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Governor’s bonding play passes Legislature; suit has been filed
Kristen Nelson Petroleum News
The Alaska Legislature wrapped its 2018 session in the early hours of May 13, including passage of the required operating and capital budgets and a bill authorizing use of earnings of the Permanent Fund for state government as well as for dividend payments.
The Legislature earlier passed House Bill 331, a bill requested by Gov. Bill Walker which allows bonding to pay cashable oil and gas tax credits. The bill, which passed the Senate May 11, had passed the House May 3. The House voted 22-16 in favor - 23-15 in favor on a reconsideration vote. The Senate voted 14-5. Both bodies passed the immediate effective date, the House 34-4, the Senate 18-1.
The governor had not signed the bill when this issue of Petroleum News went to press.
A constitutionality issue which was the subject of much discussion in both bodies will be decided in court: The Associated Press reports that a suit was filed in state court May 14, challenging the constitutionality of HB 331.
The constitutionality issue was raised by Sen. Bill Wielechowski, D-Anchorage, when the Senate Resources Committee heard Senate Bill 176, the companion to HB 331. The issue was extensively discussed in House Finance, with the Legislature’s Legal Services telling the committee it had doubts about the constitutionality of the bonding proposal.
The administration - both the Department of Law and the Department of Revenue - told the committee the proposal was constitutional and said Alaska has been doing this type of bonding since it was a territory. The state’s bond counsel told both House Finance and Senate Finance that it expected to issue an opinion confirming that the bonds were constitutional.
Discounting The bill allows payment, at a discounted rate, of cashable credits which have been earned by small oil and gas companies - the state’s major oil producers were never eligible for these credits.
“I’m pleased the Legislature is fulfilling Alaska’s past promises to pay tax credits to small independent explorers in exchange for investing in our state,” Walker said after the Senate passage. “This will close out old debts to oil and gas entities, help companies invest in their operations, and put Alaskans to work.”
The program offering cashable tax credits was ended in 2017, but some $800 million currently remains to be paid and state officials have said they believe another $200 million will eventually be approved for payment.
The bill authorizes issuance of bonds up to $1 billion.
The cost of the bonding will be borne by the companies, which will receive payment at a discount of about 10 percent to cover the state’s costs and interest on the bonding. There are provisions which would allow a discount closer to 5 percent, provided the companies qualified for one of the following: agreeing to provide the state an overriding royalty interest; committing to reinvest the money in Alaska within 24 months; agreeing to an early waiver of confidential seismic data; or have refinery or gas storage credits.
To qualify, a company must commit all of its cashable credits to the program.
House changes Commissioner of Revenue Sheldon Fisher reviewed changes made in the House Finance Committee and on the House Floor for Senate Finance May 8.
The House added a 45-day time limit for constitutional challenges to the bond program; reduced the calculation of future appropriations to the tax credit fund - the source of current payments - for companies not participating in the bond program, with the effect of extending out the period over which those payments would be made; added conditions and information related to the reinvestment provision including maximizing Alaska hire and use of Alaska contractors, moving a project toward production and clawback of incremental payment if investment targets not met.
The vanishing bill SB 125, extending the Alaska Industrial Development and Export Authority’s ability to bond for the Interior Energy Project, passed the Senate 19-0 in February and vanished into the House Labor and Commerce Committee, with only a single hearing there in early April.
Without extension, AIDEA’s bonding authority for the project would have expired at the end of June.
“This bill got tied up in some weird politics in the House,” Senate President Pete Kelly, R-Fairbanks, sponsor of SB 125, said in a press release May 12. He said senators were able to work with “rural House legislators from Northwest and Southeast Alaska to get the Fairbanks project over the finish line.”
The contents of SB 125 were added to HB 119, which concerns both AIDEA and the Alaska Railroad Corp., passing the Senate 16-3 and the House 37-3.
AGDC authority One item which didn’t make it through the Legislature was authority for the Alaska Gasline Development Corp. to accept third-party money for the Alaska liquefied natural gas project. The governor had included a provision in the operating budget which would have given AGDC unlimited authority to accept third-party money, called designated program receipts. The House limited the amount to $1 billion in the fiscal year ending June 30, 2018, and $1 billion in the fiscal year ending June 30, 2019.
The Senate dropped AGDC’s authority to accept designated program receipts from the operating budget completely.
In remarks provided by Jesse Carlstrom, AGDC’s communications manager, in a May 15 email, AGDC said it would continue to work with “Goldman Sachs and Bank of China to arrange third-party funding” and continue to keep the Legislature up to date on the project, providing information which legislators need to make “appropriate decisions for the responsible development of Alaska’s vast amounts of proven, stranded, North Slope natural gas.”
AGDC said it estimates that it will have some $34 million remaining in the AKLNG fund at the end of this year and is continuing to work the regulatory process for AKLNG with the goal of reaching a final investment decision and an in-service date of 2024.
Legislators did agree to an AGDC request to move remaining monies from the in-state gas line project, ASAP, which is also under the AGDC umbrella, to the AKLNG project.
- KRISTEN NELSON
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