HOUSE FINANCE COMMITTEE May 1, 1998 2:25 P.M. TAPE HFC 98 - 140, Side 1 TAPE HFC 98 - 140, Side 2 CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 2:25 p.m. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative Davies Representative Martin Representative Davis Representative Moses Representative Grussendorf Representative Mulder Representative Foster was absent from the meeting. ALSO PRESENT Kevin Banks, Division of Oil and Gas, Department of Natural Resources; Chris Stockard, Captain, Department of Public Safety; Jeff Cook, Vice President External Affairs, Mapco, Fairbanks; James Hornaday, Staff, Representative Kott, Patrick Lounsbury, Staff, Representative James. SUMMARY HB 81 "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." CSHB 81 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the House Finance Committee for the Alaska Permanent Fund Corporation and zero fiscal note by the Office of the Governor, 2/12/98. HB 405 "An Act relating to failing to stop a vehicle when directed to do so by a peace officer." CSHB 405 (FIN) was REPORTED out of Committee with "no recommendation" and with four fiscal impact notes, one by the Department of Corrections, one by the Alaska Court System, one by the Department of Administration, and one by the Department of Law dated 3/9/98. 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." HB 469 was REPORTED out of Committee with "no recommendation" and with a fiscal impact note by the Department of Natural Resources. HJR 50 Proposing amendments to the Constitution of the State of Alaska relating to a public corporation established to manage the permanent fund. HJR 50 was HELD in Committee for further consideration. 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." KEVIN BANKS, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES explained that HB 469 would ratify a five-year contract that would begin on December 1, 1998 with MAPCO. The expiration date would coincide with a long-term contract that MAPCO has with the state of Alaska. The contract also has a security clause. MAPCO has agreed to put a letter of credit equal to 75 days worth of oil. This would cover the state of Alaska in the case that MAPCO defaults in the contract. MAPCO is required to process at least 80 percent of the oil in the state of Alaska. MAPCO has indicated that they would process most of the oil. There is also a local hire provision in the contract. Residents are defined in the same manner as in the North Star lease agreement. Mr. Banks explained that the price is based on the value calculated by the producers. The producers base their price on the market value of Alaska North Slope (ANS) oil, transportation chargers for tankers, tariffs for the pipeline, and adjustments for quality. MAPCO would pay this price plus .15 cents. Co-Chair Therriault noted that the State established this pricing structure in the Amerada Hess settlement. In response to a question by Representative Davies, Mr. Banks explained that the additional .15 cents was added to assure that the value to the state of Alaska is considered first. He observed that the state of Alaska is taking a portion of its oil and selling it in the same market. There is concern that the State could reduce the value of royalty oil through the sale of oil. He explained how the sale of oil by the state of Alaska could shift the balance of oil distribution between the West Coast and the Far East or mid United States. Representative Davies noted that MAPCO can increase or decrease the monthly nomination. MAPCO would have to stay below the maximum quantity authorized per year. Mr. Banks noted that there is a reservation fee if MAPCO fails to take the maximum quantity in any given month. The state of Alaska is committed to a certain amount per month. He clarified that MAPCO would not be allowed to exceed 33 percent in any month. The nomination occurs 3 months before production begins. In response to a question by Representative Martin, Mr. Banks pointed out that the State is confined in its ability to offer competitive bids. He observed that a substantial amount of oil is going to MAPCO under a contract that was awarded in the late 70's. At the end of the contract the State hopes to be free to begin competitive bidding without any potential customers having a significant advantage over another. Both contracts would end in the year 2003. Representative Martin questioned the criteria that would be used to ensure local hire. Mr. Banks observed that MAPCO's state contract provided them with the stability of supply needed to start a refinery. Representative Martin asked why the contract would only add .15 cent a barrel. He maintained that the price is too low. He suggested that in-state refineries have the advantage of not paying shipping costs. Mr. Banks maintained that the price at pump station one represents an amount close to market value. The additional .15 cents provides a cushion. Co-Chair Therriault pointed out that no monetary value is applied to local hire. Mr. Banks noted that the commercial terms of the contract were kept separate from other potential benefits. Representative Kelly referred to the definition of "royalty value" on page 2, line 17. He observed that MAPCO is paying what the State could get for the oil plus .15 cents. JEFF COOK, VICE PRESIDENT EXTERNAL AFFAIRS, MAPCO, FAIRBANKS spoke in support of the legislation. He noted that the oil will be refined into jet fuel and diesel. He stressed that MAPCO has hired locally. He noted that the Alaska Royalty Oil and Gas Advisory Board took testimony on the MAPCO contract. The Board approved the contract unanimously. He emphasized that they pay the fair market value and the tariff cost to Fairbanks. Representative Kelly asked if MAPCO has any other sources of oil. Mr. Cook observed that MAPCO purchases oil from the state of Alaska and Phillips Oil. He noted that MAPCO pays less to the Phillips Oil company than it pays to the state of Alaska. Representative Martin maintained that cost factors are not the same. Mr. Cook observed that MAPCO did not receive any tax breaks to offset their $70 million dollar expansion. He pointed out that the same expansion would cost approximately $45 million dollars if it were built in Tennessee. Co-Chair Therriault noted that there is a zero fiscal note. Representative Kohring stated that he is concerned with the issue of competition. Representative Kelly MOVED to report HB 469 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 469 was REPORTED out of Committee with "no recommendation" and with a fiscal impact note by the Department of Natural Resources. HOUSE BILL NO. 405 "An Act relating to failing to stop a vehicle when directed to do so by a peace officer." Co-Chair Therriault MOVED to ADOPT Amendment 1 (copy on file). JAMES HORNADAY, STAFF, REPRESENTATIVE KOTT stated that the sponsor supports the amendment. He added that representatives of the Anchorage Police Department and the Department of Public Safety also support the amendment. He explained that the amendment would add new language: "A person commits the offense of failure to stop at the direction of a peace officer in the first degree if the person violates (b) of this section and during the commission of that offense, the person violates a traffic law or commits another crime." The amendment also provides that "crime" has the meaning given in AS 11.81.900; and "traffic law" has the meaning given in AS 28.15.261. Co-Chair Therriault observed that there are approximately 330 of these types of violations on a yearly basis. The Department of Law indicated that that they would try to prosecute these offenses as felonies. He observed that the Department of Law could prosecute with the use discretion in order to reduce the fiscal impact. The Anchorage Police Department supports full prosecution of violations. CHRIS STOCKARD, CAPTAIN, DEPARTMENT OF PUBLIC SAFETY explained that it is currently a class B misdemeanor to elude a police officer. The legislation increases the penalty and creates a new felony category for more serious violations. There are approximately 20 states that have made fleeing a police office a felony offense. There being NO OBJECTION, Amendment 1 was adopted. (Tape Change, HFC 98 - 140, Side 2) In response to a question by Representative Grussendorf, Mr. Stockard clarified that a person must knowingly elude a police officer. The police officer's vehicle must be marked appropriately so that a reasonable person would recognize it as a law enforcement vehicle. If the officer is not operating a vehicle they must be in a clearly recognizable uniform. Mr. Hornaday pointed out that there is a definition of "knowingly" in AS 81.900. Representative Mulder asked if the legislation would act as a deterrent. Mr. Stockard observed that the Anchorage Police Department feels that it would be a deterrent. The Department of Public Safety is less certain. He explained that officers would include information about the law in their school presentation. Co-Chair Therriault asked if forfeiture of the vehicle was considered as a deterrent. Mr. Hornaday stressed that forfeiture is difficult to enforce. Representative Davies asked if persons in an emergency situation would be charged with eluding a police officer. Mr. Stockard emphasized that generally persons in an emergency situation will stop because they want the police to assist them. Representative Grussendorf spoke in support of the legislation. Representative Mulder MOVED to report CSHB 405 (FIN) out of Committee with the accompanying fiscal notes. CSHB 405 (FIN) was REPORTED out of Committee with "no recommendation" and with four fiscal impact notes, one by the Department of Corrections, one by the Alaska Court System, one by the Department of Administration, and one by the Department of Law dated 3/9/98. HOUSE BILL NO. 81 "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." Co-Chair Therriault noted that the Committee had take previous action on HB 81. Representative Davies MOVED to ADOPT Amendment 4 (copy on file). He observed that the amendment would replace section 4 with: "A removal by the governor must be in writing and must state the reason for the removal. The removal should not be based on the general decision to have the governor's own appointed member on the board. The governor may not request a member of the board to submit a resignation." Representative Grussendorf noted that an individual may wish to resign as opposed to receiving public humiliation. Co-Chair Therriault expressed concern that a governor could ask for a resignation without cause. Representative G. Davis MOVED to delete "should" and add "may". There being NO OBJECTION, it was so ordered. Representative Kelly questioned if "the governor may not request a member of the board to submit a resignation" should also be deleted. PATRICK LOUNSBURY, STAFF, REPRESENTATIVE JAMES spoke in opposition to the amendment. He maintained that the language is still loose. Representative Martin spoke against the amendment. Representative Mulder spoke in support of the amendment. Representative Grussendorf MOVED to amend the amendment by deleting: "The governor may not request a member of the board to submit a resignation." There being NO OBJECTION, it was so ordered. A roll call vote was taken on the motion. IN FAVOR: Kelly, Kohring, Mulder, Davies, Davis, Grussendorf OPPOSED: Martin, Moses, Therriault Co-Chair Hanley and Representative Foster were absent for the vote. The MOTION PASSED (6-3). Representative Mulder noted that the fiscal note would no longer pertain to the legislation. He MOVED to report CSHB 81 (FIN) out of Committee with a new zero fiscal note. Mr. Lounsbury agreed that the fiscal note would be zero. There being NO OBJECTION, it was so ordered. Mr. Lounsbury stated that everyone supports the legislation with the exception of the current Administration. CSHB 81 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the House Finance Committee for the Alaska Permanent Fund Corporation and zero fiscal note by the Office of the Governor, 2/12/98. HOUSE JOINT RESOLUTION NO. 50 Proposing amendments to the Constitution of the State of Alaska relating to a public corporation established to manage the permanent fund. Co-Chair Therriault questioned if the language should be in a separate section of the Constitution. Mr. Lounsbury stated that Article III, Section 26 would not be the proper place for HJR 50. HJR 50 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:45 p.m.