Legislature(2009 - 2010)
04/14/2010 03:19 PM FIN
Download Mp3. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 280(FIN) am "An Act relating to a gas storage facility; relating to the Regulatory Commission of Alaska; relating to the participation by the attorney general in a matter involving the approval of a rate or a gas supply contract; relating to an income tax credit for a gas storage facility; relating to oil and gas production tax credits; relating to the powers and duties of the Alaska Oil and Gas Conservation Commission; relating to production tax credits for certain losses and expenditures, including exploration expenditures; relating to the powers and duties of the director of the division of lands and to lease fees for a gas storage facility on state land; and providing for an effective date." REPRESENTATIVE MIKE HAWKER, SPONSOR, explained his reasons for proposing HB 280, the "Cook Inlet Recover Act". It addresses a very critical issue that all communities in the Railbelt are facing. Consumer energy is based nearly 100 percent on natural gas from Cook Inlet. The productivity of those fields has reached its natural decline point and peak demands won't be met within two winters becoming a life safety issue. It is a lead priority of Anchorage's administration. Stakeholders have reached conclusions as to what is needed to meet and to resolve this issue. 5:20:58 PM Representative Hawker referred to a study that listed seven immediate needs for Cook Inlet. HB 280 addresses four of those needs. Most importantly, there is a need to develop major gas storage facilities for new gas and increasing deliverability in order to meet peak requirements. The bill provides a Facilities Development Credit against income taxes. He emphasized that the facilities would be delivering gas for utilities. 5:22:38 PM Representative Hawker explained the credit would become a mandatory "flow through" to reduce the cost of gas to the consumers. Representative Hawker discussed the storage facilities and whether they would be regulated by the Regulatory Authority of Alaska (RCA). The bill defines RCA's responsibilities. The bill also provides for storage for a company's own gas, which is not RCA regulated. It also provides for technical requirements. 5:25:46 PM Representative Hawker spoke of the difficulty RCA has had in approving long-term contracts. The bill provides guidance when evaluating such contracts. The Regulatory Commission of Alaska is directed to consider the impact on consumers if it rejects a proposed contract - the "consequence of saying no" provision. The RCA is also directed to recognize the value of a utility holding a diversified portfolio of gas supply contracts with different pricing mechanisms. The bill provides for the Regulatory Affairs and Public Advocacy Division of the Department of Law (RAPA) to peruse the proposed contracts and abide by the same requirement to consider the consequence of denying a contract. 5:28:20 PM Representative Hawker stated that the bill provides for increased access to existing development incentives the state offers in current statute. This will help promote the exploration of remaining gas in Cook Inlet, which exists in much smaller concentrations than in previous "domes", and costs more to extract. Representative Hawker added that the bill eliminates the Cook Inlet penalty, which was built around North Slope issues. He recalled the ELF process and the allowing of ELF to apply to Cook Inlet, which does not have a progressivity feature. Cook Inlet has a lower tax rate than the North Slope and the penalty should not apply. The ELF provision is counterproductive to Cook Inlet. The bill allows "a dollar spent and credits earned" in Cook Inlet to be applied universally across the state as anyone else's credit. 5:34:29 PM Representative Hawker talked about production credit amortization. The bill allows credits to be amortized in full the year incurred, instead of over a two-year period. The bill also allows for CAPEX credit for well enhancement and recovery work. That language has been carefully drafted with the Department of Revenue. Representative Hawker noted that the bill eliminates tiered credit and goes straight to 40 percent. Cook Inlet is a small region that is in need of promotion. Production credits are allowed to be sold back to the state in order to capitalize explorers. The Cook Inlet region is not particularly attractive to international companies. The bill intends to attract the appropriate scale of explorers and developers. 5:38:43 PM Senator Thomas asked if the tax credits could be applied to a producer in Prudhoe Bay or sold. Representative Hawker clarified that the benefit of having a credit is in order to receive a tax refund. He added that the credit section of the bill is for Cook Inlet; however, the gas facility development section would apply to the North Slope, as well to anyone developing gas storage facilities. Senator Thomas asked if it was for storage, not drilling. Representative Hawker said credits apply to Cook Inlet only. Senator Thomas asked for the reason. Representative Hawker noted concern about expanding credits across the state. The intent of the bill is to leave that issue to a statewide bill. 5:42:06 PM Senator Thomas noted some are concerned about not drawing and storing gas consistently and the loss of a percentage of gas when shutting down. He wondered if exporting is the solution to maintaining consistency. Representative Hawker replied that it is a multi-faceted approach issue. Storage is one element. Maintaining an export component is a production buffer. He said that gas wells don't turn up and turn down well. It would be ideal to maintain a continuous flow. The export buffer expires March 31, 2011. ConocoPhillips said they would pursue an extension of the export permit. He suggested that storage facilities were needed in order to meet peaking demands. Co-Chair Stedman noted the remaining agenda would be taken up in the morning. 5:46:26 PM Senator Egan asked how many facilities are needed. Representative Hawker did not know. Anecdotally, DOT envisions one large, open access facility and other facilities to address storage requirements. He spoke of credit limits which determine facility size, and other sidebars. 5:49:06 PM Co-Chair Stedman noted four zero fiscal notes: Department of Natural Resources, Department of Commerce, Community and Economic Development, Department of Administration, and House Finance Committee. MARSHA DAVIS, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, introduced herself. Co-Chair Stedman asked why the committee should pass the bill. Ms. Davis explained that the department was satisfied with the size criteria for the gas storage facility, the capital credit, and the reinvestment requirements. 5:50:58 PM Co-Chair Stedman asked if the administration supports the bill. Ms. Davis said it did. Co-Chair Stedman referred to page 7 and requested more information about the jack up drill. He wondered if the credits could "go negative" with the state ending up paying over 100 percent. Ms. Davis asked if he was referring to SB 309. Co-Chair Stedman said yes. Ms. Davis explained that a review of the jack up rig has been done and the department is satisfied with it. It would cost up to $54 million for the three rigs with the potential for the state to receive a 50 percent reimbursement of about $27 million. Co-Chair Stedman asked if Kevin Banks supported the bill. KEVIN BANKS, DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES (via teleconference), related the department's view of HB 280. The bill expands tax credits to pay for the kinds of wells needed in Cook Inlet. Under today's tax system, only exploration wells would have received a credit. He commented that the department has spent a good deal of time on the storage facility language and has reached a compromise regarding how storage leases would be administered. 5:55:01 PM DAN SULLIVAN, MAYOR, ANCHORAGE, testified in support of the bill. He said energy is of critical concern to his area. He highlighted the current lack of gas in Cook Inlet and the creation of a task force to find solutions. He said it was a top priority. Gas storage is one solution on high demand days. He noted that HB 280 addresses three of the task force's goals: storage and credit for storage, incentives and credits for production, and working with RCA on deliverability and contract terms. 5:57:44 PM Mr. Sullivan spoke of the uniqueness of Cook Inlet and the challenges there of a small, expensive, isolated market. He thought the bill was a short-term solution for about 10 to 15 years. He restated the key components of the bill. Mr. Sullivan spoke of the balance between the state's needs and producers' needs. He maintained that people in Southcentral are willing to pay more for gas as long as they have reliability. 5:59:54 PM TADD OWENS, DIRECTOR, GOVERNMENT AND PUBLIC AFFAIRS, PIONEER NATURAL RESOURCES, listed his company's projects and history. He suggested Cook Inlet could be a valuable asset in spite of its challenges. He testified in support of HB 280. 6:02:31 PM Co-Chair Stedman asked Senator Thomas if there were amendments forthcoming. Representative Hawker noted that the administration is working with ENSTAR to extend a line to Homer. The administration is proposing an amendment to that affect. HB 280 was heard and HELD in Committee for further consideration.