Legislature(2013 - 2014)BUTROVICH 205
02/21/2014 08:00 AM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
8:03:00 AM
CHAIR GIESSEL announced SB 138 to be up for consideration. She
said she had a blank committee substitute (CS) that incorporates
concepts that have been brought forward by individual committee
members during their hearings.
8:03:38 AM
SENATOR DYSON moved to adopt CSSB 138( ), labeled 28-GS2806\N,
as the working document.
CHAIR GIESSEL objected for discussion purposes.
8:04:07 AM
SENATOR MICCICHE joined the committee.
LINDSAY WILLIAMS, staff to Senator Giessel, explained the
changes in the CS. The first change was in the title to be
conforming and was recommended by legal drafters.
A new section 1 was added on page 3 that involves intent
language that broadly captures what is in the Heads Of Agreement
(HOA). Briefly, oil and gas development and commercialization of
gas is of vital public interest to the State of the Alaska. It
recognizes that much of the infrastructure will be within the
bounds of local governments. There will be many benefits to the
state including employment opportunities, tax and royalty
payments, and natural gas to communities.
Item number (4) (Article 9 of the HOA) talks about negotiations
and that those must be in the interests of the state and local
governments. Subsection (b)(Article 7 of the HOA) speaks to the
DNR commissioner and that it's necessary he be able to negotiate
contracts and enter into agreements that will be subject to
legislative approval.
Item number (b)(2) (Article 6 of the HOA and Article 9.3.1)
talks about access and pro-expansion principles, delivery of gas
to Alaskans, and payment in lieu of taxes.
8:06:13 AM
Item number (3) (Article 8.3.1 of the HOA) talks about
negotiating separately with the producers for the sale or
disposition of the state's natural gas and number (4) (Article
11 of the HOA) speaks of employment for Alaska residents.
8:06:32 AM
SENATOR FAIRCLOUGH pointed out a drafting error on page 3, line
19, that should be 4 and line 23 should be 5.
SENATOR DYSON wanted some discussion about the project labor
agreements mentioned in (b)(4).
MS. WILLIAMS said this legislative intent language almost
exactly matches the language in the HOA under Article 11.
SENATOR FAIRCLOUGH asked if that was consistent with language in
AGIA.
MS. WILLIAMS said no.
8:08:00 AM
SENATOR FRENCH said while on the subject of contracts on page 3,
(b) references short term commercial agreements, negotiated
contracts, and proposed contracts and asked if every single one
of those instruments will come before the legislature for
approval. It seems that there will be many agreements in working
towards a big project.
8:09:46 AM
MIKE PAWLOWSKI, Deputy Commissioner, Department of Revenue
(DOR), answered that section 11 of the bill (on page 13) has a
healthy balance between unnecessarily binding the flexibility
that needs to occur in the negotiation of commercial agreements.
At the same time there is a complete recognition that for
contracts, the binding documents that will move this project
forward do need to be subject to legislative review. Page 13,
line 13-14, says the DNR Commissioner can enter into a
commercial agreement without coming back to the legislature.
However, number (11) (on page 13, lines 15-19) when it is a
contract that is going to be binding, that contract is not
effective unless the legislature authorizes the governor to
execute it.
SENATOR DYSON asked if the language on page 4, lines 13-14,
(project labor language) has the effect that no contractor,
subcontractor, or supplier can be involved in this job unless
they are union.
MR. PAWLOWSKI referenced language in the HOA on page 16 that
says "prior to construction, the AKLNG parties (the companies
that are directly engaged in the AKLNG project) commit to
negotiate in good faith project labor agreements for AKLNG
project." This recognizes that there is a process going forward
to work on those projects and that in principal the parties are
all agreed that the process and good faith will continue during
the development prior to construction of the project.
8:12:38 AM
SENATOR DYSON said he still wanted to know if the effect was
that no non-union contractors will be involved as suppliers.
MR. PAWLOWSKI said he didn't think that was the intent, but it
was impossible to predict the outcome until in good faith the
parties get into those negotiations.
SENATOR DYSON asked if that means that non-union contractors and
suppliers can enter into the negotiation process.
MR. PAWLOWSKI answered that the key contemplated here is
multiple agreements. This project is so large that all Alaska
businesses will be involved; anything this large will demand
that.
8:14:02 AM
SENATOR DYSON asked him to answer yes or no: will non-union
contractors and suppliers be able to work on this project.
MR. PAWLOWSKI answered yes.
8:14:20 AM
CHAIR GIESSEL directed Senator Dyson to the totality of the
words in item 4 that has broad statements like "contracts with
Alaska businesses, employment of Alaska resident."
SENATOR DYSON said respectfully that is great language, but it
doesn't address the point. He was not against project labor
agreements; on projects like this, labor, rest, and continuity
are huge factors that can easily overwhelm any savings or
whatever else can happen by having a non-union contractor on the
job. But on the record they have said that non-union contractors
can participate and nothing precludes them.
MR. PAWLOWSKI said his perception was that nothing here
precludes them, but he was not a labor lawyer.
SENATOR DYSON said if the administration had any different view,
he would enjoy knowing about it.
8:15:48 AM
SENATOR MICCICHE said in a project like this many of the trades
happen to be union, but in a job of this scale there is no way
you could satisfy the labor requirements with in-state union
folks, period. And many of the trades simply aren't union. If
anyone was going to try to drive that line, they would be giving
out-of-state workers priority ahead of in-state Alaskan workers.
8:16:59 AM
MS. WILLIAMS went to section 11 on page 13 that dealt with
sharing confidential information with the legislature. Version A
previously read: confidential information obtained under this
paragraph "may" be shared with the legislature only in
committees held in executive session or under a confidentiality
agreement. This change removes "may" and inserts "shall".
SENATOR FRENCH asked where that language was in the A version.
MS. WILLIAMS said the original language was on page 12, line 12,
and the change is on page 13, line 29.
She said section 14 on page 16 deletes the errant "and". The DNR
commissioner may propose three modifications relating to
switching between a royalty in kind (RIK) and royalty in value
(RIV) establishing a fair market value for royalty gas and
establishing a fixed royalty rate. On line 29, following
"market" there used to be an "and" and that has been removed
because in reality the DNR commissioner may only do two of these
items, not all three. Keeping with this same change, page 17,
line 18, following "market" the word "and" was also removed.
8:19:20 AM
SENATOR MCGUIRE joined the committee.
MS. WILLIAMS said another change was offered by two members that
establishes that the royalty rate may not go below 12.5 percent.
CHAIR GIESSEL said Senator Micciche and Senator French authored
it.
SENATOR MICCICHE explained that 12.5 percent is what guarantees
our Permanent Fund Dividend contributions, an item that was
missed in the first version.
SENATOR FRENCH asked to explain, now that the state is taking
RIK, how a quarter of that gets deposited into the Permanent
Fund.
8:21:02 AM
JOE BALASH, Commissioner-designee, Department of Natural
Resources (DNR), explained that they will still have to keep
track of the state's royalty interest. Even though it will be
taken in kind there will be transportation and liquefaction
charges that get deducted from those royalty interests. The net
of that value gets evaluated for the 25 percent Constitutional
deposit into the Permanent Fund. What accounting procedures will
be employed is going to be a function of the agreements that
come forward next year.
SENATOR FAIRCLOUGH stated that it is not a foregone conclusion
that we are taking our gas in kind; it's an option.
COMMISSIONER BALASH said that was an excellent point. The HOA
contemplates that the other parties will be able to work with
the DOR to satisfy their concerns on risks associated with going
in kind and will help the DOR with mitigation measures to deal
with those risks. Supposing that happens, the statutes direct
them to start with in kind. So, whether they are talking about
an in kind sale or in value accounting they will still have to
keep track of what portion of the revenue stream is royalty and
25 percent of that stream will be deposited into the Permanent
Fund annually.
SENATOR FRENCH said while everyone is comfortable with the 12.5
percent royalty from Prudhoe Bay, the Pt. Thomson royalties are
quite a bit higher. He asked him how much wiggle room there is
still left with 12.5 percent bottom line with respect to the
negotiations on the Pt. Thomson leases that have much higher
royalty rates.
COMMISSIONER BALASH answered that in no way shape or form are
they talking about reducing those base royalty rates; they are
talking about those instances where the state has a sliding
scale royalty or a net profit share lease (NPSL) that has
something in addition to a base royalty rate. Often those types
of leases have a base royalty rate of 12.5 percent. What they
will be seeking here is a way to come up with a fixed number
that is fair to the state as well as the landowner for that
particular provision, be it an NPSL or a sliding scale. An
example would be a lease that starts at 12.5 percent and
depending upon the triggers in the lease slides up to as high as
20 percent. In that particular situation, they would be seeking
a number between 12.5 and 20 percent and he would argue for a
number closer to 20.
With regard to the leases that are in place at Pt. Thomson that
don't have an NPSL or a sliding scale, they will be unaffected.
So, it will retain that higher royalty interest relative to
Prudhoe Bay.
8:26:44 AM
COMMISSIONER BALASH said that would create an issue, because
with royalty rates of a different percentage between those two
fields, which field comes on first and in what volume is going
to affect the state's overall share of the gas. It might be in
the beginning days/years of production and operation of the
project that the state might be a little long or short depending
on which field is coming on first. In the long run, he expected
a 75/25 mix of those two fields' production, and that's where
they get to a blended number something like 13 percent.
In order to make sure the state doesn't get stuck with too much
or too little gas, a balancing agreement will be needed that
makes sure that in the event one field or the other is producing
more than that 75/25 ratio that there is an accounting for the
gas and a makeup right and an opportunity, which will be
important for all parties to this agreement. No one wants to be
stuck with either too much capacity or too little in the pipe.
8:27:21 AM
MS. WILLIAMS moved on to section 30 on page 28, line 4 where the
title previously read: "Payment in kind of tax for gas;" the
title now reads: "Payment in gas of tax for gas." So, in keeping
with consistency the HOA uses the term "tax as gas" or TAG. In
the HOA TAG is defined in Article 1 under definitions and in
Article 8.2. There were several instances under (a) and (b) in
section 30 where "in kind" was removed and replaced with "gas".
8:29:13 AM
CHAIR GIESSEL summarized that they removed the expression "tax
in kind."
8:29:27 AM
MS. WILLIAMS said on line 14, the last sentence previously read:
"The producer shall pay the tax in kind by delivering that 10
percent of the gas to the state at the entrance of the
transportation facility specified by the state." "Entrance of
the transportation facility specified by the state" was removed
and replaced with "point of production" (POP), which is defined
in section 46 on pages 49 and 50 of the bill. This change would
provide clarity to the producers as well as the state. She said
the last change was on page 50 where a new section was added
under section 49 amending uncodified law.
CHAIR GIESSEL said that Senator McGuire requested this.
SENATOR MCGUIRE said that this is the best opportunity that
Alaskans have had for a gasline because of the alignment that
exists and the point behind this provision is that she thought
an element was missing. And that is the instinctive alignment
life-long Alaskans have had with the industry, because "we" were
here before the TAPS, and got to see the Alaska without the
benefit of that industry and then to see it with. Over 60
percent of the Alaskan public has lived here seven years or less
and it struck her in going through the oil tax debates and
getting gas to Alaskans that perhaps the element of alignment
was missing. Alaskans need to know they are getting something
out of this partnership that they have with the oil and gas
industry and to start feeling it in a tangible way. Upon
discussion with the DOR about Securities and Exchange Commission
laws, she thought it better to ask them to come up with a plan
for a way that people could buy a share of the pipeline through
their Permanent Fund Dividend similar to the "Pick, Click, Give
Program."
8:34:16 AM
CHAIR GIESSEL said she appreciated the broad language she put
in, since buying a share of the pipeline is a complex process.
8:34:41 AM
MS. WILLIAMS said that summed up the rest of the changes in the
CS.
8:35:01 AM
SENATOR DYSON said one of the major construction unions in the
state is one he had been a member of and their by-laws said they
cannot take any new members in from Alaska including ones that
are licensed in the state as long as there is anybody on the
books in Seattle or Portland. Is there any way to solve that
problem?
MR. PAWLOWSKI said in all honesty that issue was outside of his
comfort zone.
CHAIR GIESSEL said it's a burning question for the whole
committee and she would get the Department of Law to join them
this afternoon to talk about it.
SENATOR DYSON said the other union has to do with Teamsters, and
Alaska has a mix of company-owned trucks and privately owned
trucks; virtually all the private owners have been members of
the Teamsters for a long time, but there are places in the state
where that privately owned truck cannot go on the real estate
and they have to spot their load and someone else comes and
picks it up. It's an issue that keeps the most efficient way of
delivering the freight, sometimes, from happening. He hoped that
this was so much work for so many people, that those kinds of
small and arbitrary issues can go away; removing the barriers to
Alaskans working.
MR. PAWLOWSKI said it may be way too early to deal with that,
but in general the administration has tried to come to high
level principle agreements with companies to say this is the
plan of how we're going to move forward.
CHAIR GIESSEL, finding no further questions, removed her
objection and said version N CS for SB 138 was now before the
committee. She held the bill in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 138 vs N.pdf |
SRES 2/21/2014 8:00:00 AM |
SB 138 |