Legislature(2015 - 2016)HOUSE FINANCE 519

03/31/2016 08:30 AM FINANCE

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Audio Topic
08:32:16 AM Start
08:33:32 AM Confirmations: Alaska Mental Health Trust Authority
08:49:50 AM HB373
09:29:57 AM SB124
10:23:19 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time --
+ Confirmation Hearing: TELECONFERENCED
Alaska Mental Health Trust Authority
+ HB 373 APPROVAL OF SALE OF ROYALTY OIL TO TESORO TELECONFERENCED
Moved HB 373 Out of Committee
+ SB 124 EXTEND SUNSET ON AK COMMISSION ON AGING TELECONFERENCED
Heard & Held
+ HB 319 SNOWMOBILE REGISTRATION FEES TELECONFERENCED
Scheduled but Not Heard
*+ HB 250 INDIV. INCOME TAX: CREDITS; RETURNS TELECONFERENCED
Scheduled but Not Heard
+ HB 249 ELECTRONIC TAX RETURNS & MOTOR FUEL TAX TELECONFERENCED
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 273                                                                                                            
     "An Act relating to the transfer of the title to a                                                                         
     vehicle, including certain manufactured homes and                                                                          
     trailers, on the death of the owner; and providing for                                                                     
     an effective date."                                                                                                        
                                                                                                                                
8:49:50 AM                                                                                                                    
                                                                                                                                
MARTY   RUTHERFORD,  ACTING   COMMISSIONER,  DEPARTMENT   OF                                                                    
NATURAL RESOURCES, indicated she  would be providing a brief                                                                    
overview of the proposed sale  of the state's royalty oil to                                                                    
Tesoro.                                                                                                                         
                                                                                                                                
Commissioner Rutherford  relayed that she would  discuss the                                                                    
process and  the criteria  for royalty-in-kind  (RIK) sales.                                                                    
She would  also discuss the  specific contract terms  of the                                                                    
Tesoro RIK  contract. She would  also be  mentioning another                                                                    
royalty  oil  contract   the  state  was  in   the  mist  of                                                                    
negotiating.                                                                                                                    
                                                                                                                                
Commissioner  Rutherford began  with slide  2: "Royalty  In-                                                                    
Kind versus Royalty In-Value":                                                                                                  
                                                                                                                                
     The State has a choice to take its royalty in-kind                                                                         
     (RIK) or in-value (RIV)                                                                                                    
                                                                                                                                
        · When the State takes its royalty as RIV, the                                                                          
          lessees who produce the oil also market the                                                                           
          State's share along with their own production and                                                                     
          pays the State the value of its royalty share.                                                                        
        · When SOA takes its royalty share as RIK, the SOA                                                                      
          assumes ownership of the oil, and the DNR                                                                             
          Commissioner disposes of it through the sale                                                                          
          procedures prescribed by AS 38.05.183.                                                                                
        · Currently, the SOA receives all royalties as RIV;                                                                     
          historically, the SOA has regularly taken                                                                             
          royalties as RIK.                                                                                                     
                                                                                                                                
Commissioner   Rutherford  advanced   to   slide  3:   "Non-                                                                    
Competitive RIK Sale Process":                                                                                                  
                                                                                                                                
        · Before taking RIK, the DNR Commissioner must find                                                                     
          it is in the State's best interest.                                                                                   
        · DNR must decide whether to sell RIK pursuant to a                                                                     
          competitive   auction    or   a   non-competitive,                                                                    
          negotiated sale.                                                                                                      
        · Solicitation of Interest issued January 2015 to                                                                       
          prospective purchasers to gauge market interest.                                                                      
        · DNR  determined  that  there was  not  competition                                                                    
          allowing for  a competitive sale, and  proposes to                                                                    
          enter  into the  negotiated 5  year contract  with                                                                    
          Tesoro.                                                                                                               
                                                                                                                                
Commissioner    Rutherford    continued    to    slide    4:                                                                    
"Commissioner's Decision Criteria":                                                                                             
                                                                                                                                
     AS 38.05.183(e) states that  the commissioner must sell                                                                    
     the  State's  royalty  oil  to  the  buyer  who  offers                                                                    
     "maximum  benefits to  the citizens  of the  state." In                                                                    
     making  this   determination,  the   commissioner  must                                                                    
     consider:                                                                                                                  
                                                                                                                                
        1. The cash value offered                                                                                               
        2. The projected effects of the sale  on the economy                                                                    
          of the state                                                                                                          
        3. The projected benefits of refining  or processing                                                                    
          the oil in state                                                                                                      
        4. The ability of the  prospective buyer  to provide                                                                    
          refined products for distribution  and sale in the                                                                    
          state  with  price  or   supply  benefits  to  the                                                                    
          citizens of the state                                                                                                 
        5. The eight criteria listed in AS  38.06.070(a), as                                                                    
          reviewed by the Royalty Board                                                                                         
                                                                                                                                
Commissioner Rutherford noted that she would be talking                                                                         
about the eight criteria in greater detail in another                                                                           
slide.                                                                                                                          
                                                                                                                                
Commissioner Rutherford turned to slide 5: "Approval                                                                            
Process for the RIK Sale":                                                                                                      
                                                                                                                                
        · DNR  must make  a Best  Interest Finding  (BIF) in                                                                    
          support of the sale                                                                                                   
        · Preliminary  BIF issued  February 2016;  final BIF                                                                    
          issued in March 2016.                                                                                                 
        · DNR  presented the  sale to  the Royalty  Board on                                                                    
          March  15, 2016;  the Board  reviewed the  BIF and                                                                    
          the contract,  and unanimously voted  to recommend                                                                    
          the Legislature approve the sale to Tesoro.                                                                           
        · Prior   to  finalizing   the  RIK   contract,  the                                                                    
          Legislature  must   pass  a  bill   ratifying  the                                                                    
          contract with Tesoro (HB 373; SB 205).                                                                                
                                                                                                                                
8:54:44 AM                                                                                                                    
                                                                                                                                
Commissioner Rutherford discussed  slide 6: "Royalty Board's                                                                    
Decision Criteria":                                                                                                             
                                                                                                                                
     AS 38.06.070(a) states that the Alaska Royalty Oil and                                                                     
     Gas Development Advisory Board must consider:                                                                              
                                                                                                                                
        1. The revenue needs and projected  fiscal condition                                                                    
          of the state;                                                                                                         
        2. The existence and extent of present and projected                                                                    
          local and regional needs for oil and gas                                                                              
          products;                                                                                                             
        3. The desirability of localized capital investment,                                                                    
          increased payroll, secondary development and                                                                          
          other possible effects of the sale;                                                                                   
        4. The projected social impacts of  the transaction;                                                                    
          and                                                                                                                   
        5. The    projected     additional     costs     and                                                                    
          responsibilities which could be imposed upon the                                                                      
          state and affected political subdivisions by                                                                          
         development related to the transactions.                                                                               
                                                                                                                                
Commissioner  Rutherford  stated  that   number  3  was  not                                                                    
applicable  because the  state  was selling  to an  existing                                                                    
refinery   that  had   been   using  alternative   privately                                                                    
purchased supplies. She  also relayed that number  5 was not                                                                    
applicable because the state had an established refinery.                                                                       
                                                                                                                                
Commissioner Rutherford turned to  slide 7: "Royalty Board's                                                                    
Decision Criteria Cont.":                                                                                                       
                                                                                                                                
     AS 38.06.070(a) states that the Alaska Royalty Oil and                                                                     
     Gas Development Advisory Board must consider:                                                                              
                                                                                                                                
        6. The existence of specific local or regional labor                                                                    
          or consumption markets or both which should be                                                                        
          met by the transaction;                                                                                               
        7. The projected positive or  negative environmental                                                                    
         effects related to the transactions; and                                                                               
        8. The projected effects of the proposed transaction                                                                    
          upon existing private commercial enterprise and                                                                       
          patterns of investment.                                                                                               
                                                                                                                                
Commissioner  Rutherford   added  that  the   royalty  board                                                                    
reviewed the final best interest  finding and the associated                                                                    
Tesoro contract.  They voted  unanimously to  recommend that                                                                    
the legislature approve the sale.                                                                                               
                                                                                                                                
Commissioner Rutherford spoke on slide 8: "Tesoro RIK                                                                           
Contract Terms":                                                                                                                
                                                                                                                                
        · 5 year  contract for 20,000 to  25,000 barrels per                                                                    
          day.                                                                                                                  
        · The  RIK sales  price uses  a netback  formula and                                                                    
          provides higher revenue to State compared to RIV.                                                                     
        · If   Tesoro   nominates   zero   barrels   for   3                                                                    
          consecutive months, the contract terminates.                                                                          
        · Security:  Tesoro   shall  provide  a   letter  of                                                                    
          opinion  from a  financial analyst  or a  stand-by                                                                    
          letter of credit equal in  value to 90 days of ANS                                                                    
          royalty  oil  (if  rating  falls  below  BBB-  and                                                                    
          Baa3).                                                                                                                
        · In-state processing:  Tesoro to  use "commercially                                                                    
          reasonable   efforts"   to   manufacture   refined                                                                    
          products from the ANS royalty oil.                                                                                    
        · Employment of Alaska  residents: no discrimination                                                                    
          against AK companies and residents.                                                                                   
                                                                                                                                
Commissioner  Rutherford highlighted  that  Tesoro had  over                                                                    
210  Alaskan   employees  and   employed  over   40  Alaskan                                                                    
contractors. The plant  was located in Nikiski  and had been                                                                    
in operation for several decades.                                                                                               
                                                                                                                                
8:58:26 AM                                                                                                                    
                                                                                                                                
Commissioner Rutherford detailed slide 9: "RIK Contract                                                                         
Price":                                                                                                                         
                                                                                                                                
     ANS Spot Price - $1.95 - Tariff Allowance +/- Quality                                                                      
     Bank Adjustments - Line Loss                                                                                               
                                                                                                                                
        · ANS Spot Price  = Average US West  Coast Price for                                                                    
          Alaska North Slope oil (reported by industry                                                                          
          trade publications Platts and Reuters)                                                                                
        · $1.95 RIK Differential                                                                                                
        · Destination  value minus  marine  costs  so RIK  >                                                                    
          RIV.                                                                                                                  
        · Tariff Allowance = TAPS  and Pipelines upstream of                                                                    
          PS-1.                                                                                                                 
        · Quality  Bank Adjustments  = as  reported by  TAPS                                                                    
          Quality Bank Administrator.                                                                                           
        · Line Loss (loss of volume between PS1 and the                                                                         
          VMT).                                                                                                                 
                                                                                                                                
Commissioner Rutherford pointed to  the price formula listed                                                                    
at  the  top  of  the  slide in  red.  The  Revenue  In-Kind                                                                    
contract prices  equaled the Arctic  North Slope  (ANS) spot                                                                    
price minus $1.95  minus a tariff allowance,  adjusted for a                                                                    
quality bank  - either  up or  down -  minus line  loss. She                                                                    
explained that ANS  spot price was the  destination value of                                                                    
ANS at the United States  West Coast - determined by reports                                                                    
from the  industry trade  publications, Reuters  and Platts.                                                                    
The  next item  deducted  was a  location differential.  She                                                                    
reported  that  the   amount  of  $1.95  was   used  in  the                                                                    
solicitation of  interest. She explained that  starting with                                                                    
the   ANS  spot   price  the   state  deducted   the  marine                                                                    
transportation  costs.  When  the  state  received  RIV  and                                                                    
looked    to    the     working    interest    owners    the                                                                    
shippers/producers  charged  the  state  between  $3.30  and                                                                    
$3.70 for  the cost  of the  marine transportation  from the                                                                    
Valdez Marine  Terminal to  the West  Coast. The  state then                                                                    
deducted the  tariff allowance, a  combination of  the Trans                                                                    
Alaska   Pipeline  tariff   and   the  upstream   pipelines.                                                                    
Following those deductions the state  adjusted for a quality                                                                    
bank, determined  by the TAPS quality  bank administrator at                                                                    
the  Federal Energy  Regulatory Commission  (FERC). Finally,                                                                    
the  line  loss  was  deducted,  the  loss  of  volume  that                                                                    
occurred  between  Pump  Station  1 and  the  Valdez  Marine                                                                    
Terminal. The  resulting figure equaled  the value  that the                                                                    
state  of Alaska  received.  She  explained that  difference                                                                    
between RIK versus RIV was  about $1.95 versus $3.50 - about                                                                    
$1.50  in the  state's favor.  The only  distinction between                                                                    
calculating  the RIK  versus  was  RIV had  to  do with  the                                                                    
amount being deducted.                                                                                                          
                                                                                                                                
Commissioner Rutherford  highlighted slide 10:  "Contract is                                                                    
in the State's Best Interest":                                                                                                  
                                                                                                                                
        · DNR estimates the State will receive $45 to $56                                                                       
          million in additional revenue over taking RIV.                                                                        
        · Producers deduct around $3.30 to $3.70 from the                                                                       
          west coast value as a "transportation deduction"                                                                      
          in arriving at the price for RIV.                                                                                     
        · The proposed Tesoro contract will deduct only                                                                         
          $1.95 as a "location differential" from the west                                                                      
          coast ANS value.                                                                                                      
        · The proposed sale provides crude to Tesoro's                                                                          
          refinery at Nikiski with associated economic and                                                                      
          social benefits to Alaska's economy:                                                                                  
        · Tesoro employs approximately 210 Alaskans                                                                             
        · Tesoro produces 59,000 bpd refined products at                                                                        
          its Nikiski refinery                                                                                                  
        · Tesoro refinery's estimated contribution to the                                                                       
          local economy is $127mm                                                                                               
                                                                                                                                
9:02:55 AM                                                                                                                    
                                                                                                                                
Commissioner  Rutherford  moved  to  slide  11:  "Additional                                                                    
Royalty Oil Sales":                                                                                                             
                                                                                                                                
     •Additional royalty oil volumes are available for the                                                                      
     other in-state refiner, Petro Star; helping maintain a                                                                     
     competitive in-state refining industry.                                                                                    
     •DNR is currently negotiating sales with Petro Star of                                                                     
     remaining royalty oil under similar contractual terms.                                                                     
     •The  proposed Tesoro  contract  and forthcoming  Petro                                                                    
     Star  contract  will  allow  for  additional  sale  oil                                                                    
     nominations to maximize royalty  oil sales if the State                                                                    
    has more royalty oil than is currently forecasted.                                                                          
                                                                                                                                
Commissioner Rutherford  added that  if the volume  fell the                                                                    
state would  be pro-rationing both contracts  down together.                                                                    
She concluded  her presentation  and made  herself available                                                                    
for questions.                                                                                                                  
                                                                                                                                
Co-Chair Thompson  asked about the quality  bank adjustment.                                                                    
He asked her to elaborate on the subject.                                                                                       
                                                                                                                                
Commissioner Rutherford  suggested Mr. Nouvakhov would  be a                                                                    
better person to address Co-Chair Thompson's question.                                                                          
                                                                                                                                
ALEX  NOUVAKHOV,  DIVISION OF  OIL  AND  GAS, DEPARTMENT  OF                                                                    
NATURAL RESOURCES, responded that  the quality adjustment in                                                                    
the netback  evaluation equation  looked at the  crude which                                                                    
was being sold  at the entry of the TAPS  and compared it to                                                                    
the comingled stream  at the Valdez point.  If any residuals                                                                    
were frozen  into the TAPS  the payment or penalty  would be                                                                    
borne  by  Petro  Star  rather than  the  sellers.  The  two                                                                    
contracts  between  the State  and  Tesoro  and between  the                                                                    
state   and  Petro   Star  would   have  the   same  quality                                                                    
adjustment.                                                                                                                     
                                                                                                                                
Commissioner  Rutherford  explained  to Mr.  Nouvakhov  that                                                                    
because both  Petro Star  and Tesoro took  their oil  at the                                                                    
terminus  the question  was whether  there  was any  quality                                                                    
bank adjustment involved in the formula for Tesoro.                                                                             
                                                                                                                                
9:06:30 AM                                                                                                                    
                                                                                                                                
Mr.  Nouvakhov responded  in the  affirmative. He  explained                                                                    
that there  was because, depending on  the nominating field,                                                                    
the state had  an option as to which fields  and crudes were                                                                    
nominated.  For example,  if the  state nominated  something                                                                    
for  the  crude  oil  field  and then  compared  that  to  a                                                                    
commingled final  crude in Valdez  there might be  a quality                                                                    
adjustment.                                                                                                                     
                                                                                                                                
Co-Chair Thompson was still unclear.  He thought the quality                                                                    
bank  had to  do with  the amount  of product  taken off  by                                                                    
Petro Star  in the Fairbanks area.  They take out a  part of                                                                    
the product  and what was placed  back in the line  was of a                                                                    
lesser quality.  Therefore, there was a  quality bank change                                                                    
to Petro  Star. He furthered that  if Tesoro took it  out in                                                                    
the same as  it would go to  the West Coast and  did not put                                                                    
anything back in the line,  he wondered if there would still                                                                    
be  a quality  bank  adjustment.  They did  not  put back  a                                                                    
lesser quality product into any line.                                                                                           
                                                                                                                                
Mr. Nouvakhov  responded that Co-Chair Thompson  was correct                                                                    
that Tesoro  did not put  any product  back into a  line. He                                                                    
detailed  that the  crude the  state  sold at  the point  of                                                                    
delivery at Pump  Station 1 could be of  a different quality                                                                    
than the  final commingled  ANS crude  which Tesoro  took at                                                                    
the Valdez Terminal.                                                                                                            
                                                                                                                                
Commissioner  Rutherford furthered  that the  state received                                                                    
an average  of 12.5 percent  from certain fields.  The state                                                                    
took  delivery of  its RIK  from  Pump Station  1. What  was                                                                    
delivered  downstream  from  that  could  be  of  lessor  or                                                                    
greater  quality. The  quality  bank used  an adjustment  to                                                                    
calculate either a  deduction or an increase  to the state's                                                                    
value to ensure  the state would receive  the pure molecular                                                                    
value for the units from which the state received its oil.                                                                      
                                                                                                                                
Representative  Wilson commented  that Petro  Star would  be                                                                    
effected  by  the  quality   bank  differently  than  Tesoro                                                                    
because  of  their location.  She  did  not think  how  they                                                                    
[Tesoro]  were  effected  had  anything  to  do  with  their                                                                    
contracts  because   a  certain  portion  was   not  in  the                                                                    
contract. It was  dealt with separately because  of it being                                                                    
a  federal   government  related  transaction   and  certain                                                                    
information   was   unknown   at  the   time.   Commissioner                                                                    
Rutherford indicated  she was correct.  She relayed  that it                                                                    
was  an effort  to  ensure  that where  the  state took  its                                                                    
molecules and  the composition  of the  particular molecules                                                                    
were  accommodated  so  that   when  they  were  mixed  with                                                                    
everything   going  into   line  the   state  received   the                                                                    
appropriate value for the molecules.                                                                                            
                                                                                                                                
9:10:03 AM                                                                                                                    
                                                                                                                                
Representative   Wilson   thanked  Department   of   Natural                                                                    
Resources for making  it possible for the state  to keep its                                                                    
own  oil  in  the  state  and  using  it  for  the  in-state                                                                    
refinery. She hoped it would  result in keeping the refinery                                                                    
more profitable and steady. She  hoped the state had learned                                                                    
a  lesson  from what  happened  at  Flint Hills  and  looked                                                                    
forward to the arrival of Petro Star.                                                                                           
                                                                                                                                
Representative Gara  was fine with  the bill. He was  glad a                                                                    
rider was  not in  the bill  like there  had been  two years                                                                    
previously.  He commented  that the  more he  looked at  the                                                                    
legislation  the   unhappier  he   became  about   what  the                                                                    
legislature   did  2   years   prior.   He  explained   that                                                                    
legislation that passed  granted up to $10  million per year                                                                    
of tax  credits adding to  the royalty renewal  contract for                                                                    
three  company owners  of refineries.  Tesoro had  indicated                                                                    
they did not want them. He  did not believe the state was in                                                                    
the kind  of financial  condition to  continue that  kind of                                                                    
legislating.  He opined  that in  part the  budget was  very                                                                    
unfair to many people. He thought  it would be unfair not to                                                                    
give the  $10 million to Tesoro  if the state was  giving it                                                                    
to others.  He would consider  offering an amendment  on the                                                                    
House Floor.                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  indicated   that  the  discussion  would                                                                    
continue on the house floor.                                                                                                    
                                                                                                                                
Representative Guttenberg had assumed  that the quality bank                                                                    
calculation   was  zero.   He  realized   that  there   were                                                                    
adjustments for quality  per field. He queried  if there was                                                                    
a daily calculation  on flow rate. He wondered  if the state                                                                    
was  taking oil  from its  high volume  fields. Commissioner                                                                    
Rutherford  responded that  she would  ask Mr.  Nouvakhov to                                                                    
speak to  his question  about flow.  She responded  that the                                                                    
State of Alaska received its  royalty oil as it was produced                                                                    
by producers. The  state could not over lift  or under lift.                                                                    
When the  producers produced from  various fields  the state                                                                    
received its  royalty percentage from particular  leases. If                                                                    
there was  a variation  of the royalty  rate, it  would very                                                                    
between leases. The state took it  as it was produced by the                                                                    
various working interests by field and by lease.                                                                                
                                                                                                                                
9:13:54 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler asked  about  the effects  of the  price                                                                    
indices rising  substantially. He wondered if  the contracts                                                                    
for the sale  to Tesoro had any provisions  for an escalated                                                                    
price.  Commissioner  Rutherford  explained that  the  place                                                                    
where the state  captured how the price was  variable was at                                                                    
the ANS spot price.                                                                                                             
                                                                                                                                
Vice-Chair   Saddler   asked  Commissioner   Rutherford   to                                                                    
describe the  negotiations that lead to  the equalization of                                                                    
the pro-rata  provisions in exchange for  changed volume for                                                                    
Petro Star.                                                                                                                     
                                                                                                                                
Commissioner  Rutherford detailed  that when  the department                                                                    
went  out  for  the   solicitation  of  interest  the  state                                                                    
received  various responses.  Two of  the five  parties that                                                                    
responded were North Slope Producers  who had indicated that                                                                    
while they might be able to  meet a price point of $195 they                                                                    
were intending to ship out  of state for refining. The state                                                                    
had  received a  response from  Flint Hills  indicating they                                                                    
were  closing  down  and  not  interested.  The  state  also                                                                    
received  a   response  from  Petro  Star   that  they  were                                                                    
interested  but were  not willing  to hit  the price  point.                                                                    
Tesoro expressed  their interest and willingness  to hit the                                                                    
price  point. The  state, then  began its  negotiations with                                                                    
Tesoro. As  negotiations with  Tesoro progressed  Petro Star                                                                    
came back  expressing their interest  and the  desired price                                                                    
point. The state was well  into the negotiating process with                                                                    
Tesoro.  As  part  of trying  to  accommodate  Petro  Star's                                                                    
desire for volume  the state asked Tesoro if  it was willing                                                                    
to give  up some of  its volume to accommodate  Petro Star's                                                                    
interest.  The  state  believed  it   was  good  to  have  a                                                                    
competitive environment for refining  in Alaska. In exchange                                                                    
the   state  had   looked  at   providing   Tesoro  with   a                                                                    
preferential pro-rationing  position. She furthered  that as                                                                    
the  negotiations continued  a point  was reached  where all                                                                    
partners  were  relatively  satisfied.  In the  end  it  was                                                                    
decided  that  neither  party  would  have  a  pro-rationing                                                                    
decision. The state would pro-ration down equally between                                                                       
any contracts the state had in place.                                                                                           
                                                                                                                                
Co-Chair Thompson asked for further questions.                                                                                  
                                                                                                                                
9:17:22 AM                                                                                                                    
                                                                                                                                
MATT GILL, EXTERNAL AFFAIRS, SENIOR MANAGER, TESORO, urged                                                                      
members support for the legislation. He read from a                                                                             
prepared statement:                                                                                                             
                                                                                                                                
     Tesoro Corporation is  a Fortune 100 company  and is an                                                                    
     independent   refiner   and   marketer   of   petroleum                                                                    
     products. Tesoro's  refining operations  started Alaska                                                                    
     with the purchase of the Kenai refinery back in 1969.                                                                      
                                                                                                                                
     Our  Kenai refinery  has  the  operational capacity  to                                                                    
     produce up to  72,000 barrels per day  and is primarily                                                                    
     focused  on  Jet  and  Diesel  production  followed  by                                                                    
     gasoline  and  gasoline  blendstocks, heating  oil  and                                                                    
     heavy fuel oils, propane and  asphalt. We operate a 68-                                                                    
     mile, common-carrier products  pipeline that transports                                                                    
     jet  fuel, gasoline  and  diesel fuel  to  the Port  of                                                                    
     Anchorage and the  Anchorage International Airport. The                                                                    
     wholesale delivery  of our products occurs  through our                                                                    
     terminals  in Kenai,  Anchorage, our  Nikiski dock  and                                                                    
     the Port of Anchorage.                                                                                                     
                                                                                                                                
     In addition to being the  largest taxpayer in the Kenai                                                                    
     Peninsula  Borough,  Tesoro  is also  able  to  provide                                                                    
     around  225 family  wage jobs  at  the refinery,  along                                                                    
     with about  30 full-time  contractors that  are working                                                                    
     in  and  around the  refinery  year  round. We  provide                                                                    
     retail fuels  at our  company-owned Tesoro  2-Go retail                                                                    
     outlets as  well as at  numerous branded  and unbranded                                                                    
     outlets. We employ operators who  work at our terminals                                                                    
     in the Port of Anchorage and in Nikiski.                                                                                   
                                                                                                                                
     We are  a major  supporter of  the Cook  Inlet Regional                                                                    
     Citizens  Advisory  Council  (CIRCAC) and  the  largest                                                                    
     member of  the Cook  Inlet Spill Prevention  & Response                                                                    
     team (CISPRI).                                                                                                             
                                                                                                                                
     We actively  support a wide  range of local  events and                                                                    
     programs  - from  employee fundraising  for the  United                                                                    
     Way to youth sports programs.  Each year we sponsor all                                                                    
     of  the  5th  and  6th   grade  classes  on  the  Kenai                                                                    
     Peninsula to conduct a mission  at the Kenai Challenger                                                                    
     Learning  Center and  we are  the Signature  Sponsor of                                                                    
     "Caring for the Kenai" program.                                                                                            
                                                                                                                                
     Tesoro strongly  urges you to  support House  Bill 373,                                                                    
     "An  Act approving  and ratifying  the sale  of royalty                                                                    
     oil by  the State of  Alaska to Tesoro  Corporation and                                                                    
     Tesoro   Refining  and   Marketing  Company   LLC;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
     This legislation  is the result of  constructive dialog                                                                    
     and productive  negotiations between the  Department of                                                                    
     Natural Resources  and the  Tesoro Corporation.  By all                                                                    
     accounts,  our  company  was very  impressed  with  the                                                                    
     State's ability to understand our  issues and arrive at                                                                    
     a mutually  beneficial agreement  that is truly  a win-                                                                    
     win for  both parties as  well as accommodating  to the                                                                    
     other refineries in the State.                                                                                             
                                                                                                                                
     For the State, the DNR  estimates that it will continue                                                                    
     to  receive a  price for  its Royalty-in-Kind  oil that                                                                    
     exceeds the price  it would have receive  if it elected                                                                    
     to keep its Royalty Oil in Value.                                                                                          
                                                                                                                                
     For Tesoro, this  5 year contract will  provide us with                                                                    
     a stable supply  of ANS crude while also  giving us the                                                                    
     volumetric  flexibility  to help  accommodate  seasonal                                                                    
     fluctuations  in  demand   for  refined  products.  The                                                                    
     availability,  flexibility  and   stability  that  this                                                                    
     contract  offers will  have a  positive  impact on  our                                                                    
     ability  to  maintain  our ongoing  operations  at  our                                                                    
     Kenai refinery.                                                                                                            
                                                                                                                                
     In  order to  accommodate the  needs of  the other  in-                                                                    
     state  refiners, Tesoro  and  the  State modified  this                                                                    
     contract  to  reduce volumes  as  well  as eliminate  a                                                                    
     proration clause and a 5 year extension option.                                                                            
                                                                                                                                
     Tesoro believes in Alaska's future  and is committed to                                                                    
     being an  active corporate citizen. We  look forward to                                                                    
     continuing  to  provide  Alaskans  with  clean  burning                                                                    
     fuels to keep your homes  warm and your cars, boats and                                                                    
     snow machines traveling across this great state.                                                                           
                                                                                                                                
     I urge you to support House Bill 373.                                                                                      
                                                                                                                                
9:21:20 AM                                                                                                                    
                                                                                                                                
Representative  Pruitt  reported   regularly  getting  asked                                                                    
about pricing.  He asked Mr.  Gill how Tesoro saw  the sales                                                                    
impacting   the   consumer.    Mr.   Gill   clarified   that                                                                    
Representative  Pruitt  was  asking  about  gasoline  prices                                                                    
versus oil prices.                                                                                                              
                                                                                                                                
Representative  Pruitt  responded  affirmatively.  Mr.  Gill                                                                    
relayed that the  approval or denial of  the contract before                                                                    
the committee would  have no direct impact  on street prices                                                                    
of  gasoline  and  Tesoro's  other   oil  products.  It  was                                                                    
strictly  a commercial  transaction between  Tesoro and  the                                                                    
State of Alaska, equivalent to a commercial seller.                                                                             
                                                                                                                                
Vice-Chair Saddler  queried about any other  supply of crude                                                                    
oil that would replace the  state RIK oil. He wondered about                                                                    
the current  source of capacity  assuming there would  be no                                                                    
change in  the refinery  throughput. Mr. Gill  reported that                                                                    
currently Tesoro  took every  drop of  oil produced  in Cook                                                                    
Inlet, the  company's base supply. It  supplemented the Cook                                                                    
Inlet  oil  with  ANS crude  either  through  state  royalty                                                                    
contracts  or  through  contracts  with  other  North  Slope                                                                    
producers. On rare occasion the  company had to import crude                                                                    
oil  from  out  of  state to  fill  its'  needs.  Currently,                                                                    
Tesoro's  royalty oil  contract,  which  expired in  January                                                                    
2016, left  the company  with a gap  until the  new contract                                                                    
was in effect in August  2016. It was his understanding that                                                                    
the  company had  to purchase  some Russian  crude to  bring                                                                    
into the refinery.                                                                                                              
                                                                                                                                
9:23:37 AM                                                                                                                    
                                                                                                                                
Co-Chair Thompson OPENED public testimony.                                                                                      
                                                                                                                                
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
Co-Chair  Thompson asked  Vice-Chair Saddler  to review  the                                                                    
fiscal note.                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler reviewed  one indeterminate  fiscal note                                                                    
from DNR, Division of Oil  and Gas, Office of Management and                                                                    
Budget,  component number  439.  The fiscal  note was  dated                                                                    
March 23, 2016.                                                                                                                 
                                                                                                                                
Co-Chair  Neuman MOVED  to report  HB 373  out of  Committee                                                                    
with   individual  recommendations   and  the   accompanying                                                                    
indeterminate fiscal note. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
HB  373 was  REPORTED  out  of committee  with  a "do  pass"                                                                    
recommendation   and    with   one    previously   published                                                                    
indeterminate fiscal note: FN1 (DNR).                                                                                           
                                                                                                                                
9:25:01 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:29:05 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
SB 124 Backup Document - ACoA Alaska Senior Resource Guide 2016.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Backup Document - ACoA Fact Sheet.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Backup Document - ACoA Roster of Members.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Backup Document - ACoA State Plan FY16-FY19.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Backup Document - Sunset Review of the Alaska Commission on Aging Report #06-20090-15.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Sponsor Statement (HFIN).pdf HFIN 3/31/2016 8:30:00 AM
SB 124
SB 124 Support Document - 19 Consolidated Letters of Support & Index - 03-24-2016.pdf HFIN 3/31/2016 8:30:00 AM
SB 124
HB319 Sectional Analysis.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Snowmobile registration fees hearing request.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Sponsor Statement.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - AS 28.10.421 - Snowmobile registration fee statute.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - AS 28.39 - Snowmobile law.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Governor's FY 17 Request for Snowmobile Trail Development Program and Grants.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Snowmobile Registrations by Community, 8 March 2016.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Snowmobile Trail Development Program $250,000, SB 26 of 2015.PDF HFIN 3/31/2016 8:30:00 AM
HB 319
SB 26
HB319 Supporting Documents - Snowmobile Trails Program FAQ with attribution.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Snowmobile Trails Program FAQ.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Snowmobile Trails Program.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - SnowTRAC Grooming Pool Trail Maps.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - SnowTRAC Resolution of Support, 15-001, 26 August 2015.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB249 Sectional Analysis.pdf HFIN 3/31/2016 8:30:00 AM
HB 249
HB249 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 3/31/2016 8:30:00 AM
HB 249
HB249 Supporting Document - DOR & DOT Response to House Transportation - 2.4.16.pdf HFIN 3/31/2016 8:30:00 AM
HB 249
HB250 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 3/31/2016 8:30:00 AM
HB 250
HB 373 Supporting Document Report to Alaska Legislature.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
HB 373 Supporting Document Resolutions for Tesoro RIK Contract 2016.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
HB 373 Supporting Document TesoroRIKContractBIF.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
HB 373 Transmittal Letter.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
DNR PPT HB 373 - H.Finance - 03.31.16.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
HB319 Supporting Documents - Big Lake Snowmachine Trails Page 2.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
HB319 Supporting Documents - Big Lake Snowmachine Trails Page 1.pdf HFIN 3/31/2016 8:30:00 AM
HB 319
Tax presentation INCOME HB 250 3-30-16.pdf HFIN 3/31/2016 8:30:00 AM
HB 250
Tax presentation MOTOR FUEL 3-30-16 final.pdf HFIN 3/31/2016 8:30:00 AM
HB 249
DNR PPT HB 373 - H.Finance - 03.31.16.pdf HFIN 3/31/2016 8:30:00 AM
HB 373
Testimony on HB 250.pdf HFIN 3/31/2016 8:30:00 AM
HB 250