Legislature(2009 - 2010)BARNES 124
04/10/2010 10:00 AM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 301 | TELECONFERENCED | |
| += | HB 365 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 305 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 10, 2010
10:18 a.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Bryce Edgmon
Representative Kurt Olson
Representative Paul Seaton
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Peggy Wilson
COMMITTEE CALENDAR
COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 305(FIN)(TITLE AM)
"An Act providing that the tax rate applicable to the production
of oil as the average on oil and gas production for
appropriation to the community revenue sharing fund; production
tax value of oil, gas produced in the Cook Inlet sedimentary
basin, and gas relating to the allocation of lease expenditures
and adjustments to lease expenditures; produced outside of the
Cook Inlet sedimentary basin and used in the state increases and
providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 301
"An Act relating to the power project fund; authorizing the
Alaska Energy Authority to charge and collect fees relating to
the power project fund; authorizing the Alaska Energy Authority
to sell and authorizing the Alaska Industrial Development and
Export Authority to purchase loans of the power project fund;
providing legislative approval for the sale and purchase of
loans of the power project fund under the memorandum of
understanding dated February 17, 2010; and providing for an
effective date."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 365
"An Act relating to the power project fund; authorizing the
Alaska Energy Authority to charge and collect fees relating to
the power project fund; authorizing the Alaska Energy Authority
to sell and authorizing the Alaska Industrial Development and
Export Authority to purchase loans of the power project fund;
providing legislative approval for the sale and purchase of
loans of the power project fund under the memorandum of
understanding dated February 17, 2010; and providing for an
effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 305
SHORT TITLE: SEPARATE OIL & GAS PROD. TAX/ DEDUCTIONS
SPONSOR(s): FINANCE
03/08/10 (S) READ THE FIRST TIME - REFERRALS
03/08/10 (S) FIN
03/09/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/09/10 (S) Heard & Held
03/09/10 (S) MINUTE(FIN)
03/10/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/10/10 (S) <Bill Hearing Canceled>
03/11/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/11/10 (S) -- MEETING CANCELED --
03/12/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/12/10 (S) Heard & Held
03/12/10 (S) MINUTE(FIN)
03/18/10 (S) FIN AT 3:00 PM SENATE FINANCE 532
03/18/10 (S) Heard & Held
03/18/10 (S) MINUTE(FIN)
03/29/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/29/10 (S) <Bill Hearing Postponed>
03/31/10 (S) FIN RPT CS 6DP 1AM NEW TITLE
03/31/10 (S) DP: HOFFMAN, STEDMAN, THOMAS, EGAN,
OLSON, ELLIS
03/31/10 (S) AM: HUGGINS
03/31/10 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/31/10 (S) Moved CSSB 305(FIN) Out of Committee
03/31/10 (S) MINUTE(FIN)
04/01/10 (S) TRANSMITTED TO (H)
04/01/10 (S) VERSION: CSSB 305(FIN)(TITLE AM)
04/05/10 (H) READ THE FIRST TIME - REFERRALS
04/05/10 (H) RES, FIN
04/07/10 (H) RES AT 1:00 PM BARNES 124
04/07/10 (H) Heard & Held
04/07/10 (H) MINUTE(RES)
04/09/10 (H) RES AT 1:00 PM BARNES 124
04/09/10 (H) Heard & Held
04/09/10 (H) MINUTE(RES)
04/10/10 (H) RES AT 10:00 AM BARNES 124
WITNESS REGISTER
PAT GALVIN, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During hearing of SB 305, answered
questions.
DONALD BULLOCK JR., Attorney
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: During the hearing on SB 305, explained
Amendment 4.
ROGER MARKS, Consulting Petroleum Economist
Logsdon & Associates
Anchorage, Alaska
POSITION STATEMENT: Reviewed the document entitled "SB 305:
Flowchart: 26-LS1577\WA.6".
SENATOR JOE PASKVAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided comments on SB 305.
ACTION NARRATIVE
10:18:14 AM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 10:18 a.m. Representatives Tuck,
Seaton, Olson, Johnson, Guttenberg, Edgmon, and Neuman were
present at the call to order. Representative Kawasaki arrived
as the meeting was in progress.
SB 305-SEPARATE OIL & GAS PROD. TAX/ DEDUCTIONS
10:18:37 AM
CO-CHAIR NEUMAN announced that the first order of business is CS
FOR SENATE BILL NO. 305(FIN)(title am), "An Act providing that
the tax rate applicable to the production of oil as the average
production tax value of oil, gas produced in the Cook Inlet
sedimentary basin, and gas produced outside of the Cook Inlet
sedimentary basin and used in the state increases above $30
shall be 0.4 percent multiplied by the number that represents
the difference between that average monthly production tax value
and $30, or the sum of 25 percent and the product of 0.1 percent
multiplied by the number that represents the difference between
that average monthly production tax value and $92.50, except
that the total rate determined in the calculation may not exceed
50 percent; providing for an increase in the rate of tax on the
production of gas as the average production tax value on a BTU
equivalent barrel basis of gas produced outside of the Cook
Inlet sedimentary basin and not used in the state increases
above $30; relating to payments of the oil and gas production
tax; relating to availability of a portion of the money received
from the tax on oil and gas production for appropriation to the
community revenue sharing fund; relating to the allocation of
lease expenditures and adjustments to lease expenditures; and
providing for an effective date."
10:18:55 AM
CO-CHAIR NEUMAN focused the committee's attention on the
amendments in the committee packet.
10:19:42 AM
The committee took an at-ease from 10:19 a.m. to 10:23 a.m.
10:24:06 AM
REPRESENTATIVE SEATON moved Amendment 1, labeled 26-LS1577\WA.2,
Bullock, 4/5/10, the text for which is provided at the end of
the minutes.
CO-CHAIR NEUMAN and REPRESENTATIVE OLSON objected.
10:24:22 AM
REPRESENTATIVE SEATON pointed out that the committee packet
includes an explanation of Amendment 1 entitled "Explanation of
Amendment WA.2 to CSSB 305(FIN)(title am)." Representative
Seaton explained that Amendment 1 addresses the concern
regarding the existing exemption for in-state gas sold off the
North Slope. The concern is that having a gas tax rate off the
North Slope for citizens of Alaska that is different than that
for citizens of any other state would be in violation of the
Commerce Clause in the U.S. Constitution, which doesn't allow
differential taxation based on the state of residency. The
intent is to review a situation in which a producer or consumer
sued after the open season. The suit would be in federal court
and the remedy requested would be for the non Alaskan residents
or producers to have the lower tax rate that was afforded
Alaskans. If the federal court accepted the aforementioned
remedy, the pipeline's 10 years of operation would generate
almost no production tax for the State of Alaska. On the other
hand, the federal court could nullify Alaska's exemption for in-
state gas use. Representative Seaton opined that if a plaintiff
can assert damage after gas flows due to the higher gas price,
the likely result would be to lower those costs. If the court
raised the cost for Alaskans, it would be a precedent in that a
suit could result in a remedy that isn't beneficial to the
[plaintiff]. Since the existing statute says "the tax system in
place at the start of open season", Amendment 1 would remove the
in-state exemption and a forthcoming amendment to Amendment 1
would specify that change would only be in effect for 30 days.
The aforementioned would resolve the potential bind described
above and the Alaska Gasline Inducement Act (AGIA) terms that
specify the tax rate is guaranteed for the first 10 years of gas
flowing through the pipeline. Representative Seaton clarified
that Amendment 1 with the proposed amendment to it would result
in the in-state gas tax not being applicable until 30 days after
the effective date of the legislation. The legislation, he
reminded the committee, is only useful if it's signed prior to
the start of open season and re-implements the existing tax code
after 30 days.
10:29:40 AM
REPRESENTATIVE SEATON moved Conceptual Amendment 2 to Amendment
1, as follows [original punctuation provided]:
The tax provisions for in-state sale of gas from the
North Slope and other fields are re-enacted 30-days
after the effective date of this act
10:30:00 AM
CO-CHAIR NEUMAN clarified that the document entitled
"Explanation of Amendment WA.2 to CSSB 305(FIN)(title am)"
applies if Conceptual Amendment 2 to Amendment 1 passes. Upon
determining there was no objection, announced that Conceptual
Amendment 2 to Amendment 1 was adopted. Therefore, Amendment 1,
as amended, was before the committee.
10:31:15 AM
CO-CHAIR NEUMAN inquired as to why the producers would sue the
state if the tax is lower.
REPRESENTATIVE SEATON opined that a contract provision that
specifies an almost 0 percent tax on the gas for 10 years could
be advantageous for a company. Furthermore, it could be that
when taxes are negotiated, after that open season, the state
could negotiate a provision that guarantees the [producers] will
not sue. However, the potential of a suit being brought from
consumers or an electricity generator in other states would
remain. He acknowledged that whether the suit would be
successful or not is unknown.
CO-CHAIR NEUMAN remarked that he couldn't see why the producers,
when they're paying a lower tax, would sue the state. He said
he just didn't believe that would happen.
10:33:42 AM
CO-CHAIR NEUMAN related that a lot of electrical and utility
generating companies are counting on this first open season in
order to create the necessary economies of scale to bid on in-
state capacity of the pipeline. He highlighted that if this
proposal was in place, the taxes that [the residents of
Fairbanks] would pay for electrical generation would be much
higher because during the initial open season [the tax] would be
the current 25 percent plus productivity rather than 5 percent.
The aforementioned would result in higher electric and gas
bills. A spur line going to Valdez, he opined, with a route to
South Central would impact the residents in South Central Alaska
similarly.
10:35:19 AM
REPRESENTATIVE SEATON explained that Amendment 1, as amended,
specifies that 30 days after the effective date of the
legislation, [the tax] would return to the existing situation in
which there's an exemption for in-state use. He clarified that
Amendment 1, as amended, clarifies that there's no need to worry
that the export gas will qualify for the in-state gas break.
Although there would be no effect on any in-state user, it
doesn't mean that in the future, if there's a gas sale, a suit
under the Commerce Clause wouldn't be brought. The
aforementioned could occur anyway, he said. However, there
could be no claim that under AGIA they are entitled to the lower
tax rate for 10 years. Representative Seaton said that he
didn't believe [under Amendment 1, as amended] there would be
any impact on in-state use.
CO-CHAIR NEUMAN interjected, "But we, certainly don't know."
10:37:06 AM
REPRESENTATIVE GUTTENBERG asked who else, including legal
counsel, is present to answer questions.
REPRESENTATIVE SEATON related that Don Bullock, Attorney,
Legislative Legal Services, is the drafter.
10:38:16 AM
PAT GALVIN, Commissioner, Department of Revenue (DOR), stated
that [the administration] is aware of the constitutionality
issues related to the in-state gas provisions of the production
tax. Regarding the concern with Amendment 1, as amended, the
Department of Law doesn't view the remedy for a challenge to the
favorable in-state tax treatment as eliminating the underlying
base tax and imposing the favorable exception as the rule. That
is, if it was challenged, it would be challenged based upon the
favorable treatment given to a small portion of the gas used
within the state. The DOL couldn't think of a situation in
which the court had taken an unconstitutional exception to the
rule for which the remedy was to eliminate the rule and impose
the exception on everyone.
10:40:24 AM
CO-CHAIR NEUMAN surmised then that a lock-in for in-state use is
not seen as a risk.
COMMISSIONER GALVIN noted his agreement, adding that if a
subsequent legal challenge is successful, it's not seen as a
risk that the low tax rate that's the exception to the existing
rule would be imposed on everyone. The aforementioned is the
advice from DOL.
CO-CHAIR NEUMAN further surmised, "You don't think it will be an
issue."
COMMISSIONER GALVIN replied yes, but if the committee still has
concern he suggested that the effective date for the provision
start at the beginning of a month, even if it is retroactive to
the beginning of the month in which the legislation is passed.
10:41:57 AM
REPRESENTATIVE SEATON related his understanding that the lawyers
don't believe there is risk of a lawsuit from another state and
that the federal court would only impose a higher tax on Alaskan
gas. He related his further understanding that the courts won't
give favorable treatment to the plaintiffs, residents of Chicago
claiming they were paying a higher price, in the case.
COMMISSIONER GALVIN clarified that the question wasn't asked in
the context of a risk percentage, but rather in terms of the
potential outcome. The determination was there was no
identified precedent in which the court imposed the exception,
which is the concern being expressed, in order to rectify a
constitutional challenge. The standard practice when there's a
constitutional challenge to an exception of an existing
structure, the court rules that that exceptional treatment is
unconstitutional and returns it to the state to rectify the
exceptional treatment. He suggested that if the desire is to
"take it off the table," then do so in a manner that doesn't
create an administrative problem.
10:44:30 AM
REPRESENTATIVE SEATON inquired as to how much and how many
people are paying a production tax on the North Slope currently.
COMMISSIONER GALVIN answered that he wasn't sure he is able to
reveal that information.
CO-CHAIR NEUMAN surmised that it would be a minimal amount as it
would only refer to some of the pump stations and what is sold
at Kuparuk.
10:44:59 AM
COMMISSIONER GALVIN related that he is aware of gas being sold
for the purpose of power that is being used between units.
However, he didn't know whether the gas being used between units
is being claimed as a taxable event. He restated that he didn't
believe he could reveal what taxpayers are involved in that. In
response to Co-Chair Johnson, Commissioner Galvin specified that
he can't answer these questions because of confidentiality.
10:45:37 AM
CO-CHAIR NEUMAN noted his assumption that the pump stations
probably use a small amount of electrical generation and move
over to Kuparuk for electrical generation and use some of the
waste heat. However, he assumed that a minimal amount is used.
10:45:58 AM
COMMISSIONER GALVIN related that when the issue was first
identified, the impact in dollar value between the gas in the
Cook Inlet area and the gas in the North Slope ranged from $40
million a year to approaching $200 million a year when there's
high progressivity. The predominant portion of that is from the
Cook Inlet area.
10:46:48 AM
CO-CHAIR NEUMAN asked if it would be safe to say that the
miscible gases that are injected or mixed with the oils that are
going through the Trans-Alaska Pipeline System (TAPS) are worth
much more to the state than the electrical generation being used
[at the pump stations].
COMMISSIONER GALVIN answered that it's safe to say the gas that
is used for other purposes within the field, whether it's
reinjected or used as a miscible injectant, is much more
valuable than what's used for [electrical generation at the pump
stations].
10:47:23 AM
REPRESENTATIVE TUCK related his understanding that DOL is saying
that there is the potential during this first open season when
the tax rate is locked in that the state could be sued due to
inter-state commerce laws and the exemption for power generation
and fuel for heating would be removed. Therefore, there is the
potential for consumers to face higher utility rates. However,
the revenue side is protected with the gas going to the Lower
48.
COMMISSIONER GALVIN said that's correct.
10:48:30 AM
REPRESENTATIVE GUTTENBERG, returning to AGIA as a whole, asked
if the department explored the possibility of a suit being
brought by Chicago ratepayers or Chicago's regulatory commission
in response to the open season and as an attempt to receive that
lower rate.
COMMISSIONER GALVIN answered that at the time the AGIA statute
was put in place, it was evaluated regarding potential claims of
equal protection or other constitutional violations due to
providing favorable treatment of those who participated in the
open season versus those who didn't. The determination was that
it wouldn't create a constitutional issue.
10:49:56 AM
REPRESENTATIVE GUTTENBERG opined that the effects [of Amendment
1, as amended] on the Fairbanks Natural Gas (FNG) bonding
project are significant. Therefore, he inquired as to the
effect provisions that open and close exceptions would have on
the bonding market.
COMMISSIONER GALVIN responded that the bonding market reacts
unfavorably to uncertainty, in general. Moreover, the bonding
market takes into account the relative likelihood of that
uncertainty taking place.
10:51:04 AM
REPRESENTATIVE SEATON then offered Conceptual Amendment 3 to
Amendment 1, as amended, such that the effective date would be
retroactive to April 1 through May 31.
10:54:12 AM
REPRESENTATIVE SEATON explained that he is offering Conceptual
Amendment 3 to Amendment 1, as amended, in response to
Commissioner Galvin's statement that there are some small sales
off the North Slope. Specifying a date would make it easier
administratively for the taxpayers that are incurring the taxes.
To be effective, it must start of the first binding open season.
He noted that the [proposed retroactive effective date] does
refer to the year 2010.
CO-CHAIR JOHNSON objected to Conceptual Amendment 3 to Amendment
1, as amended.
10:55:32 AM
CO-CHAIR JOHNSON then withdrew his objection, but added that he
doesn't intend to vote for [Amendment 1, as amended].
There being no further objection, Conceptual Amendment 3 to
Amendment 1, as amended, was adopted.
10:56:10 AM
REPRESENTATIVE TUCK surmised that with [Amendment 1, as
amended], any of the advantages for in-state use will be removed
for the first open season. However, the aforementioned can be
re-implemented to protect [the state] against potential suits
that may increase consumers' utility bills since they would lose
the tax breaks for in-state use.
10:56:59 AM
REPRESENTATIVE SEATON highlighted that in actuality there is no
way to protect against that because that's a U.S. constitutional
problem. However, it protects against having the 10-year AGIA
lock-in of that rate for exported gas. Although the in-state
rate may have to be changed, [Amendment 1, as amended] protects
against the possibility of a lawsuit for which the remedy is the
plaintiff receiving the lower tax rate. Representative Seaton
said that Representative Tuck is effectively correct, but
pointed out that [Amendment 1, as amended] prevents the
possibility of the state having an extremely low tax rate for 10
years on gas that's exported to the Lower 48. He reminded the
committee that [Amendment 1, as amended] does reenact the in-
state gas exemption 60 days later.
10:58:18 AM
CO-CHAIR NEUMAN interjected that the aforementioned is
Representative Seaton's opinion and Commissioner Galvin doesn't
hold the same opinion for the reasons stated earlier.
Therefore, Co-Chair Neuman maintained his objection to Amendment
1, as amended.
10:59:41 AM
REPRESENTATIVE SEATON related his belief that the lower in-state
tax does pose a risk of legal action, which he opined could
likely be found if one were to research the Tonnage Clause and
the Commerce Clause in the U.S. Constitution.
11:00:35 AM
REPRESENTATIVE GUTTENBERG expressed concern with the
constitutional question [related to the lower in-state tax],
which deserves more analysis. He expressed further concern with
the affect [of Amendment 1, as amended] on FNG bonding. The
project in Fairbanks is a bridge between now and tomorrow.
Representative Guttenberg said that he's not comfortable passing
Amendment 1, as amended, without understanding the
aforementioned ramifications.
11:01:55 AM
CO-CHAIR JOHNSON called the question.
11:02:07 AM
CO-CHAIR NEUMAN, in response to Representative Guttenberg,
clarified that the roll will be called on Amendment 1, as
amended.
11:02:31 AM
The committee took a brief at-ease.
11:03:38 AM
CO-CHAIR JOHNSON withdrew his call for the question.
11:04:02 AM
CO-CHAIR NEUMAN related his understanding that Amendment 1, as
amended, wouldn't allow a discount for a lower [tax] rate for
work FNG performed during April 1 to May 31.
11:04:27 AM
COMMISSIONER GALVIN reminded the committee that at this time FNG
is utilizing gas from Cook Inlet, and therefore enjoying the
benefits of a tax that wouldn't be impacted by this proposal.
He pointed out that [Amendment 1, as amended] only addresses the
portion of the law dealing with gas used within the state.
Fairbanks Natural Gas interest is in ensuring that gas from the
North Slope and used within the state is protected. This
proposal would eliminate the lower tax rate for two months and
then reinstate it. Therefore, by the time FNG is actually
shipping gas the lower tax rate would be in place. He related
his understanding that Representative Guttenberg's question is
whether eliminating the lower tax and reinstating it multiple
times creates an issue for FNG's financing, which is really a
question for FNG.
11:05:55 AM
CO-CHAIR JOHNSON told the committee that he understood that
Representative Kelly has received calls of concern from FNG. He
then called the question.
11:06:31 AM
A roll call vote was taken. Representative Seaton voted in
favor of adopting Amendment 1, as amended. Representatives
Edgmon, Guttenberg, Kawasaki, Tuck, Olson, Neuman, and Johnson
voted against it. Therefore, Amendment 1, as amended, failed to
be adopted by a vote of 1-7.
11:07:45 AM
REPRESENTATIVE GUTTENBERG announced that he would not offer his
amendment in the committee packet.
11:08:18 AM
CO-CHAIR JOHNSON moved Amendment 4, labeled 26-LS1577\WA.6,
Bullock, 4/10/10, the text for which is provided at the end of
this document.
11:09:24 AM
CO-CHAIR JOHNSON explained that the intent of Amendment 4 is to
enact on April 29 the decoupling legislation before the
committee and then repeal it two days later. Therefore, on May
1 the law would be a decoupled oil and gas provision and the
current law would be in effect. Amendment 4 would alleviate all
the cost allocation, eliminate the additional need for
regulations, and satisfy the concerns of one of the Senate
Finance Committee co-chairs. Co-Chair Johnson clarified that
Amendment 4 would eliminate the May 1 deadline, the cost
allocation concerns, and lock the state in for a certain amount
of tax. According to the revisor, Amendment 4 is lengthy
because it contains the proposed legislation, the new proposal
of Amendment 4, and the current [law]. Co-Chair Johnson offered
that Amendment 4 simply provides, for two days, the cover of the
$2 billion potential loss while maintaining the status quo. Co-
Chair Johnson characterized Amendment 4 as "an elegant solution
to a very complicated problem." He noted that he has talked
with Senators Paskvan and Stedman as well as the members of the
House Finance Committee. The members of the House Finance
Committee related that they would prefer to receive the
legislation with Amendment 4 adopted because they would prefer
to eliminate whatever is wrong.
11:13:26 AM
REPRESENTATIVE GUTTENBERG objected to Amendment 4. He then
asked if when the 24-hour rule for the House went into effect,
the 24-hour [policy] for amendments to the House Resources
Standing Committee was abolished.
CO-CHAIR JOHNSON said he had no problem waiting to consider
Amendment 4. He then apologized for not adhering to the 24-hour
rule, but noted that the drafter was working on Amendment 4
until 1:00 a.m.
11:14:32 AM
CO-CHAIR NEUMAN expressed interest in the committee doing what
it can to address SB 305 today. Therefore, he said his
preference is for the committee to act on SB 305 today if the
committee is comfortable with Amendment 4 after some explanation
from Don Bullock, Legislative Legal Services.
11:15:21 AM
REPRESENTATIVE GUTTENBERG acknowledged that amendments at the
last minute are often the case, particularly at the end of
session.
11:16:10 AM
The committee took an at-ease from 11:16 a.m. to 11:23 a.m.
11:24:00 AM
DONALD BULLOCK JR., Attorney, Legislative Legal Counsel,
Legislative Legal and Research Services, Legislative Affairs
Agency, explained that, provided SB 305 takes effect before
April 30, the adoption of Amendment 4 would mean that SB 305
would take effect then and be applicable on the first day of the
open season, which lines up with the timing of the tax
exemptions under AGIA and AS 43.90.300 and AS 43.90.320. The
day after open season the law would return to the current law.
In the future, he noted, there's another trigger. When 1.5
billion cubic feet a day of gas is placed in a pipeline system
for delivery to market in the 48 contiguous states or Canada or
to a liquefied natural gas (LNG) facility for export out of the
state, the provisions in SB 305 that separate the progressive
tax on oil and the progressive tax on gas take effect. Mr.
Bullock clarified that SB 305 provisions won't take effect
unless the legislation is in effect prior to the open season.
If the aforementioned is the case, the law would return to
current law after the day open season starts and in the future
the progressivity split would occur when 1.5 bcf a day of gas is
placed in a transportation system for delivery to market.
11:26:40 AM
CO-CHAIR NEUMAN, regarding the [progressivity split], asked if
there has to be more than 1.5 bcf of gas a day exported.
MR. BULLOCK answered yes, and clarified that the gas has to be
put into a pipeline to go either to an LNG facility or to
market. The trigger, he further clarified, is the volume of 1.5
bcf a day of gas.
11:27:19 AM
MR. BULLOCK continued by pointing out that Amendment 4, on page
1, lines 1-11, trims the title of SB 305 in order to make the
legislation more general and encompass what the act does. As a
result of Amendment 4, the legislation wouldn't be as limited as
is specified in the title of SB 305. The title change, he
highlighted, also makes a reference to the tax on the production
of gas and effects the start of the first binding open season.
That part of the title is a reference to the condition that has
to be met for the separation of the oil progressivity and the
gas progressivity to take effect.
11:28:03 AM
CO-CHAIR NEUMAN surmised that assumes the open season on May 1
by TransCanada is considered a binding open season.
MR. BULLOCK informed the committee that TransCanada's proposal
specifies an open season starting on April 30. Although he
acknowledged the earlier comments from Commissioner Galvin
regarding splitting months, the law says start of the open
season. The legislation includes a provision that specifies the
commissioner of the Department of Revenue is to notify the
revisor of statutes of the date the open season starts in order
that the revisor would know whether the provisions in the
legislation before the committee can take effect.
11:29:04 AM
CO-CHAIR NEUMAN asked then if it's Mr. Bullock's opinion that
the state would be protected by any potential revenue losses, as
predicted by Senator Stedman.
MR. BULLOCK responded that he can tell members what the
legislation says. Although the legislation may be subject to
litigation, it would only be an issue if binding commitments are
received during the first open season.
11:30:34 AM
REPRESENTATIVE SEATON inquired as to the purpose of AS
43.93.020.
MR. BULLOCK explained that the inducement that is offered to a
producer that commits during the first binding open season
basically grants that producer an exemption. The exemption from
the tax is equal to the difference between what the tax would be
under the laws in effect at the start of the open season and the
tax liability at a future date. The exemption was utilized per
Article 9, which allows the state to use exemptions since the
state can't contract away its power to tax. The other
inducement offered to those who commit during the open season is
a royalty exemption, which is a matter of contract.
11:32:28 AM
REPRESENTATIVE SEATON surmised then that the effect and purpose
of the statute was that there would likely be a higher tax rate
in place at the start of open season and a negotiated tax would
be negotiated later. He further surmised that the inducement is
the difference between the tax rate in effect at open season and
the negotiated tax rate, which can't be greater than the tax
rate at open season.
MR. BULLOCK agreed, adding that the inducement only has value if
taxes increase. If taxes fall below what they are at the start
of open season, all producers benefit. The inducement allows
the period in which the inducement is live and the producers are
able to take the exemption to be the highest rate of tax they
will pay regardless of the future. For instance, if the tax
rate on gas increases in the future, those who received the
inducement wouldn't have to pay the extra amount.
11:33:50 AM
REPRESENTATIVE GUTTENBERG asked if the term "binding open
season" is defined with starting and ending dates.
MR. BULLOCK answered that he didn't know how flexible the start
is, but TransCanada's filings with the Federal Energy Regulatory
Commission (FERC) state that TransCanada's open season will
start April 30 and go through July. Again, he said he didn't
know how likely the aforementioned dates would be to change.
REPRESENTATIVE GUTTENBERG surmised that the state is locked in
to those dates regardless of a change.
MR. BULLOCK specified that it's a date that's out of the state's
control because it's the federal rules governing open seasons.
In further response to Representative Guttenberg, Mr. Bullock
explained that the conditional effects of the sections of SB 305
that would take effect at the start of the open season are
written with the expectation that TransCanada will do what it
said and the open season will start [April] 30. On page 23,
line 6 of Amendment 4 there is a provision requiring the
commissioner of DOR to notify the revisor of statutes the date
of the start of the first binding open season for the AGIA
project. The purpose of the aforementioned is to keep the
revisor abreast of the laws that are in effect. The risk is if
these provisions take effect on April 29, but the start of the
open season is delayed for a month. In that case, the
provisions will be in effect until the day after the open season
starts.
11:37:27 AM
CO-CHAIR JOHNSON asked if it would be problematic to amend
Amendment 4 such that the language refers to whenever the open
season starts or is a specific date necessary.
MR. BULLOCK pointed out that the problem is this must take
effect the day before [the day when the open season starts].
"There's no certainty that would be any more certain about that
date if we left it open than we do now," he said. Currently,
there are filings with FERC that specify [TransCanada's] open
season will start April 30.
11:38:21 AM
CO-CHAIR JOHNSON, regarding TransCanada's filings that specify
open season will start April 30, asked if there would be a
violation under AGIA if TransCanada changes the open season
date.
MR. BULLOCK stated that AGIA references the first binding open
season, whenever it is. Whenever the first binding open season
is determined, the aforementioned inducements are offered to
those committing during that open season.
11:39:07 AM
CO-CHAIR NEUMAN clarified that the intent is to avoid locking
the state into a certain tax rate when an open season starts.
MR. BULLOCK pointed out that certain provisions take effect
April 29, regardless of when the open season starts. However,
when the open season starts what is in current law is reenacted
and takes effect the day after the start of the binding open
season.
11:40:04 AM
REPRESENTATIVE P. WILSON asked if the language is referring to
the first open season.
MR. BULLOCK outlined that both AS 43.90.300 and AS 43.90.320
refer to the first binding open season as the period when
someone must commit to firm transportation and capacity in order
to receive the tax exemption.
11:41:01 AM
REPRESENTATIVE P. WILSON then inquired as to the meaning of
"binding?"
MR. BULLOCK deferred to Commissioner Galvin because DOR has
adopted regulations regarding qualifying for the inducements.
He recalled that the regulations also specify the timeframe in
which a firm commitment can be made. A firm commitment means to
commit to a certain capacity and it is unconditional.
REPRESENTATIVE P. WILSON explained she wanted to ensure that
it's clear what the binding open season is.
MR. BULLOCK deferred to the commissioners of the Department of
Natural Resources (DNR) and DOR to provide that assurance.
However, he pointed out that the AGIA statute contemplates a
first binding open season for the inducements. If the first
binding open season doesn't produce firm transportation and
there's a second open season, then there are no inducements
under AGIA.
11:42:51 AM
REPRESENTATIVE GUTTENBERG inquired as to the significance of the
date on page 9, line 9, of Amendment 4.
MR. BULLOCK specified that the 2022 date is the date the Cook
Inlet tax caps expire for oil and gas and when the tax cap on
gas used in the state expires. Those dates can be found in AS
43.55.011(j), (k), and (o). Therefore, after [2022] there are
no tax caps.
11:43:49 AM
MR. BULLOCK, in response to questions, offered to review
Amendment 4. He pointed out that the 2022 date is in SB 305,
but it's taken out during the period of time when the [current]
law is in effect for only a few days and then returns when it
does become an issue. He then turned the committee's attention
to the bottom of page 1 of Amendment 4, which amends Section 1
of CSSB 305(FIN)(title am) that refers to "and (p)". Subsection
(p) is the new progressivity section for gas after the split
between oil and gas. Section 1 of the legislation specifies
that money from the progressive tax in both AS 43.55.011(g) and
"(p)" are available for appropriation to the community revenue
sharing fund. If this legislation is enacted, April 29
subsection (p) revenue, the gas progressivity, would be
available. The bottom of page 1 of Amendment 4 undoes Section 1
of CSSB 305(FIN)(title am) and thus returns to current law and
eliminates the reference to subsection (p). However, reference
to subsection (p), the progressivity for oil and some of the
gas, returns in Section 3 of Amendment 4 when the future
condition of 1.5 bcf a day being tendered for shipment to market
is met. The aforementioned structure is throughout Amendment 4.
Mr. Bullock clarified that the structure in Amendment 4 is such
that the legislation amends current law, an amendment to the
provision in the legislation that returns what happened in SB
305 back to current law, followed by a provision that reenacts
the provisions in the legislation that separate the
progressivity factors.
MR. BULLOCK moved on to page 2 of Amendment 4, which refers to
Section 5 that is Section 2 of CSSB 305(FIN)(title am). Section
2 refers to the new progressivity tax on gas. Section 5 in
Amendment 4 eliminates the reference to the progressivity on
gas. The aforementioned is followed by Section 6, which then
returns that separate progressivity into the legislation.
11:46:59 AM
REPRESENTATIVE TUCK expressed confusion because he recalled that
Representative Seaton related that under Amendment 4 [the
scenario] would be one in which the order would be old, new, and
then old law. However, the drafter seems to indicate that the
order would be new, old, new.
MR. BULLOCK clarified that there is existing law, which SB 305
amends. Subsequently, there's a new body of law. Amendment 4
reenacts number (1) and thus the situation is one in which the
law returns to current law. In the future, when the 1.5 bcf a
day of tendering gas is met, the situation returns to number
(2). Mr. Bullock specified, "So, it's current law, amendments
by [SB] 305 undoing the amendments for SB 305 to return to
current law the day after the open season. And then, at some
time in the future, when significant gas is shipped, then the
provisions in [SB] 305 take effect again." He noted that when
he refers to SB 305 he is referring to CSSB 305(FIN)(title am).
"So, current law, new changes to separate the progressivity
factors, undoing the separation of the progressivity factors to
return to what we have now, and then in the future when that
condition of transportation capacity and shipping is met, then
we go back to separating the progressivity factors," he
explained.
11:49:11 AM
REPRESENTATIVE SEATON related his understanding that Section 9
of Amendment 4 eliminates the exemption for the time period in
Cook Inlet as well.
MR. BULLOCK directed the committee's attention to Section 3 of
CSSB 305(FIN)(title am), which becomes Section 7 upon the
adoption of Amendment 4. Proposed Section 8 of Amendment 4
would then return to the existing law. Therefore, proposed
Section 9 of Amendment 4 re-institutes what is Section 3 of CSSB
305(FIN)(title am) and thus returns to the proposed changes in
CSSB 305 (FIN)(title am).
11:50:26 AM
REPRESENTATIVE SEATON surmised then that Section 9 of Amendment
4 is going to charge Cook Inlet gas at progressivity and doesn't
include the ELF exemption calculation. Therefore, for some
portion of time the exemption available in the Cook Inlet
Sedimentary Basin will be limited.
MR. BULLOCK explained that Cook Inlet gas is subject to a tax
cap, which is determined after considering what the tax would be
without the cap. Therefore, when determining the progressivity
factor, the production tax value of the gas in Cook Inlet is
reviewed. The aforementioned is included in the average,
combined with gas produced outside of the Cook Inlet Sedimentary
Basin as well as oil produced throughout the state. The values
are averaged in order to obtain the number that's compared to
$30, which determines the tax rate. The tax rate is applied and
AS 43.55.011(m) specifies that the credits must be taken against
gas that's subject to the cap. "So, you figure out the tax, you
look at the cap, and the cap sets the maximum amount that will
be paid on that gas and oil in Cook Inlet and gas produced
outside of Cook Inlet and used in the state," he summarized.
Therefore, the full value of Cook Inlet, the production tax
value, isn't subject to a cap, which is what's used in the
progressivity factor of SB 305. Mr. Bullock clarified that the
cap is a tax cap not a value cap.
11:52:29 AM
CO-CHAIR NEUMAN asked if the aforementioned provision applies
only to gas produced north of the 68th parallel.
MR. BULLOCK explained that gas produced north of the 68th
parallel and used in the state is subject to the cap in AS
43.55.011(o), which is used under SB 305 to determine the tax
rate in AS 43.55.011(g). He further explained that AS
43.55.011(g) "under SB 305, uses oil everywhere, including Cook
Inlet - gas produced in Cook Inlet and gas produced outside the
Cook Inlet and used in the state."
11:53:26 AM
MR. BULLOCK, in response to Representative Tuck, clarified that
the production tax value of the oil and gas is what the tax rate
is applied to. The 25 percent tax rate is applied to all oil
and gas, while the progressive tax rate is determined. The
progressive tax rate is also applied to production tax value of
the gas. Therefore, the tax percentage is applied to whatever
the production tax value is, which is how the tax is determined.
When determining the progressive tax, the average production tax
value is determined and it's compared to $30. The rate
increases to the extent that value increases above $30. Mr.
Bullock explained:
So, you start with production tax value, you figure
out your tax rates, you apply the rates. And I'm not
talking about credits; credits come at the end of the
line and reduce whatever the tax liability is. So,
you figure out what the tax is. You figure out what
the tax would be without the caps on Cook Inlet oil
and gas, gas produced outside of Cook Inlet used in
the state. You figure out what the tax is, you look
at the caps and figure out whether the amount that's
determined after you do the tax calculation is above
or below the cap. If it's above the cap, the cap sets
the maximum amount. If it's below that, the cap is
not an issue - you just pay the tax. Except that, ...
sometimes [AS 43.55.011(o)] requires the cap to be
applied even if the tax calculation itself may result
in a lower value.
11:56:34 AM
REPRESENTATIVE EDGMON said he would like to see a flow chart
that would allow members to walk through the provisions of the
legislation. He opined that the committee is being asked to
make a very complicated policy decision that has far-reaching
impacts in a short period of time.
11:57:49 AM
CO-CHAIR NEUMAN indicated that perhaps some charts could be
generated. He reiterated his earlier comment regarding
[forwarding this legislation] if the committee is comfortable
with it. He then recessed to a call of the chair at 11:58 a.m.
7:04:44 PM
CO-CHAIR NEUMAN called the meeting back to order at 7:04 p.m.
Representatives Johnson, Neuman, Olson, Seaton, and Edgmon were
present at the call back to order. Representatives Guttenberg,
Kawasaki, and Tuck arrived as the meeting was in progress.
7:05:05 PM
CO-CHAIR NEUMAN informed the committee that during the recess,
Amendment 4 was incorporated into [CSSB 305(FIN)(title am), as
amended], which is a proposed committee substitute (CS) labeled
26-LS1577\M, Bullock, 4/10/10. He also informed the committee
that the committee packet should also include a document
entitled "SB 305: Flowchart: 26-LS1577\WA.6".
7:06:15 PM
CO-CHAIR JOHNSON withdrew Amendment 4. He then moved that the
committee adopt HCS CSSB 305, Version 26-LS1577\M, Bullock,
4/10/10, as the working document. There being no objection,
Version M was before the committee.
7:07:25 PM
ROGER MARKS, Consulting Petroleum Economist, Logsdon &
Associates, opined that SB 305, the decoupling, actually changes
only one small part of the tax, although that could make a big
difference. With [the adoption] of Amendment 4, the result is a
flipping back and forth between a tax under SB 305 and a tax
under the current tax provisions. He opined that it's important
to understand the small change the legislation makes requires an
understanding of the tax. He then proceeded to the document
entitled "SB 305: Flowchart: 26-LS1577\WA.6" and directed
attention to slide 2 entitled "Mechanics of Tax (Current & SB
305). Slide 2 reviews the seven steps of the tax under the
current provisions of the tax as well as SB 305. "The basic
mechanics of how the tax works is not being changed under SB
305," he stated. He then reviewed the seven steps.
7:10:22 PM
REPRESENTATIVE SEATON recalled from earlier presentations that
the existing tax isn't allocated on per barrel of oil
equivalents (BOEs) but rather on a total gross value comparison.
MR. MARKS explained that under SB 305, if oil and gas is
decoupled, the upstream lease capital and operating costs are
seen in step 4. As discussed earlier, the cost to produce oil
and gas is difficult to separate. However, to enact decoupling
the cost between oil and gas needs to be allocated using an
allocation methodology. A separate issue, he highlighted, is
that under AGIA the oil and gas tax as is in effect on the first
day of the binding open season is stabilized. Without
decoupling, the tax is one big tax. To enact AGIA when only the
gas not the oil is being stabilized, how much of the total tax
is oil versus gas has to be determined. The aforementioned is
allocating the tax, which is different than allocating costs.
In order to allocate the tax, DOR recently adopted regulations
regarding how to allocate the total tax between oil and gas,
which uses the relative gross value.
7:12:51 PM
REPRESENTATIVE SEATON opined that although it makes sense,
different results are achieved under the current tax regime that
allocates costs to gas at the total gross value versus another
system that allocates costs on BOEs. In fact, allocating costs
on BOEs results in a lower tax for gas. He emphasized, "I want
to make sure that we're not going back and fudging the current
system and saying, 'If we were calculating that on barrel of oil
equivalent it would be something' because that's not what we're
doing." He recalled that on April 9, 2010, it was represented
that 22 percent of the tax was attributable to the gas whereas
under the decoupled amount it was much less than the 22 percent
of the tax.
MR. MARKS said that there are two different issues. First, he
posed a situation in which SB 305 doesn't exist, the current tax
un-decoupled was the tax in effect during the open season, and
first gas is in 2020. Per AGIA, the gas tax is stabilized.
Therefore, the question is how much of the combined tax is gas
versus oil. The DOR regulations allocate the total tax to gas
based on the relative gross value, which was the 22 percent/78
percent. The aforementioned, he reminded the committee, was
allocating the tax. The other issue is found in step 4, which
is allocating the upstream capital and operating costs between
oil and gas. Therefore, under step 4, under decoupling, costs
are allocated. Current law says DOR shall determine a method to
allocate costs between oil and gas. Proposed SB 305 suggests
that the department should consider the BOE method, although the
department isn't compelled to do so.
7:16:01 PM
REPRESENTATIVE SEATON surmised then that current law requires
the production tax on gas at the start of open season, and thus
the comparison will be between the tax value at 22 percent
versus the tax value that's generated by decoupling.
MR. MARKS said yes, but added that the numbers he used yesterday
were using DOR's regulations on allocating tax based on gross
value. He specified that he used BOE method to allocate cost.
CO-CHAIR NEUMAN interjected that the 22 percent was used only
because of the numbers used; it doesn't mean that the tax is 22
percent.
7:17:13 PM
REPRESENTATIVE SEATON remarked that DOR has spreadsheets that
haven't been provided to the committee yet. Therefore, he has
only cited the materials that the committee has received, which
have been models from Mr. Marks.
MR. MARKS informed the committee that he focused on the example
[laid out in the document entitled "Notes on Operation of Tax"]
in order to illustrate the dilution effect. He noted that he
could have used any of the four examples to illustrate the
dilution effect.
REPRESENTATIVE SEATON recalled testimony from DOR specifying
that the same relationship of lowering the attributable tax was
present in every case, regardless of whether the point of
production (PoP) or BOE was used.
7:18:57 PM
REPRESENTATIVE TUCK asked if there are any other methods beyond
BOE and point of production to determine the cost allocation.
MR. MARKS answered that all kinds of methods are used to
allocate, although it generally depends upon for what it is
being used. Therefore, the Senate Finance Committee felt it was
appropriate to leave the current statute in place so that DOR,
which has better access to cost data and more time, could
determine the most appropriate way to allocate cost. In further
response to Representative Tuck, Mr. Marks said he didn't
believe any method is particularly simpler than another because
the methods cause problems under different conditions. The
goal, he indicated, is to find a method that works under most
circumstances.
7:21:01 PM
MR. MARKS returned to his review of slide 2 entitled "Mechanics
of Tax (Current & SB 305)". He directed attention to step 5,
which divides the production tax value by the total oil and gas
BOEs to produce the per BOE production tax value. The
aforementioned is the basis of progressivity. Once the
progressivity factor is added to the 25 percent base rate, the
total tax rate is known. The total tax rate is then applied to
the production tax value in order to determine the tax. Mr.
Marks then moved on to slide 3 entitled "Progressivity
Calculation (Current & SB 305)". Under the current statute the
trigger for progressivity is $30 per BOE production tax value.
The progressivity calculation, he reminded the committee, is the
same under both the current law and SB 305. The slope is how
fast progressivity increases as the value increases. Under
current statute the slope is 0.4 percent, and therefore for
every dollar increase at the production tax value per BOE the
progressivity will increase 0.4 percent. Thus, the production
tax value per BOE less $30 is the amount over $30, which is
subject to progressivity. That amount is then multiplied by
0.004 percent. He then reviewed the example on slide 3, which
utilizes an $80 West Coast price with $5 for transportation, the
gross value would be $75. If the upstream operating and capital
costs were $25, the production tax value would be $50. With a
base tax rate of 25 percent, the calculation would be such that
the production tax value of $50 less the $30 trigger would be
multiplied by 0.004 percent to amount to 8 percent. The 8
percent added to the 25 percent, the base tax rate, results in a
total tax of 33 percent on net value. Then the total tax rate,
33 percent, would be multiplied by the production tax value to
determine the tax.
7:24:08 PM
MR. MARKS continued with slide 4 entitled "How Progressivity
Operates Now". He noted that SB 305 changes one small portion
of [how progressivity currently operates]. Currently, each
company calculates one statewide progressivity rate based on all
combined oil and gas activity, which will later be referred to
as a bucket. The company then divides its operations into one
of five segments: each Cook Inlet oil lease, each Cook Inlet
gas lease, North Slope oil and gas except gas used in-state,
non-North Slope/non-Cook Inlet oil and gas except gas used in-
state, and non-Cook Inlet gas used in-state. For each segment,
the company calculates its tax liability based on the total tax
and multiplies that times the segment's production tax value.
The aforementioned calculation results in the tax, except for
segments 1, 2, and 5 for which the tax liability is also
determined under the ELF. Whichever tax [calculation] is lower
is what's paid [for segments 1, 2, and 5]. He noted that almost
always the ELF will be lower, and thus is the tax [for segments
1, 2, and 5]. Still, statute requires both calculations to be
made to determine the tax. Moving on to slide 5 entitled
"Currently: One Progressivity Bucket", Mr. Marks opined that
there is one progressivity bucket that includes oil, Cook Inlet
gas, and other in-state gas. All the activity in the state is
either oil, Cook Inlet gas, or other in-state gas and it's all
in the bucket and is used to calculate one statewide
progressivity tax. He noted that later on he will refer to
current statute as the "one bucket world" as described above.
7:28:45 PM
CO-CHAIR NEUMAN noted that the committee packet includes
information from DOR that illustrates different model
assumptions that review gas and oil prices and their parity. He
noted that actual numbers [are used].
7:29:06 PM
REPRESENTATIVE SEATON, returning to slide 4, related his
understanding that DOR's regulations calculate the tax based on
total gross value at the point of production.
MR. MARKS clarified that DOR's regulations do not calculate the
tax; rather, the department allocates the total tax between oil
and gas.
7:30:34 PM
REPRESENTATIVE SEATON surmised then that the methodology of
calculating this tax on oil and gas is not what is getting fixed
at open season, rather it's the tax allocated to gas.
MR. MARKS returned to the example he provided yesterday, and
said that the 22 percent of the total tax that was allocated to
gas is what's fixed at open season under current statute.
7:31:24 PM
MR. MARKS turned to the one change made by SB 305. He explained
that currently there's one statewide progressivity calculation
or one progressivity bucket. The legislation before the
committee, however, creates two buckets such that there are two
progressivity calculations. The aforementioned achieves the
decoupling effect. The first bucket is the same activity that's
in the original bucket that is the current activity bucket.
Therefore, the first bucket includes oil, Cook Inlet gas, and
other in-state gas. Under SB 305 the aforementioned bucket
includes the aforementioned, calculates the progressivity
together, and treats the five segments as they are now. Also,
under SB 305 there is no tax increase on current activity,
depending upon how the regulations are interpreted and how the
department would change its current regulations. Therefore, as
the Alaska Oil and Gas Association (AOGA) pointed out yesterday,
the current regulations are giving the department the authority
to change regulations and thus it could result in a change in
the tax. For understanding what SB 305 does, the first bucket
is the way it is under current law.
7:34:14 PM
MR. MARKS explained that if SB 305 didn't exist, current law
remains in effect and there is only one bucket. Therefore, if
there is a major gas sale, the gas would go into the one
statewide bucket. The aforementioned creates a dilution effect,
which was discussed yesterday. However, SB 305 creates a second
bucket into which the export gas would be placed in order to
avoid diluting the value of the oil. In a situation in which
there are two buckets and a major gas sale, the progressivity of
all the current activity would be calculated in the first bucket
and the progressivity for any export gas would be calculated
separately using the same formula. Again, such a methodology
wouldn't dilute the oil progressivity.
7:36:12 PM
MR. MARKS then directed attention to slide 8, which is a flow
chart illustrating how the earlier proposed Amendment 4 would
work. Under proposed Amendment 4, between now and April 28,
2010, it would be a one bucket world. On April 29, 2010, thru
the first day of the binding open season, it would be a two
bucket world. The aforementioned would be locked in for the
AGIA stability provisions. The second day of the binding open
season would be a return to the one bucket world, that is the
current system, and remain there until there is a time in which
more than 1.5 bcf/d of gas is first tendered into a pipeline or
LNG facility for export shipment. Once more than 1.5 bcf/d is
tendered for pipeline or LNG shipment out of state, the
situation returns to a two bucket world. In between the time
when the second day of binding open season and the time the
situation would return to a two bucket world, there would be an
opportunity to negotiate another system. In summary, Mr. Marks
clarified that under Amendment 4 the situation would be a two
bucket world unless negotiations changed that.
7:38:57 PM
REPRESENTATIVE SEATON surmised that when gas starts flowing in
an export gasline, a two-bucket world would be in effect.
Whereas, the AGIA terms guarantee that the tax in place during
the first day of binding open season would be in effect, and
thus a two-bucket world would be in effect.
MR. MARKS noted his agreement with that summarization. However,
he clarified that upon entering the two-bucket world on April
29, 2010, that is what's stabilized per AGIA. Still, there
could be a negotiation and terms could change such that there
are new tax terms. If those tax terms provided a higher tax
than what existed in the two-bucket world on April 29, 2010, the
taxpayer could take a tax exemption, the difference between what
happened after the negotiation and what was in place on April
29, 2010.
7:40:32 PM
REPRESENTATIVE SEATON, referring to Mr. Marks' presentation on
April 9, 2010, returned attention to the [example cases] and
slide 6 that addresses the oil and gas taxes decoupled. Under
the BOE, as recommended in SB 305, the tax rate on gas would be
approximately 3.7 percent.
MR. MARKS asked, "The $333 million is 3.7 percent of what?"
REPRESENTATIVE SEATON explained that the calculation should be
such that the $333 million [in tax] is divided by the total
gross value of $5.748 billion, which would amount to about 6
percent.
7:45:05 PM
MR. MARKS surmised then that Representative Seaton is meaning
the 3.7 percent is the tax as a percent of gross value.
REPRESENTATIVE SEATON calculated that [dividing the tax by the
total gross value on slide 6 of the April 29, 2010,
presentation] amounts to 5.78 percent. Therefore, if oil and
gas were decoupled, the state would, no matter the negotiation,
guarantee that whoever bid at open season would only pay 5.78
percent of the total gross value of gas, for that portion of gas
flowing at open season, during the first 10 years of gas
flowing.
MR. MARKS stated his agreement that under the scenario laid out
in [slide 6], it turns out to be about 6 percent of gross.
7:45:40 PM
CO-CHAIR NEUMAN remarked, "Again, because of the dilution effect
of the oil in the progressivity factor is the differences in the
total value to the state that we're seeing."
MR. MARKS commented that there is no question under these
scenarios that with decoupling the gas tax would be lower than
if oil and gas were combined. As explained on slide 7 of the
April 9, 2010, presentation under the current system that
combines oil and gas, gas with a value of $1.66 would be taxed
as if it had a value of $7.83. On the oil side, he cautioned
the committee to beware that under the current system, as
illustrated on slide 6, oil that's worth $102 would be taxed as
if it were worth $46.
7:47:07 PM
REPRESENTATIVE SEATON emphasized that the problem is that AS
43.90.320 fixes, at the start of the open season, the gas tax,
not the oil tax. He opined that there can be
discussions/negotiations of combining it, but it's not necessary
to leave it combined. If the oil and gas [tax] are separated
under the model provided as a reasonable-price scenario, the gas
tax would be changed from the current system, which per Mr.
Marks' calculations would be 22 percent, degrade it to the state
and guarantee
for the first 10 years of gas flow that companies wouldn't have
to pay over 5.78 percent. The aforementioned percentage may be
well below a negotiated gas price. If a gas price is the only
thing that's legally being fixed at the start of open season and
it's not coupled or decoupled being fixed at open season, he
questioned why the state would want to place itself in a
position that guarantees it will receive no more than 5.78
percent for the first 10 years of gas flow.
MR. MARKS remarked that it's the legislature's decision.
However, he explained that by decoupling, the substance is taxed
based upon its worth. When the substance is combined with
another substance that's worth much more, the value upon which
the lower worth substance is taxed is inflated. Whether the
aforementioned is healthy for the project is the decision the
committee faces.
7:50:17 PM
CO-CHAIR JOHNSON asked whether a lower tax would be more or less
likely to provide an incentive to bid their gas into an open
season.
MR. MARKS responded that all other things equal, a lower tax is
a larger incentive.
7:50:45 PM
CO-CHAIR JOHNSON opined that it seems the 10 years of stability
being offered would be an incentive to assist the producers to
bid their gas into a pipeline. "Is the difference in the numbers
that Representative Seaton has outlined and the ability to lock
the tax in at whatever rate he came up with versus the future
worth the $2 billion gamble ... to be able to get a higher gas
tax to shift that money around; to jeopardize that $2 billion,"
he asked. He surmised then that the policy question is whether
to decouple and gamble on the $2 billion or lock something in
and decouple and likely guarantee a lower gas tax for 10 years.
MR. MARKS said that he didn't disagree with that assessment.
However, from his personal judgment, he opined that once gas
taxes are discussed it won't be possible to separate oil taxes.
He opined that the oil and gas taxes will have to be reviewed
together. The frame of reference will likely be the status quo
and the question is what the status quo should be, the $5
billion world or the $8 billion world. In further response to
Co-Chair Johnson, Mr. Marks confirmed that the $5 billion is
what the state could obtain without decoupling and the $8
billion is what the state could gain by decoupling, regardless
of the gas tax during the 10-year period.
7:52:48 PM
REPRESENTATIVE EDGMON said he is hearing three different
arguments: the department discussed the complexity of
separating the accounting versus the cost allocations; Senator
Stedman introduced the oil tax as a way to obtain more revenue;
and now there's discussion that this creates incentives for the
gas tax development. "Where are we going with this bill," he
asked.
MR. MARKS explained that cost allocation is an issue that has to
be addressed when decoupling. He noted that it's done all the
time around the world and there are provisions in statute for
the department to adopt regulations to do it. Under current
statute, there are reasons to allocate costs between oil and
gas. The aforementioned has been performed just fine. With
regard to what happens with gas versus oil, he explained the
following. Given the relative values and volumes of oil and
gas, when they are decoupled gas taxes decrease and oil taxes
increase by more than the decrease in gas taxes. Therefore, on
net the state makes more money. "By not decoupling, when you
combine these substances of different values, the gas gets
sucked up, the oil gets sucked down. By decoupling, oil goes
back up, gas goes back down because that's the nature of what
they're worth," he clarified.
7:54:44 PM
REPRESENTATIVE EDGMON asked if Mr. Marks agreed with Senator
Stedman's presentation of a dramatic increase that would occur
due to decoupling the oil revenue side.
MR. MARKS replied yes, noting that is exactly what he presented
yesterday. He reminded the committee that he believes such
would happen because under the current system the gas is being
taxed at a vastly overrated value relative to what it's worth,
which is when it's combined with oil.
REPRESENTATIVE EDGMON surmised then that the department needs to
come forward and walk through the various scenarios.
CO-CHAIR NEUMAN remarked that the commission would love to know
what the oil and gas futures will be.
REPRESENTATIVE EDGMON opined that's why this is difficult.
7:56:15 PM
CO-CHAIR NEUMAN, referencing slide 8 of the Logsdon & Associates
April 10, 2010, presentation, opined that he views the situation
as the two bucket world because AGIA guarantees a 10-year lock
in of the tax rates. He recalled that the numbers Senator
Stedman referenced were numbers that were projected by the
Department of Energy as the actual cost to the state. He
expressed concern that the state could be locked into that rate.
The aforementioned is avoided by [going from the one bucket to
the two bucket world], but it leaves open the ability to review
tax structures on gas.
CO-CHAIR JOHNSON pointed out that before the committee today is
fixing a problem, cost allocation, which exists if the
legislature chooses to decouple. The large policy call, whether
to decouple or not, will not come today with the passage of
Version M.
REPRESENTATIVE EDGMON said that he understands that, but would
wait to hear from the department.
8:00:29 PM
REPRESENTATIVE SEATON inquired as to what will be the status quo
when negotiations occur at the end of the open season, if
[Version M] is passed.
MR. MARKS answered that the status quo will be in place when a
gasline is in place, which will be a two bucket decoupled world.
If nothing else changes, the aforementioned would start when 1.5
bcf/d is exported.
REPRESENTATIVE SEATON related his understanding that one day
after that, when negotiations begin, that it returns to a one
bucket world in which oil and gas are combined. The tax
consequences will be based on the status quo, which is combined
oil and gas for at least 10 years until gas would flow.
Therefore, the negotiations will likely be based on everything
that's on the table, he surmised. In any case, whether
something is in place or not, negotiations on tax rates will
include time, rates, progressivity, and what progressivity is
based upon. He asked if passage of this legislation would
eliminate the aforementioned options from negotiations.
MR. MARKS replied no.
8:02:36 PM
REPRESENTATIVE GUTTENBERG related his understanding that upon
passage of SB 305, the only thing that is fixed and doesn't
change is that 5.7 percent. The gas rate becomes fixed after
dropping from 22 percent to 5.7 percent.
MR. MARKS said that's correct.
REPRESENTATIVE GUTTENBERG then questioned why the state would
negotiate against itself this far in advance.
MR. MARKS stated that basic negotiating theory is based upon
knowing the value of what one has. He suggested that if the
state negotiates with the thought that its gas is worth $8, but
it is really worth only $1.60, it's very likely the negotiations
won't go very far, very fast.
REPRESENTATIVE GUTTENBERG said that he understands that the
relative value of oil and gas will shift. Therefore, he
questioned why the state should decrease the value now.
MR. MARKS explained that under decoupling, the value of gas is
determined and an appropriate tax rate is applied.
Additionally, when tax terms are discussed with the producers,
the issue of being unable to only talk about gas will arise
because if the state doesn't like the deal with gas, it will be
addressed with oil. Therefore, oil has to be discussed as well
and thus this dilution effect is part of the equation. He
opined that the aforementioned must be included in the equation
as well.
REPRESENTATIVE GUTTENBERG remarked that he didn't disagree.
8:09:19 PM
REPRESENTATIVE TUCK surmised that this isn't an attempt to fix
the value of gas but rather to fix the ceiling of the rate for
tax revenue. "I think what it comes down to is what we're going
to be locking in for gas, that's going to be determined by a
combination of oil and gas in that first open season, and then
what you do from there can be changed," he opined.
Representative Tuck then turned attention to slide 2 of the
Logsdon & Associates presentation dated April 9, 2010. The
slide illustrates two scenarios: one with the BOE and the other
with PoP. In the example cases of the status quo, the
[difference in the state's production tax revenue for oil and
for gas] is very similar. However, the example cases under SB
305 significantly changes [the tax revenue]. Upon recalling
that the BOE and PoP are merely two methods to determine the
value relationship between oil and gas for the cost allocation,
he inquired as to the most common method for determining the
value relationship between oil and gas for the cost allocation.
MR. MARKS responded that from his research he believes the most
common method is the BOE method.
8:12:28 PM
REPRESENTATIVE TUCK directed attention to slide 4 of the Logsdon
& Associates presentation dated April 10, 2010. From slide 4 he
understood that segments 3 and 4 are typically calculated with
ELF because once everything is determined, the ELF is usually
the lower of the two methods. If the ELF isn't lower, then a
progressivity factor is being used. Under the aforementioned
scenario, would the dilution effect result, he asked.
MR. MARKS explained that when progressivity is included, one
statewide factor of all activity is being used. Therefore, the
dilution effect carries through all segments.
REPRESENTATIVE TUCK posed a scenario in which under the status
quo that exists today that ELF wasn't lower for segments 3 and
4, and asked whether the progressivity would create the dilution
effect.
MR. MARKS answered, "Most definitely." He pointed out that
segment 3 is the North Slope oil and gas. In fact, currently a
mini-dilution effect is occurring because some producers have
North Slope oil and Cook Inlet gas and the Cook Inlet gas
dilutes the North Slope oil progressivity factor. Under the
status quo for segment 3, 4.5 bcf/d for export gas would be the
basic dilution effect that has been discussed.
8:15:18 PM
SENATOR JOE PASKVAN, Alaska State Legislature, upon a request
from Co-Chair Neuman, offered some clarifications for SB 305.
He related his belief that the 22 percent is the allocation of
the lower revenues that would be received under a combined tax
system. By regulation the commissioner has put together a
formula for imputing to the lower tax received under the
combined tax structure. He recalled that the commissioner's
slides related that under the formula it was 22 percent of the
$5.5 billion and the loss was essentially $2 billion. The 22
percent is the allocation of gas within the $5.5 billion in
revenues. He further recalled that Mr. Marks has said that the
tax structure remains the same going forward under the decoupled
system. The triggers, the slopes, and entire progressivity
structure remains the same. If the situation was such that gas
was more valuable than oil, the progressivity would apply to the
gas at the higher value because the tax structures would remain
the same. Senator Paskvan, [referring to slide 3 of the
presentation entitled "CSSB 305(FIN) MODELING RUNS" dated
4/7/10], opined that what's important for the committee to
consider is the total tax take comparison. This is a one-year
assumption with 4.5 bcf/d and 500,000 barrels a day. On slide 3
entitled "Total Tax CSSB 305(FIN) less Status Quo BOE Cost
Allocation" the total tax was compared assuming CSSB 305(FIN)
less the status quo, under various scenarios. From the chart on
slide 3, he surmised that in a situation in which there's $80 a
barrel oil and a gas parity of 20:1, the state would lose $2.2
billion per year if [oil and gas] wasn't decoupled. He pointed
out that the green squares on the aforementioned chart indicate
when it's in the state's best interest to be decoupled versus
the red squares, which illustrate when the state is at risk when
not decoupled. Senator Paskvan ascertained that under a BOE
cost allocation method it's substantially in the state's
interest to decouple. He then opined that the magnitude of
losing the $2.2 billion in any one year completely destabilizes
the recovery ability of the downside risk. Senator Paskvan said
that he wanted to be sure that the committee understood that the
tax rates stay the same.
8:21:41 PM
REPRESENTATIVE SEATON referred to the April 9, 2010, Logsdon &
Associates presentation. He then pointed out that slide 4
relates a status quo situation in which the oil and gas taxes
are combined and result in an attributed gas tax of $1.199
million. However, in a situation in which the oil and gas taxes
are decoupled, as illustrated on slide 6, the gas tax alone
amounts to $333.5 million that equates to a 5.8 percent tax. A
5.8 percent tax is very similar to the Cook Inlet exclusion. If
the desire is to fix a tax rate for 10 years of first gas flow,
Representative Seaton then asked if it would make sense for the
state to back off and guarantee that no matter what is
negotiated that [the producers] could have almost the ELF tax
rate for gas for 10 years. That's what would be guaranteed in a
decoupled environment with the presented scenarios in the April
9, 2010, Logsdon & Associates presentation. Therefore, he
questioned whether it's sensible for the state to enter into
negotiations with that guarantee on the table.
SENATOR PASKVAN opined that all these slides illustrate that "we
live in an oil world and we should keep our eye on oil." In
fact, on slide 6 the $8.6 billion in oil revenues illustrates
that the policy focus should be on the oil. Referring to
[slide] 2, he pointed out that the stack of money in the state's
control is always better with decoupling than without out
regardless of which cost allocation is used. The 22 percent
isn't a tax rate, he clarified, but rather an imputed
allocation. He explained that the progressivity formula
determines the tax rate, post decoupling.
8:27:37 PM
REPRESENTATIVE SEATON expressed concern that at the start of
open season nothing is being guaranteed in terms of the oil tax
rate, rather only the gas tax is being guaranteed. He clarified
that only the gas production tax obligation calculated under the
gas production tax in effect at the start of the first binding
open season is being guaranteed, not the gas tax rate. He
expressed concern that the [imputed] amount of tax based on
total gross value is the existing tax system, the status quo.
He asked if that's correct.
SENATOR PASKVAN recalled that Commissioner Galvin has said that
Alaska's tax can go up to the 1.99 figure. If on [slide 6 of
the April 9, 2010, Logsdon & Associates presentation] the $300
million, then Alaska could increase the tax another $800
million. However, the net value on the gas will be $2.4
billion. He reiterated that it's an oil world.
8:30:12 PM
REPRESENTATIVE SEATON pointed out that the gas tax production
tax exemption statute guarantees that the tax rate at the start
is what's guaranteed. That rate, he reiterated, is almost the
Cook Inlet ELF tax rate. He noted that the state only receives
$4 million from all the tax produced in Cook Inlet. Therefore,
if this rate is guaranteed for 10 years of gas flow, it would
amount to only a few multiple times of the $4 million. He
remarked that the state may receive $40 million a year in total
tax if the state guarantees 5.8 percent maximum tax rate.
8:32:03 PM
The committee took an at-ease from 8:32 p.m. to 8:42 p.m.
8:42:33 PM
CO-CHAIR NEUMAN announced that Commissioner Galvin has
information for the committee to consider and he can discuss it
with the committee at another time.
Text for Amendment 1, labeled 26-LS1577\WA.2, Bullock, 4/5/10,
which read:
Page 1, line 2:
Delete "oil,"
Insert "oil produced in the state and"
Page 1, lines 2 - 3:
Delete ", and gas produced outside of the Cook
Inlet sedimentary basin and used in the state"
Page 1, lines 10 - 11:
Delete "and not used in the state"
Page 2, line 17:
Delete "(f), (j), (k), and (o)"
Insert "(f), (j), and (k) [(f), (j), (k), AND
(o)]
Page 2, following line 24:
Insert a new bill section to read:
"* Sec. 3. AS 43.55.011(f) is amended to read:
(f) The levy of tax under this section for oil
and gas produced north of 68 degrees North latitude,
other than oil and gas production subject to (i) of
this section [AND GAS SUBJECT TO (o) OF THIS SECTION],
may not be less than
(1) four percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is more than $25;
(2) three percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $20 but not over $25;
(3) two percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $17.50 but not over $20;
(4) one percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $15 but not over $17.50;
or
(5) zero percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is $15 or less."
Renumber the following bill sections accordingly.
Page 2, line 27:
Delete "AS 43.55.160(a)(2)(A) - (E)"
Insert "AS 43.55.160(a)(2)(A) - (D)"
Page 3, line 1:
Delete ","
Insert "and"
Page 3, lines 2 - 4:
Delete ", and gas produced during the month from
a lease or property outside the Cook Inlet sedimentary
basin and used in the state"
Page 3, line 6:
Delete "AS 43.55.160(a)(2)(A) - (E)"
Insert "AS 43.55.160(a)(2)(A) - (D)"
Page 3, line 9:
Delete "AS 43.55.160(a)(2)(A) - (E)"
Insert "AS 43.55.160(a)(2)(A) - (D)"
Page 3, line 12:
Delete "AS 43.55.160(a)(2)(A) - (E)"
Insert "AS 43.55.160(a)(2)(A) - (D)"
Page 3, line 16:
Delete "AS 43.55.160(a)(2)(A) - (E)"
Insert "AS 43.55.160(a)(2)(A) - (D)"
Page 3, following line 18:
Insert a new bill section to read:
"* Sec. 5. AS 43.55.011(m) is amended to read:
(m) Notwithstanding any contrary provision of
AS 38.05.180(i), AS 41.09.010, AS 43.55.024, or
43.55.025, the department shall provide by regulation
a method to ensure that, for a calendar year for which
a producer's tax liability is limited by (j) or (k)
[(j), (k), OR (o)] of this section, tax credits
otherwise available under AS 38.05.180(i),
AS 41.09.010, AS 43.55.024, or 43.55.025 and allocated
to gas subject to the limitations in (j) or (k) [(j),
(k), AND (o)] of this section are accounted for as
though the credits had been applied first against a
tax liability calculated without regard to the
limitations under (j) or (k) [(j), (k), AND (o)] of
this section so as to reduce the tax liability to the
maximum amount provided for under (j) [(j) OR (o)] of
this section for the production of gas or (k) of this
section for the production of oil. The regulation must
provide for a reasonable method to allocate tax
credits to gas subject to (j) [(j) AND (o)] of this
section. Only the amount of a tax credit remaining
after the accounting provided for under this
subsection may be used for a later calendar year,
transferred to another person, or applied against a
tax levied on the production of oil or gas not subject
to (j) or (k) [(j), (k), OR (o)] of this section to
the extent otherwise allowed."
Renumber the following bill sections accordingly.
Page 3, line 21:
Delete "AS 43.55.160(a)(2)(F) and (G)"
Insert "AS 43.55.160(a)(2)(E) and (F)"
Page 3, lines 25 - 26:
Delete "or gas produced outside the Cook Inlet
sedimentary basin and used in the state"
Page 3, line 29:
Delete "AS 43.55.160(a)(2)(F) and (G)"
Insert "AS 43.55.160(a)(2)(E) and (F)"
Page 4, line 1:
Delete "AS 43.55.160(a)(2)(F) and (G)"
Insert "AS 43.55.160(a)(2)(E) and (F)"
Page 4, line 4:
Delete "AS 43.55.160(a)(2)(F) and (G)"
Insert "AS 43.55.160(a)(2)(E) and (F)"
Page 4, line 7:
Delete "AS 43.55.160(a)(2)(F) and (G)"
Insert "AS 43.55.160(a)(2)(E) and (F)"
Page 4, lines 21 - 22:
Delete "but not subject to AS 43.55.011(o)"
Insert "[BUT NOT SUBJECT TO AS 43.55.011(o)]"
Page 6, line 9:
Delete "AS 43.55.011(j), (k), or (o)"
Insert "AS 43.55.011(j) or (k) [AS 43.55.011(j),
(k), OR (o)]"
Page 6, line 31:
Delete "AS 43.55.011(j), (k), or (o)"
Insert "AS 43.55.011(j) or (k) [AS 43.55.011(j),
(k), OR (o)]"
Page 7, line 2:
Delete "or 43.55.011(o)"
Insert "[OR 43.55.011(o)]"
Page 7, line 4:
Delete "or 43.55.011(o)"
Insert "[OR 43.55.011(o)]"
Page 9, lines 14 - 21:
Delete "gas produced during a calendar year from
a lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(F)"
Page 9, lines 27 - 28:
Delete "this subparagraph does not apply to gas
used in the state;"
Page 9, line 29:
Delete "(G)"
Insert "(F)"
Page 10, lines 5 - 6:
Delete "; this subparagraph does not apply to gas
used in the state;"
Insert "[GAS PRODUCED DURING A CALENDAR YEAR FROM
A LEASE OR PROPERTY OUTSIDE THE COOK INLET SEDIMENTARY
BASIN AND USED IN THE STATE IS THE GROSS VALUE AT THE
POINT OF PRODUCTION OF THAT GAS TAXABLE UNDER
AS 43.55.011(e) AND PRODUCED BY THE PRODUCER FROM THAT
LEASE OR PROPERTY, LESS THE PRODUCER'S LEASE
EXPENDITURES UNDER AS 43.55.165 FOR THE CALENDAR YEAR
APPLICABLE TO THAT GAS PRODUCED BY THE PRODUCER FROM
THAT LEASE OR PROPERTY, AS ADJUSTED UNDER
AS 43.55.170];"
Page 11, lines 8 - 15:
Delete "gas produced during a month from a lease
or property outside the Cook Inlet sedimentary basin
and used in the state is the gross value at the point
of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(F)"
Page 11, line 22:
Delete all material.
Page 11, line 23:
Delete "(G)"
Insert "(F)"
Page 11, lines 30 - 31:
Delete "; this subparagraph does not apply to gas
used in the state"
Insert "[GAS PRODUCED DURING A MONTH FROM A LEASE
OR PROPERTY OUTSIDE THE COOK INLET SEDIMENTARY BASIN
AND USED IN THE STATE IS THE GROSS VALUE AT THE POINT
OF PRODUCTION OF THAT GAS TAXABLE UNDER
AS 43.55.011(e) AND PRODUCED BY THE PRODUCER FROM THAT
LEASE OR PROPERTY, LESS 1/12 OF THE PRODUCER'S LEASE
EXPENDITURES UNDER AS 43.55.165 FOR THE CALENDAR YEAR
APPLICABLE TO THAT GAS PRODUCED BY THE PRODUCER FROM
THAT LEASE OR PROPERTY, AS ADJUSTED UNDER
AS 43.55.170]"
Page 11, following line 31:
Insert a new bill section to read:
"* Sec. 10. AS 43.55.160(e) is amended to read:
(e) Any adjusted lease expenditures under
AS 43.55.165 and 43.55.170 that would otherwise be
deductible by a producer in a calendar year but whose
deduction would cause an annual production tax value
calculated under (a)(1) of this section of taxable oil
or gas produced during the calendar year to be less
than zero may be used to establish a carried-forward
annual loss under AS 43.55.023(b). However, the
department shall provide by regulation a method to
ensure that, for a period for which a producer's tax
liability is limited by AS 43.55.011(j) or (k)
[AS 43.55.011(j), (k), OR (o)], any adjusted lease
expenditures under AS 43.55.165 and 43.55.170 that
would otherwise be deductible by a producer for that
period but whose deduction would cause a production
tax value calculated under (a)(1)(C) or (D)
[(a)(1)(C), (D), OR (E)] of this section to be less
than zero are accounted for as though the adjusted
lease expenditures had first been used as deductions
in calculating the production tax values of oil or gas
subject to any of the limitations under
AS 43.55.011(j) or (k) [AS 43.55.011(j), (k), OR (o)]
that have positive production tax values so as to
reduce the tax liability calculated without regard to
the limitation to the maximum amount provided for
under the applicable provision of AS 43.55.011(j) or
(k) [AS 43.55.011(j), (k), OR (o)]. Only the amount of
those adjusted lease expenditures remaining after the
accounting provided for under this subsection may be
used to establish a carried-forward annual loss under
AS 43.55.023(b). In this subsection, "producer"
includes "explorer.""
Renumber the following bill sections accordingly.
Page 12, lines 3 - 4:
Delete ", between gas subject to AS 43.55.011(o)
and other gas,"
Insert "[, BETWEEN GAS SUBJECT TO AS 43.55.011(o)
AND OTHER GAS,]"
Page 12, line 17:
Delete ", between gas subject to AS 43.55.011(o)
and other gas,"
Page 12, following line 27:
Insert a new bill section to read:
"* Sec. 13. AS 43.55.011(o) and AS 43.55.900(24)
are repealed."
Renumber the following bill sections accordingly.
Page 13, line 2:
Delete "secs. 2 - 4 and 7"
Insert "secs. 2, 4, 6, and 9"
Page 13, line 5:
Delete "secs. 2 - 4 and 7"
Insert "secs. 2, 4, 6, and 9"
Page 13, line 10:
Delete "Sections 2 - 4 and 7"
Insert "Sections 2, 4, 6, and 9"
Text for Amendment 4, labeled 26-LS1577\WA.6, Bullock, 4/10/10,
which read:
Page 1, lines 1 - 11:
Delete "providing that the tax rate applicable to
the production of oil as the average production tax
value of oil, gas produced in the Cook Inlet
sedimentary basin, and gas produced outside of the
Cook Inlet sedimentary basin and used in the state
increases above $30 shall be 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value and $30, or the
sum of 25 percent and the product of 0.1 percent
multiplied by the number that represents the
difference between that average monthly production tax
value and $92.50, except that the total rate
determined in the calculation may not exceed 50
percent; providing for an increase in the rate of tax
on the production of gas as the average production tax
value on a BTU equivalent barrel basis of gas produced
outside of the Cook Inlet sedimentary basin and not
used in the state increases above $30"
Insert "relating to that part of the tax on the
production of oil and gas that increases as the
average production tax value of the oil and gas
increases above $30"
Page 2, line 2, following "expenditures;":
Insert "relating to the tax on the production of
gas in effect at the start of the first binding open
season held for the project licensed under the Alaska
Gasline Inducement Act;"
Page 2, following line 12:
Insert new bill sections to read:
"* Sec. 2. AS 29.60.850(b), as amended by sec. 1 of
this Act, is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to 20 percent of the money received by
the state during the previous calendar year under
AS 43.55.011(g) [AND (p)]. The amount may not exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000.
* Sec. 3. AS 29.60.850(b), as amended by sec. 2 of
this Act, is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to 20 percent of the money received by
the state during the previous calendar year under
AS 43.55.011(g) and (p). The amount may not exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000."
Renumber the following bill sections accordingly.
Page 2, following line 24:
Insert new bill sections to read:
"* Sec. 5. AS 43.55.011(e), as amended by sec. 4 of
this Act, is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under
[(A) SUBSECTION] (g) of this section [; AND
(B) SUBSECTION (p) OF THIS SECTION].
* Sec. 6. AS 43.55.011(e) as amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under
(A) subsection (g) of this section; and
(B) subsection (p) of this section."
Renumber the following bill sections accordingly.
Page 3, following line 18:
Insert new bill sections to read:
"* Sec. 8. AS 43.55.011(g), as amended by sec. 7 of
this Act, is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) [AS 43.55.160(a)(2)(A)
- (E)] of a BTU equivalent barrel of taxable oil and
gas is more than $30, the amount of tax for purposes
of (e)(2) [(e)(2)(A)] of this section is determined by
multiplying the monthly production tax value of the
taxable oil and gas produced during the month [, GAS
PRODUCED DURING THE MONTH FROM A LEASE OR PROPERTY IN
THE COOK INLET SEDIMENTARY BASIN, AND GAS PRODUCED
DURING THE MONTH FROM A LEASE OR PROPERTY OUTSIDE THE
COOK INLET SEDIMENTARY BASIN AND USED IN THE STATE] by
the tax rate calculated as follows:
(1) if the producer's average monthly
production tax value [UNDER AS 43.55.160(a)(2)(A) -
(E)] of a BTU equivalent barrel of taxable oil and gas
for the month is not more than $92.50, the tax rate is
0.4 percent multiplied by the number that represents
the difference between the producer's average monthly
production tax value [UNDER AS 43.55.160(a)(2)(A) -
(E)] of a BTU equivalent barrel of taxable oil and gas
and $30; or
(2) if the producer's average monthly
production tax value [UNDER AS 43.55.160(a)(2)(A) -
(E)] of a BTU equivalent barrel of taxable oil and gas
for the month is more than $92.50, the tax rate is the
sum of 25 percent and the product of 0.1 percent
multiplied by the number that represents the
difference between the producer's average monthly
production tax value [UNDER AS 43.55.160(a)(2)(A) -
(E)] of a BTU equivalent barrel of taxable oil and gas
and $92.50, except that the sum determined under this
paragraph may not exceed 50 percent.
* Sec. 9. AS 43.55.011(g), as amended by sec. 8 of
this Act, is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2)(A) - (E)
[AS 43.55.160(a)(2)] of a BTU equivalent barrel of
taxable oil and gas is more than $30, the amount of
tax for purposes of (e)(2)(A) [(e)(2)] of this section
is determined by multiplying the monthly production
tax value of the taxable oil [AND GAS] produced during
the month, gas produced during the month from a lease
or property in the Cook Inlet sedimentary basin, and
gas produced during the month from a lease or property
outside the Cook Inlet sedimentary basin and used in
the state by the tax rate calculated as follows:
(1) if the producer's average monthly
production tax value under AS 43.55.160(a)(2)(A) - (E)
of a BTU equivalent barrel of taxable oil and gas for
the month is not more than $92.50, the tax rate is 0.4
percent multiplied by the number that represents the
difference between the producer's average monthly
production tax value under AS 43.55.160(a)(2)(A) - (E)
of a BTU equivalent barrel of taxable oil and gas and
$30; or
(2) if the producer's average monthly
production tax value under AS 43.55.160(a)(2)(A) - (E)
of a BTU equivalent barrel of taxable oil and gas for
the month is more than $92.50, the tax rate is the sum
of 25 percent and the product of 0.1 percent
multiplied by the number that represents the
difference between the producer's average monthly
production tax value under AS 43.55.160(a)(2)(A) - (E)
of a BTU equivalent barrel of taxable oil and gas and
$92.50, except that the sum determined under this
paragraph may not exceed 50 percent."
Renumber the following bill sections accordingly.
Page 4, following line 9:
Insert a new bill section to read:
"* Sec. 11. AS 43.55.011 is amended by adding a new
subsection to read:
(p) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2)(F) and (G) of a BTU
equivalent barrel of taxable gas is more than $30, the
amount of tax on the production of gas for purposes of
(e)(2)(B) of this section is determined by multiplying
the monthly production tax value of the taxable gas
produced during the month other than gas produced from
a lease or property in the Cook Inlet sedimentary
basin or gas produced outside the Cook Inlet
sedimentary basin and used in the state by the tax
rate calculated as follows:
(1) if the producer's average monthly
production tax value under AS 43.55.160(a)(2)(F) and
(G) of a BTU equivalent barrel of taxable gas for the
month is not more than $92.50, the tax rate is 0.4
percent multiplied by the number that represents the
difference between the producer's average monthly
production tax value under AS 43.55.160(a)(2)(F) and
(G) of a BTU equivalent barrel of gas and $30; or
(2) if the producer's average monthly
production tax value under AS 43.55.160(a)(2)(F) and
(G) of a BTU equivalent barrel of taxable gas for the
month is more than $92.50, the tax rate is the sum of
25 percent and the product of 0.1 percent multiplied
by the number that represents the difference between
the producer's average monthly production tax value
under AS 43.55.160(a)(2)(F) and (G) of a BTU
equivalent barrel of gas and $92.50, except that the
sum determined under this paragraph may not exceed 50
percent."
Renumber the following bill sections accordingly.
Page 6, line 31:
Delete "before 2022"
Page 7, following line 24:
Insert new bill sections to read:
"* Sec. 13. AS 43.55.020(a), as amended by sec. 12
of this Act, is amended to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e) - (i) [AND (p)] shall pay
the tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o),
other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) [AN AMOUNT EQUAL TO] the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production [APPLICABLE TO THE OIL PRODUCED BY THE
PRODUCER FROM THOSE LEASES AND PROPERTIES] under
AS 43.55.165 and 43.55.170 that are deductible for the
leases or properties under AS 43.55.160 [,] from the
gross value at the point of production of the oil and
gas produced from the leases or properties during the
month for which the installment payment is calculated
[ADDED TO THE SUM OF 25 PERCENT AND THE TAX RATE
CALCULATED FOR THE MONTH UNDER AS 43.55.011(p)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION APPLICABLE TO THE GAS
PRODUCED BY THE PRODUCER FROM THOSE LEASES AND
PROPERTIES UNDER AS 43.55.165 AND 43.55.170 THAT ARE
DEDUCTIBLE FOR THE LEASES OR PROPERTIES UNDER
AS 43.55.160 FROM THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE GAS PRODUCED FROM THE LEASES OR
PROPERTIES DURING THE MONTH FOR WHICH THE INSTALLMENT
PAYMENT IS CALCULATED];
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) [AN AMOUNT EQUAL TO] the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production [APPLICABLE TO THE OIL PRODUCED BY THE
PRODUCER FROM THOSE LEASES AND PROPERTIES] under
AS 43.55.165 and 43.55.170 that are deductible for
those leases or properties under AS 43.55.160 [,] from
the gross value at the point of production of the oil
and gas produced from those leases or properties
during the month for which the installment payment is
calculated [ADDED TO THE SUM OF 25 PERCENT AND THE TAX
RATE CALCULATED FOR THE MONTH UNDER AS 43.55.011(p)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION APPLICABLE TO THE GAS
PRODUCED BY THE PRODUCER FROM THOSE LEASES AND
PROPERTIES UNDER AS 43.55.165 AND 43.55.170 THAT ARE
DEDUCTIBLE FOR THOSE LEASES OR PROPERTIES UNDER
AS 43.55.160 FROM THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE GAS PRODUCED FROM THOSE LEASES OR
PROPERTIES DURING THE MONTH FOR WHICH THE INSTALLMENT
PAYMENT IS CALCULATED];
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k), or
(o), the greater of
(i) zero; or
(ii) [AN AMOUNT EQUAL TO] the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production [APPLICABLE TO THE OIL PRODUCED BY THE
PRODUCER FROM THOSE LEASES AND PROPERTIES] under
AS 43.55.165 and 43.55.170 that are deductible under
AS 43.55.160 for oil or gas, respectively, produced
from the lease or property [,] from the gross value at
the point of production of the oil or gas,
respectively, produced from the lease or property
during the month for which the installment payment is
calculated [ADDED TO THE SUM OF 25 PERCENT AND THE TAX
RATE CALCULATED FOR THE MONTH UNDER AS 43.55.011(g)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION APPLICABLE TO THE GAS
PRODUCED BY THE PRODUCER FROM THE LEASE OR PROPERTY
UNDER AS 43.55.165 AND 43.55.170 THAT ARE DEDUCTIBLE
UNDER AS 43.55.160 FOR GAS PRODUCED FROM THE LEASE OR
PROPERTY, FROM THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE GAS PRODUCED FROM THE LEASE OR
PROPERTY DURING THE MONTH FOR WHICH THE INSTALLMENT
PAYMENT IS CALCULATED];
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced before 2022
from a lease or property subject to AS 43.55.011(j),
(k), or (o) may not exceed the product obtained by
carrying out the calculation set out in
AS 43.55.011(j)(1) or (2) or 43.55.011(o), as
applicable, for gas or set out in AS 43.55.011(k)(1)
or (2), as applicable, for oil, but substituting in
AS 43.55.011(j)(1)(A) or (2)(A) or 43.55.011(o), as
applicable, the amount of taxable gas produced during
the month for the amount of taxable gas produced
during the calendar year and substituting in
AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production.
* Sec. 14. AS 43.55.020(a), as amended by sec. 13
of this Act, is amended to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e) - (i) and (p) shall pay the
tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o),
other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) an amount equal to the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production applicable to the oil produced by the
producer from those leases and properties under
AS 43.55.165 and 43.55.170 that are deductible for the
leases or properties under AS 43.55.160, from the
gross value at the point of production of the oil [AND
GAS] produced from the leases or properties during the
month for which the installment payment is calculated
added to the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(p)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production applicable to the gas
produced by the producer from those leases and
properties under AS 43.55.165 and 43.55.170 that are
deductible for the leases or properties under
AS 43.55.160 from the gross value at the point of
production of the gas produced from the leases or
properties during the month for which the installment
payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) an amount equal to the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production applicable to the oil produced by the
producer from those leases and properties under
AS 43.55.165 and 43.55.170 that are deductible for
those leases or properties under AS 43.55.160, from
the gross value at the point of production of the oil
[AND GAS] produced from those leases or properties
during the month for which the installment payment is
calculated added to the sum of 25 percent and the tax
rate calculated for the month under AS 43.55.011(p)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production applicable to the gas
produced by the producer from those leases and
properties under AS 43.55.165 and 43.55.170 that are
deductible for those leases or properties under
AS 43.55.160 from the gross value at the point of
production of the gas produced from those leases or
properties during the month for which the installment
payment is calculated;
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k), or
(o), the greater of
(i) zero; or
(ii) an amount equal to the sum of 25
percent and the tax rate calculated for the month
under AS 43.55.011(g) multiplied by the remainder
obtained by subtracting 1/12 of the producer's
adjusted lease expenditures for the calendar year of
production applicable to the oil produced by the
producer from those leases and properties under
AS 43.55.165 and 43.55.170 that are deductible under
AS 43.55.160 for oil [OR GAS, RESPECTIVELY,] produced
from the lease or property, from the gross value at
the point of production of the oil [OR GAS,
RESPECTIVELY,] produced from the lease or property
during the month for which the installment payment is
calculated added to the sum of 25 percent and the tax
rate calculated for the month under AS 43.55.011(g)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production applicable to the gas
produced by the producer from the lease or property
under AS 43.55.165 and 43.55.170 that are deductible
under AS 43.55.160 for gas produced from the lease or
property, from the gross value at the point of
production of the gas produced from the lease or
property during the month for which the installment
payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced before 2022
from a lease or property subject to AS 43.55.011(j),
(k), or (o) may not exceed the product obtained by
carrying out the calculation set out in
AS 43.55.011(j)(1) or (2) or 43.55.011(o), as
applicable, for gas or set out in AS 43.55.011(k)(1)
or (2), as applicable, for oil, but substituting in
AS 43.55.011(j)(1)(A) or (2)(A) or 43.55.011(o), as
applicable, the amount of taxable gas produced during
the month for the amount of taxable gas produced
during the calendar year and substituting in
AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production."
Renumber the following bill sections accordingly.
Page 8, line 11:
Insert new bill sections to read:
"* Sec. 16. AS 43.55.020(d), as amended by sec. 15
of this Act, is amended to read:
(d) In making settlement with the royalty owner
for oil and gas that is taxable under AS 43.55.011,
the producer may deduct the amount of the tax paid on
taxable royalty oil and gas, or may deduct taxable
royalty oil or gas equivalent in value at the time the
tax becomes due to the amount of the tax paid. If the
total deductions of installment payments of estimated
tax for a calendar year exceed the actual tax for that
calendar year, the producer shall, before April 1 of
the following year, refund the excess to the royalty
owner. Unless otherwise agreed between the producer
and the royalty owner, the amount of the tax paid
under AS 43.55.011(e) - (g) [AND (p)] on taxable
royalty oil and gas for a calendar year, other than
oil and gas the ownership or right to which
constitutes a landowner's royalty interest, is
considered to be the gross value at the point of
production of the taxable royalty oil and gas produced
during the calendar year multiplied by a figure that
is a quotient, in which
(1) the numerator is the producer's total
tax liability under AS 43.55.011(e) - (g) [AND (p)]
for the calendar year of production; and
(2) the denominator is the total gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) - (g) [AND (p)] produced
by the producer from all leases and properties in the
state during the calendar year.
* Sec. 17. AS 43.55.020(d), as amended by sec. 16
of this Act, is amended to read:
(d) In making settlement with the royalty owner
for oil and gas that is taxable under AS 43.55.011,
the producer may deduct the amount of the tax paid on
taxable royalty oil and gas, or may deduct taxable
royalty oil or gas equivalent in value at the time the
tax becomes due to the amount of the tax paid. If the
total deductions of installment payments of estimated
tax for a calendar year exceed the actual tax for that
calendar year, the producer shall, before April 1 of
the following year, refund the excess to the royalty
owner. Unless otherwise agreed between the producer
and the royalty owner, the amount of the tax paid
under AS 43.55.011(e) - (g) and (p) on taxable royalty
oil and gas for a calendar year, other than oil and
gas the ownership or right to which constitutes a
landowner's royalty interest, is considered to be the
gross value at the point of production of the taxable
royalty oil and gas produced during the calendar year
multiplied by a figure that is a quotient, in which
(1) the numerator is the producer's total
tax liability under AS 43.55.011(e) - (g) and (p) for
the calendar year of production; and
(2) the denominator is the total gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) - (g) and (p) produced
by the producer from all leases and properties in the
state during the calendar year."
Renumber the following bill sections accordingly.
Page 11, following line 31:
Insert new bill sections to read:
"* Sec. 19. AS 43.55.160(a), as amended by sec. 18
of this Act, is amended to read:
(a) Except as provided in (b) of this section,
for the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable
(A) oil and gas produced during a calendar
year from leases or properties in the state that
include land north of 68 degrees North latitude is the
gross value at the point of production of the oil and
gas taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a calendar
year from leases or properties in the state outside
the Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less the producer's
lease expenditures under AS 43.55.165 for the calendar
year applicable to the oil and gas produced by the
producer from those leases or properties, as adjusted
under AS 43.55.170; this subparagraph does not apply
to gas subject to AS 43.55.011(o);
(C) oil produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the oil taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the gas taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a calendar year
from a lease or property outside the Cook Inlet
sedimentary basin and used in the state is the gross
value at the point of production of that gas taxable
under AS 43.55.011(e) and produced by the producer
from that lease or property, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
[(F) GAS PRODUCED DURING A CALENDAR YEAR
FROM LEASES OR PROPERTIES IN THE STATE THAT INCLUDE
LAND NORTH OF 68 DEGREES NORTH LATITUDE IS THE GROSS
VALUE AT THE POINT OF PRODUCTION OF THE GAS TAXABLE
UNDER AS 43.55.011(e) AND PRODUCED BY THE PRODUCER
FROM THOSE LEASES OR PROPERTIES, LESS THE PRODUCER'S
LEASE EXPENDITURES UNDER AS 43.55.165 FOR THE CALENDAR
YEAR APPLICABLE TO THE GAS PRODUCED BY THE PRODUCER
FROM THOSE LEASES OR PROPERTIES, AS ADJUSTED UNDER
AS 43.55.170; THIS SUBPARAGRAPH DOES NOT APPLY TO GAS
USED IN THE STATE;
(G) GAS PRODUCED DURING A CALENDAR YEAR
FROM LEASES OR PROPERTIES IN THE STATE OUTSIDE THE
COOK INLET SEDIMENTARY BASIN, NO PART OF WHICH IS
NORTH OF 68 DEGREES NORTH LATITUDE, IS THE GROSS VALUE
AT THE POINT OF PRODUCTION OF THE GAS TAXABLE UNDER
AS 43.55.011(e) AND PRODUCED BY THE PRODUCER FROM
THOSE LEASES OR PROPERTIES, LESS THE PRODUCER'S LEASE
EXPENDITURES UNDER AS 43.55.165 FOR THE CALENDAR YEAR
APPLICABLE TO THE GAS PRODUCED BY THE PRODUCER FROM
THOSE LEASES OR PROPERTIES, AS ADJUSTED UNDER
AS 43.55.170; THIS SUBPARAGRAPH DOES NOT APPLY TO GAS
USED IN THE STATE;]
(2) AS 43.55.011(g) [AND (p)], the monthly
production tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under AS 43.55.170
[;
(F) GAS PRODUCED DURING A MONTH FROM LEASES
OR PROPERTIES IN THE STATE THAT INCLUDE LAND NORTH OF
68 DEGREES NORTH LATITUDE IS THE GROSS VALUE AT THE
POINT OF PRODUCTION OF THE GAS TAXABLE UNDER
AS 43.55.011(e) AND PRODUCED BY THE PRODUCER FROM
THOSE LEASES OR PROPERTIES, LESS 1/12 OF THE
PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR
THE CALENDAR YEAR APPLICABLE TO THE GAS PRODUCED BY
THE PRODUCER FROM THOSE LEASES OR PROPERTIES, AS
ADJUSTED UNDER AS 43.55.170; THIS SUBPARAGRAPH DOES
NOT APPLY TO GAS USED IN THE STATE;
(G) GAS PRODUCED DURING A MONTH FROM LEASES
OR PROPERTIES IN THE STATE OUTSIDE THE COOK INLET
SEDIMENTARY BASIN, NO PART OF WHICH IS NORTH OF 68
DEGREES NORTH LATITUDE, IS THE GROSS VALUE AT THE
POINT OF PRODUCTION OF THE GAS TAXABLE UNDER
AS 43.55.011(e) AND PRODUCED BY THE PRODUCER FROM
THOSE LEASES OR PROPERTIES, LESS 1/12 OF THE
PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR
THE CALENDAR YEAR APPLICABLE TO THE GAS PRODUCED BY
THE PRODUCER FROM THOSE LEASES OR PROPERTIES, AS
ADJUSTED UNDER AS 43.55.170; THIS SUBPARAGRAPH DOES
NOT APPLY TO GAS USED IN THE STATE].
* Sec. 20. AS 43.55.160(a), as amended by sec. 19
of this Act, is amended to read:
(a) Except as provided in (b) of this section,
for the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable
(A) oil [AND GAS] produced during a
calendar year from leases or properties in the state
that include land north of 68 degrees North latitude
is the gross value at the point of production of the
oil [AND GAS] taxable under AS 43.55.011(e) and
produced by the producer from those leases or
properties, less the producer's lease expenditures
under AS 43.55.165 for the calendar year applicable to
the oil [AND GAS] produced by the producer from those
leases or properties, as adjusted under AS 43.55.170;
[THIS SUBPARAGRAPH DOES NOT APPLY TO GAS SUBJECT TO
AS 43.55.011(o);]
(B) oil [AND GAS] produced during a
calendar year from leases or properties in the state
outside the Cook Inlet sedimentary basin, no part of
which is north of 68 degrees North latitude, is the
gross value at the point of production of the oil [AND
GAS] taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil [AND GAS]
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; [THIS
SUBPARAGRAPH DOES NOT APPLY TO GAS SUBJECT TO
AS 43.55.011(o);]
(C) oil produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the oil taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the gas taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a calendar year
from a lease or property outside the Cook Inlet
sedimentary basin and used in the state is the gross
value at the point of production of that gas taxable
under AS 43.55.011(e) and produced by the producer
from that lease or property, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(F) gas produced during a calendar year
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less the producer's
lease expenditures under AS 43.55.165 for the calendar
year applicable to the gas produced by the producer
from those leases or properties, as adjusted under
AS 43.55.170; this subparagraph does not apply to gas
used in the state;
(G) gas produced during a calendar year
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the gas taxable under
AS 43.55.011(e) and produced by the producer from
those leases or properties, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to the gas produced by the producer from
those leases or properties, as adjusted under
AS 43.55.170; this subparagraph does not apply to gas
used in the state;
(2) AS 43.55.011(g) and (p), the monthly
production tax value of the taxable
(A) oil [AND GAS] produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil [AND GAS]
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil [AND GAS]
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; [THIS
SUBPARAGRAPH DOES NOT APPLY TO GAS SUBJECT TO
AS 43.55.011(o);]
(B) oil [AND GAS] produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil [AND GAS]
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil [AND GAS]
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; [THIS
SUBPARAGRAPH DOES NOT APPLY TO GAS SUBJECT TO
AS 43.55.011(o);]
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(F) gas produced during a month from leases
or properties in the state that include land north of
68 degrees North latitude is the gross value at the
point of production of the gas taxable under
AS 43.55.011(e) and produced by the producer from
those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from those leases or properties, as
adjusted under AS 43.55.170; this subparagraph does
not apply to gas used in the state;
(G) gas produced during a month from leases
or properties in the state outside the Cook Inlet
sedimentary basin, no part of which is north of 68
degrees North latitude, is the gross value at the
point of production of the gas taxable under
AS 43.55.011(e) and produced by the producer from
those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from those leases or properties, as
adjusted under AS 43.55.170; this subparagraph does
not apply to gas used in the state."
Renumber the following bill sections accordingly.
Page 12, line 28, through page 13, line 11:
Delete all material and insert:
"* Sec. 23. AS 43.55.011(p) is repealed.
* Sec. 24. The uncodified law of the State of
Alaska is amended by adding a new section to read:
TRANSITION; REGULATIONS; PAYMENT OF TAX; FILING
OF REPORTS. If secs. 1, 4, 7, 10, 12, 15, and 18 of
this Act take effect, the Department of Revenue shall
adopt regulations providing for the payment of tax and
the filing of reports required for the period in which
secs. 1, 4, 7, 10, 12, 15, and 18 of this Act are in
effect.
* Sec. 25. The uncodified law of the State of
Alaska is amended by adding a new section to read:
CONDITIONAL EFFECT OF SECS. 1, 2, 4, 5, 7, 8, 10,
12, 13, 15, 16, 18, 19, AND 23 OF THIS ACT; NOTICE.
(a) Sections 1, 2, 4, 5, 7, 8, 10, 12, 13, 15, 16, 18,
19, and 23 of this Act take effect only if secs. 21
and 22 of this Act take effect before April 29, 2010.
(b) The commissioner of revenue shall notify the
revisor of statutes of the date of the start of the
first binding open season for the project licensed
under AS 43.90 (Alaska Gasline Inducement Act).
* Sec. 26. The uncodified law of the State of
Alaska is amended by adding a new section to read:
CONDITIONAL EFFECT OF SECS. 3, 6, 9, 11, 14, 17,
AND 20 OF THIS ACT; NOTICE. (a) Sections 3, 6, 9, 11,
14, 17, and 20 of this Act take effect only if more
than 1,500,000,000 cubic feet of natural gas a day
that is produced in the state is tendered for shipment
through a natural gas pipeline project in the state to
a market in Canada or the 48 contiguous states, or to
a gas liquefaction facility in the state for shipment
in a liquefied state by marine transportation to a
market outside of the state.
(b) The commissioner of revenue shall notify the
revisor of statutes of the date that natural gas was
first tendered for shipment under the circumstances
described in (a) of this section.
* Sec. 27. If secs. 1, 4, 7, 10, 12, 15, and 18 of
this Act take effect, they take effect April 29, 2010.
* Sec. 28. If secs. 2, 5, 8, 13, 16, 19, and 23 of
this Act take effect, they take effect on the first
day immediately following the date on which the open
season starts for the project licensed under AS 43.90.
* Sec. 29. If secs. 3, 6, 9, 11, 14, 17, and 20
take effect, they take effect on the first day of the
month immediately following the date on which the
condition in sec. 26(a) of this Act is met.
* Sec. 30. Except as provided in secs. 27 - 29 of
this Act, this Act takes effect immediately under
AS 01.10.070(c)."
8:43:05 PM
ADJOURNMENT
CO-CHAIR NEUMAN announced that the committee was recessed to a
call of the chair at 8:43 p.m.[SB 305 was left pending.] [This
meeting reconvened on April 11, 2010.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 365 amendment A.3.pdf |
HRES 4/10/2010 10:00:00 AM |
HB 365 |
| SB 305 Amendment WA.6.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| SB 305 Concept Amend 4.10.10.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| SB 305 Amend WA.2 Explanation.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| LogsdonAssocHRES Flow SB305 41010.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| SB 305 work draft v.M.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| CSSB 305 (FIN) Modeling Runs - Back-Up - Final.pptx |
HRES 4/10/2010 10:00:00 AM |
SB 305 |
| SB 305 wdraft v. M 4.10.10.pdf |
HRES 4/10/2010 10:00:00 AM |
SB 305 |