Legislature(2007 - 2008)
11/09/2007 04:30 PM House FIN
| Audio | Topic |
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| Start | |
| HB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 2001
"An Act relating to the production tax on oil and gas
and to conservation surcharges on oil; relating to the
issuance of advisory bulletins and the disclosure of
certain information relating to the production tax and
the sharing between agencies of certain information
relating to the production tax and to oil and gas or
gas only leases; amending the State Personnel Act to
place in the exempt service certain state oil and gas
auditors and their immediate supervisors; establishing
an oil and gas tax credit fund and authorizing payment
from that fund; providing for retroactive application
of certain statutory and regulatory provisions relating
to the production tax on oil and gas and conservation
surcharges on oil; making conforming amendments; and
providing for an effective date."
Co-Chair Chenault pointed out the revised fiscal note to the
House Resources Committee version of the bill. (Copy on
File).
Representative Stoltze MOVED to ADOPT work draft #25-
GH0014\N, Finley/Bullock, 11/9/07, as the version of the
bill before the committee. There being NO OBJECTION, it was
adopted.
4:32:29 PM
Co-Chair Chenault referenced the "Summary Comparison between
Various House Approaches to Production Tax". (Copy on
File).
DAN DICKINSON, CONSULTANT, LEGISLATIVE BUDGET AND AUDIT
COMMITTEE, provided an overview of the handout. Those items
not in current law are shown in red; yellow is the
governor's original proposal; blue is from the House
Resources Committee version.
Representative Gara asked about the white portion under
current law. Mr. Dickinson replied that white items shown
under current law did not show up in a later version.
Mr. Dickinson explained that the base rate is 25 percent;
the progressivity reflects what was in the governor's
proposal.
Under the Floor issues, there are no changes. Investment
credits can be taken in the year made. If there is a loss
that year, 25 percent can be carried forward. The TIE
credits have been restricted to investments made between
2003 and 2006.
Representative Gara asked how the transitional TIE credits
work. Mr. Dickinson related that there was a window created
for new entrants.
4:37:38 PM
STEVE PORTER, LEGISLATIVE CONSULTANT, LEGISLATIVE BUDGET AND
AUDIT COMMITTEE, further explained that the producers,
producing oil at the time, took advantage of the credits in
the current year. The advantage was 10 percent of whatever
was spent that year per capex - around $200 million dollars.
It is the administration's intent for the parties that were
unable to use the credits they would have earned, to be able
to utilize them in the future.
Representative Gara understood that there was some
additional benefit for new explorers. Mr. Porter did not
know the exact language in the bill.
4:40:14 PM
Mr. Dickinson addressed exploration credits on page 2 of the
handout, comparing the 20/40 percent credit to 30/40 percent
credit. The proposed bill contains the same list of "bad
acts" prohibited in both credits.
Approval by DNR is required in this bill, and the
confidentiality of well data remains ten years, the same as
it is under current law. The data provided by a seismic
explorer is treated the same way as in current law. The
pre-existing well issue provides for two consecutive
drilling seasons. The DNR TIE credit remains at 5 percent.
4:42:51 PM
Mr. Dickinson addressed the State Purchase of Credits.
"Appropriations made by law" does not include the creation
of an oil and gas fund. The bill contains the option for
the purchases to be made by the Alaska Retirement Board
(ARM). There is a limit of $25 million, except for
purchases made by ARM.
Representative Kelly referenced the 5 percent credit on pre-
2003 seismic work and asked if it was bilaterally
permissive. Mr. Dickinson thought so. The Department of
Natural Resources must find that it in the state's best
interest to do it.
4:44:18 PM
Mr. Dickinson addressed the Allowable Lease Expenditures
portion of the bill - page 3. He clarified how producer
audits are done. Dispute resolution was carved out to
clarify regulations regarding payment. The public outreach
costs have been moved down to the bottom of the list.
DR&R is not allowed and the corrosion issue remains the same
disallowance of $.30 per barrel.
4:47:09 PM
Representative Gara asked about the pipeline corrosion
issue. Mr. Dickinson responded that SB 80 language had not
been included and the unscheduled events disallowance was
removed.
Representative Gara asked if the proposal would allow the
write-off of shut down costs and repairs. Mr. Dickinson did
not know if they would be disallowed. He pointed out that
$.30 per barrel would be disallowed.
Mr. Porter clarified that the $.30 was taken out at the
House Resources Committee version of the bill.
Representative Gara asked if there was additional language
included for protection against pipeline corrosion costs.
Mr. Dickinson understood that the phrase "criminal
negligence" was in the "bad acts" language. The language in
the governor's proposal and in SB 80 was not included in
this bill.
4:49:42 PM
Mr. Dickinson addressed where costs are incurred and if off
lease is allowed.
Representative Gara asked for further clarification on lease
expenditures and the baseline. He asked if indirect costs
were added as deductions. Mr. Dickinson explained that it
went back to the PPT definition. The section was changed
but the definition was not changed.
Mr. Dickinson continued to explain the information section
of the bill. He pointed out that the proposed House Finance
box should have been white, rather than yellow. On the
forward-looking information, a phrase was inserted to say
that before the $1,000 a day penalty applies, the state has
to give notice.
4:52:17 PM
Mr. Dickinson reported that the disclosure of tax
information restores part of what is in current law. In the
governor's proposal the rule that the data must be
aggregated to prevent the identification of particular
returns was removed. It places this language back under
current statute. All other sections remain the same as
prior versions of the bill.
Mr. Dickinson addressed page 4, the Statute of Limitations,
which is four years in this bill and was changed from prior
versions. Auditors from the Department of Revenue and the
Department of Natural Resources remain exempt employees.
The effective date is January 1, 2008. There is only one
retroactive policy which refers to not-for-profit
corporations selling credits.
Mr. Dickinson related that Downstream Costs has the same
language as current law. Language regarding Gas Ceilings
thru 2022 was adopted from the HRC version. The section on
Additional Penalties maintained the same language used in
the HRC version, however, when it applies to estimates, the
taxpayer pays less than 90 percent of what is due in that
period.
4:56:13 PM
Mr. Dickinson discussed page 5, the Intent Language. He
pointed out that the piece that clarifies the long standing
way of dealing with revisions by regulatory bodies remains
in the bill. Monthly estimated payments are subject to
monthly ceilings, as found in the governor's version of the
bill.
4:57:59 PM
Representative Gara requested an EconOne revenue chart
comparison. Co-Chair Chenault said he would attempt to do
so.
Representative Gara asked about the $60 dollar per barrel
price comparison. Mr. Dickinson thought it would be the
same as the governor's proposal.
Representative Gara inquired if, at $80 dollars per barrel,
this bill would raise $1 billion less than the HRC version.
Mr. Dickinson said yes.
Representative Gara asked about the deletion of the
retroactivity provision and the fiscal impact of that. Mr.
Dickinson did not know. He suggested asking the Department
of Revenue.
Representative Gara mentioned the downstream costs listed on
page 4. He asked for more information regarding the new
proposal. Mr. Dickinson replied that the language is in
existing statute and states that for the downstream tanker
and pipelines, reasonable cost is actual cost except when
certain conditions are met, such as when there is a more
reasonable way of getting the oil to market.
Representative Gara asked, if actual costs were much higher
than fair costs, what the independent shipper would be
charged, and how taxes would be figured. Mr. Dickinson
thought that the independent shipper would be charged the
actual cost. He explained the method used for the
calculating TAPS tariffs.
Representative Gara asked about the issue of net profit
share leases. Mr. Dickinson pointed out costs disallowed,
including net profit shares. Representative Gara asked how
that compared to current law. Mr. Dickinson replied it is
current law.
5:04:18 PM
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE, made
comments on the bill as proposed by the committee. He
referenced the summary comparison handout. He summarized
the fiscal issue. The ACES proposal included a gross tax
floor as well as a 25 percent base rate and the .2 slope on
progressivity. He maintained that the floor needed to be
included to protect the state at the low end, or the
progressivity needed to be increased.
Commissioner Galvin emphasized that the TIE credits, as
proposed, remain problematic. He recommended that TIE
credits be frozen until there is production. The explorers
need to be able to take advantage of the credits, as well as
the producers.
Commissioner Galvin addressed exploration credits and well
data. The intent is to recognize that when the state
contributes a substantial amount of the upfront costs, the
data acquired should be available to the state and be made
public in a reasonable period of time.
Commissioner Galvin discussed a fair approach to the state's
purchase of transferable credits. The easiest way to
provide full value to the explorers is for the state to
provide cash payments. The approach suggested in the
proposed bill would require additional legislation to
authorize the ARM Board to make the purchases. Given the
intent to provide full value, the explorer should be able to
get the state to pay 100 percent.
5:09:30 PM
Representative Gara asked about the data from lease lands
and private lands. He understood that the state wants
seismic data to help it lease out neighboring lands. He
requested more information about private land credit money.
Commissioner Galvin responded that the state is getting the
credit money and will receive the data, which would be
useful to provide insight into actual seismic information.
He summarized that the issue is if the state pays for a
portion of the costs, then the data should be made available
to the state.
Representative Gara asked for further clarification of the
benefit of the data. Commissioner Galvin stated that the
information would "fill in the picture" like missing pieces
of a puzzle.
5:13:11 PM
Commissioner Galvin referenced page 3 of the handout
regarding the "bad acts" and the corrosion issues. He
proposed that within ACES, the intent addresses the costs
associated with unscheduled maintenance, not just criminal
negligence.
Co-Chair Chenault provided an example of best maintenance
practices. He understood that any cost incurred during an
unscheduled event would be disallowed. Commissioner Galvin
replied that was not correct. Any act of God, not within
the reasonable course of operation, would be deductible.
Co-Chair Chenault countered and maintenance that an
unscheduled maintenance operating cost would be denied.
Commissioner Galvin agreed, however, he thought it was a
more objective standard and had significant overlap. Co-
Chair Chenault acknowledged that the intent was to address
both sides of the coin and the effect on the day-to-day
operations. He noted that he would approach the
administration with compromise language.
5:18:09 PM
Representative Hawker asked if the regulations to implement
this statute were complete. Commissioner Galvin suggested
another director answer that question. Representative
Hawker spoke to "willful misconduct". Writing of a
regulation contains tremendous broad power. He wanted to
see the regulations written and implemented before any
changes were made in statute. Commissioner Galvin responded
that regulations must be written to represent the intent of
the legislature. The issue is whether "willful misconduct"
was intended to represent improper maintenance or not
meeting an industry standard of care as it applies to
maintaining a pipeline. If it is the intent of the
legislature to write language that broad, it would be more
defensible.
5:21:08 PM
Commissioner Galvin addressed page 3 regarding the allowable
lease expenditures. He related that ACES was written to
require the definition of what costs are to be included or
excluded from the lease expenditure definition. Within the
current language of the statute and in the proposed bill,
lease expenditures include all ordinary, necessary
expenditures unless defined out. He encouraged that the
language be returned to that of the original ACES bill.
Commissioner Galvin addressed the section that deals with
disclosure of taxpayer information. He commented that the
current language is "extremely" dangerous. He worried about
backing out the data and the risk of exposure. In order to
reveal taxpayer information, a safe harbor is necessary, as
provided for in the original ACES language. He did not want
to see that rule violated.
5:24:59 PM
Representative Gara asked which language the reference was
toward. Commissioner Galvin referenced page 3.
Representative Gara understood that the state wanted more
information. Commissioner Galvin replied that it was a
matter of revealing enough information for taxpayer
information such as gross income, costs deducted, credits
received, and applied tax rate. He listed information which
is "black boxed" in the proposed bill. In order for the tax
system to represent to the public what is actually
happening, there must be enough data to indicate how the
costs are falling out. The original language of ACES
provides for the disclosure needed.
5:27:49 PM
Commissioner Galvin directed comments to topics on page 4 of
the handout, statute of limitations and audits. He
recognized that a more complex and demanding tax system
requires more time for auditing. He guaranteed that audits
would require more than three years. The question is
whether or not a deadline will be established and the state
forced into a formal claim before the statute of limitations
expires. He pointed out that the federal standard is seven
years and he is requesting six.
5:31:39 PM
Commissioner Galvin spoke to the effective date. The
governor supports a retroactive effective date.
Transitional provisions would allow an orderly movement into
the system and to ensure that taxpayers are held harmless
from any penalties or interest that would normally accrue.
Representative Gara requested an estimate of the fiscal
impact of the deletion of the retroactive provision.
Commissioner Galvin stated he would provide the information
at a later date.
5:33:22 PM
Commissioner Galvin discussed reasonable transportation cost
deduction. The department should have the authority to set
the rate. He reported that he supports the in-state gas
intent language to ensure clarity that the purpose is to
provide low cost energy opportunities within the state, not
to provide subsidies.
In response to a question by Representative Gara,
Commissioner Galvin explained that any production tax
decrease is enjoyed by the consumer. A regulatory process
addresses that. The inference is not that the gas
development requires a subsidy, but to provide lower cost
fuel for in-state use.
5:36:47 PM
In response to a question by Co-Chair Meyer, Commissioner
Galvin explained the intent of the language is to ensure
that an entity that does not have to pay a production tax
cannot acquire the credits. If an entity is exempt from
paying the production tax they should also be exempt from
receiving credits. Commissioner Galvin further added that
the intention is to provide equity; if a company is paying
the production tax, they should get the credit.
5:39:59 PM
In response to a question by Representative Kelly,
Commissioner Galvin noted that small producers are not tax
exempt. They do get a credit.
Representative Gara questioned if Anchorage utility rates
will be raised. He noted that rural Alaska still has
concerns regarding energy cost reduction. He thought that
ML&P was entitled to credits which are passed on to current
rate payers, and the current bill removes those credits
because they produce less than $12 million worth of
petroleum product a year.
Commissioner Galvin understood that the entity is exempt
because they are a subdivision of the state. The issue in
regard to the small producer credit is not relevant since it
applies to entities that are subject to the tax. They owe
the tax, but are also credited, which results in zero. An
entity that is legally not required to pay the tax should
not be eligible for the credit. Commissioner Galvin could
not discuss information on specific taxpayers.
5:44:44 PM
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