Legislature(2013 - 2014)BARNES 124

02/21/2014 03:15 PM LABOR & COMMERCE


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03:23:04 PM Start
03:23:20 PM Presentation: Alaska Lng Project - Memorandum of Understanding - Heads of Agreement
03:47:27 PM HB230
04:15:33 PM HB300
04:22:43 PM HCR15
04:37:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation (If More Time Needed): TELECONFERENCED
Alaska LNG Project - Memorandum of Understanding
- Heads of Agreement
*+ HB 230 AIDEA BONDS FOR PROCESSING FACILITIES TELECONFERENCED
Heard & Held
*+ HB 300 AIR AMBULANCE SERVICES TELECONFERENCED
Heard & Held
*+ HCR 15 TASK FORCE ON UNMANNED AIRCRAFT SYSTEMS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled 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.]                                                                                                         

Document Name Date/Time Subjects
HB230 ver A.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Sponsor Statement.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Fiscal Note-DCCED-AIDEA-02-14-14.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Supporting Documents AIDEA Overview.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Supporting Documents DNR North Slope Oil and Gas Activity map.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Draft Proposed Blank CS ver U.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Summary of Changes ver A to ver U.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HB230 Sectional Analysis-Blank CS ver U.pdf HL&C 2/21/2014 3:15:00 PM
HB 230
HCR15 ver U.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HCR15 Sponsor Statement.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HCR15 Fiscal Note-LEG-COU-01-24-14.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HCR15 Supporting Documents-Task Force UAS Interim Report - Jan 15-2014.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HCR15 Supporting Documents-Letter Fbks Econ Dev Corp 01-27-2014.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HCR15 Supporting Documents-Letter Univ of Alaska 01-24-2014.pdf HL&C 2/21/2014 3:15:00 PM
HCR 15
HB300 ver O.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Sponsor Statement.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Sectional Analysis.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Fiscal Note-DCCED-DOI-02-10-14.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letters Div of Insurance 11-12-201313 and AG of Washington 11-18-2013 response.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter-Southeast Alaska Fishermen's Alliance 2-14-2014.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-News Articles.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Assorted Emails.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter Airlift Northwest 02-17-2014.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter Airlift Northwest 11-22-2013.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter Div of Insurance 08-26-2008.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter Marijo & Steve Brantner.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letters assorted.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Assorted News Stories.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Assorted Emails.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letters Skagway, Ketchikan, Wrangell 02-11-2014.pdf HL&C 2/21/2014 3:15:00 PM
HB 300
HB300 Supporting Documents-Letter Alaska Commission on Aging 02-18-2014.pdf HL&C 2/21/2014 3:15:00 PM
HB 300