Legislature(1993 - 1994)
04/18/1994 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 18, 1994
9:10 a.m.
TAPES
SFC-94, #71, Side 2 (250-000)
SFC-94, #73, Side 1 (000-end)
SFC-94, #73, Side 2 (end-350)
CALL TO ORDER
Senator Drue Pearce, Co-chair, convened the meeting at
approximately 9:10 a.m.
PRESENT
In addition to Co-chairs Pearce and Frank, Senators Rieger,
Kerttula, and Sharp were present. Senator Kelly joined the
meeting after it was in progress. Senator Jacko was absent
from the meeting.
ALSO ATTENDING: Senator Randy Phillips; Representative Gary
Davis; Representative Fran Ulmer; Josh Fink, aide to Senator
Kelly; Alyce Hanley, Commissioner, Alaska Public Utilities
Commission (APUC), Department of Commerce & Economic
Development; Bob Lohr, Executive Director, APUC, Department
of Commerce & Economic Development; Ray Gillespie, Lobbyist,
Petro-Marine; Dana Tindall, Senior Vice President of
Regulatory Affairs, GCI; Jimmy Jackson, regulatory attorney,
GCI, former hearing officer of the APUC; Gary Lucken, Acting
General Manager, Anchorage Telephone Utility (ATU); Michael
Burns, Chairman of the Board of Directors, Anchorage
Telephone Utility (ATU); Mark Foster, private consultant in
utility issues, engineer, former APUC Commissioner; Gerald
L. Gallagher, Director, Division of Mining, Department of
Natural Resources; David Rogers, and Kent Dawson, lobbyists,
Council of Alaska Producers; Jetta Whittaker, fiscal
analyst, Mike Greany, Director, Legislative Finance
Division; representatives of the media, aides to committee
members and other members of the legislature.
VIA TELECONFERENCE: Steve Borell, Executive Director,
Alaska Miner's Association, testified from Anchorage.
SUMMARY INFORMATION
CSSB 213(JUD): An Act extending the Alaska Public
Utilities Commission; and relating to
regulation of public utilities and to
regulatory cost charges; and providing
for an effective date.
Alyce Hanley, Commissioner, Alaska
Public Utilities Commission (APUC),
Department of Commerce & Economic
Development, and Bob Lohr, Executive
Director, APUC, Department of Commerce &
Economic Development, testified and
asked the committee to delete Section 1
of CSSB 213(JUD). Josh Fink, aide to
Senator Kelly spoke to the CS. Dana
Tindall, Senior Vice President for
Regulatory Affairs, GCI, and Jimmy
Jackson, regulatory attorney, GCI,
former hearing officer of the APUC,
spoke in favor of amendment 2. Michael
Burns, Chairman of the Board of
Directors, Anchorage Telephone Utility
(ATU), and Gary Lucken, Acting General
Manager, Anchorage Telephone Utility
(ATU), testified in opposition to
amendment 2 proposed by GCI. Mark
Foster, private consultant, engineer,
former APUC Commissioner, spoke in
support of CSSB 213(JUD). CSSB 213(JUD)
and amendments 1, 2, and 3, were HELD in
committee until April 19, 1994, and Co-
chair Frank and Senator Kerttula were
asked to research language in amendment
form that would address concerns of the
committee.
CSHB 453(FIN): An Act establishing, for purposes of the
levy and collection of the motor fuel
tax and for a limited period, a
different tax levy on residual fuel oil
used in and on certain watercraft; and
providing for an effective date.
Representative Gary Davis, sponsor of HB
453, spoke in support of the bill.
Discussion was had by Co-chair Frank,
Senators Kerttula and Kelly regarding a
sunset provision, and the effect of the
bill on state revenue. CSHB 453(FIN)
was HELD in committee. (Note SB 327 is
the Senate's companion bill.)
SB 333: An Act relating to disclosure of close
economic associations by certain state
employees and to the prohibition against
nepotism in the executive branch of
state government; and providing for an
effective date.
Scheduled but not heard.
SB 350: An Act relating to a defendant's
violation of conditions of release; and
providing for an effective date.
Scheduled but not heard.
CSSB 371(RES): An Act providing for exploration
incentive credits for activities
involving locatable and leasable
minerals and coal deposits on certain
land in the state; and providing for an
effective date.
Steve Borell, Executive Director, Alaska
Miner's Association, testified, via
teleconference from Anchorage, in
support of SB 371. Gerald L. Gallagher,
Director, Division of Mining, Department
of Natural Resources, spoke to the
concerns of the department with the
bill. David Rogers, and Kent Dawson,
lobbyists, Council of Alaska Producers,
spoke in support of the bill. CSSB
371(RES) was HELD in committee for
amendments from Senators Kelly and
Kerttula. SB 371 was scheduled for
April 19, 1994. (HB 498 is the House
companion bill.)
CSHB 119(JUD) am: An Act authorizing a sentencing court to
impose a sentence of a day fine instead
of a sentence of imprisonment on a
defendant convicted of a misdemeanor;
directing the Alaska Supreme Court to
develop and implement a day fine plan;
requiring the Alaska Court System to
report to the legislature on the use of
day fines; amending Alaska Rule of
Criminal Procedure 32; and providing for
an effective date.
Scheduled but not heard.
CS FOR SENATE BILL NO. 213(JUD):
An Act extending the Alaska Public Utilities
Commission; and relating to regulation of public
utilities and to regulatory cost charges; and providing
for an effective date.
CO-CHAIR PEARCE announced that SB 213 was before the
committee. She invited Alyce Hanley and Bob Lohr to join
the members at the table.
ALYCE HANLEY, Commissioner, Alaska Public Utilities
Commission (APUC), Department of Commerce & Economic
Development, asked the committee to consider an amendment to
delete Section 1 of CSSB 213(JUD). She went on to speak to
the language "liberally construed." She said it was not
unique language in public utilities commissions (PUCs) and
the Alaska PUC was fairly new, organized in 1972. The major
portions of the APUC statutes came from Oregon, and
commissions across the country enjoy the same powers
afforded by the language "liberally construed." She shared
a few examples where the APUC had used that language. One
had to do with the garbage in Healy. The person that had
the certificate to pick up the trash had not picked up
garbage for two months. APUC members went to Healy, had a
consumer input hearing, and determined a public necessity.
Temporary certificates were awarded to two other companies
so that they could begin trash pickup and address a major
health hazard. In the statutes, the Commission did not have
the ability to award temporary certificates but authority
for such an incident was drawn from the term "liberally
construed."
Ms. Hanley went on to say that sometimes it could benefit a
utility. A utility could come to the Commission and explain
that fuel and insurance costs had increased and it was not
earning enough to continue operation. The Commission could
temporarily review the situation, and allow the utility to
increase its rates on an interim and refundable basis.
Again, the authority for this came from "liberally
construed." She reminded the committee that the utilities
they dealt with were not all sophisticated ones.
She also felt removing the "liberally construed" language
could cause problems because of increased competition. It
would be more difficult for APUC to respond in a timely
manner. By restricting the APUC's authority, she felt the
legislature would assume more of the regulatory authority
and have more questions and problems. In court cases, it
could change the way the APUC authority would be
interpreted. Instead of looking at the stated purpose of
the APUC, the courts would look at specific mention of a
particular power. She urged the committee to delete Section
1 and instead to target specific problems that were
perceived with the APUC rather than remove the "liberally
construed" language.
SENATOR KERTTULA asked who recommended the proposed
amendments.
BOB LOHR, Executive Director, APUC, Department of Commerce &
Economic Development, said the Alaska Rural Electrical Coop
Association (ARECA) had been promoting the deletion of the
"liberally construed" language and the phrase found in
Section 1 of the bill which would narrow the APUC's
authority within those areas. In answer to Senator
Kerttula, Mr. Lohr said that Ms. Hanley had touched on one
problem, temporary operating authority. The second problem
would be interim refundable rates. Currently, the law
clearly authorized the Commission to establish a rate that
was subject to refund and to require a bond of the utility
in order to cover the difference between the permanent rate
and the interim rate. The Commission had "liberally
construed" that authority to mean that interim refundable
rates, without requiring a bond of the utility, were
appropriate. Without Section 1, that assumption would
probably not hold up in court. The utilities had benefited
and acknowledged it. In roughly 50 percent of the eight
cases that had gone to the Supreme Court, interpreting the
phrase "liberally construed", four had been to the benefit
of the utilities.
CO-CHAIR FRANK said in a "perfect world" he would agree with
the "liberally construed" language, but the Constitution
limited the power of government and the laws limited the
power of regulatory agencies. He believed the existing
language was too broad and proposed language may be too
narrow. He would like to find a way to speak to the areas
where the power should be liberal and limit those powers in
some way.
Mr. Lohr said that Co-chair Frank had made an excellent
point and agreed there might be a middle ground. The common
area of discussion had been issues within the specific
powers and duties that were conferred that may deserve
legislative attention. He read a quote from the original
court case, Homer Electric Association versus the City of
Kenai, "this provision (talking about "liberally construed")
represents two guiding principles determining the extent of
the APUC jurisdiction under specific provisions of the Act.
On the one hand it includes a principle of limitation
restricting the APUC's power to the specific jurisdictional
areas of its stated purposes. On the other hand, it
includes a principle of expansion mandating that the APUC's
power to act within its specific areas of jurisdiction 'is
to be liberally construed.'" He went on to say it did not
confer any powers that were not already there. He admitted
there may have been a few years of bureaucratic foot
dragging, and that the APUC took too many years to take a
position, but the "leading liberal construed" would have the
affect of giving the Commission a better excuse for not
acting. It could say "our hands are tied, go to the
legislature."
Mr. Lohr believed, in looking for terms of specific powers
or specific areas of agreement, if the legislature, through
intent language or otherwise, directed the Commission to
work with the associations representing the
utilities/cooperatives to do a review of the specific powers
and duties, and come back with recommendations next year
with some kind of deadline, it would be very beneficial.
SENATOR SHARP asked in relation to interim tariffs subject
to refund, which basically were ordered with the suspension
of a tariff filing, had there ever been an interim rate
tariff set so high that there had ever been a refund order.
Mr. Lohr said there had been and could supply details.
Senator Sharp believed in most cases the interim rates would
be set considerably below the tariff filing and that time
period was not subject to recoupment.
Senator Sharp went on to speak to "liberally construed." He
felt it had been used to the detriment of consumer-owned
utilities, and pictured it as a blank check for the
Commission. Mr. Lohr said "liberally construed" had only
appeared in the text of court cases eight times.
Senator Kerttula pointed out that this act was initiated in
1962-64 and modified again in 1971-72. It had always been
supported strongly by those who now have a problem with this
provision. He questioned that since the other 49 states had
a similar program, maybe there was an artful form of
modification of these powers as Co-chair Frank had
suggested. Mr. Lohr answered that state statutes for state
agencies had been researched and there was a range of
phrases that accomplished the broad result of "liberally
construed." He said there were about 12 states that
actually used the phrase "liberally construed," and others
ran the gamut from broad to strict phrases. Discussion
continued by Senator Kerttula and Mr. Lohr regarding new
language.
JOSH FINK, aide to Senator Kelly, chairman of Labor &
Commerce Committee, sponsor of SB 213, said that the two
differences of the Labor & Commerce CS and the Senate
Judiciary CS was that the Judiciary CS deleted "liberally
construed" and also mandated regulation of cable unless the
consumer opted out. Previously, in law, the consumers would
have to petition the APUC to be regulated under cable. He
then went through each section.
Section 1 deleted "liberally construed."
Section 2 and 11 raised the maximum regulatory cost charge
from .61 percent to .8 percent. The reason for the change
may be found in Section 3.
Section 3 explained that the cost of power was deleted from
the gross revenues of electrics in determining the regulator
cost charge. When the cost of power was deleted, the
remaining had to be increased. In answer to Co-chair
Pearce, Mr. Fink said ARECA made the argument that in
comparing the time the Commission spent with electric
utilities and with other utilities, electric utilities were
paying a disportionate amount of the Commission's budget.
The auditor recommended a time-keeping system be established
but realized it would be costly. The percentage change was
a "rough cut" at making an adjustment to the regulatory cost
charge but it did bring electric more in line with the
amount of time spent by the commission. Again in answer to
Co-chair Pearce, he said every regulated utility would see
an increase of about 30 percent. The remaining revenues
from electrics would see about a 30 percent increase as
well.
Section 4 instructed the Department of Administration to
earmark the money collected from the regulatory cost charge
that was in excess or an overcharge. He explained the money
from the fourth quarter came in after the end of the fiscal
year, so if they had overcharged (which would not be known
until the end of the fiscal year), the money currently
lapsed into the general fund. It would earmark the money
for program receipts for next year's budget.
The following sections related to recommendations from the
auditor.
Currently, certain utilities, depending on the gross
revenues and type, were exempt from regulation. In an
exempted utility, the consumers may opt to be regulated by
petition. In the new provisions, the opting in and opting
out provisions were identical. Section 5 contained the
application for electric and telephone utilities.
Section 6 exempted electric and telephone utilities with
gross revenues not exceeding $500,000 (currently it was
$325,000).
Section 7 referred to utilities other than telephone or
electric and raised the threshold to $150,000.
Section 8, for the collection of trash, raised the threshold
from $200,000 to $300,000.
Section 9 was amended to automatically regulate cable
companies unless consumers opt to exempt themselves.
Section 10 was a conforming amendment clarifying that
procedures for opting in and out were the same.
Section 11 had been explained earlier.
Section 12 referred to earmarking the RCC collected from
pipelines addressed in Section 11.
Section 13 extends the APUC to 1998.
Section 14 repealed the sunset of the regulatory cost
charges that were recommended by the Commission. The
reasoning was that the Commission was up for sunset review
every four years and at that time the legislature could
address regulatory cost charge concerns.
Section 15 staggered the terms of the Commission members.
Currently, there were two seats that expired at the same
time but it would not affect any existing members, terms
would just run out.
Section 17 put an effective date on the "liberally
construed" deletion of July 1, 1995.
Section 16 made clear that any proceeding that was started
prior to July 1, 1995, the "liberally construed" powers
would apply.
Section 18 contained the effective date.
Discussion was had by Senator Rieger and Mr. Fink regarding
Section 5 and 10, the opting in and opting out provisions.
Mr. Fink referred to Section 7.12 for clarification. Mr.
Fink said there were two ways of exempting out, if you were
a small utility and revenues were under the threshold, or,
if revenues exceeded the threshold, consumers could sign a
petition and opt out.
Co-chair Pearce invited Dana Tindall, Senior Vice President
of Regulatory Affairs, GCI, and Jimmy Jackson, regulatory
attorney, GCI, former hearing officer of the APUC, to join
the members.
DANA TINDALL said she would give a general policy
introduction in support of both the "liberally construed"
language and the amendment GCI supported on the power of the
Commission to fix rates. She said GCI supported the
existing language in the statute of granting the Commission
"liberally construed" powers to carry out their mandate. It
believed the Commission had used it to good effect in the
past and it was necessary in order to carry out their
mandate to insure that competition was fair to competitors
and consumers alike.
Ms. Tindall said she would speak to the policy behind the
amendment GCI supported under Section 42.05.431(a), power of
Commission to fix rates. The genesis was ATU's announcement
to enter both the long distance and the video program market
in the next three to five years. GCI had concerns about ATU
competing with them in the long distance market because of
their existing monopoly over the local exchange network but
that was not really why she was speaking today. She wanted
to speak to the rate payers of ATU. GCI and Alascom account
for about 60 percent of ATU's revenues in the form of access
charges. GCI must pay for the privilege of going through
ATU to both originate and terminate all calls. The way
their rates were set was based on allocating ATU's total
costs between the different services. GCI was concerned
about ATU's proposal because it believed the ventures
proposed were risky, would increase ATU's total costs, would
increase GCI rates as access payers, and if failed, would
force all regulated rate payers to pick up all failed costs
of the venture. She went on to explain the reasons she felt
GCI's ventures were risky.
End SFC-93 #71, Side 2
Begin SFC-93 #73, Side 1
JIMMY JACKSON said that the amendment proposed by GCI was
logged in as amendment 2. This amendment gave municipally-
owned utilities a protection which other private utilities
did not have. The protection was that the APUC must set
rates to insure that the bond covenants of a municipality-
owned utility were never reached. A similar provision had
been added for cooperatives a few years ago. When it was
added for cooperatives, the statute said that new bonds were
required to be approved by the Commission. That had never
been added for municipally-owned utilities. He pointed out
that existing statutes said that if ATU entered into
ventures and any of them failed, APUC would be required to
raise rates to GCI and local rate payers in Anchorage to
cover those losses. GCI opposed this law. Amendment 2
targeted this issue.
SENATOR RIEGER questioned testimony that the request for
municipally-owned utilities would be changed to be the same
as the cooperatives. Mr. Jackson said it would not be the
same and referred amendment 2 to Senator Rieger. It was a
restriction but not the same restriction.
Mr. Jackson cited the statement regarding bonds in amendment
2. He said this section was comparable to sections being
proposed in federal law. Ms. Tindall said the federal
legislation would permit the Bell operating companies to go
into new services like computer information services,
previously forbidden. While permitting them to enter those
services, the regulation would not let them incur debt for
these services that would put the regulated services at
risk.
Mr. Jackson said ATU had premised their entry into these new
markets on the fact that this federal legislation was
pending and believed that it was going to pass. Amendment 2
would not allow these companies to use their regulated
monopoly as collateral for new businesses, or put their
basic services at risk by going into new ventures. In
answer to Senator Kerttula, Mr. Jackson said they should be
able to get money because a business should stand on its own
two feet. Mr. Jackson said that press releases from ATU had
stated that this legislation would prohibit them from going
into competition or issuing bonds. He said that was not the
intent.
In answer to Senator Sharp, Mr. Jackson said there were
different degrees of separation in other states by utilities
when entering unregulated businesses. Ms. Tindall added
that under present statute, APUC would be required to set
rates for its main business to cover any default of the
separate subsidiary. She went on to say the intent of the
proposed amendment 2 was to put ATU and other municipally-
owned utilities that are rate regulated by the APUC on the
same footing as anyone else going to the bond market.
Mr. Jackson felt the legislature did not envision utilities
going into competitive services and had offered that
protection when utilities gave very basic service.
MICHAEL BURNS, Chairman of the Board of Directors, Anchorage
Telephone Utility (ATU), introduced Gary Lucken, Acting
General Manager, Anchorage Telephone Utility (ATU), and
thanked the committee for the opportunity to speak to SB
213. He said the Board of Directors for ATU was created by
the voters of Anchorage in 1991. At that time the voters
chose not to sell the company but establish the Board of
Directors which indicated a desire that the company be
operated and compete in accordance with prevailing industry
practices. In February of this year, ATU announced that the
company intended to complete five fibre rings in Anchorage,
enter the long distance business through a separate
subsidiary, and begin a pay-for-view video project. He
believed this was in keeping with the instruction from the
people in Anchorage. Prior to that announcement, a survey
was done and convinced ATU that was the wish of the voters.
Mr. Burns said there were several reasons for ATU entering
the long distance market. First, analysis indicated it
would be profitable. He said ATU lowered its long distance
charges last year and none of the money made its way back to
consumers in Anchorage. He said federal legislation that
could be passed this year would accomplish three major
goals. One, open local markets to competition, two, remove
the prohibition against telephone companies and cable
companies from entering each other's businesses, and three,
free the Bell operating companies from restrictions on their
entry into long distance and other businesses. He said
ATU's competitors and
ATU's desire to access Anchorage to the information super
highway were reasons ATU was so adamant about entering these
fields.
Mr. Burns said ATU opposed amendment 2 for Constitutional
reasons and because of the mandate from the voters. MCI and
GCI had publicly announced their intention to enter the
local markets and now were asking the legislature to
restrict ATU's ability to compete. He maintained that ATU
must be allowed to compete in accordance with prevailing
industry practices or the people of Anchorage would see
their asset value reduced substantially. Finally, the
pending federal legislation he had mentioned earlier, would
open the local market to competition, and, if this amendment
passed, it would be successful in restricting ATU's ability
to compete in all areas. He again urged the committee not
to pass amendment 2.
In answer to Senator Kelly, Mr. Burns said that none of the
costs related to MacTel (ATU's cellular phone subsidiary)
were passed on to the customer.
MARK FOSTER, private consultant in utility issues, engineer,
and former APUC Commissioner, said the "liberally construed"
clause represented a fair and level balance between the
utilities and the Commission, and was consistent with most
of the statutory authority in commissions across the
country. He felt a specific example would help address the
situation. In reference to the bond covenant in amendment
2, what the amendment did was protect monopoly rate payers
from subsidizing services they did not receive, and
protected competitors from predatory pricing. He felt Mr.
Burns had made an argument in support of amendment 2 when he
indicated MacTel's losses had not found their way into the
regulated side of the house. This amendment would
statutorily make sure that did not happen. Under existing
statute, if those expansions were bond funded, they could
have put some of those losses to the regulated rate payers.
He encouraged adoption of amendment 2 as reasonable and
consistent to federal legislation.
In answer to Senator Kerttula, Mr. Foster posed the question
"would you allow a firm that has a monopoly base, to
leverage that base of rate payers, and use the borrowing
power available, to get into competitive services?" He
pointed out that the Consumer Federation of America and the
American Association of Retired Persons had made this issue
one of their top priorities in legislation. He said he was
testifying for public interest and had not been hired by
anyone.
In answer to Senator Rieger, Mr. Foster said the traditional
approach, when there was a monopoly and a competitive market
within the same firm, was to try and separate the profits
and losses out so there were no cross subsidies. Mr. Foster
said it was consistent with federal provisions in pending
legislation. He cited voice mail as a good example. Many
small entrepreneurs were trying to get into the business of
providing voice mail and voice mail services in Anchorage.
This kind of entrepreneur was not protected if large
utilities were allowed the flexibility to cross subsidize
their services and offer services like voice mail at near or
below cost because they had monopoly rate payers to cover
those losses. He encouraged the committee to retain the
"liberally construed" language and adopt amendment 2.
Co-chair Frank asked if there was any statute that would
prohibit ATU from setting up a subsidiary and moving some
amount of net worth into that subsidiary and borrow against
that equity. Mr. Foster said he did not know if he could
answer that question today. He said there could be
arguments where the equity would be coming from -- whether
it was either from the monopoly rate payers or retained
earnings as property of the shareholders. They continued to
discuss this situation.
Co-chair Pearce announced that SB 213 would be HELD in
committee and asked Co-chair Frank and Senator Kerttula to
research new language for a committee substitute.
CS FOR HOUSE BILL NO. 453(FIN):
An Act establishing, for purposes of the levy and
collection of the motor fuel tax and for a limited
period, a different tax levy on residual fuel oil used
in and on certain watercraft; and providing for an
effective date.
Co-chair Pearce announced that HB 453 was before the
committee and invited Representative Gary Davis to join the
members at the table. She said that HB 453 could not be
moved today because the Senate version of the bill, SB 327
had been noticed instead of HB 453.
REPRESENTATIVE GARY DAVIS said that CSHB 453(FIN) was the
same bill as companion bill, SB 327. He felt it was a good
economic development bill that promoted Alaska's product,
established jobs, and promoted some additional taxable
infrastructure. He pointed out reducing the motor fuels tax
on residual oil seemed untimely but that 5 cents tax was
stifling sales of residual oil. The prime use of residual
oil was by cruise ships. The CS of HB 453 carried a
guarantee that the state would not lose revenue from sales
of residual oil. The cruise lines used it as bunker fuel
which was a blend of residual oil plus #2 diesel, on a 1 to
9 ratio. There would be the potential of selling 40M plus
gallons to the cruise lines.
Senator Kerttula asked if a sunset provision should be added
to this bill. Representative Davis said that there was a
four year sunset in the bill. He agreed that it was a good
clause so the legislature could review assumptions made in
this bill.
In answer to Co-chair Frank, Representative Davis said there
was a tourist year in the bill rather than a FY or CY.
Co-chair Pearce announced that CSHB 453(FIN) would be HELD
in committee.
CS FOR SENATE BILL NO. 371(RES):
An Act providing for exploration incentive credits for
activities involving locatable and leasable minerals
and coal deposits on certain land in the state; and
providing for an effective date.
Co-chair Pearce announced that SB 371 was before the
committee.
At this time the meeting was joined by Steve Borell,
Executive Director, Alaska Miner's Association, via
teleconference from Anchorage.
End SFC-93 #73, Side 1
Begin SFC-93 #73, Side 2
STEVE BORELL said he would testify in support of SB 371. He
said the stages of a project were broken down into
exploration, development, and actual production. It had
been estimated that for every project that becomes an
operating mine, major mining companies would investigate at
least 1,000 exploration targets. If the results of the
initial investigation were encouraging the evaluation effort
was expanded to include more tests and drilling was
increased to smaller spacing. Drilling was necessary to
prove minable deposits. Once the drilling had defined the
deposit to be economical, bulk samples of several tons would
be taken and tested for metallurgical recovery and to define
the type of milling and recovery process that would be
required. At this point, there was still no mine or any
guarantee that there would be one. The exploration stage of
the project then ends when a feasible study was complete
which could convince the financial markets to provide
funding to build the project.
At that point, the project moved into the development stage.
The bill would no longer apply to this part of the project.
He talked to people at the Red Dog Mine, and, in general
terms, from 1977-86, approximately $25M was spent on
exploration work. In 1987-89, the development period, $350M
was spent on actual construction of facilities (not
including the road which was an additional $100M+). From
November 1989 to present, during the operating mode, there
has been an annual payroll of $25M a year, operating
supplies and services of about $35M a year, and fuel costs
of about $10M for a total annual cost of $70M a year.
Mr. Borell went on to explain that this credit was a minimal
amount of money but significant because of where it appeared
(in the exploration stage) and the encouragement it could
give a company.
Senator Kerttula agreed that mining was a tough occupation.
He said he was worried about school taxes and would like to
figure out a way to recover those costs. Since there was no
state income tax, it was harder to do that. He did not
agree with giving any credit for non-residents.
In response to Senator Kerttula's remarks, Mr. Borell said
the only people hired that were non-residents were highly
technical people that might not be able to be found in the
state. In the case of big companies, one technical person
might follow projects all over the world. Senator Kerttula
still was opposed to giving non-residents credit in
development.
GERALD L. GALLAGHER, Director, Division of Mining,
Department of Natural Resources, said the department had
some concerns about SB 371. The primary problem was that
the mining industry contributes so little to the general
fund and creating a back door out of the general fund did
not seem like good policy. He felt this type of credit
would become the new "floor" and after six months or a year
it would be forgotten that it was an incentive. One example
was the mining license tax that changed about a decade ago
to give the mining industry a 3-1/2 year exemption at start-
up from paying that fee. The intent was to let them recover
their initial costs. He pointed out that the royalties of
locatable minerals was 3 percent of net again. The
Department was concerned that incentives would become the
new "floor". Senator Kerttula agreed that Alaska was very
developmentally minded and encouraging in these programs.
Mr. Gallagher said the state royalty on coal was 5 percent
of the adjusted gross or about $1/ton depending on the
deposit. That was the low or middle of what most states
charge for coal. The royalty on relocatable minerals was 3
percent of the net and that was very low in comparison to
other states.
In answer to Senator Rieger, Mr. Gallagher said that he
thought the bill would not include credit for drilling at
the edge of a deposit to prove or delineate additional
reserves since that was development and not exploration.
DAVID ROGERS, lobbyist, Council of Alaska Producers, a non-
profit corporation that consisted of a number of the large
hardrock mining companies doing business in the state, said
they supported SB 371. He pointed out that the Department
of Natural Resources was taking a different view of the bill
than they had previously expressed in the House. He also
wanted to point out that the emphasis on the general fund
was misleading. He thought it was not clear if the impact
would be positive or negative.
In answer to Senator Rieger's previous question of
developmentally drilling, Mr. Rogers thought those issues
should be clarified in regulations. Senator Kelly suggested
those issues be outlined in the bill. Mr. Rogers did not
object to that.
Discussion was had by Co-chair Frank, Senator Kelly, and
Kerttula regarding tax policy for resource development in
the state.
KENT DAWSON, also a lobbyist with the Council of Alaska
Producers, said the state of Alaska owned a lot of land,
there were minerals out there, and the idea was to encourage
exploration and be competitive with the rest of the world in
the development and production stages of a project.
Senator Kelly pointed out that SB 371 would cover private as
well as state land.
Mr. Dawson said the state's tax structure also effected all
land so the state was in charge of adjusting that structure.
In answer to Senator Rieger, Mr. Rogers said according to
his memory, the annual exploration budget of firms operating
in Alaska was approximately $28M last year and was
decreasing. Mr. Dawson said that companies made choices and
decisions and one factor depended on the regulatory climate
and the apparent willingness of the jurisdiction for
acceptance. He had heard a positive response to the
possibility of an incentive credit available in Alaska for
exploration.
Senator Kerttula made his point again that he was opposed to
hiring non-residents and he did not want to encouragement it
in any way. Mr. Rogers said that it was a cost of doing
business and that cost should not be penalized. Senator
Kerttula reiterated his opposition to giving credit for non-
resident hire.
Senator Kelly requested that Mr. Rogers draft new language
delineating what would qualify for exploration credit.
Senator Kerttula said he would like to propose an amendment
to modify or reduce the non-resident credit.
Co-chair Pearce announced SB 371 would be HELD until new
language or amendments could be drafted.
SCHEDULED BUT NOT HEARD:
SENATE BILL NO. 333:
An Act relating to disclosure of close economic
associations by certain state employees and to the
prohibition against nepotism in the executive branch of
state government; and providing for an effective date.
SENATE BILL NO. 350:
An Act relating to a defendant's violation of
conditions of release; and providing for an effective
date.
CS FOR HOUSE BILL NO. 119(JUD) am:
An Act authorizing a sentencing court to impose a
sentence of a day fine instead of a sentence of
imprisonment on a defendant convicted of a misdemeanor;
directing the Alaska Supreme Court to develop and
implement a day fine plan; requiring the Alaska Court
System to report to the legislature on the use of day
fines; amending Alaska Rule of Criminal Procedure 32;
and providing for an effective date.
ADJOURNMENT
The meeting was adjourned at approximately 11:05 a.m.
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