04/04/2018 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB331 | |
| HB27 | |
| HB399 | |
| HB260 | |
| HB397 | |
| Presentation(s): Bp Energy Outlook 2018 Edition | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 331 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 397 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 27 | TELECONFERENCED | |
| += | HB 399 | TELECONFERENCED | |
| += | HB 260 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 4, 2018
1:37 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative John Lincoln, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 331
"An Act establishing the Alaska Tax Credit Certificate Bond
Corporation; relating to purchases of tax credit certificates;
relating to overriding royalty interest agreements; and
providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 27
"An Act relating to chemicals that are of high concern for
children and to the manufacture and sale of products containing
certain flame-retardant chemicals; relating to an interstate
chemicals clearinghouse; adding an unlawful act to the Alaska
Unfair Trade Practices and Consumer Protection Act; and
providing for an effective date."
- MOVED CSHB 27(RES) OUT OF COMMITTEE
HOUSE BILL NO. 399
"An Act disallowing a federal tax credit as a credit against the
corporate net income tax; repealing a provision allowing the
exclusion of certain royalties accrued or received from foreign
corporations for purposes of the corporate net income tax;
repealing the reduced rate for the alternative tax on capital
gains for corporations; repealing an exemption from filing a
return under the corporate net income tax for a corporation
engaged in a contract under the Alaska Stranded Gas Development
Act; and providing for an effective date."
- MOVED HB 399 OUT OF COMMITTEE
HOUSE BILL NO. 260
"An Act relating to electronic possession of certain licenses,
tags, and identification cards issued by the Department of Fish
and Game; and providing for an effective date."
- MOVED CSHB 260(RES) OUT OF COMMITTEE
HOUSE BILL NO. 397
"An Act relating to a surcharge on oil produced in the state;
establishing the Arctic transportation and resource access fund;
and providing for an effective date."
- HEARD & HELD
PRESENTATION(S): BP ENERGY OUTLOOK 2018 EDITION
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 331
SHORT TITLE: TAX CREDIT CERT. BOND CORP; ROYALTIES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/07/18 (H) READ THE FIRST TIME - REFERRALS
02/07/18 (H) RES, FIN
03/30/18 (H) RES AT 1:00 PM BARNES 124
03/30/18 (H) Heard & Held
03/30/18 (H) MINUTE(RES)
04/04/18 (H) RES AT 1:00 PM BARNES 124
BILL: HB 27
SHORT TITLE: HIGH-RISK CHEMICALS FOR CHILD EXPOSURE
SPONSOR(s): TARR
01/18/17 (H) PREFILE RELEASED 1/9/17
01/18/17 (H) READ THE FIRST TIME - REFERRALS
01/18/17 (H) RES, L&C
03/09/18 (H) RES AT 1:00 PM BARNES 124
03/09/18 (H) Heard & Held
03/09/18 (H) MINUTE(RES)
03/19/18 (H) RES AT 1:00 PM BARNES 124
03/19/18 (H) Heard & Held
03/19/18 (H) MINUTE(RES)
03/23/18 (H) RES AT 1:00 PM BARNES 124
03/23/18 (H) -- MEETING CANCELED --
03/26/18 (H) RES AT 1:00 PM BARNES 124
03/26/18 (H) -- Meeting Postponed to 3/27/18 at 6:30
pm--
03/27/18 (H) RES AT 6:30 PM BARNES 124
03/27/18 (H) Scheduled but Not Heard
04/02/18 (H) RES AT 1:00 PM BARNES 124
04/02/18 (H) Scheduled but Not Heard
04/04/18 (H) RES AT 1:00 PM BARNES 124
BILL: HB 399
SHORT TITLE: CORP. TAX: REMOVE EXEMPTIONS/CREDITS
SPONSOR(s): FINANCE
02/23/18 (H) READ THE FIRST TIME - REFERRALS
02/23/18 (H) RES, FIN
03/28/18 (H) RES AT 1:00 PM BARNES 124
03/28/18 (H) Heard & Held
03/28/18 (H) MINUTE(RES)
03/30/18 (H) RES AT 1:00 PM BARNES 124
03/30/18 (H) Scheduled but Not Heard
04/02/18 (H) RES AT 1:00 PM BARNES 124
04/02/18 (H) Scheduled but Not Heard
04/04/18 (H) RES AT 1:00 PM BARNES 124
04/04/18 (H) FIN AT 1:30 PM ADAMS ROOM 519
BILL: HB 260
SHORT TITLE: FISH & GAME LICENSES;ELECTRONIC FORM
SPONSOR(s): SADDLER
01/16/18 (H) PREFILE RELEASED 1/8/18
01/16/18 (H) READ THE FIRST TIME - REFERRALS
01/16/18 (H) FSH, RES, FIN
02/20/18 (H) FSH AT 11:00 AM GRUENBERG 120
02/20/18 (H) Heard & Held
02/20/18 (H) MINUTE(FSH)
02/27/18 (H) FSH AT 10:00 AM GRUENBERG 120
02/27/18 (H) Moved HB 260 Out of Committee
02/27/18 (H) MINUTE(FSH)
02/28/18 (H) FSH RPT 6DP
02/28/18 (H) DP: EDGMON, EASTMAN, NEUMAN, KREISS-
TOMKINS, CHENAULT, STUTES
03/14/18 (H) RES AT 1:00 PM BARNES 124
03/14/18 (H) <Bill Hearing Canceled>
03/16/18 (H) RES AT 1:00 PM BARNES 124
03/16/18 (H) Heard & Held
03/16/18 (H) MINUTE(RES)
03/21/18 (H) RES AT 1:00 PM BARNES 124
03/21/18 (H) <Bill Hearing Canceled>
03/26/18 (H) RES AT 1:00 PM BARNES 124
03/26/18 (H) -- Meeting Postponed to 3/27/18 at 6:30
pm--
03/27/18 (H) RES AT 6:30 PM BARNES 124
03/27/18 (H) Scheduled but Not Heard
04/02/18 (H) RES AT 1:00 PM BARNES 124
04/02/18 (H) Scheduled but Not Heard
04/04/18 (H) RES AT 1:00 PM BARNES 124
BILL: HB 397
SHORT TITLE: SURCHARGE ON CRUDE OIL;ARCTIC TRANS. FUND
SPONSOR(s): FINANCE
02/23/18 (H) READ THE FIRST TIME - REFERRALS
02/23/18 (H) RES, FIN
04/04/18 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
THOMAS RYAN, Managing Director
Structured Finance Group
ING Capital, LLC
New York, New York
POSITION STATEMENT: Testified in support of HB 331 and answered
questions.
PETER CLINTON, Managing Director
Credit Restructuring
ING Capital, LLC
New York, New York
POSITION STATEMENT: Testified in support of HB 331 and answered
questions.
SHELDON FISHER, Commissioner Designee
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "HB 331: Oil and Gas Tax Credit Bond Proposal," dated
3/30/18, and answered questions.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Participated in the PowerPoint presentation
entitled, "HB 331: Oil and Gas Tax Credit Bond Proposal," dated
3/30/18, and answered questions.
DEVEN MITCHELL, Debt Manager
Treasury Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing of HB
331.
KARA MORIARTY, President/CEO
Alaska Oil and Gas Association (AOGA)
Anchorage, Alaska
POSITION STATEMENT: Testified during the hearing of HB 311.
BARBARA HUFF TUCKNESS, Director
Governmental and Legislative Affairs
Teamsters Local 959
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 331.
JOE MATHIS
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 331.
BRODIE ANDERSON, Staff
Representative Neal Foster
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Summarized HB 399 on behalf of
Representative Foster, Co-Chair of the House Finance Committee
(FIN), sponsor.
REPRESENTATIVE DAN SADDLER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed HB 260, as prime sponsor.
MORGAN FOSS, Legislative Liaison
Office of the Commissioner
Alaska Department of Fish & Game (ADF&G)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing of HB
260.
THATCHER BROUWER, Staff
Representative Geran Tarr
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Tarr, provided
information related to Amendment 2 during the hearing of HB 260.
BERNARD CHASTAIN, Major, Deputy Director
Headquarters
Division of Alaska Wildlife Troopers
Department of Public Safety (DPS)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing of HB
260.
REPRESENTATIVE PAUL SEATON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 397, as co-chair of the House
Finance Committee (FIN), sponsor.
ARNOLD LIEBELT, Staff
Representative Paul Seaton
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided a sectional analysis of HB 397 on
behalf of Representative Seaton, co-chair of the House Finance
Committee (FIN), sponsor.
MARK FINLEY, General Manager
Global Energy Markets and U.S. Economics
BP America
Washington, D.C.
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "BP Energy Outlook 2018 Edition".
ACTION NARRATIVE
1:37:23 PM
CO-CHAIR ANDY JOSEPHSON called the House Resources Standing
Committee meeting to order at 1:37 p.m. Representatives
Josephson, Parish, Talerico, Rauscher, Drummond, and Lincoln
were present at the call to order. Representatives Birch,
Johnson, and Tarr arrived as the meeting was in progress.
HB 331-TAX CREDIT CERT. BOND CORP; ROYALTIES
1:37:59 PM
CO-CHAIR JOSEPHSON announced that the first order of business
would be HOUSE BILL NO. 331, "An Act establishing the Alaska Tax
Credit Certificate Bond Corporation; relating to purchases of
tax credit certificates; relating to overriding royalty interest
agreements; and providing for an effective date."
1:39:44 PM
THOMAS RYAN, Managing Director, Structured Finance Group, ING
Capital, LLC, recapped ING business interests in Alaska. The
company financed two large borrowers in Alaska and monetized
their tax credits in 2014 and 2015; the outstanding loans as of
2016 have now been in default because of the delays in the
monetization of the tax credits; and the transactions have been
transferred to the credit restructuring department. He
emphasized that ING has not foreclosed on the loans but stays
committed to the original transactions that proved liquidity to
the projects. He said that both projects are very close to
being profitable: one is generating cash; the other is expected
to generate cash next year. The company remains committed to
the two projects; it has not foreclosed and taken the tax
credits, even though it would be entitled to do under the terms
of the transaction.
MR. RYAN relayed that ING personnel recognize that circumstances
have changed; the fall in oil prices had a significant effect on
Alaska; and ING has been committed to remaining patient. He
offered that the company's request in the last two years has
been for some certainty and for restructuring of the debt. He
claimed that certainty in knowing how much the company will be
paid and when to expect the payment would allow for it to
restart the lending process. The company is very committed to
the state. The four largest sectors to which it lends are:
natural resources - metals and mining, infrastructure projects;
agriculture and fisheries; and telecommunications. He
maintained that HB 331 would create the certainty concerning the
future of the tax credit program that ING welcomes.
1:42:12 PM
PETER CLINTON, Managing Director, Credit Restructuring, ING
Capital, LLC, relayed that when the loans were made, they were
given serious underwriting considerations, and ING understood
[state] appropriation of the funds was one of the risks of the
transactions. He maintained that at the time ING made the loan
and at the time the state developed the programs, no one could
have foreseen that the price of oil would fall so far so rapidly
as it did, leaving numerous parts of the energy sector
throughout the U.S. in great distress. He stated that ING
invested about $2.5 billion in the exploration and production
(E&P) sector in Houston; that sector has seen 60-70 bankruptcies
of energy sector companies since the start of the energy crisis.
MR. CLINTON maintained that the difference between Houston and
Alaska is that in Houston, there was a predictable process for
how the effects [of the energy crisis] would play out, which
allowed for significant capital to be available as the energy
prices rebounded. The capital was available for investments and
acquisitions, both on the debt and equity sides. He maintained
that ING, which had 12 clients file for bankruptcy, still lends
to every one of those clients and still looks for new business
in that segment.
MR. CLINTON reiterated that those at ING understand that not
everything included in a contract plays out as intended, and
credit restructuring may be warranted. He reiterated that in
resolving situations such as described, ING looks for
predictability in future cash flows and participation in the
solution by all constituents affected by the situation. He said
that in the current situation, the entities impacted are the
state, the small E&P companies relying on the tax credits for
further investments, and ING, looking for repayment of loans.
He conceded that it is the nature of the business at ING that
not every penny that is lent out is repaid.
MR. CLINTON maintained that as ING personnel value
predictability, the proposed legislation would allow ING a
discounted payout in exchange for that predictability; it
represents a classic restructuring and it makes sense. He
offered that the alternative - paying out "to the formula" - is
not a viable option because it lacks dependability. It would be
subject to the political ramifications of state appropriations.
He opined that investors of the future will look for that kind
of predictability as well. He offered ING's support for the
proposed legislation and maintained that it is a good proposal
and should be given serious consideration.
1:47:00 PM
REPRESENTATIVE BIRCH related that he was initially skeptical of
the proposed legislation; however, after considering it in the
context of the rate of return and the borrowing rate of the
Alaska Permanent Fund, he maintained that he now considers the
proposal reasonable. He stated his belief that the Alaska State
Legislature has a duty and responsibility to settle its debts.
He opined that HB 331 offers a reasonable solution, provides
predictability, and gives closure to small operators who were
invited to Alaska to work but now find themselves in financial
constraints. He offered his support for HB 331.
1:48:30 PM
REPRESENTATIVE PARISH requested to know the value of ING's
assets and debts.
1:48:42 PM
MR. RYAN responded that ING's total outstanding debts are about
$100 million, and it has $140 million in credits. He added that
if ING were to foreclose and sell its credits to a secondary
market, it would probably recoup its money, but there would be
nothing left for the projects. He maintained that as of now,
there is still value for the projects. The proposed legislation
would allow ING to recoup most of its money and leave
significant value for the projects themselves, which is
desperately needed to comply with the contracts.
1:49:30 PM
MR. CLINTON added that in addition to providing liquidity
directly, the proposal would "clean up" companies' balance
sheets in an audit opinion, allowing them go back out to the
capital markets. The capital markets are currently not
welcoming the companies due to the defaulted loans.
1:49:54 PM
REPRESENTATIVE PARISH asked for clarification that $140 million
in outstanding credits could cancel out the $100 million in
outstanding debt, if ING resold them.
MR. RYAN answered that the amount represents an aggregation so
cannot be described quite that way. He added that if ING sold
all the credits, the entire proceeds would pay off the loan,
more or less, and there would be nothing left. He stated that
since ING personnel have not been actively canvasing the
secondary market, it is difficult to say for sure.
1:50:51 PM
REPRESENTATIVE PARISH asked whether at the time ING made the
loans, ING and the lawyers of the borrowers of the loans
contemplated the pertinent statute.
MR. RYAN responded yes.
REPRESENTATIVE PARISH asked whether it was reasonable to assume
than no party entered into the agreements with ignorance or
illusions regarding the responsibilities of the state.
MR. RYAN answered, that's right.
1:51:41 PM
CO-CHAIR JOSEPHSON asked Mr. Clinton if he is at liberty to
reveal the penalties that the independents are incurring,
assuming the loans are in forbearance.
MR. CLINTON responded that the penalties are standard. He
clarified that the agreements are not in forbearance; initially
they were for the short term, but those have expired. He
explained that both loans are in default, can be called at any
time, and there is no existing agreement with either of the
borrowers. He offered that there is excellent communication
between ING and the borrowers; ING has communicated to the
borrowers its desire to "see this through" in a cooperative
manner and in a manner that will return some of the liquidity to
them. He added that the only penalty that the borrowers are
incurring today is the default interest rate - usually 2 percent
higher than would be charged on the loan - which is typical of
any transaction.
MR. CLINTON related that there are other remedies available to
ING, such as foreclosing on the certificates, which is an option
at any time. He explained that ING has not done that for
several reasons; first and foremost, ING has faith that the
situation will be and should be remedied by the legislature. He
stated that the spirit of the original agreement was that ING
was to be paid by the State of Alaska; to the extent that there
were excess tax credits, ING would return the money to the
investors. One of the investors currently is depending on these
funds for further investment; the money is not available to the
investor. Because of the uncertainty, the investor is unable to
access the additional equity and risks losing upwards of $350
million of equity that has been invested in the project. He
added that the project will continue with another investor;
however, that investor will not offer the money without
penalties to the existing investors.
MR. CLINTON reiterated that ING has not pursued the rights and
remedies available to it; if there was a very active secondary
market, it is possible ING might have pursued that option. He
said that ING prefers a solution that would allow it to continue
relationships with its clients. He maintained that just because
a company has financial issues, that doesn't mean it will
forever have financial issues. If one has faith in management
teams and faith in the projects, there is nothing wrong with
reexamining the opportunity to work with the company again.
1:55:36 PM
CO-CHAIR JOSEPHSON offered that the 2 percent on some of the
accounts may date back to the summer of 2015.
MR. RYAN agreed that ING incorporated some extension periods to
cover eventualities such as appropriation delay; therefore, the
percent does not date back quite that far. He said that to be
clear, the real value for the risk for the projects is that
there are some credits that were not lent against and were
reserved by ING as extra collateral; ING would like to either
lend against [the credits] or release them back to the company.
He offered that the beauty of HB 331 is that there would be some
cash against those credits as well, which would be released
directly back to the company.
1:56:23 PM
REPRESENTATIVE PARISH asked for clarification: ING has lent
against $140 million in cashable tax credits, upon which
approximately $100 million has been loaned; ING has another set
of tax credit against which it has not needed to borrow.
MR. RYAN responded that the $140 million has two components:
the portion that ING lent against, which amounts to about 85
percent; and the portion that came after the appropriation
issues began, at which time ING stopped advancing against the
funds.
REPRESENTATIVE PARISH commented, "That covers your risk."
MR. RYAN concurred.
MR. CLINTON added that as more time passes without any principle
reduction, the interest accrual "eats into it."
1:57:35 PM
REPRESENTATIVE PARISH asked if given $100 million, ING would be
able to eliminate the companies' debts.
MR. RYAN answered that if the loan were paid off in exchange for
all the credits, ING would be satisfied; however, ING has a
philosophical obligation to the borrowers. He offered that ING
has worked hard with the borrowers to keep them solvent, and it
would not want to see their $40 million gone.
1:58:27 PM
REPRESENTATIVE BIRCH stated that the [tax credit] program began
in 2011; it was not unreasonable to expect a full payment of the
tax credits. He mentioned that the payment occurred every year
for several years; the governor vetoed two successive years [of
payment] due to financial shortfalls. He said that it was
reasonable to expect predictability; the tax credits were fully
paid as obligated over five to six years.
MR. CLINTON responded that ING appreciated the credit and came
into the agreement with "eyes wide open." The personnel at ING
expected the credits to be paid off as they had been
historically and as had been promoted.
1:59:41 PM
SHELDON FISHER, Commissioner Designee, Department of Revenue
(DOR), continued the PowerPoint presentation entitled, "State of
Alaska Department of Revenue HB331: Oil & Gas Tax Credit Bond
Proposal" dated 3/30/18, which was begun during the hearing of
HB 331 on 3/30/18. He returned attention to slide 9, entitled
"Oil & Gas Tax Credit Background: The Challenge." He stated
that the revised estimated statutory payment for the spring
forecast was elevated slightly in fiscal year 2019 (FY 19); the
levels in the following years were lower and more consistent.
COMMISSIONER FISHER turned to slide 10, entitled "Proposed
Solution: Issue Bonds and use proceeds to pay off Tax Credits."
He related the example on the slide, involving the assumption
that the credit holder has $100 million in credits payable
equally over four years, or $25 million per year. He discussed
that the program would have two discount rates - 10 percent and
5.1 percent. He directed attention to the charts on the right
of the slide. Under the 10 percent discount rate, year one
shows no discount; there is a 10 percent annual discount for
future years; and the buyout offer is $87.17 million. The 5
percent scenario shows similar logic with a buyout offer of
$92.95 million. He explained that someone would agree to accept
$87 million for $100 million of debt because money has a time
value associated with it. The belief is that even at the 10 per
cent discount rate, the cost is lower compared with the weighted
average cost of capital (WACC); that is, the rate is lower than
the rate at which the credit holder could secure money from
other sources.
COMMISSIONER FISHER further explained the difference between the
two rates. All credit holders would be eligible to utilize the
10 percent rate. To achieve the 5 percent rate, the credit
holder would be required to make one of four commitments. The
first is agreeing to give the state an additional overriding
royalty interest, and the value of the royalty interest over
time would be structured to be equal to the difference between
the two discounts. In the example shown on slide 10, that
difference would be approximately $6 million; therefore, the
overriding royalty interest would have a present value of $6
million. The second option is committing to reinvest the money
in Alaska. The third is agreeing to waive confidentially
associated with seismic data as it relates to the credit. The
fourth involves certain refinery or gas storage credits, which
would allow the credit holder to qualify automatically for the
lower rate.
COMMISSIONER FISHER mentioned that the 5.1 percent is based on a
formula that is the true cost of interest, and in the current
example, that would be about 3.6 percent, or what DOR believed
to be the market rate for the debt at the time it goes to
market. It may turn out to be slightly higher or lower, but
this is the percentage chosen as a conservative estimate. An
additional 1.5 percent was added by DOR as a cushion, resulting
in 5.1 percent, which DOR represents as the state's borrowing
cost. He added that even under the state's borrowing cost in
the scenario demonstrated on the slide, the discount will pay
for the cost of interest. The 10 percent rate was chosen by DOR
arbitrarily; it was intended to be roughly the midpoint between
the state's borrowing cost of 5 percent and what DOR perceives
to be the market rate for the companies, which is a weighted
average cost of capital in the high- to mid-teens.
COMMISSIONER FISHER related that the important concept from the
state's perspective is that the state had a commitment to the
credit holders to pay them over time; under the proposed
legislation, the credit holders would accept a reduced payment
so that the state can commit to pay a bond holder over time.
Under either the 5 percent or the 10 percent discount rate, the
state is modestly better off. He maintained that the state's
goal is not to try to make money on this program but to create a
structure in which the state is neutral in the different
scenarios.
2:05:54 PM
CO-CHAIR JOSEPHSON referred to the second bullet under the 10
percent rate on slide 10 - committing to reinvest the money in
Alaska. He offered that if the money is owed to ING, meeting
that condition would be difficult. He suggested that doing so
would depend on what was borrowed and how it was borrowed during
the exploration phase; it would be an individual exercise.
COMMISIONER FISHER conceded that much of the money likely would
be used to pay the debts; however, doing so would allow the
companies to "clean up" their balance sheets. The elimination
of outstanding debt would enable them to receive clean audits.
Consequently, they could access other sources of capital that
they would reinvest. It would not necessarily be the exact same
money coming back into the Alaska economy, but it would allow
the companies to attract money. He said that the way HB 331 is
structured, to qualify for that condition, the company would
have to present a plan satisfactory to DOR that evidences the
ability to reinvest the money over a three-year period.
2:07:32 PM
REPRESENTATIVE PARISH referred to the commitments needed to
qualify for the lower rate and mentioned that the discount rate
would represent approximately a 7 percent reduction in the
asking price relative to the total base value of the credits.
He asked if the commitment to reinvesting in Alaska must be an
amount equivalent to the overall amount purchased.
COMMISIONER FISHER answered, "That is correct."
2:08:22 PM
REPRESENTATIVE PARISH referred to the commitment regarding the
early waiver of confidential seismic data and asked whether a
company having one small shoot of low monetary value that is
about to expire could use it against any amount of credits to
reduce the rate.
2:08:47 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
explained that seismic data goes to the Department of Natural
Resources (DNR) and becomes public after a ten-year period.
Currently DNR is going through the process of releasing seismic
data that it received nine and ten years ago. The credits that
are unpaid are all based on work that was done for the most part
in 2015 and 2016; there is nothing "ripe" for publication. The
companies would be authentically giving up nine- or ten-years'
worth of confidentiality in exchange for an incremental $6
million.
MR. ALPER mentioned that Representative Parish raised another
question not addressed by HB 331: What happens when a company
has some seismic credits and some non-seismic credits for
drilling an exploration well? He said that according to DOR's
interpretation, DOR would only allow the company to buy down the
discount rate for the seismic credits by giving up the seismic
data. Another commitment would have to be made for a lower rate
on the drilling credits, such as the reinvestment commitment.
2:10:26 PM
REPRESENTATIVE PARISH asked whether that interpretation is
included explicitly in the proposed legislation.
MR. ALPER responded that it is a detail that would need to be
put into regulation; it is DOR's interpretation, and DOR would
support including information to clarify that point.
2:10:48 PM
REPRESENTATIVE PARISH asked for an explanation of the fourth
condition for a lower rate, as shown on the slide as "Have
Refinery or Gas Storage Credits".
MR. ALPER replied that most of the credits have been sunset
through legislation passed [in 2017 during the Thirtieth Alaska
State Legislature]. Several smaller programs had pre-existing
sunsets - in 2020 and 2021 - which represent credits not under
the oil and gas statutes but under the corporate income tax
statutes. The gas storage credit is a one-off; it has never
been used but was put into statute for the benefit of the
Interior Gas Utility (IGU). Once the main storage tank is built
in Fairbanks and if is completed before the deadline, there will
be a tax credit due from the state to contribute to the cost.
MR. ALPER mentioned that the impacted entities have nothing to
offer: they have no royalties to give; the projects are finite;
the credits are capped; and the dollar amount is fixed so that
there is a limit on what they earn. The work that has been done
to earn the refinery credits has already been put to economic
use by the State of Alaska. He gave as an example Petro Star
Inc., which built an asphalt plant as an addition to its
refinery in North Pole. Asphalt is now manufactured in Alaska,
and the Department of Transportation & Public Facilities
(DOT&PF) and other large consumers of asphalt now can obtain
cheaper asphalt than that from the Lower 48. He offered that
the state decided to default these entities into the lower
discount rate because of the benefits they offer.
2:13:07 PM
REPRESENTATIVE PARISH asked whether the credits are
transferable.
MR. ALPER expressed his belief that the credits could be sold to
a tax payer; however, he conceded that he was not sure if this
was true of refinery credits.
2:13:31 PM
REPRESENTATIVE PARISH also asked if there is a threshold for how
many credits could be bought and used for a discount.
MR. ALPER agreed to research Representative Parish's two
questions. He added that in drafting the proposed legislation,
DOR contemplated many scenarios for "gaming" the system. He
gave as an example: when a company offers their credits into
the program, it must offer all of them; there is no ability to
pick and choose which credits it will offer. The concern was
that companies would hold out for a better buyout. He
reiterated that DOR does not want to create the opportunity to
game the system. He offered that DOR supports creating a
"bullet-proof" system to protect the state's interest.
2:14:59 PM
COMMISIONER FISHER referred to slide 11, a continuation of the
proposed solution, and explained the process as follows. The
first step would be to provide the credit holders with a
definitive statement of the proceeds that will be available
under the program and secure irrevocable commitments from them
to participate. He mentioned that this contact would occur a
couple weeks before the actual issuance of the bond. Staff at
DOR have already reached out to the credit holders twice - with
an estimate based on the fall forecast and updated estimate
based on the spring forecast; DOR has been in communication with
them regarding their interest and view of the program.
COMMISIONER FISHER relayed that if and when HB 331 passes and
once DOR receives the irrevocable commitment, it will determine
if a credit holder qualifies for the 10 percent discount or the
5 percent discount. He said that DOR will then go to market and
issue the bonds. He added that the reason for the irrevocable
commitment is that DOR does not want to borrow more money than
necessary in order to pay off the debt.
COMMISIONER FISHER referred to "Step 2: Issue Bonds" on slide
11 and reported that there is just over $800 million in
outstanding credits presently. For the purpose of the current
analysis, DOR assumed that no credits would be sold to the major
producers to offset taxes. He added that there is a possibility
that some credits may be sold to producers between now and when
this program is launched.
COMMISIONER FISHER stated that the resulting bond issuance would
be between $683 million and $738 million; DOR could be in the
market place as soon as August, if the proposed legislation
passes in May.
COMMISIONER FISHER related that DOR anticipates future issuances
for certificates issued between August 2019 and August 2021; the
additional issuances are expected to be between $130 million and
$180 million in the aggregate.
COMMISIONER FISHER referred to "Step 3" on slide 12, also a
continuation of the proposed solution. He relayed that the next
step would be to purchase the tax credits. He referred to
"Option 1" under Step 3 and said that the standard rate, for
which all credit holders would qualify, would be 10 percent. He
offered that this rate represents a balance between both the
state's and the credit holders' interests; it would cover the
cost of capital as well as the state's financing cost and offer
a modest benefit to the state. Under "Option 2," the credit
holders would qualify for a lower interest rate of just over 5
percent; that percentage is based on today's market of 3.62
percent true interest rate cost plus 1.5 percent. He added that
as the time of issuance approaches, the percentage rate may vary
and DOR would notify the credit holders based on the market
conditions at the time. He restated the four scenarios
qualifying a credit holder for the 5.12 percent rate, as listed
under Option 2 on slide 12.
2:19:07 PM
COMMISIONER FISHER referred to slide 13, also a continuation of
the proposed solution. He relayed that the state would issue
bonds, and the bonds would have a ten-year term for the first
issuance. He stated that the bonds would have a back-loaded
debt service, meaning that in the first two years DOR
anticipates interest only, years three to five increasing debt
service, and years six through ten a flat payment to fully pay
off the debt. He mentioned that future bond issuances would
consist of interest only in years one through nine and a balloon
payment in year ten. It is expected that the discount would
cover the cost of debt service.
2:19:52 PM
REPRESENTATIVE BIRCH asked what protections the bond holders
would have for being reimbursed by the state.
COMMISIONER FISHER replied that the bonds would be subject to
appropriation; each legislature would have the opportunity to
appropriate the money to repay the debt. He opined that there
is a general appreciation for the state's obligation to
incurring and repaying debt. He maintained there is a moral
obligation and a strong presumption for the state's repayment of
the debt. He added that the interest rate is a little higher
than one with a general obligation (GO) bond; it reflects a
modest amount of appropriation risk for these debts.
2:21:47 PM
REPRESENTATIVE PARISH asked what the bond holder's recourse
would be if future legislatures failed to appropriate the money.
COMMISIONER FISHER deferred the question to his DOR colleague.
2:22:20 PM
DEVEN MITCHELL, Debt Manager, Treasury Division, Department of
Revenue (DOR), responded that there would be no ability for the
lenders to extract funds from the State of Alaska. He added
that this situation would be different than other subject-to-
appropriation commitments. He mentioned that the lease for the
controversial [Anchorage Legislative Information (LIO)] building
was subject to appropriation; however, that lease was not
authorized by law. The bond commitment would be authorized by
stand-alone law; therefore, would represent a different level of
commitment by the legislature. He said that the municipal bond
market is recognized as a form of commitment that has the
state's good word behind it; a failure to pay would result in a
downgrading of the state's GO bond credit rating; and the
state's ability to access the capital market would be
restricted.
2:23:47 PM
REPRESENTATIVE PARISH asked for the current bond rating and the
expected decline of that rating should the legislature decline
to repay the debt.
MR. MITCHELL replied that the state has had subject-to-
appropriation commitments for many years, and there have been
many tough times; however, there have always been
appropriations. He maintained that the expectation is that
there will be payment on these bonds. He emphasized that the
bonds will not be issued if there isn't an expectation of
payment. He said that the state's current credit rating is
"double a, double a, double a three" from Standard and Poor's
Financial Services LLC (S&P) and Moody's Investor Service
(Moody's) respectively. If there is a failure of repayment, one
might expect a significant downgrade of the three ratings to a
low A category. He stated that, more importantly, the state
would be locked out of the capital markets. He said that
examples of that are Puerto Rico and Detroit.
2:25:23 PM
REPRESENTATIVE PARISH asked what the security was behind the
[Anchorage LIO] building and whether the security consisted of
the state's "good name" only.
MR. MITCHELL replied that the legislature entered an operating
lease agreement regarding that building. He stated that to
acquire real property, the statutes require stand-alone
legislation that identifies the anticipated expenditure to
acquire the real property, the estimated annual payment, and the
total payment for the acquisition. With that stand-alone
legislation, comes the authorization to pledge the state's
credit. In this case, the loan would include information about
the state's balance sheet, the state's forecast, and such; the
lease would be one into which the State of Alaska would enter on
a more regular basis on an operating level, and it wouldn't
carry the same credit commitment [as for the bonds.] He added
that there are several reasons why the lease failed, but that is
the reason from DOR's perspective.
2:26:48 PM
REPRESENTATIVE PARISH asked what recourse the creditors had when
the lease failed.
MR. MITCHELL offered his belief that the creditors sued the
state. He added that he did not know the outcome. He said that
he recently read an article in the Anchorage Daily News (ADN)
about a bank in Florida now owning the building and Alaska no
longer having an interest in the building.
MR. MITCHELL offered that there are layers of commitments that
the state can make, and the credit commitment, as is being
discussed in the present hearing, is very different from the
example of the building in Anchorage or default due to non-
renewal of a lease.
2:28:21 PM
REPRESENTATIVE PARISH asked whether the state has made such a
credit commitment in the past.
MR. MITCHELL replied yes. He said that the state has made many
credit commitments on a subject-to-appropriation basis through
law. He added that most recently in 2015, the Alaska Native
Tribal Health Consortium's (ANTHC's) residential housing
facility in Anchorage was funded through a certificate of
participation via a stand-alone law.
2:28:49 PM
CO-CHAIR JOSEPHSON referred to the letter to Senator Cathy
Giessel from Mr. Mitchell and Assistant Attorney General Bill
Milks, dated 3/2/18 and included in the committee packet. He
asked for DOR's position on the appropriateness of the proposed
legislation considering Article 9, Section 8 and Section 11, of
the Alaska State Constitution.
MR. MITCHELL restated that the question for discussion is the
constitutionality of the use of certificate of participation of
lease revenue bonds or subject-to-appropriation commitments. He
referred to the case, Carr-Gottstein Properties v. State [1991],
which was critical for determining that it is legal to allow
such obligations. He stated that the Alaska State Constitution
prohibits dedication of state revenues except where required by
federal law, where dedication was established prior to statehood
or through the creation of statehood, or for general obligation
funds. He relayed that it was determined that the subject-to-
appropriation clause and the requirement that the legislature
annually consider and make an appropriation for the payment of
the obligations excluded it from the limitations of the
constitution and allowed the financial structures to be deemed
legal. He suggested that the Department of Law (DOL) can
provide more detail.
2:31:55 PM
COMMISIONER FISHER referred to slide 14, entitled "Benefits of
Program" and relayed that the chart on the slide demonstrates in
numerical formula the repayment [schedule] under the different
scenarios. He directed attention to the second column, which
lists the statutory payments over time. He referred to the
columns entitled Cohorts 1,2,3, and 4 and relayed that they
represent the various years of financing. Cohort 1 consists of
the $807 million mentioned on slide 11; the chart shows two
years of interest only at about $27 million per year; three
years of increasing interest and principle amortization; and
five years at about $123 million per year. He continued by
saying that the subsequent cohorts - 2,3, and 4 - represent
interest only payments for each of the first nine years followed
by a bullet payment at the end to cover the outstanding amount.
COMMISIONER FISHER noted a couple of interesting features of the
program. The cost would be relegated to future years, which was
done by design and not to avoid addressing the [payment] issue
in the present. He stated two reasons for doing it thus: the
forecast is that revenues will grow over time, and the
outstanding deficit to the state will decline; and, more
importantly, the opportunities that the credit holders are
pursuing will not produce revenue until some point in the
future, therefore, moving the payment into the future puts the
payment and the benefit more in alignment with the period in
which the payments will be paid and the benefits of royalties
and tax revenues are realized by the state.
COMMISIONER FISHER relayed that the chart shows that in the
first five years, the aggregate payment is always less than what
the statutory payment would have been, which provides some
budgeting flexibility to the state for the next couple of years
as it continues to work on its fiscal plan. He called attention
to the bottom row of the chart, entitled "NPV5," to point out
that the entire scheme assumes that everyone qualifies for the 5
percent discount rate; if the discount rate is 10 percent, then
the amounts will be slightly less for the state. The net
present value (NPV) basis attempts to capture the notion that a
dollar five years from now is worth less today because of the
potential interest earned; in other words, money has a time
value.
COMMISIONER FISHER relayed that NPV tries to put all the money
streams into a current dollar value so that a comparison can be
made between the different streams. He said that the statutory
payment formula has an NPV of just under $810 million, as shown
at the bottom of the first column, whereas the payment stream
contemplated and shown at the bottom of the last column,
entitled "Aggregate Payment," shows an NPV of just over $780
million. He mentioned that the difference between the two is
about $27 million in the state's favor.
COMMISIONER FISHER related that the intent was not for this
amount to be a big gain to the state but to balance several
competing interests and be fair to everyone. He insisted that
DOR wants to assure the legislature, as well as all Alaskans,
that the discount rate that the credit holders accept would
compensate the state and Alaskans for the structure and the
interest that the state incurs.
2:36:48 PM
REPRESENTATIVE PARISH asked for clarification as to the discount
rate used in the chart.
MR. ALPER responded that the assumption behind the table is that
all the credits are sold at the lower discount rate; hence, the
larger amount of bonding, the larger payout to the taxpayer, and
more payments over time. If several credit holders accepted the
10 percent discount rate and didn't offer one of the four
additional benefits to the state [under Option 2], the amounts
would be smaller and, therefore, the state's incremental gain
would be slightly more.
REPRESENTATIVE PARISH asked for the amount that next year's
dollar is worth compared to this year's dollar.
MR. ALPER responded that the assumption is that a dollar gains 5
percent per year or roughly the equivalent of the state's cost
of capital. He added that if the state had $809.75 million and
set it aside in a 5 percent interest earning account, the state
could pay that $946 million worth of statutory appropriations
over time; likewise, the state could make the bond payments by
setting aside $783 million using the same 5 percent investment
pool.
2:38:06 PM
COMMISIONER FISHER referred to slide 15, entitled "Impact on
debt capacity and credit rating." He said that the obligations
are already listed as debt on the state's Comprehensive Annual
Financial Report (CAFR) - the state's balance sheet; therefore,
because one form of obligation would be converted into a
different form of obligation, there would be limited impact on
the state's credit rating. He turned to the numbers on slide
16, also entitled "Impact on debt capacity and credit rating,"
to demonstrate the impact of the state's existing debt. He
mentioned that the 3.8 percent for FY18 listed under the third
column - "State G.O. Debt Service" - represents the percent of
the state's unrestricted general funds that are GO bond debt
service. Also listed on the chart are other state supported
debts, school reimbursement, and the Public Employees'
Retirement System (PERS)/Teacher Retirement System (TRS)
obligations, which [for FY18] add up to 17.5 percent, shown
under the seventh column, entitled "Subtotal: Current
Obligations without Tax Credits." Looking down that column, the
percentages grow to just under 25 percent before dropping back
down to about 20 percent.
COMMISIONER FISHER drew attention to the eighth column, entitled
"Statutory Payment of Tax Credits," and explained that these
percentages represent what the tax credits would be under the
state's current obligations. He pointed out they are
substantial in the next few years. In FY19 the tax credits
would consume just over 8 percent of the unrestricted general
funds (UGF), bringing the total payment obligations up to 31
percent. He stated that under the proposed solution, the tax
credit debt service payment, shown in the second to the last
column, starts low at just over 1 percent of UGF, and grows to
over 4 percent and levels off. He referred to the far-right
column, entitled "Total: Current Obligations with Credit Bond
Payments," to point out the more even distribution over time of
the debt service as a percent of the UGF. He stated his belief
that this plan represents a prudent method of restructuring the
obligation: it would level the amount over time; it would
provide some opportunity for the legislature to level out the
obligation and address priorities that are currently pressing at
this time; and it would be viewed favorably by the credit
agencies.
2:42:17 PM
REPRESENTATIVE PARISH asked for alternate calculations for
slides 14 and 16 based on the actual rate of payment, not just
the hypothetical rate of payment.
COMMISIONER FISHER asked for clarification of what is meant by
"alternative calculations."
REPRESENTATIVE PARISH responded that he is looking for the tax
credit rate payable according to the co-chair of the House
Finance Committee (FIN) and the Legislative Finance Division.
COMMISIONER FISHER, responded that slide 14 represents the
administration's interpretation of statute; Legislative Legal
and Research Services has indicated that the statutory
interpretation is ambiguous. He emphasized that the statutory
interpretation is not something that came about as an attempt to
justify the program: it has been the interpretation for several
years; it has been published in the state's revenue sources book
for several years; and it has been debated on the floor by the
members of both houses and treated as the correct statutory
interpretation. He relayed that he believes the interpretation
to be correct and does not believe it should be reinterpreted.
He stated that he is concerned that consistency be maintained.
2:45:20 PM
MR. ALPER relayed that the statutory appropriation language
discusses the [AS 43.55.011] calculation; the actual tax itself
is based on 35 percent of production tax value of net profits,
which is the percentage currently in law. He said that as
prices have increased, the use of the per barrel credit to
offset them has grown, as seen in the last several forecasts.
He stated, "The alternate appropriation that the [FIN] co-chair
was using would have subtracted the per barrel credit from that
number to get to the ... actual tax received - the net received
- and take a percentage of it." He added that even if that was
the legal determination, which DOR personnel do not believe it
is - it is the position of DOR that it is not in the state's
best interest. He said that delaying the payments for 15-20
years would have "seismic" ramifications inside the oil
industry. He opined that the level of uncertainty - knowing
that they would not get paid for over a decade - would drive
companies that are currently "on the edge" over the edge into
bankruptcy, which would not be in the state's interest. The
companies would then lose their leases and the leases would find
their way back to the major producers. He maintained that the
intent of the program was to diversify the North Slope and bring
new players into Alaska, and having the leases revert to the
major producers would upend a decade of work by the state.
MR. ALPER, in response to Representative Parish, said that DOR
could do the calculation as requested but stressed that doing so
would change "both sides of the equation." He referred to slide
14 and offered the hypothetical of smaller payments over a
longer period. He said that the proposed legislation has a
mechanism to calculate the payout based on the statutory
interpretation of a higher payout; in other words, when the
company expects to receive $25 million per year over four years,
that includes the assumption that the larger formula is being
used. If the alternate formula were used, that same company
would get $10 million per year over 10 years. Without the deep
compounding rate, a company, instead of getting $87 or $93
million, might be getting $40 or $30 million from the state,
therefore, would probably not participate in the program, which
would cause the program to fail. Secondly, the state would be
borrowing a smaller amount of money. The payment amounts on the
last column on slide 14 would be smaller because the state would
have borrowed less money; therefore, there would be a difference
in the NPV5 amount in the state's favor, but the amounts on both
the Statutory Payment Schedule column and the Aggregate Payment
column would be dramatically smaller.
2:48:53 PM
COMMISIONER FISHER turned to slide 17, entitled "Conclusion: Oil
& Tax Credit Solution," and said that the intent of the program
was to try to balance several competing interests. He offered
that firstly, the goal was to provide an economic stimulus to
the state's oil industry, which has been the hardest hit sector
with more than 30 percent reduction in employment. He pointed
out that not just the oil industry has suffered, and as the oil
industry improves, it will have a multiplier effect on other
dimensions within the state economy. He maintained that within
the framework of providing a stimulus, DOR wanted to take an
action that would benefit the state in the short term by
reducing the current fiscal year's budget; it would offer a
discount rate to the credit holders, which would be budget
neutral in the long term. He continued by saying that secondly,
the proposal would support the small producers, allow them to
clean up their balance sheets, attract capital from other
sources, invest again, and employ Alaskans. These are the
companies that the state attracted by offering credits in order
to diversify and increase competition in the oil industry. He
stated that lastly, the proposal represents a strong statement
from the State of Alaska that it intends to be an oil and gas
exploration and production partner. The state is offering a
solution that is mature and sophisticated - one that balances
all the interests and in which all parties share in "the pain."
2:51:21 PM
CO-CHAIR JOSEPHSON opened public testimony on HB 331.
2:51:58 PM
REPRESENTATIVE RAUSCHER asked that the "reputational issues"
mentioned on slide 17 be addressed.
COMMISIONER FISHER referred to the box on the right of slide 3
to point out that the state had marketed the tax credit program.
He maintained that it is appropriate to recognize that the state
had a statutory framework, but also to recognize that the state
made statements that were intended to attract companies to
Alaska. He added that as the state has deviated from some of
the expectations, even though not legal commitments, the state's
reputation does suffer somewhat. He emphasized that he is not
suggesting that the state disadvantages itself to protect its
reputation. The proposed legislation offers a solution that
balances the cost burden. He conjectured that the state bears
the least cost in the scenario, because the state's cost is
covered by the discount that the credit holders are accepting.
He maintained that the state's credibility would be enhanced by
the proposed program.
2:54:10 PM
REPRESENTATIVE BIRCH expressed his appreciation for DOR's
efforts.
2:54:23 PM
REPRESENTATIVE PARISH suggested that a direct payoff to the
lender is more favorable to the state.
COMMISIONER FISHER responded that the goal of the proposed
program is not to maximize the value to the state, but to
eliminate companies' debts in a manner fair to the state and
fair to the credit holders. He mentioned that the testimony
from ING indicated that a payoff such as Representative Parish
suggests might preserve ING's financial standing; however, ING
wants to see the companies succeed and wants to continue its
lending relationships with the companies. He conceded that a
program could have been designed that would have resulted in a
larger discount to the state; however, he does not believe that
a program with, for example, a 30 percent discount would have
cleared all the debts. Many credit holders have already
indicated that even the 10 percent discount is too high. He
also expressed his belief that a 30 percent discount would
result in a longer recovery time for companies, delaying
production and employment. He reiterated that the intent was
not to maximize the value to the state but to balance multiple
objectives, as shown on slide 3.
2:57:27 PM
KARA MORIARTY, President/CEO, Alaska Oil and Gas Association
(AOGA), paraphrased from the following written testimony
[original punctuation provided]:
Co-Chair Josephson, Co-Chair Tarr, members of the
Committee, thank you for the opportunity to testify on
House Bill 331. For the record, my name is Kara
Moriarty and I am the President/CEO of the Alaska Oil
& Gas Association, commonly referred to as "AOGA."
AOGA is a private trade association that represents
the majority of oil and gas producers, explorers,
refiners, and transporters of Alaska's oil and gas.
The following testimony reflects the opinion of our
membership.
AOGA supports an expedited resolution this year to
refund the earned credits. Companies earned these
credits by investing hundreds of millions of dollars
to hire Alaskans for the exploration and production of
oil. The delay in the rebates has damaged the state's
reputation and chilled future investment; caused
projects to be shelved, resulting in negative economic
impacts to the state and local communities; and many
Alaskans are now out of work, especially within the
oil and gas industry.
AOGA believes the state should honor all outstanding
earned tax credits in full, and in as expedited
process as possible. The Governor's bill is an
innovative approach that seeks to refund a portion of
the earned credits via bonding to raise the money,
then refunding the credits at a reduced rate. The
Governor proposes to lower the refunding rate to cover
the state's bond finance costs. AOGA has concerns
about the steep discount rates and other provisions of
the bill. But AOGA is committed to working with the
administration and legislature to finding an equitable
solution it's simply too important. AOGA does
applaud the administration for acknowledging that
refunding these payments is a critical step this year.
AOGA supports an equitable plan that will refund the
entirety of the earned credits this year: Let's send a
strong signal to investors that Alaska is open for
business and attract much needed new investment to
employ Alaskans, produce more oil, and drive Alaska's
economy forward. Thank you.
3:00:31 PM
BARBARA HUFF TUCKNESS, Director, Governmental and Legislative
Affairs, Teamsters Local 959, testified in support of HSB 331.
She expressed her belief that the proposed legislation is an
innovative solution providing certainty for those operators who
are looking to attract new investment and to the state in the
current uncertain financial times. She stated that the state
would pay less under the tax credit bond proposal, putting less
strain on the state's current fiscal crisis and providing "face-
saving" in respect to the promises that were made in the past.
Her organization believes that the proposed legislation
represents an important message: that Alaska is true to its
word even in tough times. She concluded by saying that HB 331
would not place an undue burden on the state's fiscal budget,
would support small producers, would encourage investment in
Alaska, and would provide an opportunity for new jobs in the
state. She opined that HB 331 is a win for the members she
represents, all Alaskans, the state, and the operators.
CO-CHAIR JOSEPHSON relayed some housekeeping information.
3:04:08 PM
JOE MATHIS testified in support of HB 331. He stated that he
worked in the resource development industry and is the owner of
a small business in the Matanuska-Susitna (MAT_SU) Valley. He
offered two reasons for supporting HB 331: integrity and
commitment. He said that integrity is defined as adherence to a
moral and ethical principle and soundness of moral character.
He stated that commitment follows integrity. He maintained that
in his personal experience, one's integrity and one's word, or
commitment, is paramount. He opined that the state has lost the
respect of the financial and business community and needs to
regain faith in its integrity and its commitments. The
legislature has a great opportunity to repair the damage done to
its integrity. He said that Alaska is about to embark on a
major trade mission with a potential partner and overseas
investor. He emphasized that potential partners and investors
will look for integrity. He maintained that in the national and
worldwide financial communities, Alaska ranks dead last as a
place to do business. He stated that he worked 28 years for a
company whose core values were: honesty and integrity governing
its activity, commitments fulfilled, and people treated with
dignity and respect. He maintained that these core values are
applicable to government as well. He conceded that the proposed
legislation does not completely fulfill its original commitment,
but it does signal that the state wants to restore and repair
its integrity and its commitment.
3:07:39 PM
CO-CHAIR JOSEPHSON, after ascertaining no one else wished to
testify, closed public testimony.
[HB 331 was held over.]
3:07:59 PM
CO-CHAIR JOSEPHSON recessed the meeting to 6:30 p.m.
6:34:45 PM
CO-CHAIR Tarr called the House Resources Standing Committee
meeting back to order. Representatives Tarr, Birch, Talerico,
Parish, and Josephson were present at the call back to order.
Representatives Johnson, Rauscher, and Drummond arrived as the
meeting was in progress.
HB 27-HIGH-RISK CHEMICALS FOR CHILD EXPOSURE
6:36:05 PM
CO-CHAIR TARR announced that the next order of business would be
HOUSE BILL NO. 27, "An Act relating to chemicals that are of
high concern for children and to the manufacture and sale of
products containing certain flame retardant chemicals; relating
to an interstate chemicals clearinghouse; adding an unlawful act
to the Alaska Unfair Trade Practices and Consumer Protection
Act; and providing for an effective date."
[Before the committee, adopted as a work draft on 3/9/18, was
the committee substitute (CS) for HB 27, Version 30-LS0264\D,
Bannister, 3/5/18, referred to as "Version D."]
CO-CHAIR TARR reminded the committee that the bill addresses
flame retardants found in some home products that could cause
health problems. The concern is for children and firefighters.
She explained that Version D is scaled back from the original
Version A. The amendment that she intends to propose removes
the requirement for the Department of Environmental Conservation
(DEC) to develop a list of chemicals of high concern and to
review and revise that list periodically. This change would
reduce staff time required, and thus, substantially lower the
amount of the fiscal note. A prohibition for the chemicals that
are of concern would remain in Version D.
6:38:38 PM
CO-CHAIR TARR moved to adopt Amendment 1, labeled 30-LS0264\D.1,
Bannister, 3/21/18, which read:
Page 1, line 1:
Delete "chemicals that are of high concern for
children and to"
Page 1, line 2, following "of":
Insert "child-related"
Page 1, line 11:
Delete "Chemicals of High Concern for Childhood
Exposure."
Insert "Flame Inhibiting Chemicals in Child-
Related Products."
Page 1, line 12, through page 2, line 24:
Delete all material.
Page 2, line 25:
Delete "Sec. 18.31.640"
Insert "Sec. 18.31.610"
Page 2, line 28, following "chemical":
Insert "contains
(1) 100 or more parts per million of a
nonpolymeric organohalogen flame retardant; or
(2) antimony (chemical abstracts service
number 7440-36-0)."
Page 2, line 29, through page 3, line 4:
Delete all material.
Page 3, line 8:
Delete "Sec. 18.31.650"
Insert "Sec. 18.31.620"
Page 3, line 12:
Delete "Sec. 18.31.660"
Delete "Sec. 18.31.630"
Page 3, lines 12 - 13:
Delete "AS 18.31.640 or 18.31.650"
Insert "AS 18.31.610 or 18.31.620"
Page 3, line 18:
Delete "AS 18.31.640 or 18.31.650"
Insert "AS 18.31.610 or 18.31.620"
Page 3, line 22:
Delete "Sec. 18.31.670"
Insert "Sec. 18.31.640"
Page 3, line 23:
Delete "department shall"
Insert "Department of Environmental Conservation
may"
Following "to":
Insert "learn about flame inhibiting chemicals
used in consumer products."
Page 3, line 24, through page 4, line 1:
Delete all material.
Page 4, line 2:
Delete "Sec. 18.31.690"
Insert "Sec. 18.31.650"
Delete "AS 18.31.610 - 18.31.690"
Insert "AS 18.31.610 - 18.31.650"
Page 4, line 5, following "bedding,":
Insert "mattresses,"
Page 4, line 7:
Delete ";"
Insert "."
Page 4, lines 8 - 19:
Delete all material.
Page 4, line 21:
Delete "AS 18.31.640 or 18.31.650"
Insert "AS 18.31.610 or 18.31.620"
Page 4, lines 23 - 28:
Delete all material.
Renumber the following bill sections accordingly.
Page 5, line 2:
Delete "AS 18.31.640, 18.31.650, and 18.31.660"
Insert "AS 18.31.610, 18.31.620, 18.31.630, and
18.31.650"
REPRESENTATIVE PARISH objected for the purpose of discussion.
6:38:52 PM
CO-CHAIR TARR explained that Version D consists of two parts:
the first is a prohibition on the chemicals of concern; the
second involves DEC developing a list of the chemicals and
participating in the interstate clearing house. She referred to
the deletions contained in Amendment 1 and mentioned that the
prohibition on the chemicals of concern, the definitions, and
the effective dates would remain in the proposed legislation.
6:40:28 PM
REPRESENTATIVE PARISH referred to page 1, lines 20-22, of
Amendment 1, which read. "(1) 100 or more parts per million of a
nonpolymeric organohalogen flame retardant; or (2) antimony
(chemical abstracts service number 7440-36-0)." He asked if
these chemicals were familiar to retailers.
CO-CHAIR TARR responded yes. She added that the proposed
legislation would put the onus on manufacturers; they would be
aware of the chemical additives. She explained that the removal
of paragraph (1) on page 2, line 29, in Version D is due to the
elimination of the requirement for a list; and the chemicals
listed in Version D on page 2, lines 30 and 31, and page 3, line
1, under paragraphs (2), (3), and (4), are included on page 1,
lines 20-21, of Amendment 1.
6:42:46 PM
REPRESENTATIVE PARISH asked if the advocates of the proposed
legislation have expressed support for the amendment.
CO-CHAIR TARR replied yes. She said that there is support for
the amendment because the prohibition on the use of the
chemicals [of concern] would remain in the proposed legislation,
and that is the part that advocates are most interested in
moving forward. She relayed that removing the requirements for
DEC to list, review, and revise the group of chemicals [of high
concern] reflects the difficulty and expense for individual
states to conduct long-term health research. She maintained
that the participation of Alaska in the national effort via the
interstate clearing house gives it the benefit of sharing
information and best practices with other states without the
significant cost of building capacity within DEC, which is
difficult to justify at this time. Currently DEC is trying to
maintain status quo and keep its core functions intact.
6:44:23 PM
REPRESENTATIVE PARISH removed his objection. There being no
further objection, Amendment 1 was adopted.
6:44:34 PM
REPRESENTATIVE DRUMMOND objected for further discussion. She
asked for confirmation that Amendment 1 would limit the entry of
the chemicals into the state that are on child related products,
however, would not address furniture containing flame retardants
that result in firefighter deaths.
CO-CHAIR TARR disagreed. She said that the products referred to
in the proposed legislation are the products containing fire
retardant chemicals that cause exposure when released in a fire.
She added that, for example, the upholstered furniture listed in
the proposed legislation is not just upholstered furniture for a
child, but upholstered furniture for anyone.
6:45:33 PM
REPRESENTATIVE DRUMMOND directed attention to the change in the
title of Article 5 as seen on Amendment 1, page 1, lines 8-9.
CO-CHAIR TARR clarified that the removal of Section 18.31.640
precipitated the title change.
REPRESENTATIVE DRUMMOND asked for confirmation that the proposed
legislation, as amended, would prohibit flame retardants in
general from coming into the state on any furniture, carpeting,
or other product.
CO-CHAIR TARR concurred and referred to the consumer product
definitions on page 4, lines 4-7, of Version D.
REPRESENTATIVE DRUMMOND removed her objection.
6:46:15 PM
REPRESENTATIVE RAUSCHER objected for discussion purposes. He
asked for clarification for why the title was removed.
CO-CHAIR TARR reiterated that because the accompanying sections
- identification of chemicals, requirements for listing, the
production and review of the list - were removed, the titled was
changed.
REPRESENTATIVE RAUSCHER removed his objection. There being no
further objection, Amendment 1 was adopted.
6:47:11 PM
REPRESENTATIVE TALERICO mentioned that of the two fiscal notes,
the one that will accompany HB 27 in its amended version will be
Office of Management & Budget (OMB) Component Number 2717.
CO-CHAIR TARR confirmed that the revised fiscal note has no
expenditure.
6:48:21 PM
CO-CHAIR JOSEPHSON moved to report CSHB 27, Version 30-LS0264\D,
Bannister, 3/21/18, as amended, out of committee with individual
recommendations and the accompanying fiscal note 2717. There
being no objection, CSHB 27(RES) was reported from the House
Resources Standing Committee.
HB 399-CORP. TAX: REMOVE EXEMPTIONS/CREDITS
6:49:18 PM
CO-CHAIR TARR announced that the next order of business would be
HOUSE BILL NO. 399, "An Act disallowing a federal tax credit as
a credit against the corporate net income tax; repealing a
provision allowing the exclusion of certain royalties accrued or
received from foreign corporations for purposes of the corporate
net income tax; repealing the reduced rate for the alternative
tax on capital gains for corporations; repealing an exemption
from filing a return under the corporate net income tax for a
corporation engaged in a contract under the Alaska Stranded Gas
Development Act; and providing for an effective date."
6:49:46 PM
BRODIE ANDERSON, Staff, Representative Neal Foster, Alaska State
Legislature, relayed that HB 399 would address foregone revenue
by the elimination of certain indirect expenditures identified
in the [Department of Revenue (DOR) 2015 Legislative Finance
Indirect Expenditure Report]. The indirect expenditures that
would be eliminated are: certain federal tax credits, the
foreign royalty exclusion, the reduced rate for capital gains;
and credit associated with the Alaska Stranded Gas Development
Act (ASGDA) [passed during the Twentieth Alaska State
Legislature, 1997-1998, and updated during Twenty-Third Alaska
State Legislature, 2003-2004]. He stated that the estimated
potential new revenue generated by these indirect expenditures
combined is $6.9 million.
CO-CHAIR TARR asked for confirmation that the work on indirect
expenditures began in 2015, and Mr. Anderson has been involved
throughout the process.
MR. ANDERSON concurred. He mentioned that [during the Twenty-
Eighth Alaska State Legislature, 2013-2014, HB 306 was passed
and signed into law 9/9/14] creating the requirement that every
two years DOR and the Legislative Finance Division create a
report to identify indirect expenditures that address foregone
revenue - revenue that could be collected but for some reason is
not captured by the state. Since that time, there have been two
indirect expenditure reviews; the last review includes nine
agencies and was published in the 2015 Legislative Finance
Indirect Expenditure Report.
6:51:52 PM
CO-CHAIR JOSEPHSON moved to report HB 399 out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, HB 399 was reported out of the House
Resources Standing Committee.
6:53:30 PM
The committee took an at-ease from 6:52 p.m. to 6:54 p.m.
HB 260-FISH & GAME LICENSES;ELECTRONIC FORM
6:54:11 PM
CO-CHAIR TARR announced that the next order of business would be
HOUSE BILL NO. 260, "An Act relating to electronic possession of
certain licenses, tags, and identification cards issued by the
Department of Fish and Game; and providing for an effective
date."
6:54:30 PM
REPRESENTATIVE DAN SADDLER, Alaska State Legislature,
paraphrased from the sponsor statement, which read as follows
[original punctuation provided]:
Smart phones have become an indispensable part of
modern Alaska life. They provide users with
inexpensive, convenient and reliable information and
services, including communications, navigation,
scheduling, research, photography, and entertainment.
There is almost no aspect of life that smartphones
don't make easier and better.
HB 260 seeks to leverage modern communications
technology to enhance the timeless pleasures of
traditional Alaskan activities of hunting, fishing,
and trapping, by allowing state licenses for these
activities to be displayed on digital devices, as well
as in paper form.
State law currently requires outdoorsmen and women to
carry paper licenses while enjoying licensed
activities. But as anyone who's ever tumbled into a
stream while landing a king salmon or sat in the rain
in a duck blind knows, paper licenses can be damaged
or lost at the worst possible time. And while a person
might misplace their wallet, their smartphone is
almost always within arm's reach.
Alaskans have been authorized since 2013 to display
secure proof of insurance on a digital device, and the
benefits of extending that capability to outdoors
recreational licenses are clear. They would:
Make it easier and more convenient for hunters,
fishers and trappers to obtain and carry required
licenses
Help entice new participants in these activities,
by lowering one barrier to entry
Make Alaska a more attractive tourist destination
by making it easier for visitors to get licenses
Improve compliance with state fish and wildlife
management laws, by making it easier for
enforcement officials to verify users are legal ?
Save money for the state and private license
vendors, by reducing or eliminating printing costs
Enhance licensing security with harder-to-
counterfeit digital licenses
HB 260 also lays the foundation for smartphone-based
"apps" that will eventually let ADF&G deliver timely
information on local regulations, opening dates and
times, and hazards to users; while letting
outdoorsman reciprocate by sending back real-time
data on harvest effort and success. Until then, the
advantages of digital licenses are significant enough
to warrant swift passage of HB 260.
REPRESENTATIVE BIRCH spoke in support of the proposed
legislation.
6:57:17 PM
REPRESENTATIVE PARISH questioned whether Alaska Department of
Fish & Game (ADF&G) enforcement officers are available for
comment.
REPRESENTATIVE SADDLER responded that in his conversations with
ADF&G personnel and Alaska Wildlife Troopers (AWT), he learned
that their only concern was the liability of handling a person's
device. He maintained that the enforcement officers would be
grateful for another way for constituents to obtain a license,
comply with the law, and demonstrate that they have complied
with the law.
6:59:01 PM
MORGAN FOSS, Legislative Liaison, Office of the Commissioner,
Alaska Department of Fish & Game (ADF&G), offered that she
cannot speak to the enforcement side of the equation but is
available for questions.
6:59:35 PM
REPRESENTATIVE PARISH asked whether there is a penalty for
someone failing to produce a hard copy of his/her license but
providing electronic proof.
MS. FOSS responded that it is her understanding that AWT will
not issue a citation if the individual has a valid signed
license in electronic format on his/her phone. She affirmed
that the proposed legislation would provide clarification in
statute.
7:00:27 PM
CO-CHAIR TARR stated that currently if someone is caught fishing
without his/her license, it is a misdemeanor with a maximum
penalty of up to six months in jail or a fine of up to $1000.
She relayed that her office is working with ADF&G to reduce the
penalty. She explained that Amendment 1, labeled 30-LS1000\A.1
and included in the committee packet, was the first attempt to
do that. She stated that since there were issues with that
amendment, it will not be offered.
7:01:49 PM
CO-CHAIR TARR moved to adopt Amendment 2, labeled 30-LS1000\A.4,
Bullard, 3/27/18, which read:
Page 1, line 1:
Delete "electronic"
Page 1, lines 1 - 2:
Delete "identification cards"
Insert "permits"
Page 1, line 4, through page 2, line 2:
Delete all material and insert:
"* Section 1. AS 16.05.330(a) is amended to read:
(a) Except as otherwise permitted in this
chapter, without having the appropriate license, [OR]
tag, or permit in actual possession, a person may not
engage in
(1) sport fishing, including the taking of
razor clams;
(2) hunting or [,] trapping [, OR FUR
DEALING];
(3) the farming of fish, fur, or game;
(4) taxidermy or fur dealing; or
(5) control of nuisance wild birds and
nuisance wild small mammals for compensation.
* Sec. 2. AS 16.05.330 is amended by adding new
subsections to read:
(f) A person charged with violating (a)(1) or
(2) of this section for failure to have a license in
actual possession may not be convicted if the person
produces, in an office of the arresting or citing
agency, not later than 30 days after the issuance of
the citation, a license previously issued to the
person that was valid at the time of the offense.
(g) A license in actual possession may be in
paper or electronic form.
(h) A peace officer presented with an electronic
device under (g) of this section is immune from any
liability resulting from damage to the device.
* Sec. 3. AS 16.05.430(a) is amended to read:
(a) Except as provided in AS 16.05.330(f),
16.05.407(b) [AS 16.05.407(b)] and (d), 16.05.408(b),
and 16.05.420(b), a person who violates AS 16.05.330 -
16.05.420 or a regulation adopted under AS 16.05.330 -
16.05.420 is guilty of a misdemeanor and upon
conviction is punishable by a fine of not more than
$1,000, or by imprisonment for not more than six
months, or by both."
Renumber the following bill section accordingly.
CO-CHAIR JOSEPHSON objected for the purpose of discussion.
7:02:09 PM
CO-CHAIR TARR explained that Amendment 2 would allow someone to
have a charge dismissed for failing to have a fishing or hunting
license on him/her as long as he/she had a valid license and
submitted it within 30 days. The fine would be waived upon
showing the valid license to ADF&G. If the person was illegally
hunting or fishing because he/she did not have a license at the
time, he/she would be subject to the fine.
REPRESENTATIVE SADDLER relayed that the goal of AWT is not to
"bust" people but to encourage them to comply. He maintained
that being given the opportunity to correct incorrect behavior
and being rewarded for correcting that behavior with a waived
fine, incentivizes future positive behavior.
7:03:43 PM
CO-CHAIR JOSEPHSON asked whether ADF&G and the Department of
Public Safety (DPS) support the amendment.
7:04:01 PM
THATCHER BROUWER, Staff, Representative Geran Tarr, Alaska State
Legislature, responded that DPS fully supports the amendment.
7:04:31 PM
CO-CHAIR JOSEPHSON asked for confirmation that Amendment 2 would
not change the penalty but change the opportunity to prove the
existence of a license.
MR. BROUWER answered, that's correct.
REPRESENTATIVE SADDLER pointed out that Section 3 of the
proposed legislation specifies two exemptions to the penalty for
the failure to have a license; one in AS 16.05.330(f) and the
other in AS 16.05.407(b). He said that AS 16.05.330(f) refers
to the 30-day "fix-it ticket," and AS 16.05.407(b) refers to the
requirement that non-resident hunters must affirm that they will
use a guide under penalty of perjury. Violation of that
requirement is a class-B felony.
CO-CHAIR JOSEPHSON removed his objection. There being no
further objection, Amendment 2 was adopted.
7:05:50 PM
REPRESENTATIVE PARISH asked what the outcome would be if he
showed AWT a picture of his license on his phone. He asked if
the proposed legislation would change that outcome.
7:06:41 PM
BERNARD CHASTAIN, Major, Deputy Director, Headquarters, Division
of Alaska Wildlife Troopers (AWT), Department of Public Safety
(DPS), responded that currently electronic versions of licensing
are not allowed for display; the proposed legislation would
allow for electronic licensing to be developed and displayed.
He stated that currently a person is required to have his/her
license and tags in his/her possession to hunt. If HB 260
passes, ADF&G would develop electronic licensing allowing for
display on a device and, if enforceable, it would suffice for
display of licensing.
7:07:48 PM
REPRESENTATIVE SADDLER asked for AWT's position on the proposed
legislation.
MAJOR CHASTAIN answered that AWT will support any attempt to
make electronic licensing the future of license display for the
state. He stated that enforcement is a key element; therefore,
any effort to develop electronic licensing must involve both
ADF&G and DSP. He brought up the example of the requirement to
record the number king salmon caught in certain locations of the
state and emphasized that there must be a way to enter such data
through the electronic license, so it can be accessed and
reviewed by enforcement. He offered that the method of license
display does not matter to AWT, as long as the license can be
displayed in electronic format and stored so it cannot be
altered.
7:10:10 PM
REPRESENTATIVE PARISH pointed out the zero-fiscal note and asked
if building the technological capacity for electronic licensing
can be addressed without additional staff time or cost.
MS. FOSS replied that the proposed legislation does not mandate
ADF&G to develop the technology but allows it the authority to
do so in the future. She said that electronic licensing is
something ADF&G has received funding for in the past, has worked
on, and hopes to develop; it may require additional funds at
some point.
7:11:32 PM
REPRESENTATIVE DRUMMOND suggested that with the all the features
that smart phones have today, there must be a way to record
data. Cell phones have applications to help you find what you
are looking for on your phone as well. She pointed out the
possibility of a dead battery preventing one from displaying a
document and stated that the "forgiveness" allowance in the
proposed legislation should alleviate that problem. She
confirmed that electronic records are useful for just about
anything.
REPRESENTATIVE SADDLER said that he posed the question to DPS,
"Can a digital license be counterfeited?" and the answer he
received was, "It is equally possible to counterfeit a fishing
license." He relayed that the driver's license number is on the
fishing license and an AWT officer may ask to see a driver's
license to compare the two documents. He added that the penalty
for false attestation is the same as for perjury. He mentioned
that there are several "red flags" that an enforcement officer
can look for on the license showing up inconsistencies.
CO-CHAIR TARR stated that she appreciated the fact that the
proposed legislation allows an electronic license but does not
mandate it.
7:15:34 PM
CO-CHAIR JOSEPHSON moved to report HB 260, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 260(RES) was
reported out of the House Resources Standing Committee.
HB 397-SURCHARGE ON CRUDE OIL;ARCTIC TRANS. FUND
7:16:13 PM
CO-CHAIR TARR announced that the next order of business would be
HOUSE BILL NO. 397, "An Act relating to a surcharge on oil
produced in the state; establishing the Arctic transportation
and resource access fund; and providing for an effective date."
7:16:42 PM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, read from
the "Letter of Intent for HB 397," included in the committee
packet, as follows [original punctuation provided]:
It is the intent of the committee in creating the
Arctic Transportation and Resource Access Fund (ATRA)
that the initial project funded from the fund will aid
in the construction of approximately 15 miles of
gravel road from the Colville River East to the
Kuparek [sic] road network, replacing the annual
temporary ice road.
Furthermore, it is the intent of the committee that
commercial tolls be collected from the use of this
road. All tolls collected will be deposited into the
ATRA fund. Proceeds from these tolls are intended to
be used to offset future state maintenance costs of
this initial project, as well as construction and
maintenance costs of other projects constructed from
this fund source.
REPRESENTATIVE SEATON explained that the goal is to improve
efficiency on the North Slope; yet, a fund source is needed. He
stated that the 9 per barrel charge on all oil refined in the
U.S. was terminated as of January 1, 2018. He suggested that
during the time the federal government puts this charge in
abatement, the state could collect the 9 per barrel and put it
into a fund used to improve the efficiencies on the North Slope.
REPRESENTATIVE SEATON continued with the use of a PowerPoint
presentation, entitled "HB 397 Surcharge on Crude Oil; Arctic
Trans Fund," dated 4/4/18 and included in the committee packet.
Referring to slide 2, entitled "HB 397 - Background," he
reiterated that the federal 9 per barrel tax at the refineries
applies to all oil refined in the U.S. and, therefore, includes
Alaska oil. The funds are deposited into the federal Oil Spill
Liability Trust Fund (OSLTF), which is used for cleanup; the tax
generates about $500 million per year; and the fund currently
contains about $5.7 billion. He offered that since the federal
government has abated the fund, it is a potential source of
funding for Alaska - generating about $16 million per year.
REPRESENTATIVE SEATON turned to slide 3, entitled "HB 397 - What
the bill does," and relayed that the proposed legislation is
proactive and was drafted after the federal government abated
its program. The intent was to collect the surcharge
retroactively and cease to collect it if the federal government
reinstated the tax. He continued by saying that the federal
program was reauthorized effective March 1, 2018. Consequently,
a committee substitute (CS) was introduced, which has no
retroactivity or transition. The CS states that in the future,
if the federal government stops collecting the surcharge, the
state would collect the surcharge for as long as the federal
government is not collecting it; or if the federal government
does not collect the full 9 per barrel, the state will collect
the balance. He added that HB 397 would establish the Arctic
Transportation and Resource Access Fund (ATRA) to be used to
improve efficiency on the North Slope.
7:21:48 PM
REPRESENTATIVE SEATON turned to slide 4, entitled "HB 397 -
History of Federal Fund," and pointed out the sunsets and
reinstatements of the fund to demonstrate the potential for an
on-and-off source of money for Alaska. He said that with the
low oil company taxes that Alaska receives currently, there is
no [other] source of money for Alaska to invest [in the fund].
He stated that the U.S. Bipartisan Budget Act [of 2018]
temporarily reinstated the tax effective March 1, 2018; however,
the tax expires December 31, 2018.
REPRESENTATIVE SEATON turned to the graph on slide 5, entitled
"Projected Revenue," to demonstrate the projected revenue for
Alaska under the proposed legislation, if the federal program is
not reinstated beyond December 31, 2018. He maintained that the
charges and lowering of the price for Alaska North Slope (ANS)
West Coast is already occurring and built into the price;
therefore, if the 9 per barrel is not collected [by the federal
government], then Alaska should use it to help with the
infrastructure of the North Slope.
7:23:42 PM
CO-CHAIR TARR moved to adopt the CS for HB 397, labeled 30-
LS1310\O, Nauman, 3/30/18, as the working document, referred to
as "Version O". There being no objection Version O was before
the committee.
7:24:22 PM
ARNOLD LIEBELT, Staff, Representative Paul Seaton, Alaska State
Legislature, pointed out that Version O is identical to the
original version for Sections 1-8; Section 9, containing
transitional language, was removed; Section 10, addressing
retroactivity back to January 1, 2018, was removed; and Section
11, containing an immediate effective date, was removed. He
paraphrased from the sectional analysis for Version O, which
read as follows [original punctuation provided]:
Section 1 (page 1, line 4) Adds new surcharge to AS
43.55.023(c) preventing tax credits under this section
from offsetting this surcharge.
Section 2 (page 2, line 4) Adds new surcharge to AS
43.55.023(e) preventing tax credits under this section
from offsetting this surcharge.
Section 3 (page 2, line 27) Adds new surcharge to AS
43.55.025(h) preventing tax credits under this section
from offsetting this surcharge.
Section 4 (page 3, line 14) Adds new surcharge to
the list of expenditures in AS 43.55.165(e) not
deductible for the purpose of calculating net
production tax
Section 5 (page 6, line 15) Makes clear that all
three surcharges are cumulative.
Section 6 (page 6, line 21) Makes clear that all
three surcharges are cumulative.
Section 7 (page 6, line 27) Adds new section AS
43.55.350 Alaska Conditional Surcharge on Oil
Subsection (a) (page 6, line 29) Creates a new per
barrel surcharge equal to 9c per barrel, less the
amount of any imposed under 26 USC 4611 (c) (2) (B).
Subsection (b) (page 7, line 4) States that the
surcharge under section (a) is in addition to tax
imposed by AS 43.55.011 and the two existing
surcharges under AS 43.55.201 and 43.33.300. Also
states the surcharge imposed is due on the last day of
the month on oil produced during the preceding month.
Subsection (c) (page 7, line 8) Requires reporting of
production by the producer on March 31st of the
following calendar year as required for tax imposed
under AS 43.55.011 43.55.180
Subsection (d) (page 7, line 11) Exempts for the new
surcharge oil used for operation of a lease or for re-
pressuring determined to be waste by the Alaska Oil
and Gas Conservation Commission.
Subsection (e) (page 7, line 14) The surcharge will be
deposited in the general fund.
Subsection (f) (page 7, line 16) describes the
conditional imposition of the surcharge. Requires the
commissioner to determine if the federal government is
collecting a tax under 26 USC 4611 (c) (2) (B) and
impose or suspend the surcharge as appropriate.
Subsection (g) (page 8, line 6) makes clear that
failure of the commissioner to notify producers does
not waive the surcharge under this section.
Subsection (h) (page 8, line 8) makes clear that if
the surcharge under this section and a federal tax are
imposed simultaneously because of retroactivity of the
federal tax, the surcharge paid will not be refunded.
Subsection (i) (page 8, line 11) surcharge proceeds
will be accounted for separately and deposited into
the Arctic Transportation and Resource Access Fund,
created under AS 43.55.360
Section 7 (page 8, line 14) Adds a new section AS
43.55.360 establishing the Arctic Transportation and
Resource Access Fund (ATRA) as a separate account in
the general fund. Describes the fund as proceeds from
the surcharge and tolls collected from infrastructure
constructed with funds from the ATRA fund. Clearly
states that the legislature may appropriate the actual
balance of the fund for infrastructure projects north
of 68 degrees.
Section 8 (page 8, line 24) Defines the term
surcharge as used in the AS 43.550.350 and AS
43.55.360.
REPRESENTATIVE SEATON referred to the Department of Natural
Resources (DNR) PowerPoint presentation, dated 4/4/18 and
included in the committee packet; it reports on the condition of
the arctic roads, which have been deteriorating in the winter
seasons. He mentioned that the construction of the gravel road
from Colville River to the North Slope pad would cost about $27
million.
7:31:22 PM
REPRESENTATIVE BIRCH posed the question: Why not leave the
money in the industry's hands and let them build the roads?
Additionally, he pointed out that if the Stand for Salmon
initiative passes, there would be no road building. He
suggested that the $8-9 million in prospective receipts be
redirected to the Stand for Alaska initiative.
REPRESENTATIVE TARR responded that, of course, the legislature
would not appropriate money to a ballot initiative.
REPRESENTATIVE SEATON commented that if one believes that
efficiency is gained through gravel roads and the industry has
not built them, then possibly the state can help.
[HB 397 was held over.]
^PRESENTATION(S): BP Energy Outlook 2018 Edition
PRESENTATION(S): BP Energy Outlook 2018 Edition
7:33:35 PM
CO-CHAIR TARR announced that the final order of business would
be a presentation by Mark Finley, General Manager of Global
Energy Markets and U.S. Economics at BP America.
7:34:13 PM
MARK FINLEY, General Manager, Global Energy Markets and U.S.
Economics, BP America, relayed that he has about 35 years of
experience in the public and private sector working at the
intersection of energy, economics, and public policy. He stated
that the purpose of his visit is to present the recently
published long-term outlook. The outlook assists BP America
("BP") in making informed decisions. It is shared externally to
allow others to be part of the conversation and as a way for the
analysts at BP to test their thinking and expose their ideas to
other perspectives and challenges.
MR. FINLEY stated further that the report is not about
predicting the future; the view of BP is that the world's energy
system is too complicated to be able to predict a point outcome
25 years into the future. He stated that it is about
understanding the nature of the uncertainty; identifying the key
variables that could drive the energy outcome into significantly
different directions; and designing a portfolio that is robust
in the face of a highly uncertain framework.
MR. FINLEY began the PowerPoint presentation, entitled "BP
Energy Outlook 2018 edition." He turned to slide 2, entitled
"Alternative scenarios," and offered that BP uses a scenario-
based approach. The outlook is built around the idea that there
are many potential outcomes; BP does not know which outcome is
most likely; and the analysts try to design scenarios that
encompass a range of outcomes for key dimensions of the energy
complex. He stated that for the purpose of discussion, one of
the scenarios would be considered, and that scenario is labeled
the "evolving transition" scenario [also referred to as the
narrative scenario]. He said that the evolving transition
scenario is consistent with the continued evolution of the
energy system, of public policy, and of technology, in ways that
are broadly consistent with what has occurred over the past 25
years. He added that the scenario does not reflect the most
likely outcome but serves as a vehicle for exploration and
conversation.
MR. FINLEY relayed that in the presentation, he would give an
overview of some of the key observations on energy and the
uncertainties, then explore some key questions that BP receives.
7:39:16 PM
REPRESENTATIVE PARISH asked about the history of accuracy of
BP's projections and whether there have been variances or
identified systemic biases.
MR. FINLEY replied that in the outlook document is an appendix
that shows what has changed over time. He gave an example: in
recent years China's energy demand has slowed dramatically and
quicker than BP anticipated; BP has consistently revised its
forecast higher for renewable energy; yet, it has revised its
forecast for shale [oil] production as well. He stated that the
technology surprises apply to both oil and gas, as well as to
renewable energy.
MR. FINLEY relayed that the other change that BP has made over
time is moving away from a deterministic forecast and toward a
scenario-based approach. Acknowledging the uncertainty helps
the company in deciding how to communicate the outlook.
7:40:45 PM
REPRESENTATIVE PARISH asked what the confidence intervals are on
the averages presented.
MR. FINLEY replied that there are very large ranges of
uncertainty in the outcomes for some issues. He stated that BP
has reasonable confidence that worldwide demand for energy is
likely to grow. On the other hand, the distribution of fuels in
the mix, as shown on the left panel of slide 2, can vary
dramatically depending on the scenario and the assumptions
around public policy, technological evolutions, and other
variables.
7:41:47 PM
MR. FINLEY turned to slide 3, entitled "Three windows on the
energy transition," and relayed that the three panels on the
slide portray 70 years' worth of global energy demand using
three different perspectives - the how, where, and what of
energy demand around the world. The first panel, entitled "End-
use sector," shows the "how." He said, "At the end of the day,
what drives decisions of consuming energy is not 'do I consume
oil or gas or wind or solar?'; its 'am I going to use this
energy in an industrial process, am I going to use it to heat my
home, or drive my kids to work?'" He concluded that the
sectoral basis was the driver for key energy demand decisions;
therefore, much of the analysis and outlook presentation
document is organized around that perspective. He added that
insights can be gained by looking at the regional and fuel
basis; slides 3 and 4 explore those perspectives.
7:43:01 PM
CO-CHAIR TARR expressed her surprise at the uptick of energy use
in transportation in the 2030-2040 period, as shown in the first
panel, considering the push on efficiency and alterative fuels
in that sector. She asked if he knew to what that was
attributed.
MR. FINLEY responded that in the narrative scenario, there is no
growth in oil consumed by cars because of efficiency standards;
however, there is continued growth in oil through demand by
shipping, trucking, and aviation. He pointed out that the
growth in transport by percentage makes it the weakest of the
sectors. He maintained that the real growth is in industrial
applications, including industrial feedstocks that are not
combusted in petrochemical feedstocks.
7:44:12 PM
MR. FINLEY turned to slide 4, entitled "Regional energy demand,"
and relayed that on a regional basis, one of the interesting
insights is that all the growth of energy demand is taking place
in emerging economies. In the U.S. and other mature economies
in the Organization for Economic Cooperation and Development
(OECD), portrayed by the green bars in the left panel, energy
demand is essentially flat even with continued economic growth,
because these countries increasingly focus on the greater
efficiency of energy use. He stated that the energy growth in
the scenario continues and is driven by emerging economies -
China and India account for half of the growth; however, the
distribution of the growth changes dramatically, as seen on the
panel on the right. He said that overall in the scenario, the
growth of energy demand slows dramatically even though the
growth of the world's economy does not, because of greater focus
on efficiency. He further stated that within the emerging
economies, the significant slowdown is driven by the significant
slowdown in the rapid growth of energy experienced by China over
the past 20 years. The projection by BP is that the trend will
continue as China's economy moderates and it pushes to diversify
its economy away from heavy industry and more into goods and
services, requiring less energy and intensive activity.
Consequently, India would become the leading source of energy
growth in the later years of the forecast.
MR. FINLEY turned to slide 6, entitled "Global energy by fuel,"
and pointed out the unit of measure - "toe" - which stands for
tons of oil equivalent. He posed the question: How do you
compare wind and solar energy with coal? He stated that BP
analysists base the comparison on the energy content of the
fuel; hence, all fuel energies are converted to the equivalent
of a ton of oil, or about 7 barrels. He said that the left
panel shows the continued growth of energy overall, the rapid
growth of renewables - accounting for 40 percent of all the
growth of energy demand in the scenario, the continued growth of
oil and natural gas, and the broadly flat consumption of coal.
The right panel shows the changes in market share among the
fuels. He pointed out the dramatic gain of market share by coal
in the last 20 years due to China's economic development;
however, currently coal is losing market share in the energy
mix. The fuel gaining market share is natural gas and, to an
even greater extent, renewable energy.
7:47:29 PM
CO-CHAIR TARR asked whether BP considers itself an energy
provider only in its traditional role of oil and gas production
or whether it would transition to renewables due to market
demand and emerging opportunities.
MR. FINLEY responded that the answer includes both. He said
that BP provides light, heat, and mobility for its customers.
He pointed out that currently 87 percent of the energy consumed
in the world is in in the form of fossil fuels. He cited the
dual challenge of BP - meeting the energy needs of today and
working toward a future energy system that is more sustainable.
MR. FINLEY referred to slide 7, entitled "Diversified fuel mix,"
and reported that the chart extends slide 6 data further back in
time to show the long-term perspective on the evolution of the
world's energy shares. He emphasized that the slide 7 chart
highlights two key points: 1) in the scenario the world will
cease to have a dominant form of energy, and 2) the world's
energy system is trending toward becoming significantly more
competitive. He offered as explanation that the energy pie is
unlikely to grow as rapidly in the future as demand growth slows
down, and the greater diversity of the world's energy mix will
provide more opportunities for fuels to compete against one
another. He predicted that increasingly there will be
competition between potential providers of energy within
individual fuels. He stressed that in all the scenarios BP
considered, the trend is toward more competition over time.
7:50:38 PM
MR. FINLEY turned to slides 8 and 9, entitled "Five key
questions, and asked the first question, "What have we learnt
about electric cars and the mobility revolution?" He stated
that BP's forecast is for 300 million electric cars by the year
2040 out of a total car fleet of 2 billion cars; it is a
significant upward revision from last year because batteries
have become less expensive. He suggested that the number of
cars is the wrong metric; it is the miles driven that matters.
MR. FINLEY referred to the left panel on slide 10, entitled
"Electric cars, shared mobility and autonomy," which shows the
number of kilometers driven. He offered that the world's car
fleet will double largely because people in the emerging
economies are getting richer and can afford to buy cars; and
doubling the number of cars will roughly double the number of
miles driven. He explained that in the scenario, by 2040,
battery cars, which would make up only 15 percent of the total
car fleet, would deliver 30 percent of the miles driven, as
shown in the left panel of the slide. He stated that what would
cause electric cars to be driven more miles is autonomy, as
shown on the right panel of the slide. He relayed that BP's
prediction is that autonomy will begin to enter commerciality at
scale in the middle of the next decade. Initially autonomous
cars are more expensive to buy, but then cheaper to operate.
The driver of a commercial car is 40-50 percent of [the cost of]
operating the car. An autonomous car can be more economical,
even if it is more expensive, if it is driven more; therefore,
its use as a fleet vehicle, taxi, or ride sharing service is
logical. He added that economics will also spur a rapid growth
in electric cars, and municipalities may be more tolerant of
experimentation with autonomous cars if they are electric. He
stated that BP's analysis concludes that as autonomy ramps up,
it is more likely to be electrified for fleet vehicles and,
therefore, deliver greater than proportional share of the miles
driven.
MR. FINLEY stated that the effect on oil demand is shown on
slide 11, entitled "Liquid fuel demand from passenger cars." He
relayed that in 2016, the base year of the forecast, about 19
million barrels per day of oil was consumed by cars. Doubling
the number of cars would double the amount of oil consumed by
cars given no other variables - shown by the green bar in the
chart; however, there are other variables - the greatest of
which is a significant improvement in the fuel efficiency of the
cars on the road. The aggressive improvement in fuel efficiency
is seen in the emerging economies as well as the mature
economies.
7:55:55 PM
MR. FINLEY pointed out that the blue bar on the slide 11 chart
represents the additional reduction in energy demand due to
electric cars being driven more intensively. He maintained that
the outcome in the scenario is that oil consumed by cars in 2040
is at exactly the level of 2016, even with double the number of
cars on the road, shown by the last bar in the chart.
MR. FINLEY said that in testing this theory, BP analysts
developed a much more aggressive scenario in which there is a
global ban on the sale of internal-combustion engine (ICE) cars
by 2040. On slide 12, entitled "Global ban on internal-
combustion engine (ICE) cars," the left panel shows the effect
of the ban on the share of vehicles sold that are electric
compared with the share in the narrative scenario; the right
panel shows the effect on miles driven. The question is: If
you ban the sale of the ICE cars, why are only two-thirds of the
miles driven from electric cars? He said that the answer is
that even if you ban the sale of ICE cars worldwide by 2040,
about one-third of the miles driven would still be driven by
legacy ICE cars still on the road.
7:57:40 PM
CO-CHAIR JOSEPHSON asked whether it is BP's belief that there
will be a ban on the sale of ICE cars by 2040.
MR. FINLEY responded that the scenario is purposely speculative;
none of the scenarios reflect situations that BP desires. He
said it is an exercise in being analytically objective - to show
the effect of a very extreme scenario on the demand for oil.
Looking at slide 13, entitled "Impact of ICE ban," he pointed
out that even though this scenario would cut the amount of oil
consumed by cars by more than 10 million barrels per day, oil
for cars makes up only 20 percent of the world's oil demand.
The other 80 percent - for trucks, airplanes, ships, and
industrial applications - is still growing. The conclusion is
that even after banning the sale of ICE cars, worldwide demand
for oil in 2040 would be higher than it is today.
MR. FINLEY referred to the right panel of slide 14, entitled
"Impact of ICE ban," to demonstrate the effect of the ban on
carbon dioxide (CO) emissions: the blue line shows the profile
2
of CO emissions from energy consumption in the narrative
2
scenario; the orange line shows the profile of CO emissions
2
under global commitments made under the Paris Agreement [of
2015, aka Paris Climate Accord]; and the green line shows the
profile of CO emissions under an ICE ban. He pointed out that
2
the ICE ban profile differs very little from the narrative
scenario profile. He added that the underlying assumption in
the scenario is that all the incremental electricity needed to
fuel the electric cars comes from renewable sources of energy;
therefore, any "kickback" CO emissions from a power generation
2
site are not included. He concluded that oil accounts for one-
third of CO emissions; oil consumption is cut about 10 percent
2
in the scenario; therefore, the impact to CO emissions is 10
2
percent of one-third or 3 percent. He suggested that for policy
makers, trying to "move the needle" on a systemic challenge such
as climate [change] by changing one variable - the sale of ICE -
is very difficult. He maintained that a system wide set of
policies is needed to address a system wide challenge.
8:01:01 PM
MR. FINLEY turned to slide 15, entitled "Five key questions,"
and asked, "What does it mean for oil demand?" He stated that
the left panel on slide 16, entitled "Demand for oil and other
liquid fuels," demonstrates the growth [of the demand] by
sector; the right panel shows the change in the growth profile
over time. He said, "In total oil demand in this scenario
growing by about 13 million barrels per day ... that's a growth
of about 13 percent over the next 25 years; but you can see that
the rate of growth slows dramatically." Today there is very
strong growth of oil demand; however, as the fuel efficiency
improvements kick in, demand growth in the transportation sector
fades away, as demonstrated by the diminishing blue areas of the
graph. He stated that what is left is the growth of non-
combusted fuels, primarily oil consumed in petrochemical
feedstocks; those are the basic building blocks of the world
economy. Since they are not burned, they do not emit CO.
2
8:02:22 PM
REPRESENTATIVE PARISH asked whether most of the oil or other
liquid fuels used in the building sector, as specified in the
chart, is for heating.
MR. FINLEY answered yes; for buildings it is largely space heat.
He turned to slide 17, entitled "Demand for oil and other liquid
fuels," and indicated that the chart shows a range of scenarios
for future oil demand. He conceded that analysts at BP do not
know when oil demand will peak and start to decline; it could
grow throughout the forecast interval or it could peak quickly;
it depends on the scenario and underlying assumptions. He added
that the range of possible outcomes [in volume of liquid fuel]
of these scenarios are all about 25 million barrels per day. He
said that for BP, the important observation is what follows:
acknowledging the tremendous uncertainty around future oil
demand; if BP were to take the current base of today's oil
production and apply a relatively conservative 3 percent annual
decline to it, the projection for oil demand would follow the
gray line on the chart on slide 18, entitled "Demand for oil and
other liquid fuels." He stated that under almost any
conceivable future scenario for oil demand, including a profile
consistent with meeting the Paris Agreement, significant amounts
of money are needed to invest in new production of oil to meet
future demand.
MR. FINLEY posed the question, "Where does that supply come from
to meet this?" He said that at a stylized level in BP's
narrative scenario, it comes half from U.S. shale [oil
production] and half from the Organization of the Petroleum
Exporting Countries (OPEC). He turned to slides 19-21, entitled
"US tight oil: alternate scenarios." He pointed to the blue
line representing the reference scenario and said that the
assumption is that production will grow about 5 million barrels
per day then plateau, a view based on BP's understanding of the
resource and the constraints in the system, including financial
discipline, bottlenecks in the availability of access to
pipelines, and other uncertainties. The green line on slide 20
represents a more aggressive development of the resource in a
scenario in which the restraints were alleviated. Since the
underlying resource did not change, there would be more oil
production up front, but it would deplete quicker causing
production to fall off sooner. The red line on slide 21
represents the discovery of a greater resource than expected.
For example, if the resource was 50 percent greater, production
would increase to 15 million barrels per day and plateau; it
would be at a level that would allow the U.S. to capture all the
growth in worldwide oil demand and leave no room for other
regions to grow production; it is a very bullish scenario. He
added that all the scenarios are consistent with historical
levels of industry activity; they are not outlandish assumptions
for a range of outcomes. He mentioned that the red and green
lines follow a similar path; therefore, if there were rapid
growth of U.S. production of oil in the near future, it would be
difficult to discern if it were due to a greater resource or
more aggressive exploitation of the resource. He maintained
that the potential difference between the two scenarios has
profound implications for the oil market outlook over the long-
term. He emphasized that understanding the driver of the
scenario is key to knowing which path oil production will take.
8:07:17 PM
REPRESENTATIVE LINCOLN asked if BP analysts have evaluated the
impact that the different supply and demand scenarios have on
the price of oil.
MR. FINLEY responded that BP's economists use prices to
equilibrate supply and demand; however, BP does not publish the
price forecasts underlying the outlooks or discuss them
publicly.
8:08:02 PM
REPRESENTATIVE BIRCH asked whether standardization is used to
count oil rigs.
8:08:25 PM
MR. FINLEY replied that the numbers on the right panel of slide
21 represent the numbers of rigs; however, underlying the
numbers are assumptions about the number of wells each [rig] can
drill. He stated that the industry has become more efficient
both in the number of wells drilled and the productivity of the
well, which at times has grown 20-30 percent per year. He
relayed that BP has seen a continued growth of productivity, but
it is slower than has been seen historically. As the industry
and technology have matured, there is hope for greater
efficiency but not at the rate of gain that has been seen
historically.
MR. FINLEY continued by saying that as there is growing talk
about a potential plateau in oil demand, and as there is a
growing realization that resources are abundant, especially
considering the technological innovation associated with shale
oil extraction, BP analysts believe there has been a shift in
strategic thinking of some of the key producers of oil in the
countries that hold large, conventional, low cost resources. He
expressed that in the short term these countries are highly
dependent on oil revenues to run their budgets and their
economies. Faced with a more competitive world, they have been
pursuing significant economic reforms aimed at diversifying
their economies and reducing their dependence on oil revenues,
which over time will enable them to compete more aggressively
for market share, because they are the countries that hold large
low-cost resources. He cited that trend to be an important
assumption behind the way the scenario has been constructed.
MR. FINLEY moved to slide 22, entitled "Five key questions," to
address BP's forecast for renewable energy. Analysts at BP have
revised the outlook for renewable energy higher every year;
however, the outlook has not been revised for all regions - only
India and China. He stated that upon research, they found that
the driver in those countries has been sustained aggressive
public support. He turned to slide 23, entitled "Rapid growth
in renewable energy," to discuss renewable energy. Referring to
the left panel he stated that historically the growth of
renewables was driven by the richer countries of the world,
because they were the ones that could afford the subsidies. He
declared, "That's changing." He said that China already has
surpassed the U.S. as the largest producer of renewable energy
in the world, driven by a combination of factors; China has
become a richer country, and it has a desire to rapidly deploy
renewable energy within its economy. He said that in later
years, renewables will spread even more widely around the world.
He pointed out that looking at the historical record on the
right panel, the penetration of renewables in the energy system
has more aggressively gained market share in the world's energy
mix than any other form of energy going back over the last 150
years. The closest historical precedent is nuclear energy
during its heyday in the '70s and '80s. He concluded that in a
historical context, there is already a very aggressive set of
assumptions for the penetration of renewable energy.
MR. FINLEY referred to slides 24 and 25, entitled "'Renewables
push' scenario," to demonstrate a scenario that assumes that
government support remains at aggressive levels throughout 2040.
In the narrative scenario, renewables get about half the growth
of all the world's power generation. In a scenario in which
government support remains much more aggressive, renewables
could capture 100 percent of the growth of power generation. He
explained that what that would mean for the carbon content of
the world's power generation is shown in the right panel of
slide 25. He pointed out that while an aggressive push for
renewables could improve the carbon intensity of power
generation, it by itself is unlikely to achieve the scenario
consistent with achieving the Paris Agreement for the simple
reason that "you're only pushing one button." He maintained
that only pushing for renewables will result in diminishing
returns - the need for more batteries and grid management. He
stated that a more comprehensive solution - one that contributes
to the Paris Agreement compliant scenario - would include
policies, such as a carbon price that encourages the greater use
of natural gas in favor of coal in power generation, or policies
encouraging greater efficiency or greater carbon capture; such
an approach would be more systemic, allowing for the discovery
of lower cost solutions for the system.
8:14:36 PM
CO-CHAIR JOSEPHSON asked whether it is BP's expectation that the
next federal administration [under President Donald J. Trump]
would resume the policies of the previous administration [under
President Barak Obama] regarding fuel efficiencies, mercury rule
making, and the carbon power plant issue. He asked whether the
expectation was that progress would continue in the same
direction.
MR. FINLEY answered that those issues do not affect the
hypothetical constructs that BP analysts use to build the
scenarios; the scenarios are not based on specific assumptions
around BP's position on such issues.
8:16:06 PM
CO-CHAIR JOSEPHSON asked whether BP has a public position on the
fact of climate change and the causes.
MR. FINLEY responded that for 20 years, BP has had a position
for the company worldwide; it upholds the science of climate
change; maintains the belief that more action is needed; and it
supports being a party of the [climate change] transition while
still maintaining the commitment to ensuring that the world has
the energy it needs today to run its economy. He said that,
moreover, BP's view is that a systemwide approach is the
economically efficient one; it advocates for the global adoption
of a carbon pricing mechanism.
8:17:23 PM
MR. FINLEY referred to slide 26, entitled "Five key questions,"
to address the topic of natural gas. He stated that natural gas
is the fossil fuel that gains market share. He said that BP,
along with many other companies, is investing to grow the role
of natural gas in its portfolio. He offered that it is natural
to ask, "How could we be wrong?" He referred to the example in
which future natural gas demand could be challenged by more
aggressive environmental policies.
MR. FINLEY pointed out in slide 27, entitled "Growth in natural
gas demand," that on a regional basis, the growth of natural gas
consumption is widely spread, but on a sectoral basis, it is
concentrated in power generation and industrial application.
Looking at slide 28, entitled "Possible risks to the outlook for
natural gas," he asked, "As gas gains market share, how much of
the growth of gas is due to just everything getting bigger, and
how much of it is due to gas ... winning market share from other
sources of energy?" He relayed, "The answer is, a lot." He
offered that in a scenario with less aggressive environmental
policy geared to reducing coal and favoring natural gas, the
future growth of natural gas could be reduced by half; it is the
difference between natural gas gaining market share in the world
and losing market share.
MR. FINLEY referred to slide 29, also entitled "Growth in
natural gas demand," and reported that the narrative scenario is
a "Goldilocks" outcome for future natural gas demand; however,
what the scenario research shows is that underlying natural gas
demand is highly sensitive to one's assumptions around the
prevailing policy environment. He stated that natural gas could
lose in scenarios with more aggressive environmental policies,
and it could lose in scenarios with less aggressive
environmental policies.
8:19:34 PM
REPRESENTATIVE BIRCH referred to the possibility of marketing
natural gas to China and asked about China's ability to have its
own shale [oil] "revolution." He cited the possible risk of
depending on that market.
MR. FINLEY replied that the underlying assessment is that China
has a significant resource base and shale [oil production]
potential; for a variety of reasons - geology, availability of
water, and industrial capability - the pace of development would
not likely match the U.S. He mentioned that there is a
significant increase in Chinese production of natural gas
through shale; in the scenario, Chinese imports of liquified
natural gas (LNG) still grow significantly. He added that there
has been a large effort to diversify China's energy mix away
from coal, which currently accounts for two-thirds of the energy
consumed in China; China would build a new nuclear power plant
every three months for the next 20 years in the scenario; China
is the largest source of growth of renewable energy and it has
the largest growth of natural gas demand as well. He stated
that the growth of natural gas demand in China in the scenario
is enough to accommodate both a significant increase in domestic
production and an increase in importation as well.
MR. FINLEY referred to slide 30, entitled "LNG continues to
grow," to further answer the question posed by Representative
Birch. He relayed that the two panels on slide 30 show the
projections in the scenario for the growth of LNG trade both on
the supply side and on the demand side. He stressed the point
that as the growth of LNG doubles over the scenario, it provides
the opportunity to connect the world's gas markets in a way that
they are not connected currently; that is, to make the gas
market look more like the oil market. He declared that
flexibility will be a key element in providing new
opportunities. He gave an example: if China were to have a
warm winter and not use much gas, a flexible global system would
provide the opportunity to ship the gas to South American
countries experiencing drought. In an integrated global
marketplace, a specific destination would be less important than
the ability to connect to a diverse global marketplace. It is
BP's position that the growth of LNG and changes in the
underlying contract terms that are occurring will provide those
opportunities.
8:23:16 PM
MR. FINLEY turned to slide 31, entitled "Five key questions," to
pose the question: Is the transition of the world's energy
system to a lower carbon future happening fast enough? He
stated that the answer is no - at least not in BP's narrative
scenario. In looking at slide 32, entitled "Carbon emissions
continue to rise in the ET scenario," he relayed that in the
narrative scenario, [the level of] CO emissions grow
2
significantly less rapidly than has occurred historically due
to: 1) less rapid growth of energy demand, and 2) the fuels
that are gaining market share are the lower carbon sources of
energy - renewable energy and natural gas. He added that, even
so, the level is still increasing. He mentioned that in the
scenario in which CO emissions meet the Paris Agreement
2
commitments, the level would fall by about 50 percent. He said
that the key question is, How would the world's energy system
look different to meet that?
MR. FINLEY referred to slide 33, entitled "Impact of faster
transition on global energy system," and said that it is BP's
position that for the transition to be sustainable, power needs
to be the focus: first, because the majority of the world's
energy is consumed to generate electricity; and second, because
that is the sector in which all of the fuels compete with each
other. He pointed out that in the scenario that represents
meeting the Paris Agreement commitments, the biggest reductions
in CO emissions are in the power sector, as shown in the left
2
panel of slide 33. He continued by saying that the right panel
demonstrates what the world's energy system would look like, in
terms of demands for different fuels, across different
scenarios. He relayed several observations. In any scenario,
future energy demand grows, but the source of that growth varies
depending upon the scenario. In the sustainability scenario,
renewable energy contributes to all the net growth in energy;
however, he pointed out that even in the scenario consistent
with meeting the Paris Agreement commitments, the need for oil
and gas production in 2040 is roughly equivalent to that of
today.
MR. FINLEY turned to slide 34, entitled "Conclusion," and
reiterated that BP performs its outlook report not to predict
the future, but to understand uncertainty. The exercise
identifies for BP the dimensions of the energy system with which
it is comfortable and the dimensions needing attention. He
stated that BP is reasonably satisfied that in any scenario, for
continued growth of the world's economy, for improvement in
quality of life, and for escape from poverty, demand for energy
is likely to grow, albeit less rapidly than it has historically
due to efficiency gains. He expressed his belief that on the
supply side, with the slower growth of energy demand combined
with the availability of supply, the world will become
increasingly competitive regarding energy. He mentioned that
despite the significant ramp up in the importance of renewable
energy, there is room for significant investments in oil and
natural gas.
MR. FINLEY addressed the uncertainties by saying that BP is
watching with great interest the revolution changing the
transport sector, not only electrification, but the interplay of
electrification with other factors such as autonomy. He stated
that through its scenario research, BP has seen that future
pathways for natural gas and renewables are highly dependent on
underlying assumptions for policy and for technology. He
concluded with a key uncertainty of the system: What's going to
happen to deliver a more decisive break from past trends that is
needed to put the world on a more sustainable trajectory
regarding carbon emissions?
8:27:53 PM
CO-CHAIR TARR asked for information about BP's plan for
involvement in renewables.
MR. FINLEY responded that BP is already heavily invested in
renewables in the form of wind turbines and biofuels. He added
that BP's approach is to invest in different potential
technology ventures - both for renewable energy and for other
alternative energies. He relayed that BP is seeking to identify
the activities that play to its corporate strength and to
identify any changes in corporate practices that would enhance
its ability to compete in the "new reality."
REPRESENTATIVE TARR expressed her interest in additional
information on Alaska's future partnership with BP and
opportunities to work with BP in the transition period.
8:29:54 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 8:29 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB331 Credit Bonds for HRES 4-2-18.pdf |
HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| HB331 Transmittal Letter.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Version A.PDF |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Fiscal Note -DNR-DOG 1.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Fiscal Note-DOR-TAX 2.5.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Supporting Document - DOR.LAW 3.2.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Sectional Analysis 3.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Supporting Document - Letter of Support 3.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| HRES BP Energy Outlook 2018 Presentation 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
Oil and Gas |
| HB 397 Version J 4.4.18.PDF |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Surcharge on Crude Oil Arctic Trans Sponsor Statement V-O 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Surcharge on Crude Oil Arctic Trans Draft CS Version O 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Surcharge on Crude Oil Arctic Trans - Sectional Analysis V-O 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Surcharge on Crude Oil Arctic Trans -Letter of Intent 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Fiscal Note - DOR-TAX 3.31.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 27 Sponsor Statement 3.8.18.pdf |
HRES 3/9/2018 1:00:00 PM HRES 3/19/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Version A 1.18.17.PDF |
HRES 3/9/2018 1:00:00 PM HRES 3/19/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Ver. D bill 3.8.18.pdf |
HRES 3/9/2018 1:00:00 PM HRES 3/19/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Version D Sectional Analysis 3.8.18.pdf |
HRES 3/9/2018 1:00:00 PM HRES 3/19/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Fiscal Note DEC 3-2-18 HIGH-RISK CHEMICALS FOR CHILD EXPOSURE 3.8.18.pdf |
HRES 3/9/2018 1:00:00 PM HRES 3/19/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Fiscal Note - LAW-CIV 3.16.18.pdf |
HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 27 Amendment One - D.1 - Rep. Tarr 3.21.18.pdf |
HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 27 |
| HB 399 Sponsor Statement 3.26.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 O 3.26.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Sectional Sectional Analysis ver O 3.26.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Fiscal Note-DOR-TAX 3.24.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents DOR Letter 3.26.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents CIT Sector Report FY 2017 3.26.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents - Indirect Expenditure Report Reduced Rate Capital Gains.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents - Indirect Expenditure Report Foreign Royalty.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents - Indirect Expenditure Report Federal Credits.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Additional Documents - Indirect Expenditure Report Stranded Gas.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Opposing Document - Letter in Opposition 3.28.18.pdf |
HRES 3/28/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB 399 Fiscal Note-DOR-TAX 3.27.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 399 |
| HB260 Sponsor Statement 1.25.18.pdf |
HFSH 2/20/2018 11:00:00 AM HRES 3/16/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB260 ver A 1.25.18.pdf |
HFSH 2/20/2018 11:00:00 AM HRES 3/16/2018 1:00:00 PM HRES 3/21/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB 260 Fiscal Note-DFG- 2.16.18.pdf |
HRES 3/16/2018 1:00:00 PM HRES 3/21/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB260 Residential Hunters AK Letter of Support HB 260.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB 260 Supporting Document - Status of Electronic Fish Game licenses, mobile apps and websites in other states 3.15.18.pdf |
HRES 3/16/2018 1:00:00 PM HRES 3/21/2018 1:00:00 PM HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB 260 Amendment One - A.1 - Rep. Tarr 3.20.18.pdf |
HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| HB 260 Amendment Two - A.2 - Rep. Tarr 3.27.18.pdf |
HRES 3/26/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM |
HB 260 |
| DNR HB397 4.4.18 Presentation.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| HB 397 Conditional Oil Surcharge Sponsor Statement 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |
| AOGA Testimony - HB 331 - 4.4.2018.pdf |
HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| HB 397 Sponsor Presentation 4.4.18.pdf |
HRES 4/4/2018 1:00:00 PM |
HB 397 |