislature                                                               
would not appropriate money to a ballot initiative.                                                                             
                                                                                                                                
REPRESENTATIVE  SEATON  commented  that   if  one  believes  that                                                               
efficiency is  gained through gravel  roads and the  industry has                                                               
not built them, then possibly the state can help.                                                                               
                                                                                                                                
[HB 397 was held over.]