Legislature(2015 - 2016)HOUSE FINANCE 519

04/09/2015 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 116 Out of Committee
Scheduled but Not Heard
Moved CSHB 100(FIN) Out of Committee
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
HOUSE BILL NO. 100                                                                                                            
     "An Act  establishing a credit  against the  net income                                                                    
     tax   for   an   in-state  processing   facility   that                                                                    
     manufactures  urea or  ammonia;  and  providing for  an                                                                    
     effective date."                                                                                                           
1:45:43 PM                                                                                                                    
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute  for  HB  100, Work  Draft  29-ls0423\G,  Nauman,                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
JANE   PIERSON,   STAFF,  REPRESENTATIVE   STEVE   THOMPSON,                                                                    
explained the changes in the  committee substitute (CS). She                                                                    
reported that on  page 1, lines 2, 4, and  5 the CS included                                                                    
a  credit   for  gas-to-liquid  products  were   added.  She                                                                    
continued that  on page 2, lines  10 and 12 the  addition of                                                                    
"gas-to-liquid"  was  added.  Found  on  page  2,  lines  18                                                                    
through  20  contained   the  definition  of  "gas-to-liquid                                                                    
product" she read the following:                                                                                                
     …in  this subsection,  "gas-to-liquid product"  means a                                                                    
     liquid   produced  by   a   processing  facility   that                                                                    
     combines,  breaks up,  or rearranges  atoms present  in                                                                    
     natural gas, but does not include liquefied natural                                                                        
Ms. Pierson furthered that page 2,  lines 25 and 26 and page                                                                    
3,  line 11  referenced gas  to liquid  products. The  final                                                                    
change was included on page 3,  line 20 and noted the length                                                                    
of the  credit was  changed to five  years by  inserting the                                                                    
date to January 1, 2022.                                                                                                        
TOM WRIGHT, STAFF, REPRESENTATIVE  MIKE CHENAULT, provided a                                                                    
brief synopsis of  the bill. He voiced  that the legislation                                                                    
created  a new  corporate income  tax credit  for owners  of                                                                    
facilities  that manufacture  urea  or ammonia,  and gas  to                                                                    
liquids.  He  referenced  a  study  by  the  McDowell  Group                                                                    
(titled, "Potential  Impacts of Agrium's Operation  on State                                                                    
of  Alaska Revenues")  (copy on  file)  that concluded  that                                                                    
reopening  the Agrium  facility using  a single  train would                                                                    
require  approximately 28  billion cubic  feet (bcf)  of gas                                                                    
per  year  with  21(bcf)  derived  from  state  leases.  The                                                                    
anticipated royalty  payment to the state  was approximately                                                                    
$15 million annually.                                                                                                           
Co-Chair  Neuman commented  that he  had been  working on  a                                                                    
gas-to-liquids  scenario  in  an  attempt to  add  value  to                                                                    
Alaskan products,  diversify the  economy, and  create jobs.                                                                    
He referenced that Alaska  Industrial Development and Export                                                                    
Authority  (AIDEA)  released  a  report  on  November,  2014                                                                    
published by  a company called Nexant  that provided gas-to-                                                                    
liquid  advisory  services.  He  detailed  that  the  report                                                                    
provided the value of products  and the amount of investment                                                                    
that was needed. He added  the language in anticipation of a                                                                    
large end  product user for  an in-state gas  pipeline which                                                                    
would help  the economics  of an  in-state gas  pipeline and                                                                    
would create jobs.  He cited the reports figures  of a total                                                                    
private industry  investment of up  to $6.5 billion  and the                                                                    
creation of  5000 permanent jobs.  He liked that HB  100 was                                                                    
attributed  to  an  industry that  added  value  to  Alaskan                                                                    
products.  He emphasized  that  he  added the  gas-to-liquid                                                                    
products  credit  to  HB  100  after  discussions  with  the                                                                    
sponsor to  endeavor to diversify the  state's economy, help                                                                    
the economics of  an in-state gas pipeline,  and create jobs                                                                    
in the state.                                                                                                                   
Vice-Chair  Saddler wanted  a brief  history  of the  Agrium                                                                    
Mr.  Wright  responded that  he  did  not  know all  of  the                                                                    
history.  He reported  that if  the plant  reopened, planned                                                                    
rehabilitation costs  were $275  million and would  employ a                                                                    
temporary  workforce  of  440  workers  with  a  payroll  of                                                                    
approximately $75  million over the two  year rehabilitation                                                                    
timeframe.  He  continued  that  the  reopened  plant  would                                                                    
employ  140 direct  jobs  and the  payroll  would amount  to                                                                    
approximately  $14  million  and approximately  340  "total"                                                                    
jobs  that "included  direct, indirect,  and induced  within                                                                    
the state with an approximate payroll of $30 million.                                                                           
Vice-Chair  Saddler inquired  further about  the history  of                                                                    
the plant.  Mr. Wright deferred to  representatives from the                                                                    
industry in the audience.                                                                                                       
Vice-Chair  Saddler asked  who  the gas-to-liquid  provision                                                                    
might apply  to. Mr. Wright  answered that a  temporary gas-                                                                    
to-liquid  plant   had  been  in  operation   on  the  Kenai                                                                    
Peninsula  by BP.  He alluded  to "some  interest" currently                                                                    
but did not know specific information.                                                                                          
Representative  Kawasaki   wondered  about  the   amount  of                                                                    
natural gas  available in Cook  Inlet Basin. He  referred to                                                                    
the  Interior Energy  Project  (IEP)  slated for  Fairbanks,                                                                    
which  proposed utilizing  a natural  gas  supply from  Cook                                                                    
Inlet. He  was wondering about  the total amount  of natural                                                                    
gas  reserves available  in Cook  Inlet  and whether  enough                                                                    
Cook Inlet gas was available for the Agrium project.                                                                            
REPRESENTATIVE  MIKE CHENAULT,  SPONSOR,  responded that  he                                                                    
did  not  know  the  total  gas supply  in  Cook  Inlet  and                                                                    
expressed  uncertainty that  it  was  possible to  determine                                                                    
with certainty.  He emphasized the  importance to  "bring on                                                                    
more gas supply to fill the  need of the gas market" whether                                                                    
in Fairbanks or for the Agrium plant.                                                                                           
1:54:44 PM                                                                                                                    
Representative Kawasaki  commented that  he could  provide a                                                                    
transcript of discussions about  an "abundance of fear" that                                                                    
there would not  be enough gas supply in Cook  Inlet for the                                                                    
Fairbanks  IEP.  He  wanted   assurances  that  an  abundant                                                                    
natural gas supply existed in Cook Inlet for both projects.                                                                     
Representative  Chenault  responded  that  he  never  stated                                                                    
concerns  over  the  Cook  Inlet  supply  for  the  IEP.  He                                                                    
believed  that the  more  gas that  was  discovered in  Cook                                                                    
Inlet  meant  increased  opportunities   to  supply  gas  to                                                                    
Alaskans. He  added that more natural  gas consumers whether                                                                    
in  Fairbanks or  for Donlin  Creek or  the Agrium  facility                                                                    
meant  more money  being spent  on exploration  to fill  the                                                                    
Vice-Chair Saddler reported that  he was previously a member                                                                    
of the  House Resources  Committee and  was familiar  with a                                                                    
study from the Department  of Natural Resources, Division of                                                                    
Geologic and  Geophysical Sciences on the  Cook Inlet Basin.                                                                    
He ascertained  that the basin  contained a large  volume of                                                                    
gas but  was complicated  and necessitated  much exploration                                                                    
and  drilling.  He  agreed   that  increased  market  demand                                                                    
increased  exploration  and  produced  more  gas.  He  asked                                                                    
whether  the plant  offered any  ancillary  benefits to  the                                                                    
consumers in Southcentral Alaska.                                                                                               
Representative Chenault  commented that the benefits  of the                                                                    
facility  would  start  with   jobs  and  spread  indirectly                                                                    
through  the economy.  He opined  that  more people  working                                                                    
provided more dollars  into the economy. He  added that when                                                                    
the plant  was in  operation benefits spread  throughout the                                                                    
state.  He reported  that the  barley  farmers located  much                                                                    
farther north of the plant  purchased urea for approximately                                                                    
$199.  per  ton.  When  the  facility  shut  down  the  cost                                                                    
increased by  $500 to  $700 per ton  and increased  costs to                                                                    
local  consumers.  He  mentioned   that  the  Department  of                                                                    
Transportation  and Public  Facilities used  urea to  de-ice                                                                    
airport runways.  He related that  the closure of  the Kenai                                                                    
facility had a large impact on the local community.                                                                             
Vice-Chair Saddler  hoped to hear  more about how  an anchor                                                                    
consumer  like   the  Agrium  plant  could   encourage  more                                                                    
exploration  in  Cook Inlet  and  generate  a more  reliable                                                                    
heating supply for the Anchorage area.                                                                                          
Representative  Chenault commented  that Vice-Chair  Saddler                                                                    
was correct.  He shared that  when in operation,  the Agrium                                                                    
plant and  the Conoco  LNG (liquefied natural  gas) facility                                                                    
had   provided  stability.   He   mentioned   that  in   the                                                                    
summertime,  Railbelt gas  consumption dropped  dramatically                                                                    
and  in the  wintertime demand  increased. During  extremely                                                                    
cold  periods,  both  plants  would  back  gas  out  of  the                                                                    
facility  to  ensure  enough gas  supply  for  the  consumer                                                                    
market. Both  plants provided a  relief valve  and long-term                                                                    
stable demand that drove exploration.                                                                                           
2:01:14 PM                                                                                                                    
Vice-Chair  Saddler understood  that a  storage facility  in                                                                    
Cook Inlet reduced the need for  a facility to back out gas.                                                                    
He wondered  whether the Agrium  plant was still  willing to                                                                    
back out gas in periods of high demand.                                                                                         
Representative Chenault  was unsure and could  not speak for                                                                    
the  company. He  shared that  Agrium had  always been  good                                                                    
neighbors in  the past and  reduced consumption in  times of                                                                    
high demand.                                                                                                                    
Representative  Gara referred  to a  time in  2008 when  the                                                                    
Palin  Administration  proposed  a small  gasline  north  to                                                                    
Fairbanks and  was told by  many Anchorage  legislators that                                                                    
the  Cook  Inlet  gas  supply was  not  sufficient  for  the                                                                    
project.  He  related  that continued  exploration  in  Cook                                                                    
Inlet would  produce more gas  but that exploration  was not                                                                    
continuous.  He argued  that the  argument kept  shifting on                                                                    
whether enough  gas existed  in Cook  Inlet. He  referred to                                                                    
the credits  for the  gas-to-liquid products  in the  CS. He                                                                    
asked if any facilities currently  existed in the state that                                                                    
would  benefit from  the tax  credits and  whether any  were                                                                    
coming  online.  He didn't  want  "to  give away  money"  to                                                                    
companies that were moving forward without the credit.                                                                          
Representative  Chenault  mentioned   that  the  BP  gas-to-                                                                    
liquids facility  was only  a test  facility and  closed two                                                                    
years  ago. He  was not  aware of  any further  use for  the                                                                    
2:04:50 PM                                                                                                                    
Co-Chair Neuman did not think  that the Agrium company would                                                                    
invest as  large a sum of  money as $275 million  in startup                                                                    
costs or  that a  company that wanted  to operate  a gas-to-                                                                    
liquid facility  that needed $6.5  billion to  develop would                                                                    
invest that amount  of money without a  long-term stable gas                                                                    
supply. A  gas-to-liquid facility  would be dependent  on an                                                                    
in-state  gasline  not  anticipated   until  2024.  He  also                                                                    
suggested  that more  demand  would  drive more  exploration                                                                    
which would create  more jobs and lower the cost  of gas. He                                                                    
believed that Alaska exported most  of its raw resources out                                                                    
of  state at  the expense  of the  state's economy.  He felt                                                                    
that Alaska needed  more legislation like HB  100 that drove                                                                    
exploration,  added  value  to a  resource,  benefitted  the                                                                    
economy, and  created jobs. He  relayed from  testimony that                                                                    
Agrium would still pay the  state $15 million in taxes after                                                                    
the proposed $3 million credit was deducted.                                                                                    
Representative Gara wondered if  there was any other gas-to-                                                                    
liquid  operations  in the  state  other  than the  BP  test                                                                    
facility.  He  also  wanted  to know  if  the  credit  would                                                                    
benefit Point  Thompson. Co-Chair  Neuman responded  that no                                                                    
gas-to-liquid production  existed in the state  and that the                                                                    
credit could benefit Point Thompson.                                                                                            
Representative Guttenberg  expressed incredulity  that after                                                                    
$300 million  in credits per  year for Cook Inlet  the state                                                                    
did  still not  know whether  there was  enough gas  in Cook                                                                    
Inlet  Basin  for Anchorage  let  alone  Fairbanks or  other                                                                    
projects.  He was  concerned about  natural  gas supply.  He                                                                    
noted the addition of the  gas-to-liquid products credit and                                                                    
wondered   whether  a   gas-to-liquid  facility   was  being                                                                    
considered by Agrium.                                                                                                           
Co-Chair Thompson  believed that it  was a job of  the state                                                                    
to encourage  development and industry to  Alaska and create                                                                    
a  diversified  economy  and that  the  legislation  was  in                                                                    
concert in what the state should promote.                                                                                       
2:10:54 PM                                                                                                                    
Representative  Guttenberg  was  in complete  agreement.  He                                                                    
wished that  the state's agriculture  was more  developed to                                                                    
generate  more need  for the  fertilizer. He  requested that                                                                    
someone from  DNR could testify  in regards to how  much gas                                                                    
was available in the Cook Inlet Basin.                                                                                          
Co-Chair Thompson  deduced that  a company would  not invest                                                                    
the huge amounts  of money needed for  startup costs without                                                                    
a stable long-term gas supply.                                                                                                  
Representative Gattis  declared a conflict of  interest with                                                                    
Agrium  because as  a farmer  she would  purchase fertilizer                                                                    
from the plant.                                                                                                                 
Vice-Chair  Saddler  asked  how  the royalty  rate  was  re-                                                                    
established  after   the  credits   expired.  Representative                                                                    
Chenault deferred to the House Majority Attorney.                                                                               
DONALD  BULLOCK, HOUSE  MAJORITY STAFF,  explained that  the                                                                    
royalty rate was  set in terms of the  leases. Provisions in                                                                    
the oil  and gas  leasing statutes  allowed for  varying the                                                                    
rates  at  different times  depending  on  the economics  of                                                                    
production  and when  the leases  were renewed.  He detailed                                                                    
that  the legislation  took  the  contract price  negotiated                                                                    
between a producer lessee and  the Agrium plant and used the                                                                    
plant as the value. Royalties  were typically expressed as a                                                                    
percentage of value or a  percentage of production depending                                                                    
on whether the state was  receiving royalty in money or gas.                                                                    
The safety  valve for  DNR was to  examine the  contract and                                                                    
ensure that  the contract and  valuation was similar  to the                                                                    
kind of contract  and valuation that was based  on issues in                                                                    
a subsequent  royalty audit. Establishing  the price  in the                                                                    
contract provided stability to the  buyer of the gas and for                                                                    
the producer who  knew what the royalty was for  the life of                                                                    
the contract.                                                                                                                   
2:15:46 PM                                                                                                                    
Representative Wilson  thought the  bill was  about offering                                                                    
an  incentive  for  a business  to  startup.  Representative                                                                    
Chenault  responded   affirmatively.  Representative  Wilson                                                                    
asked whether one  consequence of HB 100 was  to encourage a                                                                    
gas-to-liquid development.  Representative Chenault believed                                                                    
that  was  the  intent  of  the new  provision  in  the  CS.                                                                    
Representative  Wilson  reminded   the  committee  that  the                                                                    
intent of the bill was pro-business.                                                                                            
Vice-Chair  Saddler asked  whether the  state could  owe the                                                                    
company  more than  the  amount of  the  credit. Mr.  Wright                                                                    
responded in the negative.                                                                                                      
Co-Chair Thompson OPENED public testimony.                                                                                      
Co-Chair Thompson  asked whether reducing the  length of the                                                                    
credit from 10 to 5 years worked with Agrium's timeframe.                                                                       
ADAM   DIAMOND,   MANAGER,  GOVERNMENT   RELATIONS,   AGRIUM                                                                    
INCORPORATED,  answered that  the  company  was seeking  the                                                                    
most  attractive offer  for the  project to  measure against                                                                    
the company's other projects  that were internally competing                                                                    
for  the  same  pool  of capital  expenditure  funding.  Any                                                                    
reduction would impact the  "attractiveness" of the project.                                                                    
He  noted that  the  facility was  tentatively scheduled  to                                                                    
open  in July,  2017,  and  Agrium would  lose  half of  one                                                                    
year's credit.                                                                                                                  
Representative  Gara commented  that every  startup business                                                                    
in the state  would like to receive a 5  year tax credit. He                                                                    
wondered why  the state would  give Agrium the  credit under                                                                    
the  logic  that  the business  might  startup  without  the                                                                    
credit but  that a credit  further impacted the  decision to                                                                    
move forward.                                                                                                                   
Mr.  Diamond responded  that the  bill contained  provisions                                                                    
that   protected   the   state   and   offered   significant                                                                    
safeguards. He  indicated that HB 100  generated revenue and                                                                    
contained  significant  safeguards  for the  state.  Royalty                                                                    
revenue  would be  new revenue  to  the state  and that  the                                                                    
state  was currently  not collecting  tax  revenue from  the                                                                    
plant and would  not after the sunset date  unless the plant                                                                    
reopened. He  deemed that  the bill was  "set up  to protect                                                                    
the state"  and did not  reduce an existing  revenue stream,                                                                    
nor    necessitated   any    upfront   state    obligations,                                                                    
commitments,  or out-of-pocket  expenses. Employing  royalty                                                                    
revenues  as  a  benchmark prevented  a  "revenue  negative"                                                                    
scenario  and  actually  "generated  new  revenue"  for  the                                                                    
2:21:54 PM                                                                                                                    
Representative  Gara  referred  to  Mr.  Diamond's  previous                                                                    
testimony that the  plant might reopen even  without the tax                                                                    
credits. He  surmised that the  state would lose  revenue if                                                                    
Agrium  moved  forward  regardless  of the  tax  credit.  He                                                                    
contended  that the  royalty revenue  the  state would  gain                                                                    
from new Cook  Inlet gas generated by  the facilities demand                                                                    
would  eventually   be  generated  by  another   project  or                                                                    
increased  consumer demand.  The plant  was not  gaining the                                                                    
state royalty  revenue that it would  not eventually receive                                                                    
from demand; "it  was just royalty revenue  from a different                                                                    
project."  He wondered  how the  state  prospered under  the                                                                    
scenario he described.                                                                                                          
STEVE  WENDT,  KENAI  PLANT  MANAGER,  AGRIUM  INCORPORATED,                                                                    
responded  that the  company was  working with  a number  of                                                                    
producers  who  emphasized  the   need  for  a  "steady  and                                                                    
significant market"  for their  gas. He maintained  that the                                                                    
inexpensive  and  easily  produced  gas in  Cook  Inlet  was                                                                    
exhausted. He disagreed with Rep.  Gara's statement that the                                                                    
gas  would  be  produced  without  demand  from  Agrium.  He                                                                    
maintained  that new  reserves  were difficult  to find  and                                                                    
market  demand needed  to be  steady,  year-round, and  with                                                                    
high returns  to spur  exploration investment.  He furthered                                                                    
that Agrium  was asking for  a credit to offset  the premium                                                                    
price they  would be paying  for gas in comparison  with its                                                                    
competitors  who purchased  Nymex natural  gas at  $2.60 per                                                                    
thousand cubic feet.                                                                                                            
Co-Chair Neuman assumed that if  opening up the Agrium plant                                                                    
was economically  feasible the  company already  would have.                                                                    
He deduced that  the legislation was enough  of an incentive                                                                    
for Agrium to reconsider reopening the facility.                                                                                
Mr.  Diamond  remarked  that  the  tax  credit  would  be  a                                                                    
significant factor in  the company's deliberations. However,                                                                    
he  could  not assure  the  committee  that passage  of  the                                                                    
legislation would guarantee the plant's re-opening.                                                                             
Co-Chair  Neuman  restated  that   the  plant  would  be  in                                                                    
operation  if  it was  profitable  for  Agrium. Mr.  Diamond                                                                    
agreed with the statement.                                                                                                      
Co-Chair  Thompson  commented  that   with  the  tax  credit                                                                    
benefit it  was more likely  that the facility  would reopen                                                                    
and  would  signal  that  Alaska wanted  to  be  a  business                                                                    
friendly state.                                                                                                                 
2:26:16 PM                                                                                                                    
Representative  Guttenberg asked  how  far  the company  had                                                                    
progressed with  the design of  the plant in context  to the                                                                    
credit for  gas-to-liquid products.  He wondered  whether it                                                                    
had  an  impact  on  the current  plant  design.  Mr.  Wendt                                                                    
responded  that  gas-to-liquid  was a  completely  different                                                                    
process  and had  nothing to  do with  the Agrium  facility.                                                                    
Representative  Guttenberg asked  if  he knew  of any  other                                                                    
urea/ammonia  plant   planned  in   the  state.   Mr.  Wendt                                                                    
responded   in  the   negative.  Representative   Guttenberg                                                                    
concluded that the gas-to-liquid  language in the CS applied                                                                    
to another type of plant.                                                                                                       
Vice-Chair Saddler asked a  technical question. He discerned                                                                    
that  in  the urea  process  the  natural  gas was  used  to                                                                    
capture nitrogen  from the atmosphere and  was not extracted                                                                    
from the gas. He asked for confirmation.                                                                                        
Mr.  Wendt replied  that three  main "feed  stocks" for  the                                                                    
plant  was  air,  which   supplied  nitrogen,  water,  which                                                                    
supplied hydrogen, and methane from natural gas.                                                                                
Co-Chair Thompson continued with public testimony.                                                                              
AERON  PLIKAT, PRESIDENT,  BUILDING AND  CONSTRUCTION TRADES                                                                    
COUNCIL   OF   SOUTH    CENTRAL   ALASKA,   ANCHORAGE   (via                                                                    
teleconference), spoke  in favor of  HB 100. He  referred to                                                                    
the North Kenai  area as the "rustbelt."  He delineated that                                                                    
the first noticeable landmark when  driving into Nikiski was                                                                    
the  idle Agrium  facility that  had provided  the community                                                                    
with  300 jobs.  He viewed  reopening the  plant as  a great                                                                    
opportunity for jobs in the  area. Over 400 construction and                                                                    
restart jobs would  be necessary and over  100 fulltime jobs                                                                    
would be brought  back to the Kenai. He felt  that the plant                                                                    
would  spur opportunities  for young  people with  workforce                                                                    
PAUL CARR, VICE-PRESIDENT,  BUILDING AND CONSTRUCTION TRADES                                                                    
COUNCIL   OF   SOUTH    CENTRAL   ALASKA,   ANCHORAGE   (via                                                                    
teleconference),  related  that  he was  also  the  business                                                                    
manager for the Iron Workers  Local 751. He spoke in support                                                                    
of the legislation. He believed  the project was appropriate                                                                    
and much  needed in  the current  economic downturn.  He was                                                                    
afraid  of losing  skilled  Alaskan  trade and  construction                                                                    
workers due to the economic  downturn similar to a situation                                                                    
in late 1980's.  He was in the business of  giving people in                                                                    
Alaska the  opportunity to make  a living. He  believed that                                                                    
Agrium   would   provide   "family-wage"  jobs   and   offer                                                                    
diversification of the state's economy.                                                                                         
2:33:22 PM                                                                                                                    
PAUL  GROSSI, REPRESENTATIVE,  PLUMBERS AND  PIPEFITTERS AND                                                                    
IRON WORKERS, spoke in favor  of the bill. He concurred with                                                                    
the  previous testimony  that the  plant  would create  much                                                                    
needed direct and  indirect jobs for the  Kenai. He believed                                                                    
that the plant  had the potential to  generate state revenue                                                                    
and bring  in approximately  $345 million  over the  20 year                                                                    
life  of the  plant. He  was  puzzled by  any reluctance  in                                                                    
member's  support of  the legislation.  He thought  the bill                                                                    
was positive for the state and urged support for the bill.                                                                      
Representative  Gara  referred  to previous  testimony  from                                                                    
Agrium  that  the  plant  might  move  forward  without  tax                                                                    
credits. He  restated his concern over  ceding state revenue                                                                    
under the current scenario.                                                                                                     
Mr. Grossi shared personal experience  as a metaphor. He had                                                                    
recently purchased a  car. He purchased the  car because the                                                                    
dealer  offered some  special incentives.  He looked  at the                                                                    
project in the same light.                                                                                                      
Representative Gara reiterated  previous testimony regarding                                                                    
the  possibility of  the plant  moving  forward without  tax                                                                    
credits.  He  inquired  about the  chances  of  the  company                                                                    
moving  forward without  the tax  credit. Co-Chair  Thompson                                                                    
though that  the answer was  a corporate board  decision and                                                                    
was not appropriate to reveal.                                                                                                  
Representative Gara asserted that if  the state was going to                                                                    
be paying out over $3 million  per year in a time of billion                                                                    
dollar  budget  deficits  he  should  be  able  to  ask  the                                                                    
Mr. Diamond was  uncertain how to answer  the question; odds                                                                    
were  not  assigned.  He  reminded   the  committee  of  the                                                                    
"inherent  hurdles" that  the project  faced and  thought he                                                                    
could weigh the probabilities himself.                                                                                          
2:39:59 PM                                                                                                                    
Vice-Chair Saddler  wondered about the  rehabilitation costs                                                                    
of  $275  million over  two  years.  He inquired  about  the                                                                    
present condition of the facility.                                                                                              
Mr.  Wendt answered  that the  company installed  vapor face                                                                    
corrosion inhibitors when  the plant shut down  in 2007 that                                                                    
kept  the  plant  in  good   condition.  He  expounded  that                                                                    
recently  the  plant  was   extensively  inspected  and  the                                                                    
company was "pleased" with its condition.                                                                                       
Vice-Chair  Saddler  wanted  to  know  about  any  potential                                                                    
interface with  the AKLNG project.  Mr. Wendt  reported that                                                                    
Agrium  was actively  participating in  the governor's  task                                                                    
force  and was  "very  interested" in  seeing  a gasline  to                                                                    
Co-Chair Thompson CLOSED public testimony.                                                                                      
2:41:50 PM                                                                                                                    
Representative Gara MOVED to ADOPT Amendment 1.                                                                                 
Representative Wilson OBJECTED for discussion.                                                                                  
Representative Gara reviewed Amendment 1:                                                                                       
     Page 1, line 4, following "ammonia;"                                                                                       
          Insert "providing an optional exemption from                                                                          
          municipal property taxation for certain in-state                                                                      
          processing facilities that manufacture urea or                                                                        
     Page 1, following line 6:                                                                                                  
          Insert a new bill section to read:                                                                                    
          "* Section 1.AS 29.45.050 is amended by adding a                                                                      
          new subsection to read:                                                                                               
               (x) A municipality  may by ordinance approved                                                                    
               by  the  voters  exempt or  partially  exempt                                                                    
               from   taxation    an   in-state   processing                                                                    
               facility  whose   primary  function   is  the                                                                    
               manufacturing and sale of  urea or ammonia to                                                                    
               third parties  in arm's  length transactions.                                                                    
               An exemption under this  subsection may be of                                                                    
              limited or unlimited duration."                                                                                   
     Page 1, line 7:                                                                                                            
          Delete "Section 1"                                                                                                    
          Insert "Sec. 2"                                                                                                       
     Renumber the following bill sections accordingly.                                                                          
     Page 2, line 27, following "section.":                                                                                     
          Insert "A credit under this section may not                                                                           
          exceed $2,000,000 for each in-state processing                                                                        
          facility a year."                                                                                                     
     Page 3, line 11:                                                                                                           
          Delete "sec. 2"                                                                                                       
          Insert "sec. 3"                                                                                                       
     Page 3, line 14:                                                                                                           
          Delete "Sections 1, 2, and 4"                                                                                         
          Insert "Sections 1 - 3 and 5"                                                                                         
     Page 3, line 15:                                                                                                           
          Delete "Section 3"                                                                                                    
          Insert "Section 4"                                                                                                    
Representative Gara explained the  amendment. He stated that                                                                    
the potential  Agrium tax  credit was  $4 million  per year.                                                                    
The amendment would  offer a $2 million tax  credit from the                                                                    
state and allowed the municipality  to offer, through a vote                                                                    
of its citizens,  the ability to exempt  or partially exempt                                                                    
the plant from local taxes. He  offered that the state had a                                                                    
$3.5  billion  deficit and  would  lose  needed revenue  and                                                                    
thought the  municipality that  was benefitting  from Agrium                                                                    
should share the burden. He  was troubled that the corporate                                                                    
board members were not present  to discuss whether the plant                                                                    
would reopen without a tax credit.                                                                                              
Representative Wilson  voiced that the credits  were reduced                                                                    
to  five years  and the  amendment would  add an  additional                                                                    
"hurtle" on  the project. She  believed the bill  would help                                                                    
to bring  in new  revenue during  the economic  tailspin and                                                                    
created  jobs for  the Kenai.  She  ascertained that  Agrium                                                                    
determined it  needed the credit to  incentivize the project                                                                    
and that  the plant's  reopening would vitalize  the economy                                                                    
and would help the state's deficit in the long run.                                                                             
Representative   Kawasaki   supported  the   amendment.   He                                                                    
suggested  that   due  to   the  state's   fiscal  situation                                                                    
municipalities will need  to pay for more  of its operations                                                                    
with  less  support  from  the  state.  He  added  that  the                                                                    
municipality  should  contribute  to the  credit  incentives                                                                    
because it  directly benefited from the  plant. He supported                                                                    
limiting the credit  in light of the  state's budget crisis.                                                                    
He  believed that  the zero  fiscal note  was deceptive  and                                                                    
that the  credit could  result in  a greater  revenue impact                                                                    
for the state.                                                                                                                  
2:46:47 PM                                                                                                                    
Mr. Wright  stated that the  sponsor opposed  the amendment.                                                                    
He agreed  that municipalities will  need to take  over more                                                                    
of its services.  He believed the Agrium  plant provided the                                                                    
opportunity for a municipality to  increase its tax base and                                                                    
deliver  more  of its  own  services.  He thought  that  the                                                                    
amendment removed  incentives to increase gas  production on                                                                    
state  leases. The  state wanted  to increase  gas usage  to                                                                    
spur gas production on state  leases, which provided royalty                                                                    
revenue. The amendment discouraged the goal.                                                                                    
Representative Guttenberg spoke in  support of the amendment                                                                    
as  an  appropriate action  to  take  in challenging  fiscal                                                                    
times.   He   observed   that    the   amendment   did   not                                                                    
disincentivise the purpose of the  bill. He thought that the                                                                    
borough (Kenai  Peninsula Borough)  should have  "buy-in" as                                                                    
the  main  beneficiary   through  increased  jobs,  economic                                                                    
development, increased property tax,  etc. The borough was a                                                                    
major  player both  in impacts  and  benefits. He  commented                                                                    
that the borough  could actually do more  to incentivize the                                                                    
plant reopening  than the amendment offered  by waiving more                                                                    
property tax or other infrastructure incentives.                                                                                
Representative Wilson maintained her  objection. A roll call                                                                    
vote was taken on Amendment 1.                                                                                                  
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED: Gattis, Saddler, Wilson, Thompson, Neuman                                                                              
The MOTION FAILED (3/5). Amendment 1 failed.                                                                                    
2:50:24 PM                                                                                                                    
Co-Chair Thompson MOVED to ADOPT conceptual Amendment 2:                                                                        
     Page 3, line 22:                                                                                                           
          Delete "2022"                                                                                                         
          Insert "2024"                                                                                                         
Representative Gara OBJECTED.                                                                                                   
Co-Chair  Thompson explained  that  the amendment  increased                                                                    
the  number of  tax credit  years to  7. In  the event  that                                                                    
Agrium was  not operable  by July  2017, the  amendment gave                                                                    
the company  more time for  startup and maintained  the full                                                                    
five years' worth of credits.                                                                                                   
Representative  Gara  understood  that  the  intent  of  the                                                                    
amendment was to ensure Agrium  received the five full years                                                                    
of  tax credits  in  case  of a  late  start.  He offered  a                                                                    
conceptual amendment.                                                                                                           
Representative Gara MOVED to AMEND conceptual Amendment 2:                                                                      
     Add language: "The Company may not use the tax credit                                                                      
    for more than its first five years of operations."                                                                          
Representative Wilson OBJECTED for discussion.                                                                                  
Representative  Guttenberg   asked  for   clarification.  He                                                                    
surmised  that the  intent was  to grant  the company  a tax                                                                    
credit for  the first five  full years of operation  and not                                                                    
include a sunset date.                                                                                                          
Representative Gara indicated that  the original amendment 2                                                                    
gave Agrium 7  years of tax credits if the  plant started up                                                                    
immediately. The  conceptual amendment offered 5  full years                                                                    
of tax  credits for the  first five years of  operation from                                                                    
the date the facility opened.                                                                                                   
Mr. Wright indicated that the  original bill offered the tax                                                                    
credit for ten years.                                                                                                           
A roll  call vote was  taken on the amendment  to conceptual                                                                    
Amendment 2.                                                                                                                    
IN FAVOR: Guttenberg, Kawasaki, Saddler, Gara                                                                                   
OPPOSED: Gattis, Wilson, Edgmon, Thompson, Neuman                                                                               
The MOTION FAILED (4/5).                                                                                                        
Representative  Gara WITHDREW  his  OBJECTION to  conceptual                                                                    
Amendment 2.                                                                                                                    
There being NO OBJECTION, conceptual Amendment 2 passed.                                                                        
Co-Chair  Neuman  responded to  Representative  Guttenberg's                                                                    
inquiry  regarding the  interest  in the  state for  gas-to-                                                                    
liquids  products. He  relayed that  in 2009  he attended  a                                                                    
meeting  with Senator  Stevens and  members  of the  Defense                                                                    
Logistics  Agency part  of the  Department  of Defense  that                                                                    
purchased all  of the fuel  for the military  worldwide. The                                                                    
agency  via   its  Defense  Energy  Support   Center  (DESC)                                                                    
expressed interest in Alaska and  in May 10 through 12, 2009                                                                    
held   a  worldwide   conference  on   the  development   of                                                                    
alternative  fuels   and  alternative  fuel   production  in                                                                    
Alaska. He  reported that  DESC spent a  great deal  of time                                                                    
and  money  in an  attempt  to  start an  alternative  fuels                                                                    
program  in Alaska,  to  the point  of  holding a  worldwide                                                                    
conference.  He  added  that  "the state  could  not  get  a                                                                    
pipeline built for one reason  or another." He declared that                                                                    
the CS  for HB  100 was  "a good bill."  He shared  that the                                                                    
sponsor  permitted   the  addition  of   the  gas-to-liquids                                                                    
product provision. He  communicated that he did  not want to                                                                    
hinder  passage of  the bill  and  wanted to  revert to  the                                                                    
House  Resources Committee  Substitute version  of the  bill                                                                    
and would  continue to  work on  gas-to-liquids but  not via                                                                    
the legislation.                                                                                                                
2:57:38 PM                                                                                                                    
Co-Chair Thompson requested that he  make the changes in the                                                                    
House Rules  Committee. Co-Chair Neuman agreed  and restated                                                                    
that  he  wanted  to  avoid  slowing  down  passage  of  the                                                                    
Representative  Chenault, in  regards  to  comments made  by                                                                    
Representative   Guttenberg,  elaborated   that  the   small                                                                    
producer credit for Cook Inlet  ended next year. He believed                                                                    
that  the   credits  were  successful   and  more   gas  was                                                                    
discovered  which   benefitted  the  state.  He   cited  the                                                                    
testimony  referring to  North Kenai  as the  "rustbelt." He                                                                    
asserted that people from the  community he represented were                                                                    
"proud" and  wanted to  work. The  community was  a rustbelt                                                                    
subsequent to  the plant's  closure due  to lack  of natural                                                                    
gas.  He contended  that currently  his community  [Nikiski]                                                                    
was "very prosperous" with new  businesses opening up due to                                                                    
exploration tax credits that increased  the [Cook Inlet] gas                                                                    
supply.  He  mentioned the  plan  to  supply Fairbanks  with                                                                    
excess  Cook   Inlet  gas  [Interior  Energy   Project].  He                                                                    
believed  that  "the outlook  in  his  community was  fairly                                                                    
bright"  and   if  the  state  continued   to  help  promote                                                                    
development the future would be brighter for Alaska.                                                                            
Representative Wilson  MOVED to REPORT CSHB  100(FIN) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative Kawasaki OBJECTED.                                                                                               
Representative  Wilson  commented  that she  was  an  ardent                                                                    
supporter of  the bill.  She referenced  the closing  of the                                                                    
Flint Hills  Refinery [North  Pole] because  of the  lack of                                                                    
incentives  and higher  operating  costs in  the state.  She                                                                    
believed that  the community felt  the repercussions  of the                                                                    
refinery closure. She supported incentivizing new business.                                                                     
Representative   Kawasaki   discussed  his   objection.   He                                                                    
referred to  the zero  fiscal note (FN  1 REV)  and surmised                                                                    
that it  was deceptive  to think that  the credit  would not                                                                    
cost the state anything. He  stated that if the Agrium plant                                                                    
opened  the state  would lose  approximately $20  million to                                                                    
$30 million dollars  over 7 years. He felt that  there was a                                                                    
fiscal impact  to the bill  and that there were  other state                                                                    
priorities  like school  funding  and  senior benefits  that                                                                    
might be subject to budget  cuts due to the economic crisis.                                                                    
He  relayed from  testimony that  Agrium might  move forward                                                                    
with the project regardless of  the tax credit and commented                                                                    
that the credit was most likely unnecessary and frivolous.                                                                      
3:04:58 PM                                                                                                                    
Vice-Chair Saddler  was supportive of the  bill. He believed                                                                    
that the opportunity to the state  came at no cost and was a                                                                    
net gain for  the state and to the community  and would spur                                                                    
diversification  of   the  economy   and  more   Cook  Inlet                                                                    
Representative Gara opposed the bill.  He felt that the bill                                                                    
was a giveaway of $4 million  a year to a company that might                                                                    
move forward on  the project without a tax credit  and was a                                                                    
"terrible  way to  negotiate"  in light  of  a $3.5  billion                                                                    
budget deficit.  He commented  that the  legislative refrain                                                                    
was that  "everybody had  to feel the  pain" of  budget cuts                                                                    
but the legislature  would cede $4 million  to big business.                                                                    
He thought the priorities were  wrong. He disagreed with the                                                                    
argument  that the  state  would  gain additional  royalties                                                                    
from the legislation and thought  that it was misleading. He                                                                    
opined that if  enough attainable gas was  available in Cook                                                                    
Inlet  the state  was  going to  gain  the royalties  anyway                                                                    
because  another entity  would purchase  the gas.  He stated                                                                    
that no  one was going  to leave affordable  and recoverable                                                                    
gas in Cook Inlet. He conveyed  that the idea that the state                                                                    
could not  ask the  local community  that would  benefit the                                                                    
most through  jobs and an  expanded tax base  was unfounded.                                                                    
He  felt  that  the  negotiations around  HB  100  had  been                                                                    
lacking and wondered  why no one had asked  the community to                                                                    
Representative Kawasaki maintained his objection.                                                                               
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Saddler, Wilson, Edgmon, Gattis, Thompson, Neuman                                                                     
OPPOSED: Guttenberg, Kawasaki, Gara                                                                                             
The MOTION PASSED (6/3).                                                                                                        
CSHB  100(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation  and with  a previously  published zero                                                                    
fiscal note: FN1 (DOR).                                                                                                         
3:09:13 PM                                                                                                                    
AT EASE                                                                                                                         
3:11:21 PM                                                                                                                    
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute for  HB 81,  Work Draft  29-LS0346\E, Strasbaugh,                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
3:12:10 PM                                                                                                                    
AT EASE                                                                                                                         
3:12:41 PM                                                                                                                    

Document Name Date/Time Subjects
HB 176 WorkDraft CS.PDF HFIN 4/9/2015 1:30:00 PM
HB 176
HB 100 Agrium.docx HFIN 4/9/2015 1:30:00 PM
HB 100
HB 100 Support McGrath.pdf HFIN 4/9/2015 1:30:00 PM
HB 100
HB 100 Letter of Support-Furie.pdf HFIN 4/9/2015 1:30:00 PM
HB 100
HB 176 NEW FN LEG.pdf HFIN 4/9/2015 1:30:00 PM
HB 176
HB176-Judiciary-4-01-15.pdf HFIN 4/9/2015 1:30:00 PM
HB 176
HB 100 CS WORKDRAFT FIN VERSION G.pdf HFIN 4/9/2015 1:30:00 PM
HB 100
HB81 Draft Proposed CS ver E.pdf HFIN 4/9/2015 1:30:00 PM
HB 81
HB 155 NEW HFIN FN 40915.pdf HFIN 4/9/2015 1:30:00 PM
HB 155
HB 100 Amendment 1 Gara.pdf HFIN 4/9/2015 1:30:00 PM
HB 100
HB 155 CS WORKDRAFT N version.pdf HFIN 4/9/2015 1:30:00 PM
HB 155
HB 155 Sponsor Statement.pdf HFIN 4/9/2015 1:30:00 PM
HB 155
HB 155 Version Changes H-N.pdf HFIN 4/9/2015 1:30:00 PM
HB 155
HB 100 Cook Inlet Assumptions.pdf HFIN 4/9/2015 1:30:00 PM
HB 100