Legislature(1995 - 1996)

04/26/1995 03:45 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                   SENATE RESOURCES COMMITTEE                                  
                         April 26, 1995                                        
                           3:45 p.m.                                           
 MEMBERS PRESENT                                                               
 Senator Loren Leman, Chairman                                                 
 Senator Drue Pearce, Vice Chairman                                            
 Senator Steve Frank                                                           
 Senator Rick Halford                                                          
 Senator Robin Taylor                                                          
 Senator Georgianna Lincoln                                                    
 Senator Lyman Hoffman                                                         
  COMMITTEE MEMBERS ABSENT                                                     
 All members present                                                           
  COMMITTEE CALENDAR                                                           
 SENATE JOINT RESOLUTION NO. 27                                                
 Endorsing development of the Fall Creek hydropower project.                   
 SENATE BILL NO. 164                                                           
 "An Act approving the sale of Prudhoe Bay Unit royalty oil by the             
 State of Alaska to Tesoro Alaska Petroleum Company; and providing             
 for an effective date."                                                       
 CS FOR HOUSE BILL NO. 197(RES)                                                
 "An Act providing for exploration incentive credits for activities            
 involving locatable and leasable mineral and coal deposits on                 
 certain land in the state; and providing for an effective date."              
 CS FOR HOUSE BILL NO. 207(FIN) am                                             
 "An Act relating to adjustments to royalty reserved to the state to           
 encourage otherwise uneconomic production of oil and gas; and                 
 providing for an effective date."                                             
 SENATE JOINT RESOLUTION NO. 22                                                
 Requesting research on fisheries and marine mammals in the Bering             
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SJR 27 - No previous action to record.                                        
 SB 164 - No previous action to record.                                        
 HB 197 - See Resources minutes dated 4/19/95.                                 
 HB 207 - See Resources minutes dated 4/22/95.                                 
 SJR 22 - No previous action to record.                                        
  WITNESS REGISTER                                                             
 Senator Fred Zharoff                                                          
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
  POSITION STATEMENT:   Prime Sponsor of SJR 27                                
 Richard Levitt, President                                                     
 Gustavus Electric Company                                                     
 P.O. Box 102                                                                  
 Gustavus, AK 99826                                                            
  POSITION STATEMENT:   Testified in support of SJR 27                         
 John Shively, Commissioner                                                    
 Department of Natural Resources                                               
 400 Willoughby Ave.                                                           
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Testified in support of SB 164 and                     
                      commented on CSHB 207(FIN) am                            
 JOHN WALSH, Staff to Representative Richard Foster                            
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
  POSITION STATEMENT:   Offered information on SCS CSHB 197(RES)               
 David Rogers                                                                  
 Council of Alaska Producers                                                   
 P.O. Box 33930                                                                
 Juneau, AK 99803                                                              
  POSITION STATEMENT:   Offered information on SCS CSHB 197(RES)               
 Jules Tileston, Director                                                      
 Division of Mining & Water Management                                         
 Department of Natural Resources                                               
 3601 C St., Suite 800                                                         
 Anchorage, AK 99503-5935                                                      
  POSITION STATEMENT:   Supports SCS CSHB 197(RES)                             
 Deborah Vogt, Deputy Commissioner                                             
 Department of Revenue                                                         
 P.O. Box 110400                                                               
 Juneau, AK 99811-0400                                                         
  POSITION STATEMENT:   Department has some concerns with SCS CSHB
 Roy Bowdre                                                                    
 P.O. Box 2                                                                    
 Delta Junction, AK 99737                                                      
  POSITION STATEMENT:   Opposes CSHB 207(FIN) am                               
 Leonard Efta                                                                  
 P.O. Box 353                                                                  
 Kenai, AK 99611                                                               
  POSITION STATEMENT:   Opposes CSHB 207(FIN) am                               
 Keith Burke                                                                   
 4220 B St., #208                                                              
 Anchorage, AK 99503                                                           
  POSITION STATEMENT:   Has concerns with proposed Resources SCS               
      for HB 207                                                               
 Jim Branch, Production Manager                                                
 Exxon Co., USA                                                                
 P.O. Box 196601                                                               
 Anchorage, AK 99519                                                           
  POSITION STATEMENT:   Commented on CSHB 207(FIN) am                          
 Kevin Tabler, Land Manager                                                    
 Union Oil Co. of California                                                   
 P.O. Box 196247                                                               
 Anchorage, AK 99519                                                           
  POSITION STATEMENT:   Has concerns with proposed Resources SCS               
                      for HB 207                                               
 Chuck Sullivan, Manager, Contracts/Administration                             
 Parker Drilling                                                               
 P.O. Box 112070                                                               
 Anchorage, AK 999516                                                          
  POSITION STATEMENT:   Commented on CSHB 207(FIN) am                          
 Richard Fineberg                                                              
 P.O. Box 416                                                                  
 Ester, AK 99725                                                               
  POSITION STATEMENT:   Hold over CSHB 207(FIN) am for work                    
                      during interim                                           
 Geron Bruce, Legislative Liaison                                              
 Department of Fish & Game                                                     
 P.O. Box 25526                                                                
 Juneau, AK 99802-5526                                                         
  POSITION STATEMENT:   Testified in support of SJR 22                         
 Dean Paddock                                                                  
 Bristol Bay Drift Netter's Association                                        
 P.O. Box 20312                                                                
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Testified in support of SJR 22                         
 Kim Metcalfe-Helmar, Special Assistant                                        
 Department of Community & Regional Affairs                                    
 P.O. Box 112100                                                               
 Juneau, AK 99811-2100                                                         
  POSITION STATEMENT:   Testified in support of SJR 22                         
  ACTION NARRATIVE                                                             
  TAPE 95-49, SIDE A                                                           
 Number 001                                                                    
         SJR 27 ENDORSING FALL CREEK HYDROPOWER PROJECT                       
  CHAIRMAN LEMAN  called the Senate Resources Committee meeting to             
 order at 3:45 p.m., and introduced  SJR 27  as the first order of             
 SENATOR FRED ZHAROFF, prime sponsor of SJR 27, explained the                  
 resolution was introduced to help address the long-term energy                
 needs of Gustavus and the Glacier Bay area.  The stream, known as             
 Fall Creek, lends itself to harnessing a power generation.  It is             
 located within the boundary of the Glacier Bay National Park, and,            
 therefore, it will take congressional action to change the land               
 designation.  Alaska's congressional delegation plans to address              
 this issue soon, and they have indicated that a strong endorsement            
 will aid them in that effort.  SJR 27 gives endorsement for the               
 Senator Zharoff noted that at the present time there are two                  
 separate diesel power generating plants, one for Gustavus and one             
 for the park's headquarters.  However, neither generating facility            
 is adequate to meet the long-term needs of the area and Fall Creek            
 has been identified as a site that could be developed to meet the             
 needs of the growing community and the national park with                     
 relatively small impact on the surrounding area.  He also pointed             
 out that the hydropower project would result in sufficient cost               
 savings to the state, as well as lower power costs to the users.              
 Senator Zharoff directed attention to several letters of support              
 for the project from the Gustavus area.                                       
 Number 045                                                                    
 SENATOR LEMAN asked if there has been discussion with people from             
 the Department of Fish and Game relating to any possible effects of           
 the project on the habitat of Fall Creek.  RICHARD LEVITT,                    
 President of Gustavus Electric Company, responded that they have              
 been working with Fish & Game for several years on this project and           
 it has been determined that the project is feasible and the fish              
 can be taken care of.                                                         
 Number 055                                                                    
 SENATOR LEMAN directed attention to a proposed committee substitute           
 and asked for a motion for its adoption as a working document.                
 SENATOR FRANK moved that CSSJR 27(RES) be adopted as a working                
 document.  Hearing no objection, the motion carried.                          
 SENATOR ZHAROFF voiced his support for the committee substitute.              
 SENATOR LEMAN asked the cost of the project and how it will be                
 financed.  RICHARD LEVITT answered that the project will cost $1.8            
 million and it will be privately financed through the electric                
 company and investors.                                                        
 Number 080                                                                    
 There being no further testimony on SJR 27, SENATOR LEMAN asked for           
 the pleasure of the committee.                                                
 SENATOR FRANK moved and asked unanimous consent that CSSJR 27(RES)            
 be passed out of committee with individual recommendations.                   
 Hearing no objection, it was so ordered.                                      
          SB 164 APPROVE TESORO ROYALTY OIL AGREEMENT                         
  Number 090                                                                  
 SENATOR LEMAN brought  SB 164  back before the committee.                     
 COMMISSIONER JOHN SHIVELY, Department of Natural Resources,                   
 informed the committee that the department has completed the                  
 hearing process on the contract and the testimony before the                  
 Royalty Oil & Gas Development Advisory Board, which approved the              
 contract, was largely positive.                                               
 There being no further testimony on SB 164, SENATOR LEMAN asked for           
 the pleasure of the committee.                                                
 SENATOR TAYLOR moved that SB 164 be passed out of committee with              
 individual recommendations.  Hearing no objection, it was so                  
 Number 140                                                                    
 SENATOR LEMAN brought  CSHB 197(RES)  before the committee as the             
 next order of business.  He noted there was a draft committee                 
 substitute and asked for a motion for its adoption as a working               
 SENATOR HALFORD moved that SCS CSHB 197(RES) (version "Z") be                 
 adopted as a working document.  Hearing no objection, the motion              
 JOHN WALSH, staff to Representative Richard Foster, said in the               
 drafting of the committee substitute, they took into consideration            
 the testimony of the Department of Revenue in the computation of              
 the credit with respect to the Alaska Corporate Income Tax for                
 mining activity, resolving their major concern.  They will not have           
 to compute the  credit using AS 43.20, which was a problem with the           
 Department of Revenue because of the apportionment (water's edge)             
 income method of calculation.  The computation comes from the                 
 mining license tax, which is sited specific.                                  
 Another change made in the legislation was that the credit will not           
 go against rents because of the fear of potential litigation, which           
 is agreeable to industry, as well as the Department of Natural                
 Resources, which gets program receipts off of that rent.                      
 There is a provision in the legislation that clarifies the                    
 procedure for abandoned mines that are now back into production and           
 the credits that may exist to get that mine back into production.             
 The wording of "application" for a tax credit was changed to                  
 "request" for a tax credit.  It clarifies that an operation would             
 request credits annually with the Department of Natural Resources,            
 certify those expenses for that year, and accumulate those until              
 shifting into a production mode, whereby they would then start to             
 deduct those credits against the taxes due.                                   
 Mr. Walsh noted that the legislation provides that a credit can be            
 carried forward to and applied during a subsequent tax year or                
 royalty payment period.  An exploration incentive credit must be              
 applied within 15 tax years or royalty payment periods after the              
 taking of the credit is approved, but they need not be 15                     
 consecutive years.   After 15 years of usage, the credits on the              
 table at that point would expire.                                             
 The legislation also allows the credits of a mine being assigned to           
 the new interest holder when the mine is sold.  Some confusing                
 language in a previous draft of that section of the bill was                  
 deleted to make the intent of the section clearer.                            
 The bill further provides that it is up to the applicant to keep              
 track of how its credits were used in the past and be able to at              
 any time verify how he has applied those in previous years.                   
 Concluding his comments, Mr. Walsh stated he believes the new                 
 committee substitute is an improvement and he encourages its                  
 Number 260                                                                    
 DAVID ROGERS, representing the Council of Alaska Producers, pointed           
 out that at the request of the Department of Natural Resources, the           
 bill now contains a definition of "mining operation."                         
 Number 270                                                                    
 SENATOR HALFORD asked what kind of retroactive incentive is being             
 created for investment that may or may not have occurred after                
 December 31, 1994.  MR. ROGERS responded that rather than having it           
 take effect in June or July, the decision was made to have it take            
 effect at the beginning of 1995.  SENATOR HALFORD added that he               
 would encourage that this not apply to investments made before the            
 start of the legislature and that it be changed to a later date.              
 SENATOR HALFORD moved to change "December 31, 1994" to "May 15,               
 1995."  Hearing no objection, SENATOR LEMAN stated the amendment to           
 the Resources SCS was adopted.                                                
 Number 290                                                                    
 JULES TILESTON, Director, Division of Mining & Water Management,              
 Department of Natural Resources, testified from Anchorage in                  
 support of the changes made in the Resources SCS.                             
 Number 297                                                                    
 DEBORAH VOGT, Deputy Commissioner, Department of Revenue, stated              
 the Resources SCS is a technical improvement over the previous                
 version, but the department still has some philosophical problems             
 of a fiscal nature which might be more appropriately adjusted in              
 the Senate Finance Committee.                                                 
 Number 300                                                                    
 SENATOR TAYLOR moved that SCS CSHB 197(RES), as amended, and the              
 Letter of Intent be passed out of committee with individual                   
 recommendations.  Hearing no objection, it was so ordered.                    
     CSHB 207(FIN) am ADJUSTMENTS TO OIL AND GAS ROYALTIES                    
 Number 325                                                                    
 SENATOR LEMAN brought  CSHB 207(FIN) am  before the committee as the          
 next order of business.  He stated the committee would be                     
 addressing a proposed Resources SCS, version "S."                             
 COMMISSIONER SHIVELY, Department of Natural Resources, commented              
 that substantial changes have been made in the new committee                  
 substitute, and the department is not sure that the bill will be as           
 valuable a tool for managing royalties as they originally thought.            
 The department will work with committee staff and the industry to             
 see exactly what the new wording means, and they will be prepared             
 to offer more comments on it at the next meeting of the committee             
 on Friday.                                                                    
 Number 359                                                                    
 ROY BOWDRE, testifying from Delta Junction, stated he was strongly            
 opposed to HB 207 because it gives the commissioner complete                  
 secrecy and it does not make him be responsible to any person or              
 committee.  The state already has the power to lower royalties, and           
 the bill allows it to be done in complete secrecy.  He urged defeat           
 of the legislation.                                                           
 Number 366                                                                    
 LEONARD EFTA, testifying from Kenai, agreed the bill gives the                
 commissioner too much power.  He is also opposed to language on               
 page 5, line 32 and page 6, lines 1 - 3 which provides that the               
 commissioner's final findings and determination regarding royalty             
 reduction is final and not appealable to the court.                           
 Number 375                                                                    
 KEITH BURKE, testifying for the Alliance in Anchorage, voiced their           
 support for the ability of the commissioner to adjust the royalty             
 provisions on marginal fields because they believe it is the                  
 quickest way to create jobs and to create some additional revenues            
 for the state to alleviate some of the fiscal gap problems that are           
 being faced.  However, in looking at the draft committee                      
 substitute, he is concerned about some of the financial parameters            
 that are placed in the bill, the sunset provisions, and the                   
 additional reviews and approval requirements by the legislative               
 Number 407                                                                    
 JIM BRANCH, Production Manager, Exxon Co., testifying from                    
 Anchorage, said the state is seriously trying to improve the                  
 investment climate for the oil and gas industry.  He said the                 
 investment reception and confidence in our state must be improved             
 if we are to be successful in the worldwide competition for oil and           
 gas investment dollars.  He emphasized that the state's number one            
 priority should be budget discipline.  Fiscal reform, primarily to            
 extending reductions, will send the strongest signal to investors.            
 Number 437                                                                    
 KEVIN TABLER, Land Manager for Union Oil Co. in Anchorage,                    
 expressed the company's pleasure that the state is looking into               
 ways in which to work with industry and provide for a better future           
 for Alaska.                                                                   
 Mr. Tabler said UNOCAL supported the version of HB 207 that passed            
 the House, but they have not had an opportunity to fully digest the           
 contents of the new Resources SCS.  However, in looking at it, they           
 do not support its sunset provisions and have concerns with other             
 language in it.                                                               
 Number 488                                                                    
 SENATOR LEMAN commented that a split or dual sunset for existing              
 fields in production and for new fields might be considered.  He              
 said the intent of the committee was to stimulate some activity by            
 having this be open for the next two to two and one-half years, and           
 then the legislature could address that sunset at some time in the            
 future.  He added that he could see how this might affect UNOCAL              
 with existing fields, and he suggested Mr. Tabler come back with              
 another proposal for existing fields and how that sunset may apply            
 to them.                                                                      
 Number 495                                                                    
 CHUCK SULLIVAN, Manager, Contracts/Administration, Parker Drilling,           
 testifying from Anchorage, said the company has been in Alaska                
 since 1969 and has had as many as 10 oil rigs operating in the                
 state.  Currently, they have one rig operating that provides 55               
 jobs directly with the rig.  He said the business environment in              
 Alaska and throughout the world has changed with more competition             
 for investment dollars.  He applauded the legislature's efforts to            
 try to make Alaska's fields more competitive worldwide by                     
 encouraging additional investments in the oil industry.                       
 Number 516                                                                    
 RICHARD FINEBERG, testifying from Fairbanks, said he has not yet              
 had an opportunity to review the new Resources SCS, but he pointed            
 out that there have been two major international comparisons of               
 fiscal systems for petroleum exploration and production completed             
 recently, and there has been no discussion or analysis of these               
 studies in relation to HB 207.  He suggested holding over the                 
 legislation for the interim for the kind of major study it                    
  TAPE 95-49, SIDE B                                                           
 Number 005                                                                    
 SENATOR LEMAN said it was his intent to move a version of HB 207              
 out of committee within the next few days, and he suggested that              
 any additional comments on the legislation be forwarded to the                
 committee as soon as possible.  There being no further testimony on           
 HB 207, he closed the public hearing and stated it would be back              
 before the committee at its Friday meeting.                                   
        SJR 22 FISH & MARINE MAMMAL RESEARCH BERING SEA                       
 SENATOR LEMAN brought  SJR 22  before the committee as the final              
 order of business.  He said it has been suggested that a resolve              
 clause be added to say that such research be coordinated so that              
 efforts are not duplicated.                                                   
 SENATOR HOFFMAN, prime sponsor of SJR 22, said because the                    
 committee had lost its quorum, he would delay his overview until              
 the next meeting, but he added that he didn't have a problem with             
 adding the suggested language.                                                
 Number 065                                                                    
 GERON BRUCE, Legislative Liaison, Department of Fish & Game, stated           
 the department's support for SJR 22.  The Bering Sea is an                    
 extremely productive system that is very important to Alaska.  He             
 said information needs to be developed because we do not have a               
 very good understanding of the entire system and the interaction of           
 the various biological forces within it.                                      
 Number 078                                                                    
 SENATOR LEMAN requested that Mr. Bruce work with committee staff on           
 language that efforts not be duplicated, that the funds be used               
 efficiently in getting information that will help in the management           
 of that resource.  MR. BRUCE agreed to work with staff in crafting            
 some language, but he also pointed out that all of the research               
 that the department does is directed towards specific management              
 questions in managing these fisheries, and the kind of research               
 that this resolution is requesting would not duplicate anything               
 that is being done by the Department of Fish & Game at this time.             
 Number 095                                                                    
 DEAN PADDOCK, representing the Bristol Drift Netter's Association,            
 voiced their strong support for the resolution, and he commended              
 Senator Hoffman for its introduction.  Although the Bristol salmon            
 fishermen would not be the direct recipients of the benefits of               
 research of this type, they feel that they would benefit indirectly           
 because so little is known and anything that is learned will filter           
 down to them.  He believes that the beneficiaries will be the crab            
 fishermen, the cod fishermen, the rock sole fishermen, etc.                   
 Number 155                                                                    
 SENATOR HOFFMAN noted that Senator Ted Stevens and Representative             
 Don Young are asking for input from people throughout Alaska on the           
 Magnuson Act, and he thinks the healthiness of the Bering Sea is              
 directly related to that along with the fine bullet points that               
 they are urging for a healthy fishery.                                        
 Number 170                                                                    
 KIM METCALFE-HELMAR, Special Assistant, Department of Community &             
 Regional Affairs, said that department is involved in management of           
 the CDQ pollack program, and a healthy pollack fisheries is                   
 essential for continuation of this program that brings about $20              
 million in annual income to 56 Western Alaska communities.  The               
 department urges the committee's support of SJR 22.                           
 There being no further testimony on SJR 22, SENATOR LEMAN stated it           
 would be back before the committee at its next meeting.                       
 There being no further business to come before the committee,                 
 SENATOR LEMAN adjourned the meeting at 3:40 p.m.                              

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