Legislature(2009 - 2010)BUTROVICH 205
04/09/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB210 | |
| HJR26 | |
| HCR10 | |
| HB280 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| = | HB 210 | ||
| = | HB 280 | ||
| = | HJR 26 | ||
| = | HCR 10 | ||
HB 280-NATURAL GAS: STORAGE/ TAX CREDITS
3:42:36 PM
CO-CHAIR WIELECHOWSKI announced HB 280 to be up for
consideration [CSHB 2180(FIN)am was before the committee].
3:44:39 PM
CO-CHAIR WIELECHOWSKI said a series of amendments had been
combined into one. He moved Amendment 1 and objected for
purposes of discussion.
AMENDMENT 1
OFFERED IN THE SENATE
TO: CSHB 280 (FIN) am
Page 2, line 11:Delete "and"
Page 2, line 13, following "day":
Insert "; and
(3) that the facility qualifies as a gas
storage facility for the purposes of this section"
Page 9, line 4:
Delete ", treaters, and separators"
Insert "and gas treatment plants, but not
including a liquefied natural gas or manufacturing
plant or facility"
Page 9, line 19:
Delete "claimed"
Insert "received for each gas storage facility"
Page 10, lines 11 - 12:
Delete all material and insert:
"(4) must be regulated under AS 42.05 as a
utility and be available to furnish the service of
natural gas storage to the public for compensation; in
this paragraph, "service of natural gas storage" has
the meaning given in AS 42.05.990"
Page 10, line 28:
Delete "any taxable year ending before the date
of the refund claim"
Insert "the calendar year in which the claim is
made"
Page 11, lines 25 - 28:
Delete all material.
Reletter the following subsections accordingly.
Page 12, following line 24:
Insert a new bill section to read:
"* Sec. 14. AS 43.55.020(f) is amended to read:
"(f) If oil or gas is produced but not sold, gas
is produced but is stored in a
gas storage facility, or [IF] oil or gas is produced
and sold under circumstances where the sale price does
not represent the prevailing value for oil or gas of
like kind,
character, or quality in the field or area from which
the product is produced, the department may require
the tax to be paid upon the basis of the value of oil
or gas of
the same kind, quality, and character prevailing for
that field or area during the
calendar month of production or sale."
Renumber the following bill sections accordingly.
Page 12, line 25:
Delete "a new subsection"
Insert "new subsections"
Page 13, line 4:
Delete ""gas storage facility,''''
Page 13, following line 5:
Insert a new subsection to read:
"(j) In this section, "gas storage facility"
has the meaning given in
AS 31.05.032"
Page 15, line 26 through page 16, line 12
Delete all material.
Insert "(o) For the purposes of (m) and (n) of this
section, a Cook Inlet well lease expenditure is a
lease expenditure that is incurred in the Cook Inlet
sedimentary basin that is
(1) directly related to an exploration well, a
stratigraphic test well, a producing well, or an
injection well other than a disposal well, if the
expenditure is a qualified capital expenditure and an
intangible drilling and development cost authorized
under 26 U.S.C. (Internal Revenue Code), as amended,
and 26 C.F.R. 1.612-4, regardless of the elections
made under 26 U.S.C. 263(c); in this paragraph an
expenditure directly related to a well includes an
expenditure for well sidetracking, well deepening,
well completion or recompletion, or well workover,
regardless as to whether the well is or has been a
producing well; or
(2) an expense for seismic work conducted within
the boundaries of a production or exploration unit."
CO-CHAIR WIELECHOWSKI objected for discussion purposes.
3:45:27 PM
REPRESENTATIVE MIKE HAWKER, sponsor of HB 280, explained that
the Department of Revenue had raised a number of issues based on
their final comprehensive review of the bill, and he worked very
closely with them on this amendment that clarifies his intent
and responds to the department's concerns. There are three
actual changes in the amendment. In the bill the AOGCC is the
certifying agency for the gas storage facility. It was pointed
out that in those certifications they were never asked to
certify that the gas facility itself actually meets the
definition of a gas storage facility in the bill; so a provision
was added to clarify that.
3:46:00 PM
CO-CHAIR MCGUIRE joined the committee.
REPRESENTATIVE HAWKER said the next provision that was clarified
is the one that allows the small producer buy-back credit. The
previous version said in order to avail yourself of the state
purchasing the credits you have earned, that your tax liability
from all years has be zero. The department pointed out that it
is possible that someone could be in a very honest tax dispute
from a prior year, which would leave an open return. The
department suggested providing a little leeway and allowing the
credits to be viewed on an incremental annual basis. So in order
to cash out a credit, your current year tax liability had to be
zero.
The third change involved a struggle that several bills moving
through the legislature have had in attempting to define a "well
lease expenditure," the idea being to allow a credit structure
for the improvement of existing wells in existing infield
drilling for the purposes of enhancing, improving, and
maintaining the deliverability of gas. This bill adopts language
that was close to the original definition. Previously they
included an allowance for the ".023" CAPEX credits and overhead
allocation on the direct costs; this version eliminates the
overhead component.
CO-CHAIR WIELECHOWSKI said it is a very complex bill.
3:49:31 PM
JULIE LUCKY, staff to Representative Hawker, said the amendment
makes two changes on page 2, lines 11 and 13. This is where the
AOGCC will certify that the gas storage facility actually meets
the definition of a GSF. The changed on page 9, line 4, is one
of those negative assurances that they did not intend to include
liquefied natural gas in a definition and they do not intend to
allow the RCA to have regulatory authority over liquefied
natural gas or manufacturing plants or facilities. Page 9, line
19, gives statutory authority to the Department of Revenue (DOR)
to give the information to the RCA.
She said there was some concern on page 10, lines 11 - 12, about
insuring that the state knows which facility was available for
the credit. It seemed that the cleaner approach was to lay it
out in the area of the statute that says a credit can be claimed
if you are one of these things: you must be regulated as a
utility under AS 42.05 and also be available to furnish the
service of natural gas storage to the public for compensation
(as that term is defined earlier in the bill).
MS. LUCKY said language on page 10, line 28, talks about the
calendar year versus having a zero tax liability for any
previous years, and language on page 11, lines 25-28, was seen
as duplicative and is about how the RCA has the authority and
information to insure that the price a company gets as a tax
claim is passed on to the consumer.
3:53:16 PM
The change on page 12, line 24 goes through page 13, line 5,
because there are technical changes that need to be made by the
addition of the new section 14. This was a way of insuring that
they are not changing the way production taxes are calculated by
the DOR now.
She said the last change was on page 15, line 26, through page
16, line 12, and deleted the well lease expenditure section and
inserted the language that all parties have agreed to. Doing
that removes the overhead language even though they don't
actually see a deletion.
SENATOR FRENCH asked if this is a transition between Section 14
and the next part she was talking about.
MS. LUCKY explained that the changes on page 12, line 25, page
13, line 4, and page 13, line 5, are all technical changes to
accommodate the insertion of Section 14.
3:56:19 PM
MARCIA DAVIS, Deputy Commissioner, Department of Revenue (DOR),
said that Ms. Lucky had accurately characterized the amendments.
She explained that the language on page 2, lines 12-19, became
necessary because the department had taken issue with a simple
statement that was intended to address how "non-native gas" that
is coming out of storage (that was not produced for purposes of
production tax law) is treated. Their concern was the unique
situation where a producer owns gas, stores it, has not yet sold
it and then when and if it comes out of storage, how the
department evaluates it. They made it absolutely clear that the
department retains its discretion to value the gas either at
prevailing value at the time it was produced or at the time it
was sold, because those could be two different time periods and
two different values.
3:58:39 PM
SENATOR FRENCH asked what would guide them in making that
decision.
MS. DAVIS answered that other laws direct them to select either
prevailing or market value; they use market value unless for
some reason it isn't a good indicator of what the prevailing
market value is. And simplistically under regulations you take
the "higher of" either the market or the prevailing value for
gas. Oil has a little bit of a buffer.
SENATOR FRENCH asked if that is at the time it was produced or
sold.
MS. DAVIS answered that up to now they have been deferring the
price, by regulation, to the price at the point of audit. So, if
you're a tax payer and a producer and you have produced gas and
want to put it into storage, you need to report the gas as
having been produced. That gas has to be reported at a
prevailing value posted for the region, which would be the Cook
Inlet gas in this case. If they actually have a contract price
and know they are going to be selling it, then they would likely
report that. But not all gas that is stored is under contract.
SENATOR FRENCH asked if gas comes out of the ground in the
summer and it is $7, and then it's stored until winter when they
can get $12, which value would the state choose.
MS. DAVIS replied that the taxpayer may report it and price it
at the $7 when it's produced in its monthly estimates. Once it
gets to the annual return, if they have sold the gas at $12 they
will essentially revise their monthly estimates. If it spans a
period that moves beyond the tax year, so that it has been in
storage longer than when they had to report the tax ($7), then
they will file an amended return or the tax division would pick
it up on audit - presuming in that instance that the market
value is higher than the prevailing value.
CO-CHAIR WIELECHOWSKI asked if the amendment addresses applying
only to south of the 68th latitude.
MS. DAVIS answered that there was no change put in to alter the
geographic zone. But rather, Representative Hawkers satisfied
them with language saying that anyone getting the tax credit
from DNR is going to have to be a "42.05 regulated utility."
That means it's going to have to meet criteria, and the
definition which means it's a depleted or nearly depleted
reservoir, which would remove a lot of the reservoirs that could
potentially claim to be storage on the North Slope. And two,
it's going to have to require that storage be the dominant
prevailing use of that reservoir. Requiring regulation by a
"42.05" will make it difficult to game the statute for storage
as far as the North Slope goes. The administration is
comfortable with this.
CO-CHAIR WIELECHOWSKI asked if open access in Section 4 of the
original draft had been addressed.
4:03:24 PM
REPRESENTATIVE HAWKER responded that Mr. Banks' concerns had
been alleviated with the overall structure of the bill that
specifically allows a producer to build a warehouse for their
own gas on its way to market.
MS. DAVIS said that DOR didn't "have a dog in that fight."
4:04:20 PM
CO-CHAIR WIELECHOWSKI said there had been a question on page 8
about whether or not a natural gas storage facility could
include an LNG plant and asked if the administration was okay
with language now.
MS. DAVIS answered yes.
CO-CHAIR WIELECHOWSKI asked if she was okay with the concern
about the vagueness in "must be available for storage of gas
that is owned by a utility regulated under AS 42.05" on page 10,
lines 11-12.
MS. DAVIS answered yes; the language change that was put in on
the bottom of page 1 very clearly requires that not only the gas
storage facility itself be a regulated utility under AS 42.05
(which means that the RCA will be examining any rates offered
for storage), in addition it's making it clear that it also be
available to furnish the service of natural gas storage to the
public for compensation. The concern she heard expressed was
that simply being available for storage didn't necessarily
dictate that the terms offered would be reasonable. That now is
gone with the fact that the storage facility is going to be
regulated by the RCA.
4:06:01 PM
CO-CHAIR WIELECHOWSKI said they talked about Section (o) of
Section 18 quite a bit.
REPRESENTATIVE HAWKER said they "had been around that wheel many
times" and this is the best definition they could come up with.
MS. DAVIS said the administration was okay with that language;
tying it to IRS terms that have very clear definitions makes it
very clean and easy to use for industry as well. The department
appreciated the removal of the "overhead expense" item simply
because it doesn't exist under any of the other credits.
4:07:07 PM
CO-CHAIR WIELECHOWSKI asked if the administration had any other
concerns with the bill.
MS. DAVIS answered no; they support the idea of gas storage.
This approach seems to be fair and clear as far as it goes (Cook
Inlet) as opposed to a statewide credit.
CO-CHAIR WIELECHOWSKI thanked the administration and
Representative Hawker for working very collaboratively together,
and said they would hold the bill for a very short time so that
members could digest the amendment.
4:10:17 PM
CO-CHAIR WIELECHOWSKI withdrew his objection, and finding no
further objection, Amendment 1 was adopted. He held HB 280 for
tomorrow and adjourned the meeting at 4:10 p.m.
| Document Name | Date/Time | Subjects |
|---|