Legislature(2015 - 2016)BARNES 124
03/02/2016 06:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB247 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 247 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G
6:03:13 PM
REPRESENTATIVE NAGEAK announced that the only order of business
is HOUSE BILL NO. 247, "An Act relating to confidential
information status and public record status of information in
the possession of the Department of Revenue; relating to
interest applicable to delinquent tax; relating to disclosure of
oil and gas production tax credit information; relating to
refunds for the gas storage facility tax credit, the liquefied
natural gas storage facility tax credit, and the qualified in-
state oil refinery infrastructure expenditures tax credit;
relating to the minimum tax for certain oil and gas production;
relating to the minimum tax calculation for monthly installment
payments of estimated tax; relating to interest on monthly
installment payments of estimated tax; relating to limitations
for the application of tax credits; relating to oil and gas
production tax credits for certain losses and expenditures;
relating to limitations for nontransferable oil and gas
production tax credits based on oil production and the
alternative tax credit for oil and gas exploration; relating to
purchase of tax credit certificates from the oil and gas tax
credit fund; relating to a minimum for gross value at the point
of production; relating to lease expenditures and tax credits
for municipal entities; adding a definition for "qualified
capital expenditure"; adding a definition for "outstanding
liability to the state"; repealing oil and gas exploration
incentive credits; repealing the limitation on the application
of credits against tax liability for lease expenditures incurred
before January 1, 2011; repealing provisions related to the
monthly installment payments for estimated tax for oil and gas
produced before January 1, 2014; repealing the oil and gas
production tax credit for qualified capital expenditures and
certain well expenditures; repealing the calculation for certain
lease expenditures applicable before January 1, 2011; making
conforming amendments; and providing for an effective date."
6:04:07 PM
MARLEANA HALL, Executive Director, Resource Development Council
for Alaska (RDC), noted she has been with RDC for almost nine
years, but this is her first opportunity to testify before the
committee. Originally from Nome, she said she is a graduate of
the University of Alaska Anchorage. She lives in Anchorage with
her husband and son and their hope is live and work in Alaska
for the rest of their lives.
MS. HALL related that RDC is a statewide business association
comprised of individuals and companies from Alaska's oil and
gas, mining, forest products, fishing, and tourism industries.
Membership consists of nearly 400 corporate members and hundreds
of individuals, and includes 12 land-owning Alaska Native
corporations, local communities, organized labor, and industry-
support firms across the entire economy, all of which depend on
a healthy oil and gas industry. She said RDC's purpose is to
encourage a strong, diversified private sector in Alaska and to
expand the state's economic base through the responsible
development of the state's natural resources.
MS. HALL stated that RDC members are the life-blood of Alaska's
economy. The best approach to expand the economy and generate
new revenues for the state is to produce more oil, attract more
tourists, harvest more fish, and mine more minerals. Increasing
taxes on Alaska's natural resource industries will not increase
production for the Trans-Alaska Pipeline System (TAPS), will not
attract more tourists, will not encourage the development of
more mines, and will not increase investment in the fishing
industry. Higher taxes in this low-priced commodity environment
will likely deter investment and lead to lower state revenues
and a weaker private sector in the long run.
6:06:44 PM
MS. HALL, in regard to HB 247, maintained that raising taxes on
companies that are reporting record losses and are in negative
cash flow is not sound fiscal policy. According to the Energy
Information Administration, oil prices today are not only the
lowest seen in a decade, when adjusted for inflation they are
the lowest since the mid-1980s. In less than two years oil
prices have fallen 70 percent. This has impacted state revenues
and also impacted the industry, which receives 100 percent of
its revenue based on the commodity price. This is clearly not
the time to raise taxes on the primary engine of Alaska's
economy. The oil industry is struggling with low oil prices and
tight capital markets. Companies are cutting budgets and making
tough investment decisions. Increasing taxes on the industry at
this time will compound a bad situation and jeopardize new
investment, further damaging the state's private sector economy
and shrinking the economic pie for everyone.
MS. HALL said the oil industry is the foundation of Alaska's
economy, and keeping it strong is key to sustaining the private
sector, Alaskan jobs, state government, and the overall economy.
A healthy and strong oil and gas industry is also vital to
progressing the Alaska liquefied natural gas (LNG) megaproject.
To sustain its economy Alaska needs to encourage new investment,
jobs, and production by maintaining a stable, competitive tax
structure. When something is incentivized, the more it of there
will be. The current tax policy has brought new exploration,
jobs, and continued investment to the state. It has stabilized
North Slope production and has somewhat shielded Alaska from the
massive cutbacks that have occurred elsewhere. Following the
enactment of the new tax law in 2013, Alaska saw $5 billion in
new investment across the state from legacy companies to new
companies that have made big investments in good faith under the
current regime. The sudden and dramatic drop in oil prices has
slowed progress as companies struggle with low cash flows, but
Alaska is in a much better position because of those
investments. The tax policy has done what it was supposed to
do: increase investment. Conversely, HB 247 would move the
state in the wrong direction. It would be Alaska's sixth major
tax change in the last eleven years. Raising taxes when prices
go up, and then raising them again when prices are down, creates
instability and fails to provide investors with fiscal
certainty. The bill would make Alaska less competitive for
global investment and risks future projects that would put more
oil in TAPS, which should be the state's number one goal.
Alaska needs a plan that grows the pie bigger for everyone.
6:10:16 PM
MS. HALL said RDC's members are not only the oil companies that
would be directly impacted by HB 247, but also companies in the
support industries and Native corporation ventures. Alaska's
Native corporations (ANCs) are, and will continue to be,
economic engines in Alaska. A large part of the ANC success
seen today is a result of purchases or joint ventures of oil and
gas support industry companies in Alaska. These investments not
only create jobs for Alaska Native shareholders, but often
result in job training, education, and opportunities where few
others exist. In addition to these benefits, oil production on
Native-owned land directly benefits the shareholders of all 12
land-owning ANCs and some 220 village corporations. Other RDC
member companies will further explain to the committee the
negative impacts that HB 247 would have on their companies.
These companies, both big and small, rely on a healthy and
stable oil and gas industry.
MS. HALL related that another concern RDC has with HB 247 is
that the administration has not conducted a risk analysis on the
bill's impact on the oil industry. The effect of this tax
proposal must be fully reviewed and unintended consequences,
including potential impacts on future investment and production,
must be considered. She said RDC's members are not asking for a
tax decrease during this time of low commodity prices like other
states and countries are considering. But, RDC does request
that as the state considers changes to tax policy, it do no harm
to the state's largest industry, an industry facing significant
economic hardship. Otherwise, it may soon be learned that the
more Alaska taxes companies, the less likely a company will
invest in the state, and the more likely its limited capital
will go to jurisdictions that do encourage investment.
MS. HALL expressed RDC's concern that HB 247, if enacted, would
force industry to reduce investments, leading to reduced oil and
gas production and ultimately resulting in less revenue to the
state, exacerbating the revenue crisis. She concluded by noting
it is important to remember that the oil industry is a major
revenue producer for the State of Alaska and is the largest
producer of revenue for the North Slope Borough, the City of
Valdez, and the Kenai Peninsula Borough.
6:13:26 PM
The committee took a brief at-ease.
6:14:49 PM
ROY TANSY, JR., Executive Vice President, Ahtna Netiye', Inc.,
Ahtna, Incorporated, provided a PowerPoint presentation titled,
"FRONTIER BASINS TAX CREDITS." He explained that Ahtna Netiye',
Inc., is the holding company of Ahtna, Incorporated. Turning to
slide 2, "FRONTIER BASINS EXPERIENCE," he expressed Ahtna's
concerns in regard to the tax credits in Alaska Statute (AS)
43.55.025(a)(6) and (7), which are currently set to expire on
June 30, 2016. Ahtna has ongoing exploration projects on lands
adjacent to its lands and is currently using these tax credits
for its incentive to do this work. The legislature's intent was
to incentivize oil and gas exploration in underexplored basins,
reduce the risk of development of local rural energy to
Alaskans, create a local energy source for rural residents, and
reduce or eliminate the Power Cost Equalization subsidies.
MR. TANSY addressed slide 3, "FRONTIER BASIN TAX CREDITS,"
noting that under AS 43.55.025(a)(6) the first two exploratory
wells drilled inside each of the six Frontier Basins will
receive 80 percent credits or up to $25 million of qualified
expenditures. Under AS 43.55.025(a)(7) the first seismic
project performed inside each of the six Frontier Basins will
receive 75 percent credit or up to $7.5 million of qualified
expenditures. Ahtna has already used the seismic tax credits,
about $2.4 million on a $3 million seismic tax credit
investment. Ahtna would not be actually doing this exploration
if the tax credits were not there.
6:17:20 PM
MR. TANSY displayed slide 4, "SPECIFIC FRONTIER BASIN
REGULATIONS." He outlined the specific regulations as follows:
pre-qualification approval for seismic and well from the
Department of Natural Resources (DNR), Division of Oil & Gas
(DOG); various well depths and setbacks from previous wells;
submission of all data to DNR prior to credit award; public data
disclosure of all data after two years; must provide energy
source for rural energy needs; and no stacking of the AS
43.55.025(a)(6) and (7) tax credits as can be done with the AS
43.55.023 credits.
MR. TANSY moved to slide 5, "EXPLORATION PROGRAM HISTORY." He
provided a historical review as follows: April 2012 Ahtna
applied for a State of Alaska exploration license; May 2012 the
legislature approved Senate Bill 23; and December 2013 Ahtna
received the Tolsona exploration license.
6:18:26 PM
REPRESENTATIVE TARR inquired whether the bill was Senate Bill 23
or Senate Bill 21.
JOE BOVEE, Vice President of Land and Resources, Ahtna,
Incorporated, replied Senate Bill 23 [passed in 2012, Twenty-
Seventh Alaska State Legislature] was prior to Senate Bill 21
[passed in 2013, Twenty-Eighth Alaska State Legislature].
6:18:35 PM
MR. TANSY continued the historical review provided on slide 5:
June 2014 Ahtna received the DNR commissioner's pre-
qualification approval for the seismic. He added that from the
very beginning Ahtna has been very diligent in trying to get
things going in its region under this program. He continued:
December 2014 Ahtna completed 40 miles of two-dimensional
seismic over the exploration area; April 2015 Ahtna completed
reprocessing of seismic data identifying 12 square miles of
potential oil and gas trap; May 2015 Ahtna submitted seismic
data to the Division of Oil & Gas; September 2015 Ahtna received
the DNR commissioner's pre-qualification approval for a new
well, the Tolsona #1 well; February 2016 the majority of the
permits had been approved; and March 2016 the final stages of
the new well engineering and design are set to be complete.
MR. TANSY brought attention to slide 6, "COPPER RIVER BASIN."
He reported that right now Ahtna is looking at a project located
on state lands adjacent to Ahtna lands that has a proposed well
depth of 4,500 feet to find gas. The targeted area is the
structure of the Nelchina sandstone. Eleven wells have been
drilled in the basin since the 1960s and all of these wells have
had some type of gas showing. At the time these wells were
drilled the target was oil, and gas would have been more of a
nuisance. In the last 30 years there has only been one
exploration development project in the region. That was done on
Ahtna lands from 2005-2007 and was called the Ahtna 119 well.
Unfortunately the well did not get to the formation; gas was
found but the driller was unable to test it. That gas showed at
94 percent methane and Tolsona #1 well has a potential for a
great local source of fuel.
6:20:55 PM
MR. TANSY turned to slide 7, "PURPOSE AND NEED FOR GAS IN COPPER
RIVER BASIN," saying that the community and economic development
benefits are immense. Benefits include: a huge potential for
local employment; expanding local businesses; lowering of the
high costs of this rural economy; reducing out-migration; and
building infrastructure in the region. Right now, he continued,
the region has had a number of schools closed, the majority of
shareholders have moved to the Matanuska-Susitna and Anchorage
area, restaurants have closed in Glennallen leaving only one
restaurant open year round in the entire basin area.
MR. TANSY displayed slide 8, "Project Overview," and elaborated
that Ahtna did the 40 miles of new seismic in the winter of
2014/2015. The majority of it is on state land, although some
was on private land. The current location includes an easement
that goes from south to north. Ahtna is going to expand on that
easement and then move off of it to build a pad. The
exploration will be on state lands and royalties and production
tax will be paid to the state if production is successful.
There will be improvement to public access of recreational area.
MR. TANSY drew attention to slide 9, "PROJECT TEAM," specifying
that Ahtna subsidiaries will constitute the project team. Ahtna
Construction will be playing a major part of the construction;
HXR Drilling Services is doing the majority of the engineering;
and Restoration Science & Engineering is doing the permitting.
Multiple Alaskan companies are lending a hand to the project,
and a number of state, local, and federal agencies are partaking
in making the project possible. Agency support has been
tremendous; for example, the director of DNR's Division of Oil &
Gas has visited the region and the project site.
6:23:09 PM
MR. TANSY showed the project schedule outlined on slide 10,
"PROJECT SCHEDULE (Very tight)!" He noted it goes from June
2015 through August 2016 and includes the starting of the pre-
drilling program, the procurement process continuing to be
ongoing, submitting of the U.S. Army Corps of Engineers 404
Permit and the Plan of Operations Permit. Right now Ahtna is at
the beginning of the civil site work and hopes to have the rig
there within the next few months to do work. The critical point
is July 1 when the Frontier Tax Credits expire.
MR. TANSY ended his presentation with slide 11, "CONCLUSION,"
saying it is critical to Ahtna's project that the Frontier Basin
Tax Credits in AS 43.55.025(a)(6) and (7) be extended from June
30, 2016, to a future date. He said Ahtna recommends the year
2022 to coincide with other tax credit expiration dates. This
would greatly help the Tolsona Project that is underway with a
committed investment and a very tight schedule. He added that
Ahtna also supports keeping in place the Middle Earth Tax
Credits in AS 43.55.023 and .025(a)(1-4) as an incentive to the
Frontier Basin exploration and development efforts by the
explorers that have taken the risk and committed investment
based on these incentives. He displayed slide 12, "THANK YOU TO
OUR GOOD PARTNERS," and thanked the committee members for the
opportunity to share Ahtna's experience. He also thanked the
Alaska State Legislature, Governor Walker and his staff, and the
citizens of the state for their support for development of an
affordable energy resource in Ahtna's region.
6:25:11 PM
REPRESENTATIVE JOSEPHSON offered his understanding that there
are some situations where pre-qualification is required, but
that for most situations it is not. He inquired whether Ahtna
has found that to be cumbersome or difficult.
MR. BOVEE responded that there are two different issues with the
permitting. One is the actual land use permitting, the
regulatory permitting that goes along with any kind of project
in the state of Alaska. They are cumbersome and many take up to
six months, although some can be done in 30 days. As far a pre-
qualification with DNR's Division of Oil & Gas, Ahtna submits
its findings, intent, cost schedule, and so forth and usually
the division responds with a yay or nay within two or three
months; it has been as short as 30 days and as long as 3 months.
REPRESENTATIVE JOSEPHSON related that the intent of HB 247 is to
be more conservative and less liberal with credits, but allowed
that all things are possible and the committee is here to
listen. Regarding the credits set to expire [on June 30, 2016],
he asked what would not get done that would have qualified were
the credits to expire summer 2017 instead of this coming summer.
MR. TANSY answered that Ahtna would potentially be pushing the
deadline to get the rig out into the region. The rig
constitutes the majority of the costs for the drilling program,
probably $120,000 a day for rig costs and other essential
services. So, if this project gets pushed out to where it sits
on top of that July 1 date, anything after that July 1 date is
going to be heavily impactful to Ahtna's program. Right now
Ahtna expects a $9.4-$10 million investment on this drilling
project. With the AS 43.55.025(a)(6) and (7) tax credits Ahtna
would receive roughly 73 percent, $6.9-$7.3 million, in return
in tax credits on that investment.
REPRESENTATIVE JOSEPHSON inquired as to how many of Ahtna's
exploration sites are on state land and how many not.
MR. TANSY replied that at this point all of the exploration
drilling will occur on state land. He offered his belief that
the formation itself is 100 percent under state land.
6:28:55 PM
The committee took a brief at-ease.
6:30:13 PM
JIM JANSEN, Chair, Lynden Incorporated; Co-Chair, Keep Alaska
Competitive Coalition, related that Lynden is an Alaska truck,
marine, and air transportation company that operates throughout
Alaska with about 1,000 Alaska employees and hundreds of service
partners throughout the state. He explained that the Keep
Alaska Competitive Coalition ("Keep") was founded as the Make
Alaska Competitive Coalition in 2011 to advocate for change in
Alaska's oil tax policy to encourage investment in Alaska. He
noted that production declined by more than 200,000 barrels per
day under the uncompetitive tax policy of Alaska's Clear and
Equitable Share (ACES) [passed in 2007, House Bill 2001, Twenty-
Fifth Alaska State Legislature]. Keep is a broad-based group of
about 8,000 Alaskans, including Alaska businesses, Native
corporations, individuals, and organized labor. Keep receives
no funding from the oil industry. After the defeat of the
Senate Bill 21 referendum, members thought they could retire the
coalition, but here the coalition is - facing another proposed
change that would send Alaska backward in oil tax policy.
MR. JANSEN said he came to Alaska in 1967 and Alaska was his
home before North Slope oil. He operated a trucking company
through the pipeline construction era and has led Lynden since
the mid-1980s recession. He and his wife Vicki have lived the
dream in this great state from both a business and personal
perspective, fueled by a strong economy, driven by the state's
resource industries. He is now nearing the end of his working
career and spending much of his energy and time working on
behalf of future generations of Alaskans. He said he is here
today because he is afraid that Alaska may revert to the economy
that he faced in 1967. An economy without the North Slope would
be devastating for Alaska and Lynden. Lynden would be forced to
make massive layoffs of its outstanding employees as things
speeded toward economic ruin. He doesn't scare easily, but he
fears for the state and Lynden's people if the legislature tries
to solve Alaska's fiscal problems by imposing unreasonable taxes
on the state's resource industries. How the state's fiscal
challenge is dealt with will determine whether the Alaska
enjoyed since development of Prudhoe Bay is retained. Alaska
needs to adjust and live within its means, but this cannot be
done on the backs of the state's resource industries. Alaskans
may have to sacrifice a portion of their permanent fund
dividends (PFDs) and may need to pay taxes.
6:34:24 PM
MR. JANSEN acknowledged the current situation of oil at $30 a
barrel and said everyone knows the size of the current deficit
and that it needs to be dealt with sooner rather than later.
The state is facing a massive fiscal crisis unseen in more than
30 years. He thanked the legislators and the governor who are
willing to put Alaska's long-term economic future ahead of
short-term politics. Nothing is more important for the state
than to solve the budget deficit and build a sustainable
economic future, but it cannot be done on the backs of an ailing
industry that already pays most of Alaska's bills. He said he
agrees conceptually with much of the governor's plan: use of
the permanent fund earnings, reduction of the dividend program,
reducing the operating budget, and instituting some new taxes.
The part of the governor's plan that concerns him, however, is
the proposal for yet another change to oil tax policy.
MR. JANSEN outlined three main points he wants to make this
evening. First, increasing oil taxes and reducing credits at a
time when the industry is losing money on Alaska production
sends the wrong message to an industry that has responded well
to the state's desire to see more investment and more
production, especially at a time when oil prices have declined.
Second, maintaining a healthy oil and gas industry is vital to
Alaska's future if it is wanted to keep oil flowing through the
pipeline and keep alive any serious prospects for a gasline.
Third, as the painful economic transition caused by low prices
is dealt with, people need to be mindful to protect the
viability of all the state's resource industries as they
continue to be the major source of employment and income to
Alaskans, not to mention important taxpayers.
MR. JANSEN said the [current] tax structure under Senate Bill 21
does a better job of protecting revenues at low oil prices than
would have the prior [ACES] tax structure. However, HB 247
would raise the gross tax from 4 percent to 5 percent and would
eliminate loss credits, which would add a burden to the
petroleum industry at a time when it is losing approximately $22
per barrel produced on the North Slope. Changing the credits
would effectively be a tax increase. The state wanted industry
to produce oil that is expensive to get out of the ground and
industry was promised an incentive to do that. And, industry
did just that. Despite these sobering times, the industry has
upheld the commitment it made when the legislature passed Senate
Bill 21. Industry pledged to increase investment and it did, to
the tune of $5 billion. That investment has led to more
production and leveling off of the production decline through
the pipeline. Industry is still investing substantially more in
Alaska than in other regions because Senate Bill 21 encourages
investment. Compare Alaska to North Dakota, Texas, Canada, and
most other provinces in the world and people can be extremely
thankful to be living and working in Alaska today.
6:38:24 PM
MR. JANSEN asserted that an increased tax on the petroleum
industry today would send a terrible message, namely that Alaska
is a high-risk tax environment and an unreliable partner that
does not live up to its commitments. A natural response from
the industry would be to curtail its investments and move them
to a more stable and profitable oil province. What would happen
if Lynden told an oil company today that it was raising its
freight rates by 25 percent? The oil company would shift its
business to Lynden's competitors. Alaska, like Lynden, competes
for investment and this is the wrong time to increase rates.
Passage of HB 247 would mark the sixth major change in taxes in
eleven years. Attracting investment requires a fair and stable
tax structure. Tax credit policy should not be a whipsaw for
filling the budget deficit, it should be a thoughtful approach
to a stable and growing economy.
MR. JANSEN noted that Alaska's oil production peaked at over 2
million per day and is now approximately 500,000 per day. To
keep a minimum flow in the pipeline, and to obtain the value of
what oil remains in the state, there needs to be an industry
that continues drilling and investing and that has enough faith
in the state as predictable and reliable partners to invest $50-
$60 billion in a gasline. Continually changing Alaska's tax
structure makes the state predictable in the wrong sense. The
oil and gas industry, like the mining and fishing industries,
provides a major source of good-paying jobs in the state's
economy and hopefully will continue to do so well into the
future. The tough choices that need to be made to reduce the
state's deficit must be done in a way that minimizes the shock
to Alaska's economy in the next several years and must be
mindful of the economic base that is needed in the future.
MR. JANSEN said Alaska is fortunate to have almost $60 billion
in savings to help with the transition toward an investment-
based budget. He urged that this be started by using earnings
of those savings, as suggested by the governor, Senator McGuire,
Representative Millett, and Representative Hawker, along with a
reduced budget and carefully considered taxes and user fees to
close the gap. Everyone knows that taxes on the state's
resource industry are politically easier than to tax the state's
residents. But the resource industries are the last place that
should be looked at for quick tax revenue. Resource industries
are the backbone of Alaska's economy and the oil and gas
industry is swimming in an ocean of red ink. Raising taxes on
resource industries is the surest way to drive away investment,
which is the only way that Alaska can grow its economy.
MR. JANSEN said Alaska is fortunate to have the financial
resources to survive and to prosper. What is needed now is the
courage to responsibly continue to drive down the cost of state
government and utilize the permanent fund as intended to fund
state services. Residents will need to pay taxes. The last
place to look for new revenue is to unfairly tax the very
industries that drive Alaska's economic future. If they are
pushed away the state's economic future is hopeless. This is
the time for Alaskans to support responsible fiscal policy.
6:42:33 PM
REPRESENTATIVE SEATON offered his appreciation for everything
Lynden has done and worked for in the industry. He noted that
as currently scheduled, the state will owe $623 million in
refundable cash payments for credits this next year. Reducing
each of the 630,000 permanent fund dividends by $1,000 would
come to a total of $630,000. However, that would not reduce the
state's budget at all if there is not some form of HB 247.
Therefore, he continued, he is trying to figure out how to do a
responsible job of shepherding and reforming the state's budgets
if spending at this high rate of tax credits is continued. He
asked where to get that money.
MR. JANSEN recognized the difficulty that legislators face and
said it is very critical that it be done right. He said he
doesn't claim to be an expert on tax credits and cannot tell the
committee that every tax credit is appropriate and that members
should be looking at some of that. But he urged that members be
very cautious of increasing taxes on the industry that is so
desperately needed to keep Alaska's economy strong.
REPRESENTATIVE SEATON asked whether Mr. Jansen's part of the
service industry considers the tax credits that are paid out in
cash as being the same thing as the tax increase included in the
bill or whether Mr. Jansen would look at those as two separate
portions that should be considered differently.
MR. JANSEN replied he thinks they are separate components within
the bill and all components should be looked at. The most
important thing to him is to not have increased hard taxes on
the producing industry. Tax credits are important, they are an
investment, he continued. It is not just throwing money away,
the state is investing in future production and legislators must
be very careful when talking about eliminating them.
6:45:56 PM
The committee took a brief at-ease.
6:46:28 PM
MIKE SALZETTI, Manager, Fuel Supply and Renewable Energy
Development, Homer Electric Association, Inc. (HEA), explained
HEA provides power to the western half of the Kenai Peninsula.
Its service area is a combination of remote communities,
industrial complexes, small urban centers, and rural areas. The
service area runs south to Port Graham and Seldovia, north to
Nikiski, and east to Sterling. Like most Southcentral Alaska
utilities, HEA generates about 90 percent of its power via
natural gas fired generation. While HEA is working to diversify
its generation portfolio with smart renewables, such as its
proposed 5 megawatt (MW) hydroelectric project at Grant Lake,
the Battle Creek Diversion into Bradley Lake, and potential
landfill gas project, the fact is that HEA will continue to rely
upon natural gas for a vast majority of its power generation.
MR. SALZETTI reported that HEA recently became its own
generation entity. Prior to that, HEA had to design and build a
generation portfolio. It was an exciting time at HEA, but a
scary time to be entering the Cook Inlet gas market as a buyer.
Gas prices were rising precipitously, the Cook Inlet Natural Gas
Storage Alaska (CINGSA) facility was being constructed to help
Southcentral gas and electric utilities address deliverability
issues and to mitigate risk, and Southcentral utilities were
conducting extensive due diligence on the possible importation
of LNG to provide for future gas supply needs.
6:48:30 PM
MR. SALZETTI related that the advent of the Cook Inlet Oil and
Gas Production Tax Credits saw a number of new producers and
activities in the Cook Inlet. That included Hilcorp Alaska,
LLC, Furie Operating Alaska, LLC, BlueCrest Energy, Inc., AIX
Energy Inc., NordAq Energy Inc., Cook Inlet Energy, LLC, and
Apache Corporation. Southcentral gas and electric utilities
were able to sign firm gas contracts through 2018 and beyond.
The LNG export facility on the Kenai Peninsula continues to
operate, as does the Tesoro refinery. The recent signing of a
gas contract between HEA and Furie saw the first significant
decline in firm Cook Inlet gas prices in recent history.
Contracts for base load gas supply based upon the Hilcorp
Consent Decree prices are set at $7.42 per thousand cubic feet
(Mcf) for 2016 [signed November 2012 between State of Alaska and
Hilcorp]. When its contract with Furie begins on April 1, HEA
will be paying $6.50/Mcf. Through the term of the contract, HEA
will realize a 12-22 percent discount to recently agreed-upon
base load gas contracts.
MR. SALZETTI said the Cook Inlet Oil and Gas Production Tax
Credits appear to be working. Homer Electric Association
encourages policy that ensures a tax regime that provides
stability and predictability for Cook Inlet producers and that
encourages exploration, development, and production that will
ensure a long-term supply of natural gas for the utilities and
provide for economic prosperity for HEA's member owners.
MR. SALZETTI concluded by stating that while HEA is excited
about the price of $6.50 for the gas that it will soon be
purchasing from Furie, the Henry Hub price for spot market
natural gas was $1.78 per million British Thermal Units (MMBtu).
So, there is a long way to go before Southcentral Alaska's gas
prices are on par with the Lower 48. He said HEA appreciates
the efforts of legislators in achieving a Cook Inlet oil and gas
renaissance and looks forward to policy that provides for
continued oil and gas activity in the Cook Inlet.
6:50:56 PM
REPRESENTATIVE SEATON understood the Hilcorp Consent Decree
price was $7.42 for 2016 and that on April 1 HEA's firm contract
will go in at $6.50. He asked whether the April 1 date is 2016.
MR. SALZETTI confirmed it is 2016.
6:51:36 PM
The committee took a brief at-ease.
6:52:24 PM
CO-CHAIR NAGEAK announced that this concludes the industry
testimony this week and offered the committee's appreciation to
the presenters.
REPRESENTATIVE TARR understood the committee is not going to
hear presentations from Doyon, Limited, and NANA Regional
Corporation, but has letters from both corporations.
CO-CHAIR NAGEAK replied yes, and reaffirmed that members have
letters from the two corporations.
[HB 247 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HSE RES 3.2.16 HB 247 AHTNA.pdf |
HRES 3/2/2016 6:00:00 PM |
HB 247 |
| HSE RES 3.2.16 HB 247 Doyon written testimony.pdf |
HRES 3/2/2016 6:00:00 PM |
HB 247 |
| HSE RES 3.2.16 HB 247 NANA Written Testimony.pdf |
HRES 3/2/2016 6:00:00 PM |
HB 247 |
| HSE RES 3.2.16 HB 247 Keep Alaska Competitive Jim Jansen.pdf |
HRES 3/2/2016 6:00:00 PM |
HB 247 |