Legislature(2009 - 2010)BARNES 124

02/24/2010 01:15 PM House RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
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Moved CSHB 217(RES) Out of Committee
Moved CSHJR 40(RES) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
          HB 217-TAX ON GAS FOR IN STATE MANUFACTURING                                                                      
1:20:01 PM                                                                                                                    
CO-CHAIR JOHNSON  announced that the  first order of  business is                                                               
HOUSE BILL  NO. 217, "An  Act relating  to the tax  applicable to                                                               
the  production of  natural  gas used  in the  state  as fuel  or                                                               
feedstock in producing a manufactured  end product."  [Before the                                                               
committee  was  the proposed  committee  substitute  for HB  217,                                                               
labeled 26-LS0816\R, Bullock, 2/1/10 ("Version R").]                                                                            
1:20:23 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  reminded  members   that  his  intent  as                                                               
sponsor of  HB 217 is to  expand manufacturing in the  state, and                                                               
this  provision  can be  found  on  page 10  of  Version  R.   He                                                               
stressed that HB  217 is also a jobs creation  bill.  Three [oil]                                                               
companies  pay 90  percent of  the state's  expenses, he  pointed                                                               
out, and  this bill is one  of several in committee  that seek to                                                               
create  an  environment  in  the  state  in  which  industry  and                                                               
hundreds of companies  can thrive.  The bill would  go a long way                                                               
in helping  to provide for an  anchor tenant for an  in-state gas                                                               
pipeline,  a project  that might  not happen  otherwise.   An in-                                                               
state  gas pipeline  would benefit  the entire  state because  it                                                               
would support  development, such  as the  Donlin Creek  Gold Mine                                                               
that  would provide  2,000 family-sustaining  jobs.   Alaska does                                                               
not have the  time to continue delaying this  project, he opined,                                                               
given the state's current dependence on only three companies.                                                                   
1:22:31 PM                                                                                                                    
REPRESENTATIVE NEUMAN  noted that  today he is  providing several                                                               
amendments as requested previously by  committee members.  One of                                                               
those amendments expands on the meaning of manufacturing.                                                                       
REPRESENTATIVE  P. WILSON  moved the  adoption of  Amendment [2],                                                               
labeled  26-LS0816\R.4,  Bullock,  2/23/10,  written  as  follows                                                               
[original punctuation provided]:                                                                                                
     Page 10, line 4, following "product":                                                                                  
          Insert "; in this paragraph, "manufacturing                                                                       
     process" does not include cooling gas for the purpose                                                                  
     of storing or shipping the gas as a liquid"                                                                            
CO-CHAIR JOHNSON objected for discussion purposes.                                                                              
1:23:13 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  explained  that  the  language  added  by                                                               
Amendment 2  would ensure that  the export of liquid  natural gas                                                               
(LNG) is not included as  a manufacturing process, given that the                                                               
cooling  and compressing  of gas  is the  method used  for moving                                                               
gas.   The bill is  meant to deal  with manufacturing which  is a                                                               
molecular change.   However, the Department of Law  does not want                                                               
to  define  manufacturing  in statute  and  has  some  conceptual                                                               
amendments to Amendment 2 that it would like to offer.                                                                          
1:24:24 PM                                                                                                                    
REPRESENTATIVE   TUCK  asked   whether   another  definition   of                                                               
manufacturing had previously been moved  forward.  In response to                                                               
Co-Chair  Johnson, he  said he  remembers  a different  amendment                                                               
that did the same thing.                                                                                                        
REPRESENTATIVE  NEUMAN replied  that perhaps  Representative Tuck                                                               
is  referring to  one of  the Department  of Revenue's  suggested                                                               
amendments to Amendment 2.                                                                                                      
CO-CHAIR  JOHNSON  pointed  out  that HB  217  was  amended  once                                                               
before.  [Amendment 1 to the  original version of HB 217, labeled                                                               
26-LS0816\A.1, Bullock, 4/13/09, adopted on 4/13/09.]                                                                           
1:26:27 PM                                                                                                                    
DAN STICKEL, Petroleum  Economist, Tax Division-Economic Research                                                               
Group, Department  of Revenue (DOR),  stated that  the department                                                               
had   informed   the  sponsor   that   a   clear  definition   of                                                               
manufacturing was  needed before the  bill could be  supported by                                                               
the  administration.   Work  was done  within  the Department  of                                                               
Revenue, along with  the Department of Law and  the Department of                                                               
Natural Resources,  to come  up with  a suggested  definition for                                                               
manufacturing   under  HB   217,   and  perhaps   this  is   what                                                               
Representative Tuck is  speaking to.  To  protect against certain                                                               
unintended  consequences, the  Department  of Revenue  recommends                                                               
that the list of exclusions  from the manufacturing definition in                                                               
Amendment  2   be  expanded  to   include  gas   processing,  gas                                                               
treatment,    dehydration,    fractionation,   compression,    or                                                               
REPRESENTATIVE NEUMAN responded that he  is working toward a gas-                                                               
to-liquids, or Fisher-Tropsch process,  which takes methane apart                                                               
at  the molecular  level and  reconnects the  chains of  waxes to                                                               
create different transportation  fuel components.  He  said he is                                                               
concerned as to  whether that would be  considered gas processing                                                               
or fractionation of  molecules; therefore, he would  like to know                                                               
if that would be the case.                                                                                                      
1:28:31 PM                                                                                                                    
REPRESENTATIVE SEATON  surmised the department's fear  is that if                                                               
certain  things   like  compression  and  conditioning   are  not                                                               
excluded,  an   unintended  consequence  could  be   that  a  gas                                                               
conditioning plant  is suddenly considered manufacturing  and all                                                               
the  gas  transmitted down  a  pipeline,  whether for  import  or                                                               
export, could then qualify for this proposed lower tax rate.                                                                    
MR.  STICKEL answered  that  this is  exactly  the situation  the                                                               
department is  trying to  protect against  by having  this longer                                                               
list of exclusions  from manufacturing.  In  response to Co-Chair                                                               
Johnson, he  stated that Amendment  2 does not  currently include                                                               
the Department of Revenue's suggestions.                                                                                        
1:31:23 PM                                                                                                                    
REPRESENTATIVE P.  WILSON pointed out  that Amendment 2  does not                                                               
define  manufacturing; rather,  it states  what is  excluded from                                                               
consideration as  manufacturing.   She said she  understands what                                                               
is being accomplished by Amendment  2 should more exclusions need                                                               
to be added to it.                                                                                                              
REPRESENTATIVE   NEUMAN  related   his  understanding   that  the                                                               
administration's  suggested amendment  to Amendment  2 would  not                                                               
interfere  with a  gas-to-liquids processing  plant.   He further                                                               
understood  that the  administration supports  the gas-to-liquids                                                               
concept to create more jobs.   He said he therefore does not have                                                               
a problem with the proposed amendment to Amendment 2.                                                                           
The committee took an at-ease from 1:32 p.m. to 1:37 p.m.                                                                       
1:37:55 PM                                                                                                                    
CO-CHAIR JOHNSON removed his objection to Amendment 2.                                                                          
REPRESENTATIVE P.  WILSON withdrew Amendment  2.  There  being no                                                               
objection, Amendment 2 was no longer before the committee.                                                                      
REPRESENTATIVE  P.  WILSON  moved   the  adoption  of  Conceptual                                                               
Amendment  3,   dated  2/23/10,  written  as   follows  [original                                                               
punctuation provided]:                                                                                                          
     "manufacturing"  means  chemically  converting  gas  or                                                                    
     components  of  gas,  or chemically  combining  gas  or                                                                    
     components  of  gas  with  other  substances,  to  form                                                                    
     valuable  compounds; "manufacturing"  does not  include                                                                    
     gas    processing,    gas    treatment,    dehydration,                                                                    
     fractionation, compression, or liquefaction.                                                                               
CO-CHAIR JOHNSON objected for discussion purposes.                                                                              
1:38:46 PM                                                                                                                    
REPRESENTATIVE NEUMAN read Conceptual  Amendment 3 to members and                                                               
offered his belief that the intent  of the amendment is to ensure                                                               
that LNG  export is not  considered manufacturing, but  a gas-to-                                                               
liquids process like Fisher-Tropsch is considered manufacturing.                                                                
CO-CHAIR   JOHNSON  inquired   whether  Conceptual   Amendment  3                                                               
addresses   the  administration's   concerns   and  whether   the                                                               
administration is comfortable with this language.                                                                               
MR. STICKEL  offered his understanding  that this  definition was                                                               
necessary  before  the  administration could  support  the  bill.                                                               
Since  this  particular  definition   was  developed  within  the                                                               
Department of Revenue and the  Department of Natural Resources in                                                               
coordination with  the Department  of Law, the  administration is                                                               
comfortable that  it would allow  a gas-to-liquids facility  or a                                                               
petrochemicals facility, such as  the Agrium facility, to qualify                                                               
under the manufacturing  definition, but the sale  of natural gas                                                               
for a major pipeline or LNG facility would not qualify.                                                                         
1:40:48 PM                                                                                                                    
REPRESENTATIVE   GUTTENBERG  inquired   whether  a   chemist  was                                                               
involved in drafting  the language for Conceptual  Amendment 3 to                                                               
ensure that all possible processes were addressed.                                                                              
MR. STICKEL responded  that a number of people  were involved but                                                               
he does not know their chemistry backgrounds.                                                                                   
CO-CHAIR  JOHNSON  inquired   whether  the  administration  would                                                               
support this legislation with Conceptual Amendment 3 in place.                                                                  
MR.  STICKEL  replied  that  with this  amendment  in  place  the                                                               
administration could support this bill.                                                                                         
CO-CHAIR JOHNSON withdrew his objection.   There being no further                                                               
objections, Conceptual Amendment 3 was passed.                                                                                  
1:42:12 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON moved  the  adoption  of Amendment  4,                                                               
labeled  26-LS0816\R.3,  Bullock,  2/23/10,  written  as  follows                                                               
[original punctuation provided]:                                                                                                
     Page 3, lines 26 - 27:                                                                                                     
          Delete "return is due under AS 43.55.030(a) for                                                                       
     the calendar year for which the election is made"                                                                          
          Insert "installment payment of estimated tax is                                                                       
     due under  AS 43.55.020(a) for the  month in  which the                                                                    
     election  is  made.    The   election  applies  to  the                                                                    
     production of gas in each  month for which the election                                                                    
     is made"                                                                                                                   
CO-CHAIR JOHNSON objected for discussion purposes.                                                                              
1:42:23 PM                                                                                                                    
REPRESENTATIVE NEUMAN deferred to  Mr. Stickel for an explanation                                                               
of the amendment.                                                                                                               
MR.  STICKEL  explained that  Amendment  4,  as presented,  would                                                               
allow for the producer to  take the election for the preferential                                                               
tax  treatment -  or not  - at  the time  the producer  makes its                                                               
monthly estimated  payment.  Under  this amendment,  the producer                                                               
could make an  election to either take the 17.7  cent tax rate or                                                               
to include the natural gas along  with the rest of its production                                                               
and  could make  that  election  on a  monthly  basis.   However,                                                               
Alaska's Clear  and Equitable Share  (ACES) tax is  calculated on                                                               
an annual basis,  so there is a potential that  when the producer                                                               
files  its annual  tax return  the state  could owe  interest for                                                               
overpayments for  the monthly  estimated payments  depending upon                                                               
the elections  that the  producer took  on a  monthly basis.   He                                                               
said the department is flagging this  as a concern because it was                                                               
unknown  whether that  was the  intent  of this  amendment.   The                                                               
department has  some recommended language that  would remedy this                                                               
1:43:57 PM                                                                                                                    
REPRESENTATIVE P.  WILSON surmised  the department would  like to                                                               
have this amendment but would  like to have it worded differently                                                               
while meaning the same thing.                                                                                                   
MR. STICKEL  answered that that  would better address  the intent                                                               
of this  amendment.   A way to  remedy that  particular situation                                                               
would be  to have the  producer make  the election for  which tax                                                               
rate would apply  to its manufacturing gas at the  time the first                                                               
estimated payment is  made and then have that  election apply for                                                               
the  entire year,  given the  tax is  levied on  a calendar  year                                                               
1:45:04 PM                                                                                                                    
CO-CHAIR  JOHNSON said  he  does  not see  a  way  to change  the                                                               
language of Amendment 4 to make this happen.                                                                                    
REPRESENTATIVE  NEUMAN said  his  problem  with the  department's                                                               
suggestion is learning  about it right now.   He reminded members                                                               
that the reason for this part  of the bill is because of concerns                                                               
expressed by committee members that  the current rates being paid                                                               
by  people  for  home  heating and  electrical  generation  could                                                               
increase because of the way credits are done.                                                                                   
CO-CHAIR  JOHNSON asked  whether  just not  adopting Amendment  4                                                               
would address the problem.                                                                                                      
MR. STICKEL  responded he believes  that without the  amendment a                                                               
producer  could make  estimated payments  based on  either taking                                                               
the election or not taking the election.                                                                                        
REPRESENTATIVE P. WILSON directed attention  to page 3 of Version                                                               
R, line 25,  and suggested that after election  the words "either                                                               
monthly or annually" be inserted.                                                                                               
1:47:38 PM                                                                                                                    
MR. STICKEL, in response to  Co-Chair Johnson, noted that this is                                                               
not  necessarily  a  showstopper;  it   is  just  one  issue  the                                                               
department wanted  to bring to the  committee's attention because                                                               
of the  potential to  game the  system.   One possible  change if                                                               
members wanted to  make the election annual would be  to have the                                                               
election made at  the time the first  monthly installment payment                                                               
of estimated  tax is due  under AS 43.55.020(a) for  the calendar                                                               
year  for which  the  election is  made.   Thus,  at  the end  of                                                               
February  when  a producer  makes  its  first estimated  payment,                                                               
which is  for the January  production, the producer  would choose                                                               
whether to  make this election and  that would then hold  for the                                                               
entire calendar year.                                                                                                           
MR.  STICKEL, in  response to  Representative  P. Wilson,  stated                                                               
that the  department's suggested amendment  would be made  at the                                                               
same  place  as Amendment  4,  but  the inserted  language  would                                                               
instead be  "first monthly installment  payment of  estimated tax                                                               
is due under AS 43.55.020(a) for  the calendar year for which the                                                               
election is made".                                                                                                              
1:49:28 PM                                                                                                                    
REPRESENTATIVE TUCK  inquired what  would happen if  the producer                                                               
waited  until June  or July  to  make that  election rather  than                                                               
making  it  in  February,  or would  the  department's  suggested                                                               
amendment require that the election always be made in February.                                                                 
MR. STICKEL  replied that  under the language  he just  read, the                                                               
election would be  made at the time the producer  makes its first                                                               
1:50:31 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  posed  a  scenario  in  which  a  gas                                                               
producer produces  10 billion  cubic feet (Bcf)  but only  uses 2                                                               
Bcf for manufacturing.  He  asked whether the producer could take                                                               
this  credit,  which might  be  the  lower  of all  the  possible                                                               
credits that  the producer can take,  and apply it to  all of its                                                               
REPRESENTATIVE NEUMAN  answered that it  is not credits  that are                                                               
being talked about here, but a reduction in production taxes.                                                                   
1:51:30 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  asked whether  a reduction  of credits                                                               
could be taken across everything that a producer produces.                                                                      
MR.  STICKEL provided  a  history of  where  this election  comes                                                               
from.   The department was  working with  the sponsor on  some of                                                               
the questions that  were raised by the committee to  look at what                                                               
the possible impact  on a producer's tax liability  would be from                                                               
the lower tax  rate of 17.7 cents per thousand  cubic feet (Mcf).                                                               
It was found in the  original bill that rolling the manufacturing                                                               
gas into  a producer's existing  portfolio of oil and  gas would,                                                               
in  most cases,  lower the  producer's tax  liability.   However,                                                               
there  were some  situations where  the producer's  tax liability                                                               
would actually  increase, and that  is why the  election language                                                               
came to be.   The last thing wanted is to  raise a producer's tax                                                               
liability  because   the  producer  started  selling   gas  to  a                                                               
manufacturing  facility.   The election  allows the  producer "to                                                               
take the lower of" on the tax.                                                                                                  
1:52:56 PM                                                                                                                    
REPRESENTATIVE  SEATON  remarked  that the  statement  about  not                                                               
wanting it  for the month  because it  could game the  system and                                                               
require the  state to pay  interest exemplifies his  problem with                                                               
the structure.   The only time he sees this  as being valuable is                                                               
when there can  be a modeling of the figures,  something which he                                                               
requested  but  has  not  yet  received.    The  state  would  be                                                               
providing 55-65  percent of the  investment in the  field through                                                               
credits and  the taking off  of production tax  and progressivity                                                               
percentages, but the state would  receive back in tax almost zero                                                               
or 5 percent  because this would allow the producers  to elect at                                                               
the end.  The state would  not even recover its expenses and that                                                               
is his problem with  this, he opined.  This is  a small gaming of                                                               
the system that is a big  gaming component.  While he understands                                                               
that the  intent of HB 217  and Amendment 4 is  to stimulate gas-                                                               
to-liquids (GTLs),  which he  favors, he fears  it will  cost the                                                               
state big-time  if the election is  tied to when the  election is                                                               
made and not to the time  the gas is produced and applied against                                                               
the producer's oil taxes.                                                                                                       
1:55:49 PM                                                                                                                    
CO-CHAIR  JOHNSON understood  that  skirts what  is being  talked                                                               
about  with Amendment  4.   However,  it is  the  concept of  the                                                               
overall bill  that Representative  Seaton has  a problem  with as                                                               
much as this particular amendment, he said interrogatively.                                                                     
REPRESENTATIVE SEATON  responded that  it is, but  the discussion                                                               
is  about when  the  election is  taken.   If  the  talk in  this                                                               
amendment  is about  the difference  between monthly  and annual,                                                               
then his discussion is for later.   If the talk in this amendment                                                               
is  about allowing  the election  to be  taken annually  when the                                                               
producer chooses  rather than at  the start of  development, then                                                               
it is  on point now.   For example, at the  time that development                                                               
starts at  Point Thomson the producer  would decide to pay  the 5                                                               
percent tax  for gas to  be used  in manufacturing and  would not                                                               
take off 60 percent from its oil taxes.                                                                                         
1:56:47 PM                                                                                                                    
CO-CHAIR  JOHNSON surmised  that  Representative  Seaton is  more                                                               
comfortable with the monthly language.                                                                                          
REPRESENTATIVE SEATON noted that such  an amendment is not before                                                               
the committee,  but the amendment  that would allow  the election                                                               
to  be made  at  a calendar  year is  what  creates the  obstacle                                                               
because it  allows a  producer to  make the  election when  it is                                                               
best for  its bottom line instead  of the start of  drilling, and                                                               
this is where he has a problem.   It is an election timing issue,                                                               
but he is willing to let it go and come back to it later.                                                                       
1:57:57 PM                                                                                                                    
CO-CHAIR JOHNSON said he  understands where Representative Seaton                                                               
is coming  from, but once  the gas is manufactured  and producers                                                               
are electing to do this,  the state already has the manufacturing                                                               
and  that is  a commercial  deal  between the  two entities  that                                                               
would  best play  into whoever  deals with  that and  he can  see                                                               
where both would justify.                                                                                                       
REPRESENTATIVE  NEUMAN argued  that nobody  is gaming  anyone and                                                               
such comments  are inappropriate.   The first  nine pages  of the                                                               
bill were  written by  the Department  of Revenue,  Department of                                                               
Natural Resources, and  Department of Law to make  sure the state                                                               
does  not  get  gamed.   He  said  he  has  no objection  to  Mr.                                                               
Stickel's suggested amendment to Amendment 4.                                                                                   
1:59:54 PM                                                                                                                    
REPRESENTATIVE TUCK posed  a scenario in which  a producer elects                                                               
the  Alaska   Gasline  Inducement  Act  (AGIA)   method  for  the                                                               
production tax credit and progressivity  and that this is done at                                                               
the time  of first payment,  but later  in the year  the producer                                                               
begins providing  feedstock for manufacturing.   He asked whether                                                               
the  producer  would be  able  to  take  advantage of  this  bill                                                               
MR. STICKEL deferred to Mr. Gary Rogers.                                                                                        
GARY  ROGERS,  Oil  &  Gas   Revenue  Specialist,  Tax  Division-                                                               
Administration, Department  of Revenue  (DOR), answered  that the                                                               
producer  certainly would  because  the tax  calculation that  is                                                               
going  to be  reported  on  the producer's  annual  return is  an                                                               
annual calculation.   The producer may not know  at the beginning                                                               
of the year that it will be  producing and selling gas to be used                                                               
for manufacturing in  the state, but at the end  of the year that                                                               
will  be known.    Perhaps the  election should  be  made at  the                                                               
earliest possible time  that the taxpayer knows when  it is going                                                               
to have gas  used in state.  The Department  of Revenue's concern                                                               
is  that  a  taxpayer  could intentionally  overpay  its  monthly                                                               
estimates and the state would  not know that until sometime after                                                               
March  31 of  the  following  year when  the  taxpayer files  its                                                               
annual  return.   The  state  would  then  have limited  time  to                                                               
determine that  there was overpayment  and the taxpayer  would be                                                               
earning interest on all those  monthly installments for the whole                                                               
year.  There may be a better way to wordsmith this, he added.                                                                   
2:03:15 PM                                                                                                                    
CO-CHAIR JOHNSON inquired  whether Mr. Rogers thinks  it would be                                                               
sound business practice to overpay  taxes with the expectation of                                                               
getting interest.                                                                                                               
MR. ROGERS replied no, but the potential is there.                                                                              
CO-CHAIR JOHNSON asked whether Mr.  Rogers believes the companies                                                               
the  state   is  dealing  with   participate  in   good  business                                                               
practices; he then added that Mr. Rogers did not have to answer.                                                                
2:03:48 PM                                                                                                                    
REPRESENTATIVE  SEATON  inquired  whether the  election  for  gas                                                               
utilized for manufacturing  in state is a  proportional amount of                                                               
the total gas.                                                                                                                  
CO-CHAIR JOHNSON  answered if it  is not proportional,  it should                                                               
be.  He  surmised it would be a small  portion of the exploration                                                               
tax credits  that Representative  Seaton is talking  about, given                                                               
that current law  says it must be  under 0.5 Bcf per  day and not                                                               
all of the gas would be going to manufacturing.                                                                                 
REPRESENTATIVE NEUMAN  stated that if  4.0 Bcf per day  was going                                                               
to manufacturing  to create more  jobs in  the state he  would be                                                               
happy because  right now there  is nothing.  Something  is better                                                               
than nothing and  that is what he  is trying to make  happen.  He                                                               
said  he  is  confused  because   this  is  the  administration's                                                               
language and the administration keeps amending its own language.                                                                
CO-CHAIR JOHNSON shared Representative Neuman's frustration.                                                                    
2:05:51 PM                                                                                                                    
REPRESENTATIVE SEATON  reiterated his  question as to  whether it                                                               
would be  only the proportion  of a  taxpayer's gas that  is used                                                               
for manufacturing, heating, or power generation.                                                                                
MR.  STICKEL responded  yes,  the  department's understanding  of                                                               
this legislation  is that the  election would apply only  to that                                                               
gas which qualifies under the definition of manufacturing.                                                                      
2:06:35 PM                                                                                                                    
CO-CHAIR JOHNSON  asked whether  the sponsor is  comfortable with                                                               
adopting the administration's suggested language.                                                                               
REPRESENTATIVE  NEUMAN  replied  that  he  comfortable  with  the                                                               
conceptual amendment that is being  offered by the administration                                                               
through Mr. Stickel.                                                                                                            
CO-CHAIR JOHNSON removed his objection to Amendment 4.                                                                          
REPRESENTATIVE P.  WILSON withdrew Amendment  4.  There  being no                                                               
objection, Amendment 4 was no longer before the committee.                                                                      
2:07:22 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON  moved   the  adoption  of  Conceptual                                                               
Amendment 5, written as follows [original punctuation provided]:                                                                
     Page 3, lines 26 - 27:                                                                                                     
        Delete "return is due under AS 43.33.030(a) for                                                                         
     the calendar year for which the election is made"                                                                          
     "first monthly installment payment of estimated tax is                                                                     
      due under AS 43.55.020(a) for the calendar year for                                                                       
     which the election is made."                                                                                               
CO-CHAIR JOHNSON  asked whether Conceptual Amendment  5 addresses                                                               
Mr. Stickel's concerns.                                                                                                         
MR. STICKEL answered  yes, this amendment would take  care of the                                                               
issue of  a taxpayer potentially  overpaying to receive  a refund                                                               
with interest at the end of the year.                                                                                           
There  being no  objection,  Conceptual Amendment  5 was  passed.                                                               
The bill was now before the committee.                                                                                          
2:08:14 PM                                                                                                                    
REPRESENTATIVE  SEATON  said  he  had  previously  asked  for  an                                                               
analysis [which he  did not receive] that looks at  a 1.5-2.0 Bcf                                                               
per day  in-state manufacturing usage  to see what it  would look                                                               
like economically  for the  state with this  later election.   He                                                               
said  that  would probably  preclude  exporting  the gas  through                                                               
Canada because  he does  not think  the state  has enough  gas to                                                               
build both  a 1.5 Bcf in-state  gasline and a 4  Bcf out-of-state                                                               
gasline.  This would therefore mean  that all of the gas produced                                                               
would  be produced  under  this  tax regime,  whether  it is  for                                                               
heating,  electrical  generation,  or  manufacturing;  yet,  when                                                               
drilling for  the gas the  producers would  be able to  write off                                                               
the taxes  on the  oil value  25 percent  production tax  and the                                                               
progressivity.  This would dig the  state into a big hole for its                                                               
future  economics and  he does  not believe  this has  been fully                                                               
2:10:26 PM                                                                                                                    
CO-CHAIR JOHNSON  said he  believes the state  will be  in bigger                                                               
trouble than anything  this bill would allow if  the state's only                                                               
gasline is  a 2.0 Bcf  line to  Southcentral Alaska with  all the                                                               
spurs because  the other line  is not  practical.  At  least this                                                               
way the state  will have a manufacturing base and  a heating base                                                               
in  Southcentral if  the big  pipeline is  not built.   While  he                                                               
shares   Representative  Seaton's   concern   about  the   future                                                               
economics  of  the  state,  he is  not  comfortable  resting  the                                                               
economics  totally on  the  big  pipeline.   This  is  a step  in                                                               
generating the jobs  for Alaska to become  a more self-sufficient                                                               
state rather than an oil province.   If it gets to the point that                                                               
the big pipeline is out of  the question, then the legislators in                                                               
place at that time can address that.   In the meantime, this is a                                                               
signal  that the  state is  open  for business  and wants  anchor                                                               
tenants, and for that reason he will be supporting HB 217.                                                                      
2:12:01 PM                                                                                                                    
REPRESENTATIVE  NEUMAN stated  that  a 4.5  Bcf  per day  gasline                                                               
through Canada  would provide only  30-50 long-term  legacy jobs.                                                               
However,  an in-state  gasline of  up to  1.0 Bcf  per day  would                                                               
create  thousands  of   long-term  legacy  jobs.     This  is  an                                                               
opportunity to have  a tremendous amount of jobs  and payroll for                                                               
Alaskans as opposed  to a smaller amount that  will never replace                                                               
the oil going  down the Trans-Alaska Pipeline System.   The state                                                               
needs  to  diversify  and  have   hundreds  of  companies  paying                                                               
corporate taxes  rather than  just the  three companies  that are                                                               
currently paying  90 percent of  the state's bills.   Where would                                                               
the state be  if one of these three companies  left and the state                                                               
has  not taken  the opportunity  to use  its resources  to create                                                               
jobs for Alaskans?                                                                                                              
2:14:05 PM                                                                                                                    
REPRESENTATIVE   SEATON  asked   whether  the   sponsor  or   the                                                               
Department  of  Revenue   has  done  the  analysis   or  has  the                                                               
information that he previously requested.                                                                                       
MR. STICKEL  responded that the  department is in the  process of                                                               
doing some  more sophisticated and  detailed analysis  of gas-to-                                                               
liquids and has been working  with Representative Seaton's office                                                               
in  this regard,  but the  analysis is  not yet  completed.   The                                                               
department did  look at  some hypothetical  scenarios as  to what                                                               
the effects would be on  an existing producer that starts selling                                                               
gas for manufacturing that qualified under  HB 217.  It was found                                                               
that,  generally speaking,  at higher  oil prices  and lower  gas                                                               
prices  it would  be  advantageous  to a  producer  to have  that                                                               
manufacturing gas  taxed under  the existing  statute.   At lower                                                               
oil  prices or  higher gas  prices,  it would  generally be  more                                                               
advantageous  for  the  producer  to pay  the  17.7  cents  rate.                                                               
Beyond that  information, the department  does not  have anything                                                               
to release at this time.                                                                                                        
REPRESENTATIVE SEATON said  the question he is getting  at is the                                                               
state's  participation in  a development  through the  production                                                               
tax  and progressivity  offsets  and then  the  switching to  the                                                               
lower tax  rate.  However, he  continued, it does not  sound like                                                               
that analysis is available yet.                                                                                                 
2:16:25 PM                                                                                                                    
CO-CHAIR JOHNSON,  in response  to Representative  Edgmon, stated                                                               
that  the  next  committee  of  referral  is  the  House  Finance                                                               
Committee.   He  added that  it is  his inclination  to move  the                                                               
bill, but  he must  insist that the  sponsor get  these questions                                                               
answered before HB 217 is heard in the House Finance Committee.                                                                 
2:17:44 PM                                                                                                                    
REPRESENTATIVE P.  WILSON moved  to report Version  R of  HB 217,                                                               
labeled  26-LS0816\R,   Bullock,  2/8/10,  as  amended,   out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.                                                                                                                   
REPRESENTATIVE SEATON objected.                                                                                                 
A roll  call vote was  taken.  Representatives P.  Wilson, Olson,                                                               
Edgmon,  Tuck, Neuman,  and Johnson  voted  in favor  of HB  217.                                                               
Representatives   Seaton   and   Kawasaki   voted   against   it.                                                               
Therefore, CSHB 217(RES) was reported  out of the House Resources                                                               
Standing Committee by a vote of 6-2.                                                                                            

Document Name Date/Time Subjects
HJR 40 v.R.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
Changes to HJR 40.R.doc.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 Letter of Support MOA.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
CSHJR 40 v.E.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 - Sponsor Statement.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 zero Fiscal Note.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
CSHB 217.R amendment R.3.pdf HRES 2/24/2010 1:15:00 PM
HB 217
CSHB 217.R amendment R.4.pdf HRES 2/24/2010 1:15:00 PM
HB 217
HJR 40 Letter of Support Springer.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 Letter of Support TI.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 Letter of Support Webb.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 Info 2.12.10.pdf HRES 2/24/2010 1:15:00 PM
HJR 40
HJR 40 N Star Ltr 2.23.10.pdf HRES 2/24/2010 1:15:00 PM
HJR 40