Hearings begin on changes to Stranded Gas Act

Posted: Friday, June 02, 2006

Hearings began in the Alaska House and Senate Thursday on legislation meant to move forward Gov. Frank Murkowski's contract with three oil companies to develop the North Slope's natural gas reserves.

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The House Resources Committee began taking testimony on a measure that would amend the state's Stranded Gas Development Act, the law under which the governor negotiated the contract's fiscal terms with ConocoPhillips, Exxon Mobil Corp. and BP PLC.

The bill, introduced by the governor on Wednesday, would allow the state to take gas in place of tax payments as part of its 20 percent ownership in the proposed gas pipeline. It would also lock in the producers' tax and royalty rates by 30 years for oil and 45 years for gas. The oil companies have said that kind of tax stability is a condition to them building a North Slope natural gas pipeline.

Kevin Jardell, the governor's legislative liaison, told lawmakers the changes would smooth the way toward final ratification of the contract.

But lawmakers have opposed the governor's proposal to freeze the producers' tax rates.

After the committee meeting, Co-Chairman Ralph Samuels, R-Anchorage, said the administration should have the authority to negotiate gasline terms for the state, but locking in the tax rates is another matter.

"I don't have any problem with their ability to have those tools, but the oil tax, that's taking a tool away from us. That's a different story," he said.

Samuels said he and other lawmakers are discussing how best to modify the tax rate provisions. One idea has been to create a "reopener" clause that would allow lawmakers to change the tax rates in the future if economic conditions call for it.

Lawmakers were also concerned that the governor may bypass their efforts to pass a tax rate that is higher than the one he has proposed. A proposal to tax the Alaska profits of oil companies is also before lawmakers in special session after the measure failed in the regular session.

Murkowski wants to set the oil production tax at 20 percent. Lawmakers have considered a number of different rates between 20 and 25 percent.

Asked by House lawmakers if the final contract would contain whatever terms pass the Legislature, Jardell said he could not give a definitive answer.

"Our position is the Legislature needs to set the rates and we will take them to the bargaining table to negotiate from those rates," he said.

Lawmakers also had concerns about a proposed amendment to the section that requires the Commissioner of Revenue act in the best interest of the state. The language was modified to read the "long-term fiscal" interests of the state.

Rep. Harry Crawford, D-Anchorage, said the change could be read to say that any deal would be a good deal.

"It gets them a 'get out of jail free' card," he said.

The administration said the change was made to make the language consistent with other parts of the law.

Meanwhile, the newly formed Senate Special Committee on Oil and Gas, made up of members of the Senate Resources and Finance committees, also began hearing the bill on Thursday.

The committee also took testimony on another measure that would create a public corporation within the Department of Revenue called the Alaska Natural Gas Pipeline Corp.

Committee hearings are expected to continue over the weekend.

It could be near the end of July before the final terms are back before the Legislature.

A 45-day public comment period on the natural gas contract is currently under way, and the governor has said he will extend that if need be. The commissioner of the Revenue Department then will have 30 days to consider the comments and proposed amendments before issuing a final determination. That's when the Legislature must decide whether to ratify or reject the contract.

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