Legislature(1995 - 1996)
04/26/1995 03:45 PM Senate RES
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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
Sea.
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
197(RES)
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
business.
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
project.
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
ordered.
CSHB 197(RES) MINERAL EXPLORATION INCENTIVE CREDITS
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
document.
SENATOR HALFORD moved that SCS CSHB 197(RES) (version "Z") be
adopted as a working document. Hearing no objection, the motion
carried.
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
passage.
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
body.
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
deserves.
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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