Legislature(1997 - 1998)
03/24/1998 10:10 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 24, 1998
10:10 a.m.
MEMBERS PRESENT
Representative Scott Ogan
Representative Norman Rokeberg
Representative Joe Ryan
Representative Con Bunde
Representative J. Allen Kemplen
MEMBERS ABSENT
Representative Mark Hodgins, Chairman
Representative Tom Brice
COMMITTEE CALENDAR
HOUSE BILL NO. 393
"An Act relating to contracts with the state establishing payments
in lieu of other taxes by a qualified sponsor or qualified sponsor
group for projects to develop stranded gas resources in the state;
providing for the inclusion in such contracts of terms making
certain adjustments regarding royalty value and the timing and
notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date."
-HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 393
SHORT TITLE: DEVELOP STRANDED GAS RESOURCES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/11/98 2280 (H) READ THE FIRST TIME - REFERRAL(S)
2/11/98 2281 (H) OIL & GAS, FINANCE
2/11/98 2281 (H) 2 FISCAL NOTES (DNR, REV)
2/11/98 2281 (H) GOVERNOR'S TRANSMITTAL LETTER
2/19/98 (H) O&G AT 11:00 AM CAPITOL 124
2/19/98 (H) MINUTE(O&G)
2/24/98 (H) O&G AT 10:00 AM CAPITOL 124
2/24/98 (H) MINUTE(O&G)
2/26/98 (H) O&G AT 10:00 AM CAPITOL 124
2/26/98 (H) MINUTE(O&G)
3/03/98 (H) O&G AT 10:00 AM CAPITOL 124
3/03/98 (H) MINUTE(O&G)
3/05/98 (H) MINUTE(O&G)
3/09/98 2578 (H) RES REFERRAL ADDED
3/10/98 (H) O&G AT 10:00 AM CAPITOL 124
3/10/98 (H) MINUTE(O&G)
3/12/98 (H) O&G AT 10:00 AM CAPITOL 124
3/12/98 (H) MINUTE(O&G)
3/19/98 (H) O&G AT 10:00 AM CAPITOL 124
3/19/98 (H) MINUTE(O&G)
3/24/98 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
JOHN SHIVELY, Commissioner, Department of Natural Resources
400 Willoughby Avenue, 5th Floor
Juneau, Alaska 99801
Telephone: (907) 4532400
POSITION STATEMENT: Testified on CSHB 393(O&G).
ACTION NARRATIVE
TAPE 98-26, SIDE A
Number 0001
VICE-CHAIR CON BUNDE called the House Special Committee on Oil and
Gas meeting to order at 10:10 a.m. Members present at the call to
order were Representatives Rokeberg, Ryan, Bunde and Kemplen.
Representative Ogan arrived at 10:11 a.m.
HB 393 - DEVELOP STRANDED GAS RESOURCES
Number 0068
VICE-CHAIR BUNDE announced the committee would hear HB 393, "An Act
relating to contracts with the state establishing payments in lieu
of other taxes by a qualified sponsor or qualified sponsor group
for projects to develop stranded gas resources in the state;
providing for the inclusion in such contracts of terms making
certain adjustments regarding royalty value and the timing and
notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date." He
stated that the committee had previously adopted CSHB 393(O&G),
version B and Amendment 1. He stated that there is also
Representative Rokeberg's Amendment 2 before the committee.
Number 0135
VICE-CHAIR BUNDE stated that he had a technical amendment to
Amendment 2. He stated that on page 24, line 16, note the phrase:
"pay a portion of the periodic payments." He stated that in
Amendment 2 on page 1, line 8, in order for the verbiage to
conform, that phase would need to be added.
Number 0158
REPRESENTATIVE NORMAN ROKEBERG stated that he would accept it as a
technical amendment to Amendment 2.
VICE-CHAIR BUNDE asked if there was an objection to the amendment
to Amendment 2. Hearing none, it was so ordered.
Number 0340
REPRESENTATIVE ROKEBERG stated that on page 24, line 17 of CSHB
393(O&G), he would insert a new section entitled "Sec. 43.82.505.
Payments to economically affected municipalities." He stated that
the concept is to create, by definition, two forms of
municipalities; those that tax bases are affected and those that
have other economic impacts as a result of the construction of the
pipeline. He stated that areas such as the Mat-su borough and the
municipality of Anchorage, which clearly has impacts from the
development of the pipeline, have a right to be at the table when
impact monies are under consideration. He stated that he would
assume that the advisory group would develop a matrix to give
greater weight to those communities that are revenue and
economically affected. He asked for the support of the committee
on Amendment 2.
Number 0511
REPRESENTATIVE SCOTT OGAN stated that he conceptually supports the
amendment, as his district would be affected largely but positively
from the pipeline, although there are problems that come from
economic growth such as demands for services. He stated that his
concern is that Amendment 2 is too broad and that a non-affected
community could make a claim. He asked if there was a protection
for this in the amendment.
Number 0648
REPRESENTATIVE ROKEBERG stated that the commissioner of revenue
would have to make the findings and determinations based on the
application made by the municipality. He stated that he would not
be adverse to tightening the language up if someone offered it.
VICE-CHAIR BUNDE asked if he anticipated that the communities that
would be excluded from the table would file suit to have access to
the table.
Number 0734
REPRESENTATIVE ROKEBERG replied that he assumed they would file an
application first and then if denied...
VICE-CHAIR BUNDE asked if there were too many sideboards would that
cause increased litigation.
REPRESENTATIVE ROKEBERG replied that he is not sure that if there
are greater obstacles, if it would dissuade people from filing a
cause of action or generate one. He stated that he would not
exhibit the right of any municipality to file a cause of action for
a pay day gain. (INDISCERNIBLE -- static on tape)
Number 0815
REPRESENTATIVE ALAN KEMPLEN stated that he would like to understand
the difference between revenue affected municipality and
economically affected municipality. A revenue affected
municipality would be the public entities that would have make
adjustments in their property taxes.
Number 0861
REPRESENTATIVE ROKEBERG replied that is correct.
Number 0871
REPRESENTATIVE KEMPLEN stated that with the revenue affected
municipalities, he might want to think about the notion of linking
it with an employment variable. The number of people from an area
employed on the pipeline could be reflected back to the affected
municipality.
Number 0917
REPRESENTATIVE ROKEBERG stated that is a meritorious suggestion,
however, he does not see anything here that would restrict the
commissioner from developing a matrix. He stated that at this
point, he did not want to complicate the issue.
Number 0958
JOHN SHIVELY, Commissioner, Department of Natural Resources, stated
that the Amendment 2, as drafted, could be workable. Whenever money
is allocated it would have to be appropriated by the legislature.
Number 0996
REPRESENTATIVE ROKEBERG stated that he has submitted to the
committee along with the amendment, a memorandum from Legal
Services regarding "periodic payments in lieu of taxes" dated March
16, 1998. The memorandum indicates that there is no necessity to
change any of the information in the bill in order for the payments
to occur at the time of the impact.
Number 1050
VICE-CHAIR BUNDE (INDISC. -- static on tape).
Number 1082
VICE-CHAIR BUNDE asked if there is an objection on Amendment 2.
REPRESENTATIVE OGAN asked if there was an objection when it was
moved.
VICE-CHAIR BUNDE stated that he assumed there was for discussion
purposes. Hearing no objection, Amendment 2, as amended was
adopted.
Number 1205
REPRESENTATIVE RYAN referred the committee to his packet of
amendments. He made a motion to adopt Amendment 3, 0-GH2006\B.8,
which reads:
Page 2, lines 8-11:
Delete all material.
Renumber the following paragraphs accordingly.
Page 2, lines 23-28:
Delete all material.
Insert "tankers;"
Page 3, lines 7-15
Delete all material.
Renumber the following paragraphs accordingly.
Number 1126
REPRESENTATIVE OGAN objected for discussion purposes.
Number 1205
REPRESENTATIVE RYAN stated that since there is already the
infrastructure in Cook Inlet, they already have developed means of
moving gas production and there is no stranded gas that we know of,
that section is not germane to stranded gas. He stated that he did
not want it to relate to all the gas in the state. (INDISC --
static on tape). He stated that since the technology is not there,
there is no need to include the gas-to-liquids(GTL) portion in the
bill. He stated that he did not see the relevancy of page 3, line
7-15, other than for general information. He stated that they
hired Dr. Pedro van Meurs to tell us what we hired him to tell us.
Number 1327
COMMISSIONER SHIVELY responded that they hired Dr. van Meurs to
make an analysis of what he thought the situation was, as the
answer was unknown.
Number 1351
VICE-CHAIR BUNDE referred to page 2, lines 23-28, and stated that
his concern of GTLs is continuation (INDISC.) pipeline. Once the
amount of oil in the pipeline is no longer economically viable, the
pipeline will have to be dismantled. He stated that it might
extend the life of the pipeline if it was used to transfer GTLs.
He asked if that was a possibility.
Number 1390
COMMISSIONER SHIVELY responded that any additional liquid put into
the pipeline would increase its life and ability to operate. He
stated that a lot of the gas reserves have not been explored.
Number 1435
REPRESENTATIVE ROKEBERG made a motion to divide Amendment 3 by
taking the following out of the amendment:
Page 3, lines 7-15
Delete all material.
Renumber the following paragraphs accordingly.
Number 1465
VICE-CHAIR BUNDE stated that Amendment 4 would then read:
Page 3, lines 7-15
Delete all material.
Renumber the following paragraphs accordingly.
REPRESENTATIVE OGAN removed his objection.
Number 1586
VICE-CHAIR BUNDE objected and asked for a roll call vote on
Amendment 3, as amended. Representatives Kemplen, Ogan, Rokeberg
and Ryan voted in favor of the motion. Vice-Chair Bunde voted
against it. Representatives Hodgins and Brice were absent.
Amendment 3, as amended was adopted.
VICE-CHAIR BUNDE stated that would bring the committee to Amendment
4.
REPRESENTATIVE RYAN stated that he would withdraw Amendment 4.
REPRESENTATIVE RYAN made a motion to adopt Amendment 5,0-GH2006\B.9
which reads:
Page 10, line 26, following "AS 43.82.210;"
Insert "however, the terms concerning payments in lieu of
taxes must also include payment of interest at the rate
specified in AS 45.45.010(a) for suspended taxes;"
Number 1624
VICE-CHAIR BUNDE objected for discussion purposes.
Number 1650
REPRESENTATIVE RYAN stated that it was possible that the state
would have to adopt a back-end loaded system, which would mean that
the state would receive its payments 10-15 years in the future. He
stated that the investors would receive (Indisc. -- static on the
tape). He stated that the statute sets the interest rate. He
stated that it is only fair if the state gives this rate of
interest, the state should receive the same rate back.
Number 1748
REPRESENTATIVE ROKEBERG stated that he had some concerns about
that, he felt that the amendment would tie the hands of the
commissioner in bargaining the contract.
Number 1797
COMMISSIONER SHIVELY stated that he is opposed to Amendment 5. He
stated that Dr. van Meurs never said that the state would not get
any money for 15 years. He was suggesting a progressive tax policy
where the state would get less amounts earlier on and greater
amounts at the end. He stated that this amendment would put a
burden on the project and is counter productive. He stated the
rate should be left to the negotiations and not preset in the
legislation, so as to not pre-guess the deal.
Number 1862
VICE-CHAIR BUNDE stated that this bill would not preclude the
administration from negotiations (INDISC -- static on tape).
Number 1865
COMMISSIONER SHIVELY responded that as part of the economic
observations one could look at what they gave up at the beginning
and take that into account in terms of the payments at the end.
Number 1875
REPRESENTATIVE RYAN stated that there is no place in the world
where one can use someone's money without paying rent. He asked
why would the legislature want to give up the state of Alaska's
just return. He stated that the investors will recoup their money,
so why shouldn't the state. He stated that he saw this legislation
as a wish list of industry asking for everything that they desire.
He stated that if the legislature does not look out for the people
that it represents, the store is going to be given away.
Number 1967
REPRESENTATIVE ROKEBERG stated that he agrees what Representative
Ryan is saying regarding economic rent. However, interest and
market rates vary and the time-frame is not specific. He stated
that to tie this to a 10.5 percent statutory rate is not applicable
in this case. He stated that it is something that should be done
in the bargaining but should not be stipulated now.
Number 2020
REPRESENTATIVE OGAN stated that he believed the administration
would have the latitude to take into consideration the value of
deferred payments and will have the ability to negotiate a new
rate.
Number 2040
COMMISSIONER SHIVELY replied that is correct.
REPRESENTATIVE OGAN asked if it would be subject to legislative
approval.
COMMISSIONER SHIVELY replied that it would, depending on how the
bill was passed.
Number 2059
REPRESENTATIVE OGAN stated that Representative Ryan's points are
well taken and he believed the state should be duly compensated,
but he does not expect that to happen.
Number 2079
REPRESENTATIVE RYAN stated that since the state has paid this, what
is wrong for getting back what was paid. (INDISC. -- static on the
tape)
Number 2104
VICE-CHAIR BUNDE stated that he would be embarrassed if it was
limited to a 10 percent rate and the prime at the time, happened to
be 20 percent.
Number 2143
VICE-CHAIR BUNDE asked for a roll call vote. Representatives
Bunde, Ogan and Rokeberg voted against Amendment 5. Representative
Ryan voted in favor of it. Amendment 5 failed.
Number 2164
REPRESENTATIVE RYAN made a motion to adopt Amendment 6, 0-
GH2006\B.10 which reads:
Page 10, line 28:
Delete "(A)"
Page 10, lines 29-30:
Delete "or (B) royalty value"
Insert "however, the terms modifying the state's right to
royalty in value or in kind must include payment of
interest at the rate specified in AS 45.45.010(a) for
delayed or suspended payments".
REPRESENTATIVE RYAN explained the amendment (INDISC. -- tape
static).
VICE-CHAIR BUNDE stated that this is basically a penalty clause.
Number 2183
COMMISSIONER SHIVELY stated that Amendment 6 does not make much
sense to the administration. He stated that what they are talking
about is the right to take the royalty "in kind" as opposed to "in
value". He stated that they would always be getting something for
royalty, it would just be how they would (INDISC.). Either it
would be received as money or "in kind", there would not be a delay
so there would not be anything to have interest on.
Number 2212
REPRESENTATIVE RYAN stated that in the bill they talked a lot about
delaying the payment until the investors armortized their
investment. (INDISC.-- tape static) He stated that he thought if
one was to use somebody's money they should pay them for the use of
that money.
Number 2240
VICE-CHAIR BUNDE stated that this would just be a technical
amendment but the word "or" on page 10, line 29, has been changed
to "and".
Number 2263
COMMISSIONER SHIVELY stated that they are not talking about a
delayed payment for a royalty. The section talks about when they
could exercise the option to take the gas or money or take the gas
and use it or market it ourselves. He stated that the gas will be
sold as it comes out, there would be no delay in the actual
royalty. The amount that is taken can be changed on a monthly
basis. If the industry builds the gas line and assumes that they
would have a certain amount of gas to market but then the state,
four years into the contract, takes 12 percent of the gas, that
would violate the contract. He stated that if "in kind" gas is
used up-front then it would be taken into account upon the
contract's design.
Number 2328
REPRESENTATIVE ROKEBERG stated that would be a possibility that the
design of the pipeline would have a maximum capacity before
constructed, therefore a surplus capacity would be designed into it
depending on the contract. He stated that its conceivable that a
royalty share would not have to be given up if it was taken in
kind. He stated that this might be one area where the state might
benefit because if there is excess capacity the cost of using the
royalty gas and the ability to take it at full value may be there
with minimal marginal costs to the projects sponsor. He asked if
that would be a possibility.
Number 2374
COMMISSIONER SHIVELY stated that it is possible but unlikely. He
stated that the main disadvantage in the market place is the cost
of the pipeline which other competing countries don't have. He
stated that there would be ways to increase capacity but it would
have to be at a cost. The challenge to the industry is to drive
the cost down in order to have a competitive product.
Number 2407
REPRESENTATIVE RYAN stated that he is looking at a long term
commitment on the state's portion of the gas as the markets change
over time and we could be stuck in a contract that turns out to be
unfavorable to the state's interest. He stated that he would
withdraw Amendment 6 and come back with an index that would allow
the state to commit its royalty and have a guaranteed index that if
the price was over the index, a premium would be received.
Number 2452
VICE-CHAIR BUNDE asked if there was an objection to withdrawing
Amendment 6. Hearing none, it was so ordered. He recessed the
meeting to the call of the chair.
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