Legislature(2015 - 2016)SENATE FINANCE 532

04/13/2016 05:00 PM FINANCE

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                 SENATE FINANCE COMMITTEE                                                                                       
                      April 13, 2016                                                                                            
                         5:08 p.m.                                                                                              
5:08:48 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 5:08 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Peter Micciche, Vice-Chair                                                                                              
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Representative Louise  Stutes, Sponsor; Reid  Harris, Staff,                                                                    
Representative  Louise  Stutes;   Kris  Curtis,  Legislative                                                                    
Auditor, Alaska Division of  Legislative Audit; Thor Stacey,                                                                    
Director  of   Governmental  Affairs,   Alaska  Professional                                                                    
Hunters, Juneau;  Eddie Grasser, Safari  Club International,                                                                    
Alaska  Chapter,   Palmer;  Sara   Chambers,  Administrative                                                                    
Operations Manager,  Division of Corporations,  Business and                                                                    
Professional  Licensing, Department  of Commerce,  Community                                                                    
and  Economic  Development;   Robert  Venubles,  Energy  and                                                                    
Transportation  Coordinator,  Southeast Conference,  Juneau;                                                                    
Britteny  Cioni-Haywood,  Division   Director,  Division  of                                                                    
Economic Development, Department  of Commerce, Community and                                                                    
Economic Development, Juneau;  Lon Wilson, President, Wilson                                                                    
Agency, Anchorage;   Sheela Tallman,  Premera Blue  Cross of                                                                    
Alaska,   Juneau;   Fred    Parady,   Deputy   Commissioner,                                                                    
Department    of   Commerce,    Community,   and    Economic                                                                    
Development;   Lori   Wing-Heier,  Director,   Division   of                                                                    
Insurance,  Department of  Commerce, Community  and Economic                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Kelly Vrem,  Chairman, Current Big Game  Community Services,                                                                    
Sutton; Doug Griffin, Executive  Director, South West Alaska                                                                    
Municipal    Conference,   Anchorage;    Joshua   Weinstein,                                                                    
President, Northrim  Benefits Group, Anchorage;  Lon Wilson,                                                                    
President,  Wilson  Agency,  Anchorage; Jason  Gootee,  Moda                                                                    
Health, Anchorage; Benjamin  Johnson, CEO, BlueCrest Energy,                                                                    
Dallas,   Texas;  Bruce   Webb,   Furie  Operating   Alaska,                                                                    
Anchorage;  David   Elder,  CEO,  Furie   Operating  Alaska,                                                                    
Houston,  Texas;  Tony   Izzo,  General  Manager,  Matanuska                                                                    
Electric   Association,   Anchorage;  Scott   Jepson,   Vice                                                                    
President,  External  Affairs, Conoco  Phillips,  Anchorage;                                                                    
Paul  Rusch,   Vice  President,  Finance   Division,  Conoco                                                                    
Phillips, Anchorage; Jared  Green, President, ENSTAR Natural                                                                    
Gas, Anchorage.                                                                                                                 
SB 130    TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                                    
          SB 130 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
SB 206    REINSURANCE PROGRAM; HEALTH INS. WAIVERS                                                                              
          SB 206 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 130    NAMING STATE LIBRARY & MUSEUM                                                                                         
          HB 130 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 247    TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                                    
          HB 247 was SCHEDULED but not HEARD.                                                                                   
HB 254    EXTEND BIG GAME COMMERCIAL SERVICES BOARD                                                                             
          HB 254 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 314    AK REG ECON ASSIST. PROGRAM; EXTEND                                                                                   
          HB 314 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HOUSE BILL NO. 254                                                                                                            
     "An Act extending the termination  date of the Big Game                                                                    
     Commercial  Services   Board;  and  providing   for  an                                                                    
     effective date."                                                                                                           
5:10:31 PM                                                                                                                    
REPRESENTATIVE  LOUISE STUTES,  SPONSOR, explained  that the                                                                    
bill extended  the sunset  date of  the Big  Game Commercial                                                                    
Service Board (BGCSB)  from June 30, 2016 to  June 30, 2019.                                                                    
She turned to her staff to further detail the bill.                                                                             
REID HARRIS, STAFF, REPRESENTATIVE LOUISE STUTES, read from                                                                     
the prepared sponsor statement:                                                                                                 
     The BGCSB  is staffed by the  Division of Corporations,                                                                    
     Business   and   Professional  Licensing.   The   BGCSB                                                                    
     consists of  two licensed Registered  Guide                                                                                
     two  licensed  Transporters, two  private  landholders,                                                                    
     two public  members, and one  member from the  Board of                                                                    
     Game. Board  members are appointed by  the Governor and                                                                    
     confirmed  by the  Legislature.  The Board's  regulated                                                                    
     professions include Assistant Guide,  Class                                                                                
     Guide,      Master     Guide                                                                                               
Mr. Harris read from a report prepared by the McDowell                                                                          
Group, Inc: "The Economic Impacts of Guided Hunting in                                                                          
Alaska" (copy on file):                                                                                                         
   · Guided hunting in Alaska accounted for a total of                                                                          
     2,210 jobs  and $35  million in  total labor  income in                                                                    
     2012,  including  all   direct,  indirect  and  induced                                                                    
   · Guided hunting generated a total of $78 million in                                                                         
     economic activity in Alaska in 2012.                                                                                       
   · Guided hunters purchased nearly $2 million in hunting                                                                      
     license and game tags.                                                                                                     
Mr.  Harris relayed  that  the board  was  essential to  the                                                                    
safety  of hunters,  guides, and  transporters,  and to  the                                                                    
management  of the  resource.  He was  happy  to answer  any                                                                    
Representative   Stutes  shared   that  there   were  people                                                                    
available for questions.                                                                                                        
Co-Chair   MacKinnon  thanked   Representative  Stutes   and                                                                    
invited Kris Curtis to the table.                                                                                               
5:13:07 PM                                                                                                                    
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE AUDIT,  reported conducting  a sunset  review of                                                                    
the BGCSB to  determine whether it was  serving the public's                                                                    
interest  and whether  it should  be extended.  Overall, the                                                                    
auditors concluded  that regulating and  licensing qualified                                                                    
guide  outfitters  and  transporters  benefited  the  public                                                                    
safety  and   helped  to  safeguard  the   state's  wildlife                                                                    
resources. The auditors made  a conditional 3-year extension                                                                    
recommendation.  The   condition  was   for  the   board  to                                                                    
demonstrate the  ability to address  its deficit  during the                                                                    
legislative  sunset review  process. At  the time  the audit                                                                    
was done the board's debt was  over $1 million. If the board                                                                    
failed to  demonstrate the ability  to address  its deficit,                                                                    
the auditors recommended it be considered for termination.                                                                      
Ms. Curtis read  the recommendations from the  report by the                                                                    
Division of Legislative Audit (copy on file):                                                                                   
   1. Recommendation 1: The Division of Corporations,                                                                           
     Business and Professional Licensing's (DCBPL) director                                                                     
     should ensure staff adhere to procedures designed to                                                                       
     provide efficient and effective support to the board.                                                                      
Ms. Curtis indicated  that it was a repeat  finding from the                                                                    
2011 sunset  audit. The auditors found  improved support but                                                                    
some deficiencies  remained in  the area of  public noticing                                                                    
their exams and their board meetings.                                                                                           
   2. Recommendation 2: The Division of Corporations,                                                                           
     Business and Professional Licensing's (DCBPL) director                                                                     
     should   take   steps    to   improve   timeliness   of                                                                    
Ms.  Curtis explained  that it  was  another repeat  finding                                                                    
from  the  2011 sunset  audit  where  improvements had  been                                                                    
made.  However,  the  division continued  to  struggle  with                                                                    
timely  investigations. Auditors  reviewed 25  investigative                                                                    
cases and  found that 17  of them had periods  of inactivity                                                                    
ranging from 4  months to more than 4.5  years. According to                                                                    
the lead  investigator, the cause  of the delays was  a lack                                                                    
of resources  to address the  large case load.  The auditors                                                                    
also found ineffective case monitoring.                                                                                         
   3. Recommendation 3: The Division of Corporations,                                                                           
     Business    and   Professional    Licensing's   (DCBPL)                                                                    
     director,  in  combinations   with  the  board,  should                                                                    
     increase   licensing  fees   to  address   the  board's                                                                    
     operating deficit.                                                                                                         
Ms. Curtis relayed  that it was the third  time the auditors                                                                    
had the finding and recommendation.  In the prior 2011 audit                                                                    
it  was noted  that the  board had  an operating  deficit of                                                                    
$374 thousand as  of June 30, 2011. The board  was told that                                                                    
if  licensing  fees  were   not  increased  or  expenditures                                                                    
decreased  the deficit  would  grow. As  of  April 2015  the                                                                    
deficit exceeded  $1 million. The  deficit increased  due to                                                                    
various factors including delaying  an increase in licensing                                                                    
fees and a  reduced number of license renewals.  In 2012 the                                                                    
division   changed  its   allocation  methodology   for  its                                                                    
indirect  costs.  The  division  had made  some  changes  to                                                                    
correct problems with its  cost allocation methodology which                                                                    
resulted in  an addition of  more than $200 thousand  to its                                                                    
deficit. In  2012 the division  proposed an increase  to the                                                                    
fees  ranging from  61 percent  to 68  percent. There  was a                                                                    
great deal  of pushback  during the  public process  and the                                                                    
division did not end up increasing fees.                                                                                        
Ms. Curtis continued  that in FY 14 there  was an increasing                                                                    
of  fees: approximately  44  percent  across license  types.                                                                    
However, the  increase in revenues  was still not  enough to                                                                    
cover operating  costs resulting  in the  deficit continuing                                                                    
to grow.  At the  time of  the last  audit the  division had                                                                    
proposed  regulations including  increasing licensing  fees,                                                                    
and  adding   new  fees   for  Federal   Medical  Assistance                                                                    
Percentages  (FMAP)  activity  reports.   At  the  time  the                                                                    
auditors believed  that the increased  fees would  be enough                                                                    
to  address  the  deficit.  The auditors  took  a  look  and                                                                    
concluded  that with  the number  of licensees  held it  was                                                                    
reasonable  to assume  the deficit  would be  addressed. The                                                                    
auditors made  a conditional  recommendation that  the board                                                                    
demonstrated that  the regulations were final  and addressed                                                                    
the deficit.                                                                                                                    
   4. Recommendation 4: The Division of Corporations,                                                                           
     Business and Professional Licensing's (DCBPL) director                                                                     
     should   ensure   the   transporter   license   renewal                                                                    
     application form complies with statute.                                                                                    
Ms. Harris explained that there  was a statutory requirement                                                                    
that  transporters signed  an affidavit  when  they went  to                                                                    
review their  license that all  of the activity  reports had                                                                    
been  filed with  the  department.  Upon testing  compliance                                                                    
there was  no such  affidavit. It  was a  systematic problem                                                                    
with an easy fix.                                                                                                               
5:18:02 PM                                                                                                                    
Vice-Chair Micciche  queried who carried the  balance of the                                                                    
growing  $1 million  deficit. Ms.  Curtis responded  that it                                                                    
was her  understanding the deficit was  covered with surplus                                                                    
monies   from  other   boards.  Ultimately,   the  cost   of                                                                    
regulating  a board  was the  responsibility  of the  board.                                                                    
Statutes required that fees be  established at the necessary                                                                    
level to cover costs.                                                                                                           
Vice-Chair Micciche  asked if there was  an accounting shift                                                                    
or a leger to know how much  needed to be paid back by BGCSB                                                                    
to  other boards.  He also  queried about  an administrative                                                                    
cost  for  the accounting.  Ms.  Curtis  responded that  the                                                                    
auditors  had  considered  recommending  to  the  board  the                                                                    
institution of  accounting structures to track  revenues and                                                                    
expenditures.  However,  the  cost  of doing  so  might  not                                                                    
justify the extra  work. There was an accounting  of each of                                                                    
the board's balances. The Big  Game Commercial Service Board                                                                    
provided the  revenues and expenditures  and a table  in the                                                                    
Co-Chair  MacKinnon  shared   that  she  and  Representative                                                                    
Hawker had been looking  into different licensing across all                                                                    
professions for almost  4 or 6 years. For a  period of time,                                                                    
when  the  BGCSB  had  ceased,   the  State  of  Alaska  was                                                                    
responsible for  collections. From the  board's perspective,                                                                    
administrative costs were  mostly associated with violations                                                                    
or investigations.   She  concluded that  the board  was not                                                                    
upholding the statutes because it  was not collecting enough                                                                    
fees  to be  self-sustaining. She  furthered that  the board                                                                    
was  challenged  with  extenuating  circumstances  and  that                                                                    
other boards were  also operating in the  red. However, some                                                                    
of  the  other  boards  had  a  greater  licensure.  In  her                                                                    
investigations over  the 6 years there  were different types                                                                    
of  license  holders facing  a  variety  of challenges.  The                                                                    
largest problem was trying to  spread the costs over a small                                                                    
population. She asked Ms. Curtis if she was correct.                                                                            
Ms. Curtis  agreed for  the most part.  She stated  that the                                                                    
board had 1500  total licensees and thought  the board could                                                                    
potentially climb  out of its deficit  with increasing fees.                                                                    
She mentioned  a couple of  other boards with less  than 100                                                                    
licensees. It  was difficult to  come out of a  deficit with                                                                    
less licensees.                                                                                                                 
Co-Chair MacKinnon  asked if the  BGCSB had a deficit  of $1                                                                    
million. Ms.  Curtis replied that  at the time of  the audit                                                                    
the amount was over $1 million.                                                                                                 
Co-Chair  MacKinnon suggested  about $670  per applicant  to                                                                    
cover  the deficit.  She thought  it would  be difficult  to                                                                    
raise the fees that much in one year.                                                                                           
Senator  Hoffman pointed  to the  differences between  FY 14                                                                    
and FY 15.  By the time the legislation  expired there would                                                                    
possibly  be  an  additional  $200  thousand  in  debt.  The                                                                    
current program  ended in June  30, 2016. He  supposed there                                                                    
could be an additional $250  thousand in the deficit figure.                                                                    
He   wondered  about   including   benchmarks  which   would                                                                    
automatically  terminate the  board  if any  target was  not                                                                    
Ms.  Curtis responded  that the  department could  provide a                                                                    
current status  of the debt.  She had heard  the regulations                                                                    
were  passed  and  the  current   licensing  fees  had  been                                                                    
increased. She  reported 3  years as  an adequate  amount of                                                                    
time  because of  doing  the  audit the  year  prior to  the                                                                    
sunset date. She suggested that  less than 3 years would not                                                                    
provide the board enough time to address the problem.                                                                           
5:23:02 PM                                                                                                                    
Senator  Hoffman   noted  that  the  issue   was  about  the                                                                    
extension to summer  2019 and time in which  the board could                                                                    
generate  additional  deficits  rather  than  solving  their                                                                    
self-sufficiency  problems.  He   thought  benchmarks  would                                                                    
incentivize addressing the debt.  Otherwise, the state might                                                                    
end up with  a $2 million deficit. As the  chairman said, it                                                                    
would be  quite impossible to  cover all of the  deficits in                                                                    
one year.                                                                                                                       
Co-Chair MacKinnon  thanked Ms. Curtis and  noted the senate                                                                    
would be talking to the department.                                                                                             
Co-Chair MacKinnon OPENED Public Testimony on HB 254.                                                                           
KELLY VREM,  CHAIRMAN, CURRENT BIG GAME  COMMUNITY SERVICES,                                                                    
SUTTON  (via teleconference),  testified in  support of  the                                                                    
legislation. He  had been in  the guide business  since 1973                                                                    
and had  been around when there  was a board and  when there                                                                    
was not  a board in place.  He had attended the  bulk of the                                                                    
BGCSB meetings  and concluded that  it was better to  have a                                                                    
board. He was  happy with the current board, as  there was a                                                                    
wide  variety  of members.  He  thought  the board  had  the                                                                    
ability to  make some  careful and  considerate regulations.                                                                    
He  also  pointed   out  that  the  board   was  capable  of                                                                    
controlling   its  spending.   However,  he   asserted  that                                                                    
investigations  were  out  of control.  Investigations  were                                                                    
thrown  off course  without a  board. He  had tried  to move                                                                    
investigation  procedures  in  the direction  of  negotiated                                                                    
settlements  using a  point  system  rather than  frequently                                                                    
issuing  fines. He  did not  understand why  the state  paid                                                                    
attorneys   and   investigators  without   utilizing   their                                                                    
services to their  full extent. The board's  purpose and the                                                                    
vast range of  members ensured that no  one special interest                                                                    
superseded the  rest. If  the board  sunsetted it  would not                                                                    
reduce  costs  but  would  fall  again  on  the  department.                                                                    
Currently,  with new  fees  and  the increased  professional                                                                    
licensing fees  he was confident  that within 24  months the                                                                    
board's   position  would   be   remarkably  different.   He                                                                    
appreciated the  possibility of additional time.  He thanked                                                                    
the committee.                                                                                                                  
Co-Chair  MacKinnon  wondered  if the  board  was  currently                                                                    
fully staffed. Mr. Vrem responded  positively. He noted that                                                                    
the most recent turnover was  a land owner member who termed                                                                    
out. He  was excited about  the replacement member.  He also                                                                    
mentioned a  game member turning  over recently as  well. He                                                                    
was confident the board was functioning on all cylinders.                                                                       
5:28:43 PM                                                                                                                    
THOR  STACEY,  DIRECTOR   OF  GOVERNMENTAL  AFFAIRS,  ALASKA                                                                    
PROFESSIONAL  HUNTERS,  JUNEAU,  spoke  in  support  of  the                                                                    
legislation. He shared that the  new fee structures were put                                                                    
in place in November and the  deficit was down to about $800                                                                    
thousand. He believed the board was  on a path to fixing the                                                                    
deficit.  He relayed  that the  Alaska Professional  Hunters                                                                    
Association  (APHA)  was  the only  group  that  represented                                                                    
hunting guides  in the  state. The  boards had  a tremendous                                                                    
amount of  importance to  APHA as  an organization  that was                                                                    
conservation  based. The  group supported  stewardship-based                                                                    
land management structures  and high professional standards.                                                                    
The Big  Game Commercial Services Board  administered APHA's                                                                    
professional  tests.  There  was   no  school,  collage,  or                                                                    
vocational program  available to  become a guide.  Rather, a                                                                    
person became  a guide  starting as a  packer, moving  to an                                                                    
assistant  guide,  and learning  from  others.  The path  to                                                                    
entry  into the  historic  profession in  Alaska was  housed                                                                    
within the  program. Without  a board  guides would  have to                                                                    
take  a multiple  choice test,  drafted  by an  out-of-state                                                                    
contractor  unfamiliar with  Alaska's wildlife,  wilderness,                                                                    
or professional  standards. He asserted that  having testing                                                                    
standards and a board were  critical to preserving a vibrant                                                                    
industry that  was operating within the  greater interest of                                                                    
the public  as a  whole. His  role was  to work  between the                                                                    
industry,  the   division,  and   the  board   helping  with                                                                    
relationships  and  collaborating  on  things  such  as  fee                                                                    
structures.   His group was  deeply embarrassed by  the fact                                                                    
that  the board  ran a  deficit.  He relayed  having a  firm                                                                    
commitment  to   fixing  the   problem  and   to  supporting                                                                    
necessary fee  structures to pay  off the  board's deficits.                                                                    
He  appreciated the  committee's  time and  interest in  the                                                                    
Senator Hoffman queried about  potential resistance from the                                                                    
board  about  increasing fees.  He  asked  for Mr.  Stacey's                                                                    
perspective. Mr. Stacey replied  that APHA was reconciled to                                                                    
the fact  that there was  no easy  fix and that  the deficit                                                                    
would be paid off currently.  There was a significant amount                                                                    
of  consternation and  frustration  around  how the  account                                                                    
practices of the  board changed. There was  $200 thousand in                                                                    
lost  revenues and  $300  thousand of  deficit  at the  same                                                                    
time.  During   the  prior  sunset  review   the  board  was                                                                    
presented with  three different  financial reports  in 2011.                                                                    
He  believed  that the  group  had  confidence that  it  was                                                                    
receiving an  accurate accounting  of what  it owed  and was                                                                    
committed to  paying it back.  The pushback was no  longer a                                                                    
5:33:13 PM                                                                                                                    
Senator Olson  referred to  Mr. Vrem's  statement concerning                                                                    
having  the  deficit taken  care  of  within 24  months.  He                                                                    
wondered if Mr. Stacey agreed  with the timeline. Mr. Stacey                                                                    
replied  he  thought the  timeline  would  be closer  to  36                                                                    
months. He added that with  the new fee structures there was                                                                    
pushback  from  the  transporter  industry.  There  was  the                                                                    
potential  that  the  division  would  adjust  the  new  fee                                                                    
structures. He reiterated that the  APHA intended to pay the                                                                    
deficit back.                                                                                                                   
Senator   Olson   expressed   concern  about   the   deficit                                                                    
continuing  to  grow   and  potentially  compromising  other                                                                    
boards' abilities to continue  with their investigations. He                                                                    
relayed his experience  sitting on a board  where there were                                                                    
ongoing investigations.  He indicated that it  would be very                                                                    
difficult  to  work  under such  constraints.  Mr.  Stacey's                                                                    
pessimism  would not  be taken  lightly. Mr.  Stacey replied                                                                    
that his pessimism  had to do with the  timeline and nothing                                                                    
to do with the ability to pay off the debt.                                                                                     
Vice-Chair Micciche  was a  huge supporter  of the  big game                                                                    
industry.  He   highlighted  the  fiscal  note   showing  no                                                                    
expectation of revenues but  emphasized travel. He expressed                                                                    
his  concerns  and referred  to  page  14 of  the  auditor's                                                                    
report.  He  highlighted  the fluctuation  of  revenues  and                                                                    
expenses  from  year-to-year.  He  mentioned  $500  thousand                                                                    
deficits every-other-year.  He asked  Mr. Stacey  to explain                                                                    
the  fluctuation biannually.  Mr. Stacey  shared that  there                                                                    
was  a  biannual license  renewal  which  accounted for  the                                                                    
spike in income versus expenses every-other-year.                                                                               
Vice-Chair Micciche  wanted to see  a formal plan for  a way                                                                    
forward.  He   suggested  there  was  a   lack  of  business                                                                    
sophistication regarding  a plan to move  ahead. The problem                                                                    
had been  ongoing for the previous  4 years or more.  He did                                                                    
not feel  the issue was  getting better. Mr.  Stacey replied                                                                    
that the board  had an interesting role in  cost control. He                                                                    
elaborated  that  some  things  were  well  outside  of  the                                                                    
control of  the board  such as the  costs that  were charged                                                                    
back to the licensing program.  One of the primary functions                                                                    
of  the  board  in  reducing  the  deficit  was  to  act  as                                                                    
gatekeeper regarding  which investigations went  forward and                                                                    
which ones  did not.  The main cost  driver for  the deficit                                                                    
was   investigative   costs.   There   was   a   new   chief                                                                    
investigator, Angela Burt. She  had made a tremendous effort                                                                    
to reach out  to the board. She had been  using the board as                                                                    
wise  council  regarding  which  investigations  were  worth                                                                    
advancing.  The  use  of  the board  as  the  gatekeeper  of                                                                    
investigations  would  be  the   absolute  number  one  cost                                                                    
controller of the board moving  forward. He reported that in                                                                    
2011  the gatekeeping  role was  not being  utilized by  the                                                                    
division or  the investigative side.  As a result  there was                                                                    
no  fee  increase  and a  variety  of  investigations  moved                                                                    
forward that  should not have costing  the licensing program                                                                    
a significant amount of money.                                                                                                  
5:38:23 PM                                                                                                                    
AT EASE                                                                                                                         
5:38:51 PM                                                                                                                    
5:38:57 PM                                                                                                                    
Vice-Chair  Micciche assumed  the  investigatory costs  were                                                                    
the indirect expenses in the  table. Mr. Stacey thought that                                                                    
they  were reflected  in indirect  expenses and  contractual                                                                    
expenses under direct expenses. He  added that the board has                                                                    
done some things to cut back  on costs such as not retaining                                                                    
legal  counsel during  its meetings  and minimizing  travel.                                                                    
The  main cost  driver  for the  deficit were  investigative                                                                    
expenses.  The industry  was unique  with a  complex set  of                                                                    
laws and statues  that governed the use of  the resource and                                                                    
the protection  of the general  public. The program  was not                                                                    
cheap to administer.  As a whole, the  industry was positive                                                                    
for the  state and suggested  keeping it in  perspective. He                                                                    
concluded that APHA maintained its  commitment to paying off                                                                    
the  deficit  whether or  not  all  of  the costs  could  be                                                                    
Co-Chair  MacKinnon directed  members to  send questions  to                                                                    
her office  for testifiers. She  relayed she had  asked Sara                                                                    
Chambers to hold off on her testimony.                                                                                          
EDDIE  GRASSER, SAFARI  CLUB INTERNATIONAL,  ALASKA CHAPTER,                                                                    
Palmer, spoke in support of  the legislation. He shared that                                                                    
the  main  concern of  the  chapter  was  that there  was  a                                                                    
professional standards  board in place to  ensure the people                                                                    
providing   service   were   qualified   and   professional.                                                                    
Operating  in  the  wilds  of  Alaska  was  a  highly  risky                                                                    
business in  some cases. There  were a number  of activities                                                                    
such  as  flying  and  boating  that  could  lead  to  life-                                                                    
threatening  situations.   He  disclosed   he  had   been  a                                                                    
professional hunter for  35 years and retired in  1997. As a                                                                    
hunter  he wanted  to  be  assured that  the  person he  was                                                                    
hiring was  qualified. He  stressed the  need for  the board                                                                    
and supported the legislation.                                                                                                  
Senator Bishop  remarked that investigations were  driving a                                                                    
large portion of the costs. Mr. Grasser agreed.                                                                                 
Senator Bishop shared  some of his personal  experience as a                                                                    
hunter  growing up  in Alaska.  He  compared a  professional                                                                    
guide  to a  big league  ball  player. Guides  needed to  be                                                                    
professional and ethical. He suggested  that there needed to                                                                    
be more  discussion amongst the  guides about  imploring the                                                                    
standard  of the  guiding  industry in  order  to drive  the                                                                    
investigations down.                                                                                                            
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Co-Chair  MacKinnon  invited  Ms.   Chambers  to  share  her                                                                    
perspective on what  had been shared about  an extension for                                                                    
the BGCSB.                                                                                                                      
5:44:08 PM                                                                                                                    
SARA CHAMBERS,  ADMINISTRATIVE OPERATIONS  MANAGER, DIVISION                                                                    
OF  CORPORATIONS,   BUSINESS  AND   PROFESSIONAL  LICENSING,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
shared that  there was a fairly  sophisticated system within                                                                    
statute regarding  professional licensing fees and  how they                                                                    
were  set.  She  confirmed  that they  were  on  a  biennial                                                                    
licensing cycle.  There was one  3-month window during  a 2-                                                                    
year period to recuperate revenues  that might be in deficit                                                                    
and  to collect  any  revenues  that might  be  due for  the                                                                    
following  2 years  for operating  expenses. She  added that                                                                    
for  programs in  deficit fees  needed to  be quite  high in                                                                    
order to  look back  as well  as to  look forward.  It meant                                                                    
that the fee setting was  a fairly strong estimate but could                                                                    
not take into  consideration some of the  areas that neither                                                                    
the division nor the board  could control such as complaints                                                                    
coming in from the  outside and investigations. The division                                                                    
could  not   control  the  volume   or  complexity   of  the                                                                    
investigations because  the division did not  know what they                                                                    
were   when   setting   fees.    It   was   the   division's                                                                    
responsibility  to set  fees and  to  do so  in concert  and                                                                    
collaboration  with the  board. The  division and  the board                                                                    
agreed to  set fees,  increasing them in  2013 and  again in                                                                    
2015. The  division was on  a trajectory of  increasing fees                                                                    
and had  instituted 3  new fees  in the  current year.  As a                                                                    
result, the burden was placed  on the contracting guides and                                                                    
transporters  rather than  assistant  guides  and class  "A"                                                                    
guides who were not contracting at the lower level tier.                                                                        
Ms. Chambers continued that the  program had a high level of                                                                    
investigations.  She  made  clear  that  the  board  was  in                                                                    
control of  the investigative process.  Investigations moved                                                                    
forward  with  a reviewing  board  member's  approval. If  a                                                                    
board member objected to moving  an investigation forward it                                                                    
would not move  forward. Over the previous year  and a half,                                                                    
since the  new chief investigator  was hired, the  board and                                                                    
division  had developed  a very  strong  relationship and  a                                                                    
very clear protocol to control  the outcome the board needed                                                                    
per its statutory authority. She  noted that the fluctuating                                                                    
flow of  revenues once  every 2 years  often placed  a board                                                                    
into a deficit position because  of cash flow. There were no                                                                    
general  fund appropriations  involved,  but rather  program                                                                    
expenses. She added that there  was no mixing or mingling of                                                                    
funds  since  the  appropriation  of authority  was  at  the                                                                    
division level and  not at the program level.  The cash flow                                                                    
issue  was  covered by  boards  in  surplus. There  was  100                                                                    
percent  accountability in  tracking  of  every dollar  that                                                                    
came in and  out of each program. She closed  by saying that                                                                    
the division had  very proactively worked to  respond to the                                                                    
audit  recommendations. The  investigation process  had been                                                                    
improved significantly  beginning in 2014. The  division and                                                                    
board were  working together to actively  increase fees. The                                                                    
additional findings  of the  renewal application  and public                                                                    
noticing had already been addressed.                                                                                            
Senator Hoffman  queried the  possibility of  staggering the                                                                    
fees  to  spread  the  revenue  more  evenly.  Ms.  Chambers                                                                    
replied that  it could be  structured the way  he suggested.                                                                    
However, there  was a  concern about  taking a  license away                                                                    
for non-payment from someone that  had already been issued a                                                                    
license.  Urging  delinquent license  holders  to  pay on  a                                                                    
volunteer  basis  in the  middle  of  a 2-year  cycle  would                                                                    
likely increase  administrative costs. It was  something the                                                                    
division could certainly look into.                                                                                             
5:49:50 PM                                                                                                                    
Co-Chair MacKinnon  suggested only renewing a  license for 1                                                                    
year for  some entities  until a  smoothing of  revenues was                                                                    
reached.  She thought  that was  the point  Senator Hoffmann                                                                    
was suggesting.                                                                                                                 
Vice-Chair  Micciche would  not  apply the  definition of  a                                                                    
cash flow  problem to  the growing  deficits since  2011. He                                                                    
asked  about  the  fee.  Ms.   Chambers  reported  that  the                                                                    
Assistant and Class  A guides were paying $410 for  a 2 year                                                                    
period. The  registered master guides and  transporters were                                                                    
paying  $850 for  a 2-year  period, an  increase over  prior                                                                    
Vice-Chair  Micciche provided  an example  of what  it would                                                                    
take to erase  the deficit. He suggested that  it would take                                                                    
an average  of $790  for every  2 years  as well  as another                                                                    
$333 to  pay back  the debt service.  The price  would total                                                                    
$1123 for  2 years and  then revert  back to $790  after the                                                                    
debt was paid off.                                                                                                              
Co-Chair MacKinnon set aside HB 254.                                                                                            
HB  254  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  MacKinnon suggested  that if  Senator Hoffmann  or                                                                    
Senator  Micciche had  ideas for  a  reauthorization to  get                                                                    
them  to her  office by  noon the  following day.  She would                                                                    
work  with  the  legislative   auditor  regarding  a  status                                                                    
report.  She   suggested  shortening   the  length   of  the                                                                    
extension  in order  for the  legislature to  know that  the                                                                    
board  was responding  to the  satisfaction  of the  finance                                                                    
HOUSE BILL NO. 314                                                                                                            
     "An  Act  relating  to  the  Alaska  regional  economic                                                                    
     assistance program;  extending the termination  date of                                                                    
     the  Alaska regional  economic assistance  program; and                                                                    
     providing for an effective date."                                                                                          
Co-Chair  MacKinnon   went  directly  to   public  testimony                                                                    
because  of time  limitations. She  would  have the  sponsor                                                                    
introduce the bill in a few moments.                                                                                            
Co-Chair MacKinnon OPENED Public Testimony.                                                                                     
5:52:42 PM                                                                                                                    
DOUG   GRIFFIN,  EXECUTIVE   DIRECTOR,  SOUTH   WEST  ALASKA                                                                    
MUNICIPAL CONFERENCE, ANCHORAGE  (via teleconference), spoke                                                                    
in  support of  the bill.  His organization  represented the                                                                    
Kodiak,  Bristol  Bay,  and  Aleutian  Pribilof  regions  of                                                                    
Alaska. He  asserted that regional economic  development was                                                                    
a  sound way  to involve  communities and  look for  ways to                                                                    
work   with  municipalities,   tribes,   and  the   business                                                                    
communities. He urged the passage of HB 314.                                                                                    
ROBERT  VENUBLES,  ENERGY  and  TRANSPORTATION  COORDINATOR,                                                                    
SOUTHEAST  CONFERENCE,  JUNEAU,  spoke  in  support  of  the                                                                    
legislation. He mentioned the original  fiscal note that was                                                                    
attached by  the administration.  The program was  very much                                                                    
needed especially  with diminished  state capacity.  Each of                                                                    
the Ardors  were committed  to the  mission. The  entity was                                                                    
eligible to receive funding from  the federal government. He                                                                    
provided  some  detailed  funding  information.  He  thanked                                                                    
members for their support of the bill.                                                                                          
BRITTENY  CIONI-HAYWOOD,  DIRECTOR,   DIVISION  OF  ECONOMIC                                                                    
DEVELOPMENT, DEPARTMENT OF  COMMERCE, COMMUNITY AND ECONOMIC                                                                    
DEVELOPMENT, spoke in support of  the bill. The division was                                                                    
supportive  of having  and maintaining  the designation  for                                                                    
the  Ardor   program.  Her  division  worked   closely  with                                                                    
entities  regarding  economic development  initiatives.  The                                                                    
division  had a  wide  variety  of communications  regarding                                                                    
different   opportunities  that   arose  for   the  economic                                                                    
development of the state. She was available for questions.                                                                      
Co-Chair  MacKinnon CLOSED  public  testimony.  She set  the                                                                    
bill aside.                                                                                                                     
HB  314  was  HEARD  and   HELD  in  committee  for  further                                                                    
5:56:55 PM                                                                                                                    
AT EASE                                                                                                                         
5:57:06 PM                                                                                                                    
SENATE BILL NO. 206                                                                                                           
     "An  Act   relating  to   a  reinsurance   program  for                                                                    
     residents who  are high  risks and  insurer assessments                                                                    
     to  cover   the  costs  of  the   reinsurance  program;                                                                    
     relating  to application  for state  innovation waivers                                                                    
     for health care insurance; relating to definitions of                                                                      
     'residents who are high risks' and 'covered lives';                                                                        
     and providing for an effective date."                                                                                      
Co-Chair  MacKinnon  OPENED  Public Testimony.  She  limited                                                                    
testimony to 2 minutes per testifier.                                                                                           
5:57:55 PM                                                                                                                    
JOSHUA  WEINSTEIN,   PRESIDENT,  NORTHRIM   BENEFITS  GROUP,                                                                    
ANCHORAGE (via teleconference), testified  in support of the                                                                    
legislation. He relayed that  individual health insurance in                                                                    
Alaska was  the highest in  the country. He  summarized that                                                                    
the  bill  would provide  a  mechanism  for stabilizing  the                                                                    
rapidly  rising  cost of  health  insurance  by creating  an                                                                    
assessment on  insured employer plans. It  would help create                                                                    
a  stable   market  for  those   buying  their   own  health                                                                    
insurance.  The  cost  of   private  insurance  was  rapidly                                                                    
spinning out  of control. Rate  increases of 30  percent had                                                                    
been  seen  for the  previous  2  years. He  reiterated  his                                                                    
support for the bill.                                                                                                           
Senator  Bishop wondered  if it  was another  tax on  single                                                                    
employer  and multi-employer  plans.  Mr. Weinstein  replied                                                                    
that it  assessed the employer  plans to cover  the expenses                                                                    
of   very   high   cost  individuals   within   the   Alaska                                                                    
Comprehensive Health Insurance  Association (ACHIA) pool. He                                                                    
used to  cover upwards of about  700 people and was  down to                                                                    
200 to 300 insured members  due to the Affordable Care Act's                                                                    
individual market  place. The reinsurance mechanisms  in the                                                                    
individual insurance pool  was ending and they  had not been                                                                    
effective  enough  to stave  off  the  large rate  increases                                                                    
necessary to  keep the  pool sustainable. It  was not  a new                                                                    
assessment  but  would  provide   the  reinsurance  for  the                                                                    
individual  marketplace created  under  the Affordable  Care                                                                    
Act and not just those in  ACHIA health plans. [A portion of                                                                    
the audio  was inaudible]. He  argued that Alaska  could not                                                                    
be  a  state without  a  viable  individual insurance  pool.                                                                    
Several  different companies  had lost  tens of  millions of                                                                    
dollars in  the individual  market. He restated  his support                                                                    
for SB 206.                                                                                                                     
6:02:51 PM                                                                                                                    
LON  WILSON,   PRESIDENT,  WILSON  AGENCY,   ANCHORAGE  (via                                                                    
teleconference), spoke  in support  of the  legislation. His                                                                    
company had  a 50-year history working  with individuals and                                                                    
employers to help them purchase  individual and group health                                                                    
insurance in Alaska.  He urged support of SB  206. The small                                                                    
size of the  individual market pool was not  large enough to                                                                    
spread   the  high   claims   costs   of  individuals   with                                                                    
significant requests. It  was limited to a small  pool.  The                                                                    
proposal would utilize an  existing reinsurance mechanism to                                                                    
spread the costs  over a broader population in  the hopes of                                                                    
making health  insurance more accessible  to a  much broader                                                                    
population.  In terms  of percentages  of increases,  in the                                                                    
previous 2  years there had  been a doubling or  tripling of                                                                    
insurance premiums - another  class of uninsured individuals                                                                    
in the state. The legislation  before the committee would at                                                                    
least get the state on  a road towards sustainability in the                                                                    
individual market.  He voiced his support for the bill.                                                                         
SHEELA TALLMAN, PREMERA BLUE CROSS  OF ALASKA, JUNEAU, spoke                                                                    
in  support  of  the   legislation.  The  individual  health                                                                    
insurance  market  was in  crisis.  With  health reform  the                                                                    
major change  to the insurance  market was  guaranteed issue                                                                    
to   all   individuals  without   pre-existing   conditions.                                                                    
Insurers  experienced an  influx of  new enrollees,  many of                                                                    
them previously uninsured with very  high medical costs. She                                                                    
continued that for  2015 and 2016 Premera had close  to a 40                                                                    
percent   average  rate   increase  for   individual  plans.                                                                    
However,  claims  continued  to  exceed  premiums.  For  the                                                                    
previous 2  years Premera had experienced  loses annually of                                                                    
$10  million. Premera  was taking  in, on  average, $713  in                                                                    
premium per  member, per  month but  paying out  claims that                                                                    
averaged  $919 per  member, per  month. It  demonstrated the                                                                    
very high  claims costs in  the particular pool. In  a small                                                                    
size  market, as  in Alaska,  there were  simply not  enough                                                                    
healthy individuals  to offset  the costs of  enrollees with                                                                    
very high  medical needs.  Currently, the  average benchmark                                                                    
plan premium  was the highest  in the country at  over $700.                                                                    
The next highest  state was $468. A 40  percent increase was                                                                    
significant.   She   expressed    concerns   with   premiums                                                                    
continuing  to sky  rocket.  One solution  was  to exit  the                                                                    
individual   market   and    to   stop   selling   coverage.                                                                    
Alternatively   Premera   and    Moda   had   been   working                                                                    
collaboratively with  the Division  of Insurance to  come up                                                                    
with  a   sustainable  option  -  the   reinsurance  program                                                                    
administrated by the state's high  risk pool. Premera was an                                                                    
insurer in both  the individual and group  markets having 45                                                                    
percent of the market share  in the employer group business.                                                                    
She  supported a  balanced assessment  that would  not place                                                                    
undue burdens  on the  group market.  Senate Bill  106 would                                                                    
help mitigate the premium increases  and the dramatic swings                                                                    
in the individual  markets. She urged members  to support SB
6:07:44 PM                                                                                                                    
JASON GOOTEE,  MODA HEALTH, ANCHORAGE  (via teleconference),                                                                    
read from a prepared statement:                                                                                                 
     We are supportive  of this bill as a  way of addressing                                                                    
     the  variability  inherent  in  the  Alaska  individual                                                                    
     market. Over the past few  months, we have collaborated                                                                    
     with   the  Alaska   DOI,  Premera   and  ACHIA   on  a                                                                    
     reinsurance program aimed at  helping to stabilize this                                                                    
     market. Moda and Premera  have provided detailed claims                                                                    
     data through  ACHIA to an actuarial  consulting firm to                                                                    
     model  the impact  of such  a program.   Our  actuaries                                                                    
     have been  closely involved  in reviewing  the analysis                                                                    
     and have  provided feedback to ensure  that the results                                                                    
     are sound.   We  are supportive of  Senate Bill  206 as                                                                    
     this  will  help  improve  the  predictability  of  the                                                                    
     individual pool  when setting  future rates.  Thank you                                                                    
     for considering  my comments in support  of Senate Bill                                                                    
     206. I want  to emphasize that Moda is  invested in the                                                                    
     Alaska individual  health insurance  market and  we are                                                                    
     committed to  working on the implementation  of a state                                                                    
     reinsurance program.                                                                                                       
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Co-Chair MacKinnon  stated that the bill  was the governor's                                                                    
priority due to  what had happened in  the insurance market.                                                                    
He  introduced the  bill approximately  3  weeks prior.  She                                                                    
requested  that the  presenter briefly  introduce the  bill,                                                                    
explain  what  it did,  provide  any  associated costs,  and                                                                    
clarify the new definition of "high risk resident".                                                                             
6:10:12 PM                                                                                                                    
FRED  PARADY, DEPUTY  COMMISSIONER, DEPARTMENT  OF COMMERCE,                                                                    
COMMUNITY,   AND   ECONOMIC  DEVELOPMENT,   introduced   the                                                                    
legislation. He stated that the  bill was the best effort to                                                                    
craft  a response  to the  condition of  Alaska's individual                                                                    
market.  He highlighted  that Alaska's  individual insurance                                                                    
market was fragile. There were  over 22 thousand individuals                                                                    
covered within the market. Alaska  was down in the last year                                                                    
from 4  carriers to 2. One  of the 2 carriers  was presently                                                                    
in  a difficult  financial  condition. He  relayed that  the                                                                    
bill  did not  impose a  financial  impact on  the State  of                                                                    
Mr.  Parady referred  to  a document  titled,  "SB 206  Best                                                                    
Estimate  Consumer Impacts"  (copy on  file). He  pointed to                                                                    
the top  section of  the first  page which  reported 236,779                                                                    
total covered lives. They were  listed under single employer                                                                    
groups. He  noted that the  direct individual  market served                                                                    
22,105  individuals.   The  second  section   reflected  the                                                                    
current federal  reinsurance program. He noted  that in 2016                                                                    
there was  an annual fee  of $27.00  per year and  $2.25 per                                                                    
month. The estimated  taxes for the policies  were 3 percent                                                                    
under the Affordable Care Act  which averaged $30 per member                                                                    
per month.  In the  group market it  equaled $18  per member                                                                    
per month.  The taxes expired at the end of 2016.                                                                               
Mr. Parady continued  to page 2 of the  document. He relayed                                                                    
that  the  bill  would  enable  the  division  to  propagate                                                                    
regulations  and set  reinsurance rates.  He pointed  to the                                                                    
highlighted rate  of $19.36 per  month which  would generate                                                                    
$55  million  across the  236,779  covered  lives and  would                                                                    
effectively reduce  the individual  premium an  estimated 18                                                                    
percent. The  particular group had  experienced back-to-back                                                                    
rate increases of  36 to 40 percent. An  18 percent decrease                                                                    
would essentially  reduce the coming increase  by about half                                                                    
and  would  have  a stabilizing  effect  on  the  individual                                                                    
market.  He  stressed it  was  of  critical concern  to  all                                                                    
Alaskans that  the state maintain  providers of  which there                                                                    
were currently only two.                                                                                                        
Co-Chair MacKinnon queried about a sectional analysis.                                                                          
6:13:22 PM                                                                                                                    
LORI   WING-HEIER,   DIRECTOR,    DIVISION   OF   INSURANCE,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
explained the Sectional Analysis (copy on file):                                                                                
     Section 1.  AS 21.55.220(c) is amended  to allocate the                                                                    
     assessment necessary to fund  the reinsurance losses on                                                                    
     the  basis  of  enrollment. The  current  structure  of                                                                    
     ACHIA provides  for the assessments on  a percentage of                                                                    
     premium  basis;  meaning  that those  insurers  writing                                                                    
     more premium  pay the larger assessments  regardless of                                                                    
     the number of covered  lives they may have. Conversely,                                                                    
     an insurer,  particularly an insurer writing  only stop                                                                    
     loss  insurance, may  have very  little  premium but  a                                                                    
     large  number  of covered  lives.  The  intent of  this                                                                    
     subsection  amendment is  to distribute  the assessment                                                                    
     on  an equal  basis to  all insureds  on a  per-member,                                                                    
     per-month basis.                                                                                                           
Ms.  Wing-Heier   elaborated  that  in  statute   ACHIA  was                                                                    
identified as the high risk pool.  It had been funded on the                                                                    
percentage of  premium that an  insurer had. The  reason the                                                                    
division was seeking  to change it was to even  out the cost                                                                    
per member/per  month. Previously, for example,  Premera had                                                                    
45 percent of  the market and 45 percent  of the assessment.                                                                    
Whereas, the smaller insurers had  a smaller assessment. The                                                                    
bill would  make it so that  each of the 236,779  that would                                                                    
be assessed would  be assessed evenly. Not  one person would                                                                    
be assessed more than another.  The legislation would change                                                                    
the assessment  allocation to be  a "per member,  per month"                                                                    
rather than  a percentage  based on  premium of  one insurer                                                                    
against another.                                                                                                                
     Sec 2. AS  21.55.220(f) is amended to  clarify that any                                                                    
     assessment made against an ACHIA  member (as defined in                                                                    
     AS 21.55.010) by ACHIA (to  fund the reinsurance losses                                                                    
     from the reinsurance  program established by regulation                                                                    
     for reinsuring  residents who are high  risks) will not                                                                    
     be subject  to an offset  of 50 percent  that otherwise                                                                    
     would have  applied against  the member's  premium tax.                                                                    
     Unlike the  current high risk  pool, where  members are                                                                    
     allowed to offset 50 percent  of their ACHIA assessment                                                                    
     when  remitting  their  premium  tax,  the  reinsurance                                                                    
     assessments would  not be eligible for  the premium tax                                                                    
     credit. While  a premium  tax credit  was a  benefit to                                                                    
     the ACHIA members to support  ACHIA when it was created                                                                    
     to provide the  only means for Alaskans  to gain access                                                                    
     to healthcare  insurance at the  time, the  premium tax                                                                    
     credit  is not  being proposed  to be  extended to  the                                                                    
     reinsurance assessments due to  the economic outlook of                                                                    
     the State of Alaska at this point in time.                                                                                 
Ms. Wing-Heier  explained that  previous to  the legislation                                                                    
the  insurers  that  participated  in ACHIA  received  a  50                                                                    
percent  tax credit.  The bill  would eliminate  the credit.                                                                    
There would  no longer be  a 50  percent tax credit  when an                                                                    
insurer was assessed to pay  the assessment that would go to                                                                    
the reinsurance pool.                                                                                                           
     Sec.  3. AS  21.55.500  (20) amends  the definition  of                                                                    
     "residents  who   are  high  risks"  by   deleting  the                                                                    
     requirement  that  the  person   be  unable  to  obtain                                                                    
     insurance coverage substantially  similar to that which                                                                    
     may  be  obtained  by  a person  who  is  considered  a                                                                    
     standard risk. Under  the ACA, an insurer  is no longer                                                                    
     allowed to  deny coverage to  a person based on  a pre-                                                                    
     existing condition  making this part of  statute a moot                                                                    
     point. Deleting  this language enables the  creation of                                                                    
     the reinsurance  program and  provides the  director of                                                                    
     insurance with the flexibility  needed in designing the                                                                    
     program by  authorizing the director to  supplement the                                                                    
     definition of "residents who are high risk".                                                                               
     Sec 4.  AS 21.55.500 provides a  definition of "covered                                                                    
     lives" which is based  on the definition that currently                                                                    
     exists in Title 23.                                                                                                        
     Sec. 5. AS 21.96 is amended  by adding a new section to                                                                    
    allow for a waiver for state innovation. Under the                                                                          
     ACA, states may submit  an application to the Secretary                                                                    
     of  the United  States Department  of Health  and Human                                                                    
     Services  requesting a  waiver from  certain provisions                                                                    
     of the Act. In order  to receive this waiver, the state                                                                    
     must have  enabling legislation  and Sec.  AS 21.96.120                                                                    
     provides  that   the  director   of  the   Division  of                                                                    
     Insurance  may  apply for  a  waiver  and, if  granted,                                                                    
     implement a state plan  meeting the waiver requirements                                                                    
    in a manner consistent with state and federal law.                                                                          
Ms. Wing-Heier clarified that the  section gave authority to                                                                    
the  Division  of Insurance  to  apply  for a  Section  1332                                                                    
Waiver. The waiver was similar  to a Section 1115 Waiver. It                                                                    
would  allow the  state  to  apply for  a  waiver to  exempt                                                                    
itself beginning  in 2017 from  the Affordable Care  Act. It                                                                    
did not mean  that the state would do so.  It meant that the                                                                    
division would  have to go  through the  application process                                                                    
and hold  public hearings to see  if it would be  better for                                                                    
Alaska to do the Affordable Care  Act on its own rather than                                                                    
participating at  the federal level.  The state  would still                                                                    
be subject  to the guarantee issue  provisions and essential                                                                    
health benefits. However,  the state would be  able to relax                                                                    
or  eliminate things  such as  the  individual and  employer                                                                    
mandates.   There  were   also  penalties   that  could   be                                                                    
eliminated. The option would give  the state more control of                                                                    
its own destiny around the  Affordable Care Act. She was not                                                                    
saying that  the state would  do it,  but in order  to apply                                                                    
for   it   the    division   needed   statutory   authority.                                                                    
     Sec. 6. Provides for an immediate effective date.                                                                          
Co-Chair  MacKinnon directed  the  committee's attention  to                                                                    
Section 3(C), page 3, line  5-9. She explained that language                                                                    
was removed  that would take  away everyone  qualifying. She                                                                    
wondered if she was accurate.                                                                                                   
Ms. Wing-Heier responded affirmatively.                                                                                         
Co-Chair MacKinnon  set the bill  aside. She  informed staff                                                                    
that  the administration  was requesting  to  move the  bill                                                                    
quickly,  as  there  were some  procedural  rules  dictating                                                                    
expediency.  She asked  staff  to prepare  any questions  as                                                                    
soon as  possible, for  she was hoping  to address  the bill                                                                    
again in the following day.                                                                                                     
SB  206  was  HEARD  and   HELD  in  committee  for  further                                                                    
6:18:22 PM                                                                                                                    
AT EASE                                                                                                                         
6:23:00 PM                                                                                                                    
Co-Chair MacKinnon  relayed that invited testimony  would be                                                                    
heard  for  SB130.  She indicated  that  testimony  for  the                                                                    
industry was limited to 10 minutes.                                                                                             
SENATE BILL NO. 130                                                                                                           
     "An  Act relating  to  confidential information  status                                                                    
     and  public   record  status  of  information   in  the                                                                    
     possession of  the Department  of Revenue;  relating to                                                                    
     interest  applicable  to  delinquent tax;  relating  to                                                                    
     disclosure  of  oil  and   gas  production  tax  credit                                                                    
     information; relating  to refunds  for the  gas storage                                                                    
     facility tax credit, the  liquefied natural gas storage                                                                    
     facility  tax credit,  and the  qualified in-state  oil                                                                    
     refinery   infrastructure   expenditures  tax   credit;                                                                    
     relating to  the minimum  tax for  certain oil  and gas                                                                    
     production;  relating to  the  minimum tax  calculation                                                                    
     for  monthly  installment  payments of  estimated  tax;                                                                    
     relating  to interest  on monthly  installment payments                                                                    
     of  estimated  tax;  relating to  limitations  for  the                                                                    
     application  of tax  credits; relating  to oil  and gas                                                                    
     production   tax  credits   for   certain  losses   and                                                                    
     expenditures;     relating    to     limitations    for                                                                    
     nontransferable  oil  and  gas production  tax  credits                                                                    
     based on oil production  and the alternative tax credit                                                                    
     for oil  and gas  exploration; relating to  purchase of                                                                    
     tax  credit  certificates  from the  oil  and  gas  tax                                                                    
     credit fund; relating  to a minimum for  gross value at                                                                    
     the   point   of    production;   relating   to   lease                                                                    
     expenditures  and tax  credits for  municipal entities;                                                                    
     adding    a   definition    for   "qualified    capital                                                                    
     expenditure";  adding  a  definition  for  "outstanding                                                                    
     liability  to   the  state";  repealing  oil   and  gas                                                                    
     exploration    incentive    credits;   repealing    the                                                                    
     limitation on  the application  of credits  against tax                                                                    
     liability  for   lease  expenditures   incurred  before                                                                    
     January 1,  2011; repealing  provisions related  to the                                                                    
     monthly installment payments for  estimated tax for oil                                                                    
     and gas produced before January  1, 2014; repealing the                                                                    
     oil  and  gas  production   tax  credit  for  qualified                                                                    
     capital  expenditures  and certain  well  expenditures;                                                                    
     repealing   the    calculation   for    certain   lease                                                                    
     expenditures applicable before  January 1, 2011; making                                                                    
     conforming amendments;  and providing for  an effective                                                                    
6:23:55 PM                                                                                                                    
BENJAMIN JOHNSON, CEO, BLUECREST  ENERGY, DALLAS, TEXAS (via                                                                    
teleconference), read  from a prepared  statement "BlueCrest                                                                    
Testimony to Senate  Finance Committee" (copy on  file) on a                                                                    
PowerPoint presentation:                                                                                                        
     Good  afternoon   Madam  Chair   and  members   of  the                                                                    
     For the  record, my  name is  J. Benjamin  Johnson, and                                                                    
    I'm the president and CEO of BlueCrest Energy Inc.                                                                          
     Since BlueCrest  only has operations in  the Cook Inlet                                                                    
     at  this  time,  I  will   only  speak  to  the  issues                                                                    
     particular to the Cook Inlet,  with a specific focus on                                                                    
     the following points:                                                                                                      
     First,  I want  to  emphasize  that, specifically  with                                                                    
     regard to  what BlueCrest is  doing in the  Cook Inlet,                                                                    
     the tax credit program  is an extremely good investment                                                                    
     for the State.                                                                                                             
     Second, the State's  investment in Cosmopolitan through                                                                    
     the  credit  program  will provide  significant  future                                                                    
     positive value  to the State,  even at low  oil prices.                                                                    
     And  it  is  the  State's investment  through  the  tax                                                                    
     credits   that   has   facilitated   success   in   the                                                                    
     Cosmopolitan  Unit.  I'm going  to  show  you that  the                                                                    
     State's  investments in  the  Cosmopolitan tax  credits                                                                    
     will provide  high returns even  at low oil  prices. In                                                                    
     fact,  the tax  credit  investments  under the  current                                                                    
     laws  can actually  provide higher  rates of  return to                                                                    
     the  State   than  the   average  investments   in  the                                                                    
     Permanent Fund.                                                                                                            
     Third, I will speak to  several specific issues we have                                                                    
     identified in SB 130 and the CS from Resources.                                                                            
     Slide 2:                                                                                                                   
     For your  reference, the  Cosmopolitan Unit  is located                                                                    
     about three  miles offshore  in the  Cook Inlet,  a few                                                                    
     miles  north of  Anchor  Point. All  of the  productive                                                                    
     area in the unit is on State leases.                                                                                       
     Slide 3:                                                                                                                   
     The   Cosmopolitan  Unit   actually  consists   of  two                                                                    
     separate  development  projects.   There  are  numerous                                                                    
     productive  gas  zones  directly above  underlying  oil                                                                    
     zones, and the gas reservoirs  are not connected to the                                                                    
     oil reservoirs.                                                                                                            
     We haven't yet started  developing the Cosmopolitan gas                                                                    
     zones.  The offshore  Cosmopolitan  gas development  is                                                                    
     now on hold, due to  economic questions on tax credits,                                                                    
     costs  and  confirmation  of  stable  long-term  market                                                                    
     But development  of the deeper oil  reservoirs was more                                                                    
     straightforward. And  two years  ago, based on  the tax                                                                    
     regime  in  the  Cook  Inlet  under  current  laws,  we                                                                    
     committed  to begin  development of  the oil  reserves.                                                                    
     BlueCrest is  a small  private company with  a singular                                                                    
     focus of  developing the Cosmopolitan Unit,  and we are                                                                    
     very  careful in  development  of  our business  plans.                                                                    
     This is  a large project  for our company, and  we were                                                                    
     faced with the challenge of  how to pay for development                                                                    
     of the  new field.  We teamed  up with  a group  of oil                                                                    
     industry investors,  and we very carefully  created our                                                                    
     plan  with  them  for   financing  the  development  of                                                                    
     Slide 4:                                                                                                                   
     I  have   shown  this  conceptual  slide   in  previous                                                                    
     testimony,  so I  won't go  into the  details. However,                                                                    
     the main  point to  see here  is that  any oil  and gas                                                                    
     development  is  a long  process.  It  takes a  lot  of                                                                    
     spending  just  to  get  to  the  point  where  we  are                                                                    
     bringing  in enough  cash to  cover  our monthly  costs                                                                    
     without additional investment or borrowing.                                                                                
     We  estimate that  it will  have  taken investments  of                                                                    
     over   $500   million   to   reach   that   point   for                                                                    
     Cosmopolitan, and BlueCrest is  within about 6-9 months                                                                    
     of getting there.                                                                                                          
     As you  can see, we still  have considerable additional                                                                    
     investments to make  in drilling a few  new wells later                                                                    
     this year  that should provide  enough cash flow  to at                                                                    
     least  make our  debt service  payments going  forward.                                                                    
     And we've already committed to  that spending, based on                                                                    
     the  existing tax  credit structure.  So the  timing of                                                                    
     any changes over the next  few months is very important                                                                    
     to us.                                                                                                                     
     Slide 5:                                                                                                                   
     So  let's talk  specifically about  Cosmopolitan. We've                                                                    
     been  working  on  the oil  development  for  over  two                                                                    
     years, and right now, we  are literally a few days away                                                                    
     from  the  very  first commercial  production  of  oil.                                                                    
     Next,  we will  bring in  our new  specialized drilling                                                                    
     rig  and  start drilling  new  wells  to bring  on  the                                                                    
     production  that  can  finally  start  paying  off  our                                                                    
     loans.  And that  new drilling  cannot begin  until the                                                                    
     second half of this year.                                                                                                  
     These  photos show  the progress  we have  made so  far                                                                    
     with the  onshore Cosmo production facility.  The total                                                                    
     site is 38  acres, and contains the drill  sites for up                                                                    
     to 20 wells  and the facilities to process  the oil. We                                                                    
     are almost  complete in  our construction  process, and                                                                    
     we are  now running the final  operational tests today.                                                                    
     We will  have our  new drilling rig  in place  to begin                                                                    
     drilling the new wells by July 1 of this year.                                                                             
     Slide 6:                                                                                                                   
     So  let's  look   at  what  the  tax   credits  from  a                                                                    
     successful   development   project  like   Cosmopolitan                                                                    
     actually mean to Alaska. When  the tax credits are used                                                                    
     for development  of new proven  reserves in  the State,                                                                    
     they  are  - without  question  -  a valuable  low-risk                                                                    
     investment.  The tax  credits make  new projects  work,                                                                    
     and  they bring  new sources  of long-term  revenues to                                                                    
     the State  for decades  into the  future. At  Cosmo, we                                                                    
     are sitting  on a large  proven resource of  future oil                                                                    
     and  gas  that  now   simply  requires  additional  new                                                                    
     investments to bring it to full production.                                                                                
     On February  19, the DOR  provided its analysis  of the                                                                    
     financial impact to  the State on development  of a new                                                                    
     Cook  Inlet oil  field,  assuming that  no changes  are                                                                    
     ever  made to  the  existing tax  laws. DOR's  analysis                                                                    
     modeled an  "example" Cook Inlet field  that happens to                                                                    
     be  somewhat  similar to  Cosmopolitan  -  but is  more                                                                    
     expensive   and  less   productive   than  the   actual                                                                    
     Cosmopolitan    oil   development.    So   the    DOR's                                                                    
     calculations are, in fact,  conservative with regard to                                                                    
     Slide 7:                                                                                                                   
     This chart  is a  summary of  the calculations  the DOR                                                                    
     provided for their "example" field.  It shows the total                                                                    
     net   future  benefit   received  by   the  State   and                                                                    
     municipalities,  as a  function of  various future  oil                                                                    
     prices.  It  shows  that, even  for  this  conservative                                                                    
     example,  the  State would  receive  back  100% of  its                                                                    
     investments in the  tax credits if oil  prices over the                                                                    
     entire  field life  average only  about $35  per barrel                                                                    
     (assuming no changes to the  current law). At about $59                                                                    
     per barrel  average oil price, the  State would receive                                                                    
     back triple its investment in the tax credits.                                                                             
     Slide 8:                                                                                                                   
     The    DOR     also    provided    discounted-cash-flow                                                                    
     calculations for  this example  field, with  a head-to-                                                                    
     head  comparison to  the investments  by the  Permanent                                                                    
     Fund. At  any point  on this  chart greater  than zero,                                                                    
     the  State  would  earn a  better  return  through  its                                                                    
     investments in the tax credits  than its investments in                                                                    
     the Permanent Fund.                                                                                                        
     This chart  shows that,  even in  the case  where there                                                                    
     are never  any changes  to the tax  system in  the Cook                                                                    
     Inlet, the State's investment in  those tax credits for                                                                    
     the  example field  is still  better  than the  average                                                                    
     investment in the Permanent                                                                                                
     Fund  as long  as oil  prices  over the  next 30  years                                                                    
     average only $44 per barrel.                                                                                               
     Slide 9:                                                                                                                   
     Now I'd like to  show you BlueCrest's internal analysis                                                                    
     of  the value  to the  State in  keeping the  Qualified                                                                    
     Capital  and Well  Lease  Expenditure  credits as  they                                                                    
     apply  to new  oil  wells drilled  at Cosmopolitan.  We                                                                    
     projected  the   net  return  to  the   State  using  a                                                                    
     conservative    calculation    including    only    the                                                                    
     incremental  royalty for  each single  new Cosmopolitan                                                                    
     oil well drilled.                                                                                                          
     This chart  shows the  calculated return  on investment                                                                    
     to the  State from the  WLE and  QCE. A 100%  return on                                                                    
     investment means that  100% of the tax  credit would be                                                                    
     repaid to  the State  at an average  oil price  of only                                                                    
     $24 per  barrel. At  $40 per  barrel, the  total return                                                                    
     would be about 170%, and  at $60 per barrel, the return                                                                    
     would  be  about  250%.  So  you  can  see  that  these                                                                    
     credits, at  least for Cosmo,  are likely to be  a very                                                                    
     good low-risk investment for the State.                                                                                    
     Slide 10:                                                                                                                  
     The bottom  line here  is that, in  periods of  low oil                                                                    
     prices, the  QCE and WLE  credits allow us  to continue                                                                    
     drilling  the Cosmopolitan  oil wells  at approximately                                                                    
     $10 lower oil prices than  without the credits. This is                                                                    
     likely  to be  an important  factor over  the next  few                                                                    
     years and may allow us  to continue drilling instead of                                                                    
     shutting down the rig.                                                                                                     
     For us,  the NOL credit  is less important as  we begin                                                                    
     producing.   So   the   most   important   credit   for                                                                    
     continuation of  drilling in  a development  like Cosmo                                                                    
     is the WLE.                                                                                                                
     Slide 11:                                                                                                                  
     Under the CS, the  tax credit repurchases would receive                                                                    
     priority  for  payment  based   on  the  resident  hire                                                                    
     percentage in the prior year.  While we certainly agree                                                                    
     that  we  want to  hire  Alaskans  for our  operations,                                                                    
     imposition  of any  reductions in  credit payments  for                                                                    
     expenditures  that were  made  prior  to the  effective                                                                    
     date of a new law is truly a retroactive tax change.                                                                       
     For credits  filed in 2016 (for  2015 expenditures) and                                                                    
     those  filed in  2017 (for  2016 expenditures  prior to                                                                    
     the new  law taking effect),  there would have  been no                                                                    
     way  for   us  to  even  keep   records.  Retroactively                                                                    
     changing  the laws  is  grossly  unreasonable. If  this                                                                    
     provision is  adopted, a longer transition  time should                                                                    
     be considered.                                                                                                             
     Slide 12:                                                                                                                  
     For  the record,  BlueCrest  is  strongly committed  to                                                                    
     hiring Alaskans. At  this point, 100% of  all our long-                                                                    
     term operations employees are  Alaskans. But making the                                                                    
     future credit  payments subject to  hiring in  the past                                                                    
     is probably  impossible to even  measure. We can  do it                                                                    
     going  forward, but  I don't  know  how we  go back  in                                                                    
     Slide 13:                                                                                                                  
     Another factor  in SB 130  was setting a  limitation in                                                                    
     the credits  that can be  paid annually. If  this limit                                                                    
     is too low, it would  be particularly damaging to small                                                                    
     companies like  BlueCrest who have already  invested in                                                                    
     good faith, based  on the tax policy  in existence when                                                                    
     we entered  into the  commitments for  our investments.                                                                    
     We came  to Alaska  based on  the credits.  We invested                                                                    
     our  cash, and  we have  borrowed  a lot  of money  and                                                                    
     committed to  spending a  lot more -  all based  on the                                                                    
     tax credits.  And the  timing of  the receipt  of those                                                                    
     payments for  the credits is  paramount in  our ability                                                                    
     to make  the payments  on the  loan obtained  for those                                                                    
     Slide 14:                                                                                                                  
     Most important of any of  these provisions to BlueCrest                                                                    
     is  the  timing  of   implementation  of  any  changes,                                                                    
     whatever  they  may  be.  It  is  now  April,  and  the                                                                    
     proposed changes  in the  original SB130  were supposed                                                                    
     to  take place  on July  1. The  CS has  somewhat moved                                                                    
     that date back, which would  certainly help but may not                                                                    
     completely solve the problem.                                                                                              
     It's  important  to  understand that,  before  we  ever                                                                    
     started the oil development  project, we made sure that                                                                    
     we  would have  enough funds  to allow  us to  complete                                                                    
     construction  of  the  onshore drill  site,  production                                                                    
     facilities, bring in the most  powerful drilling rig in                                                                    
     Alaska, and  use that rig  to drill at least  the first                                                                    
     two new  oil wells.  We calculated  that we  would need                                                                    
     approximately  $525  million  to reach  that  point  of                                                                    
     self-sufficiency  (where  we  no longer  have  to  keep                                                                    
     borrowing additional  money to  put into  the project).                                                                    
     The timing  here is very  important, because  we expect                                                                    
     that should happen in the first half of 2017.                                                                              
     As I  mentioned a  few minutes  ago, based  on existing                                                                    
     law, we  very carefully  planned how  we could  pay for                                                                    
     development  of  the  Cosmo   project  before  we  ever                                                                    
     started. Our  shareholders invested  approximately $200                                                                    
     million  in cash.  We borrowed  $30 million  from AIDEA                                                                    
     for a  loan on  the drilling  rig (kind  of like  a car                                                                    
     loan but for a drilling  rig). We have already received                                                                    
     a total  of $24 million  to date in tax  credits. Under                                                                    
     current  laws,  $121  million would  come  from  future                                                                    
     payment of  credits earned for  2015 and  2016 spending                                                                    
     (that's the total  for two years). We then  made up the                                                                    
     difference  by securing  a  $150 million  high-interest                                                                    
     development loan. We  have spent a lot of  money to get                                                                    
     to the point where we  can now start drilling these new                                                                    
     wells, but an abrupt termination  of the tax credits on                                                                    
     which  we  have  based our  entire  financial  planning                                                                    
     would be devastating. Any reduction  in the credits for                                                                    
     our  spending through  at least  early 2017  would mean                                                                    
     that  we have  to come  up  with that  money from  some                                                                    
     other  source.  That's  not  easy  in  this  oil  price                                                                    
    environment, and it may just simply be unworkable.                                                                          
     We have finally  reached the point -  by completing all                                                                    
     this  work and  spending all  this money-  to where  we                                                                    
     will finally have our rig  ready to drill in the second                                                                    
     half  of this  year. We  need the  production from  the                                                                    
     first new wells  to pay for the costs we  have spent so                                                                    
     far.  Those drilling  costs -  at  least through  early                                                                    
     2017 - are  all based upon the assumption  that we will                                                                    
     be able  to obtain the  credits under existing  law for                                                                    
     those  investments.  We have  done  all  this work  and                                                                    
     spent  all  this  money  to date,  and  it  seems  only                                                                    
     reasonable  for us  to be  able to  claim the  existing                                                                    
     credits  for the  spending that  is the  result of  our                                                                    
     investments  based on  the expectation  that the  State                                                                    
     would honor  its share of  the investments. We  need to                                                                    
     be able  to be able to  get to the finish  line. If the                                                                    
     date for  changes is too  soon, we won't have  the full                                                                    
     funding  for finishing  the project,  although we  have                                                                    
     already  committed  those   investments.  We've  signed                                                                    
     contracts, bought  a drilling  rig, built  facilities -                                                                    
     all based on the current laws in effect.                                                                                   
     Slide 15:                                                                                                                  
     In conclusion,  I'd like to reemphasize  the importance                                                                    
     of  phasing-into any  changes  over  a reasonable  time                                                                    
     Everyone  in  Alaska  understands   that  when  we  are                                                                    
     driving  on  slippery  icy roads,  the  most  dangerous                                                                    
     thing we can do is suddenly slam on the brakes.                                                                            
     Thank you.                                                                                                                 
6:33:44 PM                                                                                                                    
Co-Chair  MacKinnon pointed  to slide  14 and  mentioned the                                                                    
Alaska Industrial  Development and Export  Authority (AIDEA)                                                                    
loan that the  state provided for $30  million. She wondered                                                                    
if the  development loan was  with an entity other  than the                                                                    
State of Alaska.                                                                                                                
Mr. Johnson responded, "Yes, the development loan is with a                                                                     
private lender".                                                                                                                
Co-Chair MacKinnon referred to the tax credits received to-                                                                     
date wondering if she should subtract the amount from the                                                                       
2015-2016 time period or if it was in addition.                                                                                 
Mr. Johnson  replied that  it was in  addition and  that the                                                                    
total credits  associated with the project  would equal $145                                                                    
Co-Chair MacKinnon wanted to confirm her math.                                                                                  
Vice-Chair  Micciche  asked  if Mr.  Johnson  could  provide                                                                    
slide  7 and  slide  8 without  the  municipal revenues.  He                                                                    
wanted to see the state royalty figures by themselves.                                                                          
Mr. Johnson explained  that the slides were a  result of the                                                                    
Department  of Revenue's  calculations. He  thought Director                                                                    
Alper would  be able to  supply the information. He  did not                                                                    
have the underlying data, only the final numbers.                                                                               
6:35:48 PM                                                                                                                    
BRUCE   WEBB,  FURIE   OPERATING   ALASKA,  ANCHORAGE   (via                                                                    
teleconference),  relayed  that  Furie came  into  existence                                                                    
through  Escopeta  Oil Company  in  2010.  Since that  time,                                                                    
Furie  brought  the  first  jack-up  rig  to  Alaska.  Furie                                                                    
recently installed  the first offshore  platform in  about 2                                                                    
decades. It  was comprised  of 16  miles of  subsea pipeline                                                                    
and a new  gas processing facility in  Nikiski, Alaska. Over                                                                    
the previous 5 years  the company had invested approximately                                                                    
$700  million   in  the  wells,  pipeline,   and  processing                                                                    
facility.  During  the  peak  of  construction  the  company                                                                    
employed over 300  people in Alaska and  invested about $200                                                                    
million. He mentioned  that the offshore season  in the Cook                                                                    
Inlet was  from April  15th to October  31st of  every year.                                                                    
During  the  period outside  of  the  drilling season  Furie                                                                    
still had to  pay for storage for the  jack-up drilling rig.                                                                    
Offshore development  was very  expensive. At  the beginning                                                                    
of  the  project Furie  viewed  the  State  of Alaska  as  a                                                                    
partner.  The company  made all  of its  financial decisions                                                                    
based on the tax system in effect at the time.                                                                                  
Mr. Webb continued that the  result of the company's impacts                                                                    
on exploration and development was  the local Cook Inlet gas                                                                    
market.  The company  recently signed  contracts with  Homer                                                                    
Electric Association,  Inc. and ENSTAR Natural  Gas Company.                                                                    
As a result  of those contracts beginning in  April 2016 the                                                                    
cost  of energy  to  consumers in  the  Kenai Peninsula  was                                                                    
lowered by  12 percent. In 2018  the cost would be  about 16                                                                    
percent  lower than  the  cost in  2015.  He furthered  that                                                                    
Furies'  contract  with  ENSTAR Natural  Gas  Company  would                                                                    
begin in 2018. In 2018 the  cost of gas to ENSTAR customers,                                                                    
roughly half of  the population of Alaska,  would be reduced                                                                    
by 17  percent. Aside  from the  direct influence  Furie has                                                                    
had on  the local gas  market the  company had also  seen it                                                                    
trickle  down to  other companies.  The  Chugach Electric  -                                                                    
Hilcorp contract  resulted and  would lead  to an  8 percent                                                                    
reduction  in costs  to their  customers. He  explained that                                                                    
the reductions were  due to the competition  Furie and other                                                                    
small independents brought to the market.                                                                                       
Mr. Webb  opined that without  the tax credit  program Furie                                                                    
would  not   have  been  able  to   undertake  the  project.                                                                    
Otherwise, it  would have  been too  risky in  the beginning                                                                    
and too  expensive towards the  end of development.  The tax                                                                    
program  was  needed  in order  to  meet  obligations  Furie                                                                    
entered  into  years ago.  Going  forward,  if there  was  a                                                                    
change  in the  tax credit  program the  company would  have                                                                    
time to  adjust. He noted  that the way the  governor's bill                                                                    
was  currently  structured.  The tax  credit  program  would                                                                    
change  in 2016  and would  be devastating  to the  company.                                                                    
Some  certainty through  the rest  of the  current year  was                                                                    
necessary  in order  for Furie  to  fulfill its  commitments                                                                    
that were made in 2013 and  2014. He deferred to David Elder                                                                    
to provide further testimony on Furie's behalf.                                                                                 
6:39:37 PM                                                                                                                    
DAVID  ELDER, CEO,  FURIE OPERATING  ALASKA, HOUSTON,  TEXAS                                                                    
(via teleconference),  had three important points  he wanted                                                                    
to cover in  terms of tax credits and  the proposed changes.                                                                    
The tax  credits were intended  to incentivize  companies to                                                                    
make investments  in the industry.  Furie moved  quickly and                                                                    
raised capital  to come to  Alaska. The company  brought the                                                                    
first  major production  to Nikiski  and the  Anchorage area                                                                    
from the Cook Inlet since the 80's.                                                                                             
Mr. Elder relayed  his second point. Furie was  in the final                                                                    
phases  of  its  project  that began  in  2013.  In  Furie's                                                                    
business  it had  to plan  several years  ahead in  order to                                                                    
meet logistics of  such a project. In  addition, the company                                                                    
had to  enter into financing  commitments in 2013  and 2014.                                                                    
Furie needed certainty going forward  and the opportunity to                                                                    
at least finish what it started based on the existing law.                                                                      
Mr. Elder' third point was that  the tax credits had been an                                                                    
important  source  of liquidity  and  had  enabled Furie,  a                                                                    
development   stage   company,    to   obtained   economical                                                                    
financing. Thanks to  the tax credit program  Furie had seen                                                                    
its financing  costs drop from  about a 20 percent  range to                                                                    
an 8 percent financing cost.  As a result of the uncertainty                                                                    
of  what legislation  might pass  and whether  credits filed                                                                    
for  in  the  previous  year  would be  paid,  it  was  more                                                                    
difficult to  secure financing. People had  pulled away from                                                                    
the markets.  The most recent  bid for financing off  of the                                                                    
current year's tax credits was  about 60 percent of the face                                                                    
value of  the credits.  He was  certain the  legislature and                                                                    
the  people of  Alaska would  rather see  the additional  40                                                                    
percent  invested  in  important infrastructure  and  energy                                                                    
production  which  would  result  in  employment  and  other                                                                    
activities.   Moving   forward,   Furie   was   asking   the                                                                    
legislature  for  some  certainty  to make  sure  Furie  was                                                                    
funded  for  expenditures  already  made and  to  allow  the                                                                    
company to complete the project  without mid-year changes to                                                                    
the tax credit structure. He was available for questions.                                                                       
Co-Chair MacKinnon  indicated that  there were  no questions                                                                    
for members and  thanked him for his  statement. She invited                                                                    
the next testifier to begin his testimony.                                                                                      
6:43:25 PM                                                                                                                    
TONY IZZO, GENERAL  MANAGER, MATANUSKA ELECTRIC ASSOCIATION,                                                                    
ANCHORAGE (via  teleconference), explained that  the utility                                                                    
was  the  second  largest electric  utility  and  the  third                                                                    
largest  buyer  of  natural  gas  in  the  Cook  Inlet.  His                                                                    
background  included  having  been  at  ENSTAR  Natural  Gas                                                                    
(ENSTAR) from  the late 90's  to about 2007, serving  as the                                                                    
president  from   2001  through  2006.  His   testimony  was                                                                    
intended to  give his perspective as  a buyer of gas  in the                                                                    
Cook Inlet  and about cause  and effect. The business  was a                                                                    
long  lead  time  capital-intensive business.  He  spoke  to                                                                    
witnessing the changes in the  Cook Inlet market. He noticed                                                                    
that the  excess natural gas discovered  while exploring for                                                                    
oil in  the late  50's and  60's was coming  to an  end. Gas                                                                    
could not  be purchased under  the terms the state  had been                                                                    
able to  for prior decades nor  could gas be found  for sale                                                                    
under legacy  terms. He  continued that  something different                                                                    
occurred  when the  market  shifted -  a  Henry Hubb  linked                                                                    
contract in the  amount of 450 Bcf [billions  of cubic feet]                                                                    
was entered into in 2000 or  2001. It had a trailing average                                                                    
of  Lower 48  prices which  was currently  in the  $2 range.                                                                    
Unfortunately, regulators,  some members of the  public, and                                                                    
certain legislators responded  negatively about linking Cook                                                                    
Inlet  gas to  a market  that the  state was  not physically                                                                    
connected to.  As a buyer  he was negotiating  with entities                                                                    
based outside of  Alaska who had choices of  where they were                                                                    
going to invest their capital  such as Alaska, the Lower 48,                                                                    
or in other  places in the world. He reported  being able to                                                                    
enter into  a long-term  contract that required  millions of                                                                    
dollars in  investment. He thought  the number  was exceeded                                                                    
by a  factor of three. As  a result of some  negative public                                                                    
reactions to  prices being  linked to  the Lower  48, ENSTAR                                                                    
entered  into   another  36-month  contract  in   2005  with                                                                    
Marathon  and   would  have  filled  all   of  ENSTAR's  gas                                                                    
requirements  through  2016  at  a price  of  the  12  month                                                                    
trailing  average  of  the  Lower  48. As  a  buyer  he  was                                                                    
currently  paying $7.42  for gas.  If Lower  48 prices  were                                                                    
available he would  pay about $2.00 for  gas. The perception                                                                    
of the  contract and the  pricing mechanism was  so negative                                                                    
that it was not approved. He  observed that the state sent a                                                                    
signal to the market and to  investors that it was no longer                                                                    
open  for  business.  Over  the   following  few  years  the                                                                    
investments slowly  dried up  and assets  in the  inlet were                                                                    
sold. In 2009 and 2010  the utility was looking at importing                                                                    
LNG because  only 20 percent  of the contract  fulfilled the                                                                    
utility's demand  for more than 1  or 2 years at  a time. To                                                                    
the  legislature's  credit  the   Cook  Inlet  Recovery  Act                                                                    
created and fostered an  environment that brought investment                                                                    
and  new players  back to  Alaska.  He found  that prior  to                                                                    
Hilcorp purchasing the Marathon  and Chevron assets he could                                                                    
only purchase 20 percent to  25 percent of the gas Matanuska                                                                    
Electric at  about $10  per MCF  [million cubic  feet]. Upon                                                                    
Hilcorp's  arrival  in  the aging  and  mature  fields  they                                                                    
improved  production  and  made  gas  supply  available  for                                                                    
purchase to utilities through  2018 which Matanuska Electric                                                                    
took part.                                                                                                                      
6:49:30 PM                                                                                                                    
Mr.  Izzo continued  that the  price was  negotiated by  the                                                                    
attorney  general  through a  consent  decree  to address  a                                                                    
Federal  Trade Commission  concern. He  thought Hilcorp  had                                                                    
done  a great  job.  However, currently  the  state had  new                                                                    
players  investing real  capitol.  He reviewed  some of  the                                                                    
industry companies  that have brought on  production. He was                                                                    
afraid  of sending  the wrong  signal to  industry investors                                                                    
which  would  likely  lead  to   dried  up  investment.  The                                                                    
unintended consequence  was insecurity. He thought  the good                                                                    
and  bad  news  was  that the  state  had  temporary  energy                                                                    
security.  Many of  the new  reserves were  not behind  pipe                                                                    
which required millions of dollars  in investments. It would                                                                    
be  in the  better  interest  of his  customers  for him  to                                                                    
purchase  imported  LNG at  the  right  price than  to  risk                                                                    
entering  into the  exploration and  production business  to                                                                    
bring new reserves  online. He concluded that,  based on his                                                                    
experience, uncertainty  was the  enemy of  energy security.                                                                    
He believed the state was  very close to seeing real results                                                                    
from  the Cook  Inlet Recovery  Act and  the tax  credits in                                                                    
place  currently.  He  clarified his  understanding  of  the                                                                    
monumental  task   before  the  legislature   regarding  the                                                                    
state's  fiscal gap.  He hoped  the  legislature would  take                                                                    
action that  would minimize uncertainty  and help to  get to                                                                    
the results that were sought in growing the market.                                                                             
6:52:41 PM                                                                                                                    
Co-Chair  MacKinnon  wondered   if  the  legislature  should                                                                    
institute a  tax on all rate  payers so the state  could pay                                                                    
the credits to secure the energy.                                                                                               
Mr. Izzo replied that a tax  would be like a fuel surcharge.                                                                    
He was  not taking  a position that  the state  should leave                                                                    
the  credits   alone  or  significantly  change   them.  His                                                                    
recommendation was that whatever  action, it should be taken                                                                    
sooner rather than later to  eliminate uncertainty. He added                                                                    
that when the governor postponed  paying the $200 million in                                                                    
tax  credits  with  a  veto a  gas  deal  between  Matanuska                                                                    
Electric and a new Cook  Inlet producer evaporated. It was a                                                                    
combined supply  with another utility that  would have saved                                                                    
$10 million per year.                                                                                                           
SCOTT  JEPSON,  VICE  PRESIDENT,  EXTERNAL  AFFAIRS,  CONOCO                                                                    
PHILLIPS, ANCHORAGE (via  teleconference), noted that Conoco                                                                    
Phillips  was  not  a  member of  AOGA.  He  introduced  the                                                                    
PowerPoint presentation,  "Senate Finance  Committee CSSB130                                                                    
- April 13,  2016." He turned to slide 2:  "Agenda." He took                                                                    
a few  minutes to  discuss the current  economic environment                                                                    
and  what   had  happened  since   the  passage  of   SB  21                                                                    
[Legislation  passed in  2013  - Short  Title:  Oil and  Gas                                                                    
Production Tax]. He  relayed he would also  be talking about                                                                    
the  company's   concerns  with  SB130  and   the  committee                                                                    
Mr. Jepsen  addressed slide 3, "Activities  Since Tax Reform                                                                    
(MAPA)  Passed."  He reported  that  since  MAPA was  passed                                                                    
Conoco  Phillips had  followed through  on what  the company                                                                    
stated  could  happen  with  a  more  attractive  investment                                                                    
climate on the  North Slope. The company had  added a number                                                                    
of rigs to  its fleet as well as two  new-build rigs. Conoco                                                                    
had taken delivery  of one of the rigs and  was expecting to                                                                    
take possession  of the  second later  in the  current year.                                                                    
Since the passage of SB 21  the company had gone from 3 rigs                                                                    
in the  western North  Slope rig  fleet to  between 5  and 6                                                                    
rigs.  Currently, Conoco  had 4  running  and anticipated  5                                                                    
running later  in the year when  it took delivery of  one of                                                                    
its new rigs.                                                                                                                   
Mr. Jepsen continued  reporting that Conoco only  had 3 rigs                                                                    
operating  in  the  remainder  of  the  United  States.  The                                                                    
company's   activities  in   Alaska  were   differential  at                                                                    
present.  He had  a list  of other  investments that  Conoco                                                                    
Phillips had made  since the passage of SB 21.  He would not                                                                    
review  it  but  would  briefly discuss  activities  in  the                                                                    
National  Petroleum  Reserve   Alaska  (NPRA).  The  company                                                                    
currently  had  a new  field  in  progress, Greater  Moose's                                                                    
Tooth 1  (GMT1), and  there was another  field 9  miles from                                                                    
GMT1 called Greater Moose's Tooth  2 (GMT2) which was in the                                                                    
process of being  permitted. He noted that  none of Conoco's                                                                    
new fields that  came on stream since SB 21  was passed were                                                                    
receiving  the  gross value  reduction  (GVR).  Some of  the                                                                    
production on  CD5 and drill  site 2S could qualify  for the                                                                    
GVR.  However, some  of the  requirements necessary  made it                                                                    
not cost effective for Conoco to pursue.                                                                                        
6:57:14 PM                                                                                                                    
Mr. Jepsen  advanced to slide 4,  "Capital Spending Trends."                                                                    
He  explained that  the slide  addressed what  was happening                                                                    
with the capital spend as  a corporation operating in Alaska                                                                    
as well as oil price.  He figured everyone was very familiar                                                                    
with what  had happened with  oil prices. He pointed  to the                                                                    
plot in the upper left-hand  corner which showed the effects                                                                    
of  the   decrease  in  oil   prices  on   Conoco's  capital                                                                    
investment. There  was a commensurate drop  in the company's                                                                    
capital investments. On the right-hand  side there were some                                                                    
statistics  outlining the  company's  activities in  Alaska.                                                                    
The company's  capital spend peaked  in 2014, but  even with                                                                    
the  decline in  oil  prices it  still anticipated  spending                                                                    
about $1  billion in  2016. He noted  that the  amount spent                                                                    
during  the  years of  Alaska's  Clear  and Equitable  Share                                                                    
(ACES),  a time  when oil  prices were  considerably higher,                                                                    
was  about  25  percent  less  that  in  2016.  He  directed                                                                    
attention to  the bottom right-hand  part of the  slide that                                                                    
showed  what percentage  of Conoco's  corporate capital  was                                                                    
being spent in  Alaska. It was clear the  company was making                                                                    
a substantial investment in the state.                                                                                          
Mr.  Jepsen  discussed  slide   5,  "North  Slope  Investors                                                                    
Negative at  Current Pricing." He  explained that  the slide                                                                    
was derived  from the  2016 Revenue  Sources Book.  The left                                                                    
side, the "Y"  axis, represented net cash flow,  and the "X"                                                                    
axis represented ANS West Coast  price. The chart showed the                                                                    
relative position of the state  compared to the producers at                                                                    
current  pricing  as  prices increased.  Regardless  of  oil                                                                    
price the state was always  in a positive cash flow position                                                                    
excluding reimbursable  tax credits that might  pay out. The                                                                    
chart did not  include the tax credits but  included the per                                                                    
barrel  credits.  Investors were  in  a  negative cash  flow                                                                    
position. He  stressed that it  would difficult  to increase                                                                    
taxes  on an  industry  that  was in  a  negative cash  flow                                                                    
position without  it impacting investments. In  2015, Conoco                                                                    
Phillips experienced a negative cash  flow of more than a $1                                                                    
million negative  cash flow in  Alaska. The company  did not                                                                    
incur any net operating losses  (NOL's). He was uncertain if                                                                    
the company would be in the same position in 2016.                                                                              
6:59:41 PM                                                                                                                    
PAUL  RUSCH,   VICE  PRESIDENT,  FINANCE   DIVISION,  CONOCO                                                                    
PHILLIPS,  ANCHORAGE (via  teleconference), turned  to slide                                                                    
6,  "Key Concerns  with  Original SB  130  Bill." The  slide                                                                    
identified  areas associated  with  SB 130  that caused  the                                                                    
greatest concerns  for Conoco Phillips and  had the greatest                                                                    
potential  to negatively  impact its  investment in  Alaska.                                                                    
His comments would  address the original bill  but, he would                                                                    
make a  few comments regarding the  committee substitute. He                                                                    
relayed  that the  case  made against  the  increase in  the                                                                    
minimum  from  4  percent  to  5 percent  was  made  in  the                                                                    
previous  slide.   He  reiterated  that  the   industry  was                                                                    
currently in a negative cash  flow position and would remain                                                                    
so  at prices  up to  approximately $50  per barrel  of oil.                                                                    
Increasing taxes  while the company was  experiencing losses                                                                    
would lead to reduced investment.                                                                                               
Mr. Rusch next  argued that hardening the  minimum tax floor                                                                    
effectively served as a tax  increase. Under SB 21 companies                                                                    
were  currently  allowed  to  reduce  their  tax  below  the                                                                    
minimum  with  the  use of  NOL's  resulting  directly  from                                                                    
losses businesses  were incurring in Alaska.  The particular                                                                    
treatment was  consistent with federal income  tax treatment                                                                    
which  allowed recognition  of losses  and  periods where  a                                                                    
company was  no longer  in a  loss position.  Eliminating or                                                                    
delaying  the use  of the  NOL's would  result in  companies                                                                    
reducing  expenditures in  Alaska  for which  they would  no                                                                    
longer  be receiving  a tax  deduction. Although  it was  an                                                                    
important issue for the industry  to help support investment                                                                    
during  periods  of  low  prices, the  size  of  the  future                                                                    
obligation had  likely been exaggerated  by the DOR  in some                                                                    
of their  recent testimony. There were  companies that would                                                                    
adjust  to  the  lower  prices and  would  not  continue  to                                                                    
experience losses  at the projected levels.  Conoco Phillips                                                                    
did not  have an NOL  in 2015  and current prices  were more                                                                    
Mr.  Rusch  moved to  the  next  item which  surrounded  the                                                                    
increase  in   the  interest   rate.  He   highlighted  that                                                                    
increasing the  interest rate on  lower or under  paid taxes                                                                    
was an issue due to  the lengthy time involved in completing                                                                    
and closing out audits. The  issue was caused by the current                                                                    
6-year  statute  of  limitations. He  provided  two  related                                                                    
examples. Conoco  Phillips just  recently received  its 2009                                                                    
production  tax audit  -  6  years and  3  months after  the                                                                    
completion  of  the  tax year.  The  company  also  recently                                                                    
closed out  its 2006  production tax audit  - 9  years after                                                                    
the end of the audit. It  could lead to tax assessments when                                                                    
the  interest component  was  as much  or  greater than  the                                                                    
underlying audit  findings. The Senate  Resources' committee                                                                    
substitute was  an improvement, as  it reduced  the interest                                                                    
period to 3  years and could lead to  shorter audit periods.                                                                    
The company was concerned  that the applicable interest rate                                                                    
was still  too high.  The federal  rate was  approximately 3                                                                    
percent compared to the 7  percent plus the federal discount                                                                    
rate in the committee substitute.                                                                                               
Mr. Rusch argued that restricting  the use of per barrel and                                                                    
other  tax  credits to  a  specific  month contradicted  the                                                                    
underlying principle  of an  annual tax.  He noted  that the                                                                    
slide  referenced  per  barrel credits.  However,  expressed                                                                    
earlier  in  Exon's  testimony,   it  potentially  had  much                                                                    
broader implications.  It was discussed  in detail  in prior                                                                    
testimony by the DOR. The  concern the department raised was                                                                    
that  companies were  migrating per  barrel credits  between                                                                    
months.  Conoco  Phillips   completely  disagreed  with  the                                                                    
characterization.  It  was  clear  in the  statutes  and  in                                                                    
regulations that  the production tax  was a yearly  tax with                                                                    
monthly  installments made.  He  emphasized that  it was  an                                                                    
annual tax  and any  attempt to characterize  it differently                                                                    
was incorrect.  The proposed  changes by  the administration                                                                    
was a radical from the principle of a yearly tax.                                                                               
Mr.   Rusch  brought   up  that   the  confidentiality   and                                                                    
disclosure provisions  were much  too broad  in SB  130. The                                                                    
company  recognized  the  desire for  greater  transparency,                                                                    
particularly  around  reimbursable   credits.  As  currently                                                                    
written, SB 130 could potentially  lead to the disclosure of                                                                    
all  tax payer  information  which violated  competitiveness                                                                    
and  potentially conflicted  with Internal  Revenue Service,                                                                    
FCC, and other regulations.                                                                                                     
7:04:48 PM                                                                                                                    
Mr.  Jepsen   addressed  slide  7,   "Observations."  Conoco                                                                    
Phillips favored the committee  substitute over the original                                                                    
bill. However,  the company had some  concerns. First, there                                                                    
were  concerns about  the interest  terms.  There were  also                                                                    
concerns about  the time limitations  on the use of  the GVR                                                                    
which negatively  impacted the economics of  the development                                                                    
of  new oil  and would  be  a consideration  as the  company                                                                    
looked  at its  new investments.  He added  that it  did not                                                                    
help Alaska  compete in Conoco Phillips'  overall portfolio.                                                                    
He  also  questioned  the  impacts of  the  removal  of  the                                                                    
ceiling tax  on North Slope  gas used in-state.  The company                                                                    
was unclear about  the goal of the policy  and the potential                                                                    
impact of their business on the North Slope.                                                                                    
Mr.  Jepsen  concluded  that  there  had  been  several  tax                                                                    
changes in Alaska over the  previous ten years. He advocated                                                                    
for a stable,  durable fiscal policy for  oil investment and                                                                    
investment on  any major North  Slope gas project.  A stable                                                                    
tax regime  would foster  confidence and  further investment                                                                    
in the  state. It had  only been 19  months since SB  21 had                                                                    
been  ratified  by voters  and  another  change to  the  tax                                                                    
regime was  being contemplated. Conoco  Phillips appreciated                                                                    
the challenge legislators had in  front of them. His goal of                                                                    
the presentation  was to  provide some  insight in  terms of                                                                    
how tax policy affected the company's investments.                                                                              
Vice-Chair  Micciche wondered  about the  time limit  on the                                                                    
GVR  and  referred  to  slide 7.  He  noted  that  enalytica                                                                    
[Legislative  oil and  gas consultant]  had  shown that  the                                                                    
lower  the  price  of  oil,   the  greater  the  impact  for                                                                    
companies over  a longer period  of time. At a  higher price                                                                    
the limit  on the GVR  would have less  of an impact  on the                                                                    
value of  the project.  He wondered  if an  alternative time                                                                    
limit would be better.                                                                                                          
Mr.  Jepsen answered  that any  kind of  change to  the time                                                                    
limit was  negative. He thought  enalytica had done  work to                                                                    
show relative  impacts. He would  leave it to  the committee                                                                    
to  determine  the  appropriate  balance  point.  Obviously,                                                                    
anything   that  reduced   the  time   period  reduced   the                                                                    
competitiveness of the project.                                                                                                 
Co-Chair  MacKinnon  thanked   the  presenters  from  Conoco                                                                    
Phillips.  She  invited  the last  presenter  to  begin  his                                                                    
JARED GREEN,  PRESIDENT, ENSTAR NATURAL GAS,  ANCHORAGE (via                                                                    
teleconference),  introduced  the PowerPoint,  "Presentation                                                                    
to the  Senate Finance Committee,  April 13, 2016"  (copy on                                                                    
file). ENSTAR  was the largest  purchaser of natural  gas in                                                                    
the   Cook   Inlet.   Ultimately,   their   customers   were                                                                    
beneficiaries  of the  tax program  that had  been in  place                                                                    
since  2010. Their  customers depended  on natural  gas from                                                                    
the  Cook Inlet  to heat  their homes,  businesses, schools,                                                                    
hospitals, and industries.  Fundamentally, ENSTAR's interest                                                                    
was in the  fostering of a stable and  appealing natural gas                                                                    
environment  in   the  Cook  Inlet.  He   claimed  that  the                                                                    
environment needed to exist  in the short-term, medium-term,                                                                    
and the long-term.                                                                                                              
Mr. Green looked at slide 2, "Natural Gas Supply Needs."                                                                        
     141,075 Customers                                                                                                          
     Anchorage, Anchor Point, Big Lake, Girdwood, Homer,                                                                        
     Houston, Kenai, Palmer, Soldotna, Wasilla, and                                                                             
     33 Bcf/year                                                                                                                
     Peak deliverability 287 MMcf/day                                                                                           
ENSTAR's number one priority was  safe, reliable natural gas                                                                    
service to its  customers. The company was  founded in 1959,                                                                    
the same year as statehood.  On average their customers used                                                                    
about 33 BCF  of Natural gas per year. In  a warm year, such                                                                    
as the previous year, use could be  as low as 30 Bcf or in a                                                                    
cold year upwards  of 35 Bcf. Recently  enalytica prepared a                                                                    
report that indicated total state use at about 80 Bcf.                                                                          
7:09:22 PM                                                                                                                    
Mr.  Green  addressed  slide  3,  "Supply  and  Demand."  He                                                                    
remarked that ENSTAR had a  very high seasonality to its gas                                                                    
needs. The  company generally  varied by roughly  a 12  to 1                                                                    
ratio of winter  to summer gas needs which  meant that their                                                                    
customers burned about  12 times more gas on  average in the                                                                    
winter as what they did  in the summer. He reported ENSTAR's                                                                    
daily  variability.  Living in  Alaska  meant  living in  an                                                                    
environment that  could have substantial variability  in gas                                                                    
demands due  to weather.  With the current  company customer                                                                    
base they had  a potential daily demand of 287  Bcf per day.                                                                    
He  pointed  to  the  thin  red  line  on  the  graph  which                                                                    
represented the 287 Bcf per day.  Such a level of demand was                                                                    
likely to  occur in January  of any given year.  ENSTAR also                                                                    
had the  potential of meeting less  than 100 Bcf per  day if                                                                    
there was a warm spell happening  on the same day. There was                                                                    
a significant  variance to  what could  occur purely  due to                                                                    
weather. He  highlighted the  graph showing  the variability                                                                    
in their customers'  daily demand as well  as ENSTAR's daily                                                                    
supply through the years 2014  and 2015. The chart contained                                                                    
the actual data  which the company supplied gas  each of the                                                                    
days listed  for the years  listed. Each of the  natural gas                                                                    
suppliers  were  represented by  a  different  color on  the                                                                    
chart as  well as how much  gas was consumed on  each day in                                                                    
the  2-year  period represented    by  the black  line  that                                                                    
topped  off   the  chart.  He  noted   that  the  day-to-day                                                                    
variability was marked.  ENSTAR's customers' demands changed                                                                    
as weather changed  seen as the constant spike  up and down.                                                                    
The second piece  was the seasonal variability. The  12 to 1                                                                    
ration could be  seen with the summer troughs  and the hills                                                                    
through the winter.                                                                                                             
7:11:12 PM                                                                                                                    
Mr. Green looked at slide  4, "Supply Contracts 2016-23." He                                                                    
stated that  when ENSTAR planned  its natural  gas portfolio                                                                    
they  looked at  many years  in advance.  Operating in  such                                                                    
small,  closed  supply  networks  such  as  the  Cook  Inlet                                                                    
required very  long lead times.  The company needed  to know                                                                    
that there was firm gas  supply for their customers at least                                                                    
2 years  in advance. Anything  less put the market  place at                                                                    
risk of supply  shortages. In ENSTAR's business  they had to                                                                    
have gas available  for their customers on  the coldest days                                                                    
no matter the circumstance. He  expanded that when it was 20                                                                    
degrees  Fahrenheit below  zero  on a  dark January  evening                                                                    
every single one of 141,075  customers had to have their gas                                                                    
needs  met. Their  number of  customers represented  over 50                                                                    
percent of the population of Alaska.                                                                                            
Mr.  Green posed  the  question of  what it  meant  to be  a                                                                    
natural gas supplier  to ENSTAR. There was no  doubt that it                                                                    
was challenging to  supply natural gas in the  Cook Inlet in                                                                    
current times.  ENSTAR was the largest  purchaser of natural                                                                    
gas and they  had very demanding needs.  Between the storage                                                                    
facility, Cook  Inlet Natural  Gas Storage  Alaska (CINGSA),                                                                    
and their producer contracts the  company needed to have the                                                                    
287 MMcf  of gas available  in case it was  needed. However,                                                                    
they  did not  need it  every  day. It  meant producers  and                                                                    
CINGSA  needed  to  have  significant  capacity  beyond  the                                                                    
average  production  rates.  It also  meant  that  producers                                                                    
needed  to  have  the  operational  capability  to  ramp  up                                                                    
production and also the ability  to throttle it back. Alaska                                                                    
was  a very  different world  than  the Lower  48. With  the                                                                    
integrated  transmission and  storage network,  producers in                                                                    
the Lower  48 could simply  drill a  well, open up  the taps                                                                    
100 percent, and  the large market simply  absorbed it. From                                                                    
a utility  perspective it was  a nice, easy  road. Utilities                                                                    
had a  line-up of  marketers that were  trying to  sell them                                                                    
gas. In  a case where a  contract was not fulfilled  for any                                                                    
reason the  utility went  back to  their trading  screen and                                                                    
sourced the gas  from one of the 1000  other suppliers lined                                                                    
up to  sell it to them.  ENSTAR did not have  that luxury in                                                                    
Mr. Green explained that the  market was very small and ill-                                                                    
liquid, with  only a handful  of buyers and an  even smaller                                                                    
number of suppliers.  Layer on to that the  fact that Conoco                                                                    
was  selling its  assets which  would take  another supplier                                                                    
out of  the market. It  would also shrink the  buying market                                                                    
with  Municipal  Light  and  Power  becoming  largely  self-                                                                    
supplied.  It left  ENSTAR in  an extremely  delicate market                                                                    
place.  He was  not saying  that  the sky  was falling.  The                                                                    
company was in a much better place than in 2010.                                                                                
Mr.  Green continued  that ENSTAR  had  transitioned from  a                                                                    
time  where  they  were  looking  at  shortages,  the  total                                                                    
supply,  and  from  a  deliverability  perspective.  He  was                                                                    
pleased  to inform  the committee  that in  the current  day                                                                    
ENSTAR received the Regulatory  Commission of Alaska's (RCA)                                                                    
approval for  their gas supply agreement  with Hilcorp which                                                                    
extended through 2023. The contract  was a key foundation in                                                                    
the  company's supplier  portfolio,  as it  provided both  a                                                                    
significant  quantity  of gas  and  a  significant level  of                                                                    
winter  deliverability. The  Hilcorp  contract would  supply                                                                    
approximately  70 percent  of ENSTAR's  customer needs  from                                                                    
2018 through  2023. It  had both  firm and  optional volumes                                                                    
and would supply  approximately 22 Bcf per year  of firm gas                                                                    
supply.  It  also  offered  optional  volumes  to  help  the                                                                    
company  manage its'  weather-related variability.  It meant                                                                    
that ENSTAR  could ramp-up deliveries  up or  down depending                                                                    
on  customer  needs  -  a  key feature  in  light  of  their                                                                    
variable annual demand.                                                                                                         
Mr. Green  informed committee members  that one of  the most                                                                    
important features  of the contract  had to do with  what it                                                                    
did  not do.  It did  not meet  all of  ENSTAR's gas  supply                                                                    
requirements.  The  company had  left  30  percent of  their                                                                    
supply portfolio open  for other producers to fill  in. As a                                                                    
public  utility the  company valued  safety and  reliability                                                                    
above  all and  understood the  need to  have a  diversified                                                                    
supply portfolio. It not only  diversified supplier risk but                                                                    
also helped  foster investment and  drilling which  was good                                                                    
for the long-term stability of the Cook Inlet supply.                                                                           
Mr. Green  reiterated that the contract  took ENSTAR through                                                                    
2023,  just  beyond  the  short-term  window.  He  mentioned                                                                    
ENSTAR's  3-year   gas  supply  contract  with   Furie.  The                                                                    
contract  supplied  about 20  percent,  the  signing of  the                                                                    
contract was  key for Furie  to continue the  development of                                                                    
its  new  Kitchen Lights  Unit.  ENSTAR  wanted to  see  the                                                                    
success  of the  field and  wanted  to see  it brought  into                                                                    
Mr. Green  thought he  had fairly  good visibility  into the                                                                    
company's  supply  into 2021.  He  suggested  that with  the                                                                    
continuation of activity by Hilcorp  and by Furie along with                                                                    
the hope of  growth of the others in the  Cook Inlet, he was                                                                    
optimistic  that the  company could  see its  supply horizon                                                                    
out to 2025. However, it  hinged on the continued activities                                                                    
of current  and new producers. He  opined that encouragement                                                                    
and fostering of the environment  would be necessary to keep                                                                    
producers engaged.  He strongly believed that  the utilities                                                                    
in  the  inlet  had  a responsibility  for  encouraging  and                                                                    
fostering the environment. He  noted ENSTAR's contribution -                                                                    
the company had provided  support for Furie's development of                                                                    
the Kitchen  Lights Unit and  left 10 percent of  its supply                                                                    
portfolio for other producers.  The Regulatory Commission of                                                                    
Alaska had  also shown  its commitment  to the  viability of                                                                    
the long-term  Cook Inlet  gas supply  with its  approval of                                                                    
the  Hilcorp  contract  and  its  narrative  in  the  letter                                                                    
supporting  ENSTAR's  gas supply  diversification  approach.                                                                    
The commission  recognized that ENSTAR's approach  set aside                                                                    
and  carved  out  a  portion  of  its  supply  portfolio  to                                                                    
encourage  the development  of small  independent producers.                                                                    
Since  2010 the  state had  provided a  huge support  to the                                                                    
viability of the gas supply market in the Cook Inlet.                                                                           
Mr. Green acknowledged ENSTAR being cognizant of the short-                                                                     
term budget  challenges facing the state.  The company would                                                                    
love to see the state  continue to help the encouragement of                                                                    
the  market  place in  whatever  form  that  kept it  as  an                                                                    
attractive investment.                                                                                                          
Mr. Green concluded that ENSTAR was  in a -good place in the                                                                    
Cook Inlet at  present. However, the company  was sitting in                                                                    
a position where  there was one well going  into the Kitchen                                                                    
Lakes  Unit. He  emphasized  that there  were no  production                                                                    
wells in Cosmo. There were 4  large fields in the inlet that                                                                    
were old and aging every year.  With cold weather or even if                                                                    
one  of  the existing  platforms  or  fields had  an  issue,                                                                    
ENSTAR  did   not  have  a  large   contingency  of  back-up                                                                    
alternatives. He  furthered that there were  no interties to                                                                    
the Lower 48  or Canada and they were  100 percent dependent                                                                    
in the small  ill-liquid market to keep half  of the state's                                                                    
population warm. He thanked members for their time.                                                                             
7:18:12 PM                                                                                                                    
Vice-Chair Micciche  queried the  struggles prior to  FY 16,                                                                    
and the  increase in  supplies in Cook  Inlet. He  wanted to                                                                    
better understand  the credits' in improving  the outlook as                                                                    
well as the  tax structure in Cook Inlet.  Mr. Green replied                                                                    
that much of the work that had  been going on was with a gas                                                                    
supply group. It  was very much a joint project  with all of                                                                    
the utilities together  from the Cook Inlet  looking for the                                                                    
solutions to a marketplace that  was just looking for short-                                                                    
-term  contracts.  Some of  the  gas  the company  had  been                                                                    
procuring was upwards  of $23 per Mcf. The  producers in the                                                                    
marketplace  were   not  willing  to  commit   to  long-term                                                                    
contracts. ENSTAR was dancing  along on a month-by-basis not                                                                    
knowing whether  the future would come  together. There were                                                                    
a few  things that came into  alignment with a lot  of work.                                                                    
There was the significant  commitment and investment made by                                                                    
ENSTAR's  shareholders, Northern  Natural,  Siri, and  First                                                                    
Alaskan.  They  came together  for  the  development of  the                                                                    
CINGSA  storage   facility,  a   key  aspect   in  enhancing                                                                    
deliverability in  the inlet. The  first winter  that CINGSA                                                                    
came online in  2012 was very cold. If the  facility had not                                                                    
been  in operation  both ENSTAR  and Chugach  Electric would                                                                    
have had  delivery shortfalls. Hilcorp coming  to the market                                                                    
place  was also  a very  large component  as well  and their                                                                    
commitment to getting their  facilities working quickly. The                                                                    
consent  decree contracts  that  were put  in place  secured                                                                    
ENSTAR's gas  supply out  to the first  quarter of  2018. It                                                                    
fashioned with  some of the  power utilities also. It  was a                                                                    
very real activity  for the gas supply group to  look at LNG                                                                    
imports  because  ENSTAR  was   committed  making  sure  its                                                                    
customers had  gas running through their  meters. ENSTAR had                                                                    
previously  been  in  very  dire  straits  looking  for  any                                                                    
mechanism  to get  the methane  molecules going  through the                                                                    
meters.  The tax  credits were  integral in  shoring up  the                                                                    
local  market  place  with Hilcorp.  Since  then,  Buccaneer                                                                    
(currently in  bankruptcy) drilled  a well. Even  though the                                                                    
company was  going bankrupt the molecules  coming from their                                                                    
well had  been uninterrupted  to ENSTAR for  their contract.                                                                    
Although  there  were  financial challenges,  the  gas  came                                                                    
Vice-Chair  Micciche interrupted  Mr. Green's  testimony and                                                                    
requested  that he  provide an  illustration of  the history                                                                    
due to  time constraints. Mr.  Green agreed to  provide that                                                                    
information in the form of a timeline summary.                                                                                  
Co-Chair MacKinnon concluded the invited public testimony.                                                                      
SB  130  was  HEARD  and   HELD  in  committee  for  further                                                                    
She reviewed the agenda for the following day.                                                                                  
7:26:08 PM                                                                                                                    
The meeting was adjourned at 7:26 p.m.                                                                                          

Document Name Date/Time Subjects
SB 130 Enstar Alaska State Senate Finance Committee 04 13 16.pdf SFIN 4/13/2016 5:00:00 PM
SB 130
SB 130 Senate Finance Committee _Furie Alaska_April 13 2016.pdf SFIN 4/13/2016 5:00:00 PM
SB 130
HB254 - DCCED Fee Types.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - DCCED Report.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - LB&A Audit.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - McDowell Report Economic Impacts of Guided Hunting.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Oppose - RHAK.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Oppose - Rolan Ruoss.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Sponsor Statement.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - AK Trophy Adventures.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - APHA.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - Henry D Tiffany.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - James P Jacobson.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - Joe Klutsch.PDF SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - Paul A Chervenak.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - Sam Rohrer.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - SCI Alaska.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB254 - Support - Steve H Perrins II.pdf SFIN 4/13/2016 5:00:00 PM
HB 254
HB 314 ver N to P Summary of Changes 4-12-16.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Sectional Analysis.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Sponsor Statement.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Huna Totem 11-2-2015.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter AK Fisheries Dev Foundation 1-19-2016.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Alakanuk Traditional Council 11-12-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Aniak Tradional Council 11-12-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter AVCP 11-12-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter City of Coffman Cove 11-3-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter City of Craig 10-27-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter City of Hydaburg 10-26-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Hooper Bay 11-12-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Kalskag 11-13-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Organized Village of Kake 10-26-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Organized Village of Kasaan 10-21-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter SE Delegation 10-29-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Sealaska 10-27-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Thorne Bay 10-26-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter Village of Eek 11-16-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letter-Rick Roeske-KPEDD 03-14-16.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Letters of Support Compiled.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Report FY15 ARDOR Annual Report.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
HB314 Supporting Documents-Yukon-Letter Kuskokwim Economic Development Council 11-12-15.pdf SFIN 4/13/2016 5:00:00 PM
HB 314
SB 130 April 13 2016 Senate Finance COP.pdf SFIN 4/13/2016 5:00:00 PM
SB 130
SB 130 BlueCrest 4-13-2016 testimony to Senate Finance Committee.pdf SFIN 4/13/2016 5:00:00 PM
SB 130
SB 130 BlueCrest 4-13-2016 testimony to Senate Finance Committee.pdf SFIN 4/13/2016 5:00:00 PM
SB 130
SB 206 - APCA Testimony Letter.pdf SFIN 4/13/2016 5:00:00 PM
SB 206
SB 206 ASHNHA Letter.pdf SFIN 4/13/2016 5:00:00 PM
SB 206
SB 206 Public Testimony AAHU Meyhoff.pdf SFIN 4/13/2016 5:00:00 PM
SB 206
SB 206 Public Testimony Reinwand.pdf SFIN 4/13/2016 5:00:00 PM
SB 206
SB 206 Support Testimony Moda Health.docx SFIN 4/13/2016 5:00:00 PM
SB 206
SB 130 04 13 16 AOGA Testimony SFIN SB 130 FINAL.pdf SFIN 4/13/2016 5:00:00 PM
SB 130