HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT April 23, 1998 3:10 p.m. MEMBERS PRESENT Representative Jerry Sanders, Chairman Representative Mark Hodgins Representative Ivan Ivan Representative William K. ("Bill") Williams Representative Alan Austerman Representative J. Allen Kemplen Representative Ethan Berkowitz MEMBERS ABSENT All members present OTHER HOUSE MEMBERS PRESENT Representative Joe Ryan Representative Vic Kohring OTHER SENATE MEMBERS PRESENT Senator Jerry Ward COMMITTEE CALENDAR PRESENTATION: FUEL COSTS AND THE EFFECT ON THE ECONOMY HOUSE BILL NO. 469 "An Act approving the sale of Prudhoe Bay Unit royalty oil by the State of Alaska to Mapco Alaska Petroleum, Inc.; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 469 SHORT TITLE: APPROVE SALE ROYALTY OIL TO MAPCO SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 3/13/98 2620 (H) READ THE FIRST TIME - REFERRAL(S) 3/13/98 2621 (H) O&G, ECD, FINANCE 3/13/98 2621 (H) FISCAL NOTE (DNR) 3/13/98 2621 (H) HOUSE AND SENATE JOURNAL SUPPLEMENT #16 CONTAINS FINDINGS, AGREEMENTS, & 3/13/98 2621 (H) RESOLUTION REGARDING ROYALTY OIL SALE 3/13/98 2621 (H) TO MAPCO 3/13/98 2621 (H) GOVERNOR'S TRANSMITTAL LETTER 3/31/98 (H) O&G AT 10:00 AM CAPITOL 124 3/31/98 (H) MINUTE(O&G) 4/07/98 (H) O&G AT 10:00 AM CAPITOL 124 4/07/98 (H) MINUTE(O&G) 4/07/98 2905 (H) O&G RPT 4DP 1NR 4/07/98 2905 (H) DP: ROKEBERG, BUNDE, BRICE, HODGINS; 4/07/98 2905 (H) NR: RYAN 4/07/98 2905 (H) FISCAL NOTE (DNR) 3/13/98 4/07/98 2905 (H) REFERRED TO ECD 4/09/98 (H) ECD AT 5:00 PM CAPITOL 17 4/09/98 (H) MINUTE(ECD) 4/23/98 (H) ECD AT 3:00 PM CAPITOL 17 WITNESS REGISTER WILSON CONDON, Commissioner Department of Revenue; Member, Royalty Oil and Gas Development Advisory Board P.O. Box 110400 Juneau, Alaska 99811-0400 Telephone: (907) 465-2300 POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economy. CHARLIE COLE, Former Attorney General 406 Cushman, Suite 2 Fairbanks, Alaska 99701 Telephone: (907) 452-1124 POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economy. KEVIN BANKS Division of Oil and Gas Department of Natural Resources 3601 "C" Street, Suite 1380 Anchorage, Alaska 99503 Telephone: (907) 269-8781 POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economy. GINNY FAY, Legislative Liaison Department of Commerce and Economic Development P.O. Box 110800 Juneau, Alaska 99811-0800 Telephone: (Not provided) POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economy. KARL HANNEMAN 6226 Second Street, Suite 201 Fairbanks, Alaska 99701 Telephone: (907) 452-6700 POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economy. JEFF COOK, Vice President External Affairs and Administration MAPCO Alaska Petroleum Incorporated 1150 H&H Lane North Pole, Alaska 99705 Telephone: (907) 488-2741 POSITION STATEMENT: Participated in presentation on Fuel Costs and the Effect on the Economiy and Provided testimony in support of HB 469. ACTION NARRATIVE TAPE 98-4, SIDE A Number 0001 CHAIRMAN JERRY SANDERS called the House Special Committee on Economic Development meeting to order at 3:10 p.m. Members present at the call to order were Representatives Sander, Austerman, Ivan and Williams. Representatives Kemplen, Berkowitz and Hodgins arrived at 3:20 p.m., 4:20 p.m., and 4:40 p.m., respectively. FUEL COSTS AND THE EFFECT ON THE ECONOMY SUMMARY OF INFORMATION CHAIRMAN SANDERS stated that what he wanted to do at this meeting was to invite different parts of the administration and discuss the situation of the high price of fuel and what might possibly done about it. Number 1297 WILSON CONDON, Commissioner, Department of Revenue; Member, Royalty Oil and Gas Development Advisory Board, explained that the state has a right under its oil and gas leases to take royalty oil and gas in value or in kind. When asked by Chairman Sanders if their was anything that could be changed in the statute that would give the board or the Department of Natural Resources some authority to demand benefits for the citizens of the state of Alaska, Commissioner Condon stated that he would not recommend it because it would be an administrative nightmare and it would be getting into the price controlling business. CHAIRMAN SANDERS also asked if Commissioner Condon could see any problem with the state taking a set amount of fuel and having it processed by MAPCO at cost plus a small margin, then the state could distribute it to Western Alaska among the school districts. This would allow the schools more money for their budget. COMMISSIONER CONDON responded that conceptually he did not have a problem with that but was skeptical about the capability of government department's ability to do that efficiently and effectively. TAPE 98-4, SIDE B Number 0048 FORMER ATTORNEY GENERAL CHARLIE COLE stated that something is wrong when MAPCO and other producers and distributors can sell gasoline for a $1.00 a gallon down in Seattle and Alaskans are paying $1.22 in Fairbanks. He further stated that people in Fairbanks were outraged at these high prices. Number 0542 KEVIN BANKS, Division of Oil and Gas, Department of Natural Resources, stated that Commissioner Shively extends his regrets for not being able to attend. Mr. Banks remarked that good government has only a limited role in the market place and should be cautious about expanding that role. He said trying to control prices creates other kinds of market. REPRESENTATIVE IVAN IVAN asked Mr. Banks if he was telling the legislature to stay out of this business. He stated he certainly could understand that it is a very complicated issue. MR. BANKS responded that, that's not what he is saying. REPRESENTATIVE ALAN AUSTERMAN asked if Mr. Banks was involved in the writing of the contract. MR. BANKS answered that yes, that he had negotiated with MAPCO. REPRESENTATIVE AUSTERMAN asked Mr. Banks about how the 15 cents per barrel was arrived at. MR. BANKS responded that there were two things in mind when the Department of Natural Resources entered into this agreement and established the price. The first is the fact that the department is compelled to choose a price, which is higher than Royalty is and in value. The contract is negotiated it is not awarded. He stated that part of the reason that it's 15 cents per barrel is because in the negotiations MAPCO didn't offer to pay more. CHAIRMAN SANDERS asked Mr. Banks if he knew of anything in the Alaska Statutes that could be changed or what could be done to help negotiate a better contract for the citizens of the state. MR. BANKS responded that more work would have to be done and did not have an answer to that yet. TAPE 98-5, SIDE A Number 0954 GINNY FAY, Legislative Liaison, Department of Commerce and Economic Development, stated that Commissioner Sedwick sends her regrets for not being able to attend. When asked about high fuel prices in Western Alaska she responded that prices in Western Alaska are higher because they have only one supplier (No competition). She stated that having MAPCO and TESORO as refiners in Alaska provides a considerable amount of economic benefits to people in Alaska. Number 1333 CARL HANNEMAN, resident of Fairbanks Alaska, summarized a letter that he had written to Chairman Sanders. He spoke about jet fuel and MAPCO'S expansion to increase jet fuel production. He suggested the Department of Revenue add comparative jet fuel and gasoline wholesale prices to a web site that already tracks fuel prices. Number 1886 JEFF COOK, Vice President, External Affairs, MAPCO Alaska Petroleum, stated that he was here today in support of HB 469 and asked that it be passed out of committee so that it may go on to the Senate. He further stated that this bill is about confirming the message that Alaska is open for business and Economic Development. REPRESENTATIVE AUSTERMAN stated that the cost of fuel in the state of Alaska is not directly related to the renewal of this contract (HB 469). If the state wants to solve some of these problems dealing with the price of gasoline we should do it through a tax system. He further stated that this contract is important enough to the state of Alaska so he wants to make sure that it gets passed this year and that it is time to get it through the system. COMMITTEE ACTION The committee took no action. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tapes and log notes my be obtained by contacting the House Records Office at 130 Seward Street, Suite 211, Juneau Alaska 99801-1182, (907) 465-2214, and after adjournment of the second session of the Twentieth Alaska State Legislature, in the Legislative Reference Library. HB 469 - APPROVE SALE ROYALTY OIL TO MAPCO TAPE 98-5, SIDE A Number 1849 CHAIRMAN SANDERS announced the next order of business was HB 469, "An Act approving the sale of Prudhoe Bay Unit royalty oil by the State of Alaska to Mapco Alaska Petroleum, Inc.; and providing for an effective date." CHAIRMAN SANDERS noted it is not his intent to move the bill out of the committee today, but he also realizes that holding the bill will not solve the problem. CHAIRMAN SANDERS called on Jeff Cook from MAPCO Alaska Petroleum Incorporated (MAPCO). Number 1886 JEFF COOK, Vice President, External Affairs and Administration, MAPCO Alaska Petroleum Incorporated, testified in Juneau. He is hear to support HB 469 and to ask that it be passed out of the committee today. There are a number of other committee referrals in the House and it still needs to go on to the Senate. It is very appropriate to talk about the bill in the House Special Committee on Economic Development because it is a bill about economic development and jobs for the city of North Pole, the Fairbanks North Star Borough, the Municipality of Anchorage, and the state of Alaska. It is about confirming the message that Alaska is open for business and economic development. It is about encouraging existing businesses in Alaska to expand. He cited two companies in Fairbanks expanding because of the expansion of the MAPCO refinery in North Pole. The bill is about encouraging one of the few value- added industries in Alaska to expand and export products to international air carriers and to bring money back to Alaska. The expansion will add 14 thousand barrels a day of jet fuel production and 3 thousand barrels a day of diesel fuel. The 14 thousand barrels a day of jet fuel will off set what is now being imported from outside. The bill is about supporting a business that spent $90 million more with all vendors in 1998 than what it took in through gross sales due to capital and construction projects. The bill is about supporting a $70-million refinery for crude now under construction. The bill is about adding 19 new permanent MAPCO employees in Anchorage and Fairbanks, and another 300 employees in MAPCO express stores. It is about supporting 375 construction workers at its peak this summer. Right now, there are over 100 workers on site. It is about supporting a business that spent $465 million last year with 729 Alaskan vendors, educational institutions, and charitable organizations. It is about expanding the $8,351,962 spent with Golden Valley Electric by another $2 million per year to help stabilize electrical rates for commercial and residential consumers in the Interior and Fairbanks. There will be about another 25 railroad cars per day going south from North Pole to Anchorage on the railroad increasing the Alaska Railroad Corporation's revenue by over $10 million a year, adding 20 new employees and new locomotives. It will also increase property taxes to the Fairbanks North Star Borough and city of North Pole. But all of these benefits can only happen if MAPCO has the additional crude oil allowing it to complete and operate its expansion. MR. COOK further stated the city of North Pole, the Fairbanks North Star Borough, and the Fairbanks Chamber of Commerce have all passed resolutions endorsing HB 469. He as attended all of the public meetings and not one person has testified against the bill. This bill is also about a commitment made a year ago between MAPCO and the legislature. As the jet fuel tax was passed last year, MAPCO promised it would expand its refinery and bring economic benefits to Alaska. MAPCO is moving ahead with that promise and now needs the royalty oil contract to complete the commitment. He urged the committee members to send a strong message about economic development in Alaska by passing HB 469 out of the committee today. CHAIRMAN SANDERS called for an at ease. CHAIRMAN SANDER called the meeting back to order. Number 2120 REPRESENTATIVE ALAN AUSTERMAN stated that he doesn't see the cost of fuel directly related to the contract. He wondered whether a tax system could solve some of the problems with the price of gas- o-line in Fairbanks, Anchorage, and around the state. It seems that the contract is important enough to the state to get it passed this year. Number 2149 CHAIRMAN SANDERS stated he thinks that the bill will pass out of the committee the first part of next week. There is plenty of time because soon there will be the one-day notice for scheduling committee meetings. He suggested to Representative Austerman that he talk to the other body to get it to move its version forward in order that the two versions can come together quicker. REPRESENTATIVE AUSTERMAN asked Chairman Sanders whether he has scheduled the bill for next week yet. CHAIRMAN SANDERS replied he has scheduled it for Thursday. REPRESENTATIVE AUSTERMAN responded that is one week from today. REPRESENTATIVE IVAN M. IVAN stated he is also concerned about the bill's scheduling, especially in regards to a conference committee. REPRESENTATIVE AUSTERMAN stated a conference committee could be a good week away too because of the work being done in the Senate. CHAIRMAN SANDERS stated he will talk to the House Finance Committee for scheduling as well. REPRESENTATIVE MARK HODGINS asked Chairman Sanders whether the earliest the bill could be moved out of the committee is one week from today. CHAIRMAN SANDERS replied, "Yes." REPRESENTATIVE AUSTERMAN stated it is further than that because of the deadline for scheduling committee hearings. CHAIRMAN SANDERS stated there could be a meeting on Tuesday. REPRESENTATIVE AUSTERMAN noted it is already passed the scheduling deadline. CHAIRMAN SANDERS asked his staff to see what could be done about the scheduling. He reiterated it is not his intention to move the bill out of the committee today. ADJOURNMENT Number 2247 CHAIRMAN SANDERS adjourned the House Special Committee on Economic Development at 5:20 p.m.