CSHB 2004(RES): "An Act relating to the Alaska Stranded Gas Development Act, including clarifications or provision of additional authority for the development of stranded gas fiscal contract terms; making a conforming amendment to the Revised Uniform Arbitration Act; relating to municipal impact money received under the terms of a stranded gas fiscal contract; and providing for an effective date."
00 CS FOR HOUSE BILL NO. 2004(RES) 01 "An Act relating to the Alaska Stranded Gas Development Act, including clarifications 02 or provision of additional authority for the development of stranded gas fiscal contract 03 terms; making a conforming amendment to the Revised Uniform Arbitration Act; 04 relating to municipal impact money received under the terms of a stranded gas fiscal 05 contract; and providing for an effective date." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07 * Section 1. AS 09.43.300(a) is amended to read: 08 (a) AS 09.43.300 - 09.43.595 govern an agreement to arbitrate made on or 09 after January 1, 2005, except as otherwise provided in a contract term developed 10 under AS 43.82.200(a)(5) and (b). 11 * Sec. 2. AS 43.82.010 is amended to read: 12 Sec. 43.82.010. Purpose. The purpose of this chapter is to 13 (1) encourage new investment to develop the state's stranded gas
01 resources by authorizing establishment of fiscal terms related to oil and gas 02 agreements and taxes for a qualified sponsor, the members of a qualified sponsor 03 group, or a related party and related to their oil and gas business activity in the 04 state [THAT NEW INVESTMENT WITHOUT SIGNIFICANTLY ALTERING TAX 05 AND ROYALTY METHODOLOGIES AND RATES ON EXISTING OIL AND 06 GAS INFRASTRUCTURE AND PRODUCTION]; 07 (2) allow the fiscal terms applicable to a qualified sponsor or the 08 members of a qualified sponsor group, or a related party, with respect to a qualified 09 project, to be tailored to the particular economic conditions of the project and to 10 establish those fiscal terms in advance with as much certainty as the Constitution of 11 the State of Alaska allows; and 12 (3) maximize the benefit to the people of the state of the development 13 of the state's stranded gas resources. 14 * Sec. 3. AS 43.82.020 is amended to read: 15 Sec. 43.82.020. Negotiation of contract terms [CONTRACTS FOR 16 PAYMENTS IN LIEU OF OTHER TAXES AND FOR ROYALTY 17 ADJUSTMENTS]. The commissioner may, under this chapter, negotiate terms for 18 inclusion in a proposed contract with a qualified sponsor or qualified sponsor group 19 providing for 20 (1) periodic payment in lieu of one or more taxes that otherwise would 21 be imposed by the state or a municipality on the qualified sponsor, [OR] members of 22 the qualified sponsor group, or a related party; [AS A CONSEQUENCE OF THE 23 SPONSOR'S OR GROUP'S PARTICIPATION IN AN APPROVED QUALIFIED 24 PROJECT UNDER THIS CHAPTER; AND] 25 (2) certain adjustments regarding oil and gas lease agreements, unit 26 agreements, and other agreements [ROYALTY] under AS 43.82.220; in this 27 paragraph, "oil and gas lease agreements" includes royalty provisions of those 28 agreements; 29 (3) payment of the gas production tax under AS 43.55, or payment 30 in lieu of the gas production tax, by delivery of gas; and 31 (4) acquisition by the state of an ownership interest in the project
01 that is the subject of the proposed contract and terms relating to collateral 02 agreements authorized under AS 43.82.437. 03 * Sec. 4. AS 43.82.200 is amended to read: 04 Sec. 43.82.200. Contract development. If the commissioner approves an 05 application and proposed project plan under AS 43.82.140, the commissioner may 06 develop a contract that may include 07 (1) terms concerning modifications of taxes on oil and gas, including 08 terms providing for periodic payment in lieu of one or more taxes as provided in 09 AS 43.82.210, and terms related to credits for investment in a project that is the 10 subject of a contract developed under this chapter; 11 (2) terms developed under AS 43.82.220 concerning oil and gas 12 leases, unit agreements, and other agreements under AS 38, including terms 13 relating to 14 (A) timing and notice of the state's right to take royalty in kind 15 or in value; and 16 (B) royalty value; 17 (3) terms regarding the hiring of Alaska residents and contracting with 18 Alaska businesses under AS 43.82.230; 19 (4) terms regarding periodic payment to, or an equity or other interest 20 in a project for, municipalities under AS 43.82.500; 21 (5) terms regarding arbitration or alternative dispute resolution 22 procedures; 23 (6) terms and conditions for [ADMINISTRATIVE] termination of a 24 contract [UNDER AS 43.82.445]; and 25 (7) other terms or conditions that the commissioner determines are 26 (A) reasonable and promote [NECESSARY TO FURTHER] 27 the purposes of this chapter, including the implementation of AS 43.82.020 - 28 43.82.270; or 29 (B) in the best interests of the state. 30 * Sec. 5. AS 43.82.200 is amended by adding a new subsection to read: 31 (b) Terms relating to arbitration and alternate dispute resolution may provide
01 for a waiver, with the concurrence of the attorney general, of the state's immunity from 02 suit, including arbitration. The waiver may include waiver of the state's sovereign or 03 other immunity and consent to entrance and enforcement of an arbitration award in 04 any state court in the United States that has jurisdiction over the state. The authority to 05 enter and enforce an arbitration award in a state other than Alaska is effective only 06 after the arbitration award is entered and enforcement is sought in the superior court of 07 the State of Alaska. 08 * Sec. 6. AS 43.82.210(a) is amended to read: 09 (a) If the commissioner approves an application and proposed project plan 10 under AS 43.82.140, the commissioner may develop proposed terms for inclusion in a 11 contract under AS 43.82.020 for periodic payment in lieu of one or more of the 12 following taxes that otherwise would be imposed by the state or a municipality on the 13 qualified sponsor, a [OR] member of a qualified sponsor group, or a related party 14 [AS A CONSEQUENCE OF PARTICIPATING IN AN APPROVED QUALIFIED 15 PROJECT]: 16 (1) oil and gas production taxes and oil surcharges under AS 43.55; 17 (2) oil and gas exploration, production, and pipeline transportation 18 property taxes under AS 43.56; 19 (3) [REPEALED 20 (4)] Alaska net income tax under AS 43.20; 21 (4) [(5)] municipal sales and use tax under AS 29.45.650 - 29.45.710; 22 (5) [(6)] municipal property tax under AS 29.45.010 - 29.45.250 or 23 29.45.550 - 29.45.600; 24 (6) [(7)] municipal special assessments under AS 29.46; 25 (7) [(8)] a comparable tax or levy imposed by the state or a 26 municipality after June 18, 1998; 27 (8) [(9)] other state or municipal taxes or categories of taxes identified 28 by the commissioner, except for a tax enacted by voter-approved initiative. 29 * Sec. 7. AS 43.82.220(a) is amended to read: 30 (a) Notwithstanding any contrary provisions of AS 38 or regulations adopted 31 under that title, the commissioner of natural resources, with the concurrence of the
01 commissioner of revenue and, if necessary, the affected parties holding a state lease or 02 unit agreement, may develop proposed terms for inclusion in a contract under 03 AS 43.82.020 that modify [THE TIMING AND NOTICE] provisions of the applicable 04 oil and gas leases, [AND] unit agreements, and other agreements under AS 38, 05 including provisions 06 (1) pertaining to the state's rights to receive its royalty on gas in kind 07 or in value if 08 (A) [(1)] the viability of the approved qualified project depends 09 on long-term gas shipping commitments [PURCHASE AND SALE 10 AGREEMENTS]; 11 (B) [(2)] certainty over time regarding the quantity of royalty 12 gas that the state may be taking in kind is needed to enter into long-term gas 13 shipping commitments or marketing agreements [SECURE THE LONG- 14 TERM PURCHASE AND SALE AGREEMENTS; 15 (3) THE SPECIFIED PERIOD OF THE STATE'S COMMITMENT 16 TO TAKE ITS ROYALTY SHARE IN VALUE OR IN KIND DOES NOT EXCEED 17 THE TERM OF THE PURCHASE AND SALE AGREEMENTS]; and 18 (C) [(4)] the modification does not impair the ability of the 19 approved qualified project or the state to meet the reasonably foreseeable 20 demand in this state for gas within economic proximity of the project during 21 the term of the contract developed under AS 43.82.020; and 22 (2) relating to lease or unit expenses for separation, cleaning, 23 dehydration, gathering, salt water disposal, and preparation for transportation 24 on or off the lease. 25 * Sec. 8. AS 43.82.220(c) is amended to read: 26 (c) The commissioner of revenue shall include any proposed terms 27 [RELATING TO ROYALTY] developed in accordance with this section in the 28 proposed contract under AS 43.82.400. 29 * Sec. 9. AS 43.82.220 is amended by adding a new subsection to read: 30 (e) An agreement by the state to take royalty gas in kind as part of a contract 31 developed under this chapter that satisfies (a)(1)(A) - (C) of this section is not subject
01 to the provisions of AS 38, or regulations adopted under that title, relating to decisions 02 to take royalty in kind. 03 * Sec. 10. AS 43.82.250 is amended to read: 04 Sec. 43.82.250. Term of contract; effective date. The term of a contract 05 developed under AS 43.82.020 [MAY BE FOR NO LONGER THAN IS 06 NECESSARY TO DEVELOP THE STRANDED GAS THAT IS SUBJECT TO THE 07 CONTRACT; HOWEVER, THE TERM OF THE CONTRACT] may not exceed 35 08 years from the commencement of commercial operations of the approved qualified 09 project, excluding suspensions of contract obligations that are covered by the 10 force majeure terms of any contract developed under this chapter. However, the 11 term of contract may not exceed 45 years from the effective date of a contract 12 approved under AS 43.82.435. 13 * Sec. 11. AS 43.82 is amended by adding a new section to read: 14 Sec. 43.82.255. Terms of contract provisions related to oil. (a) The 15 provisions of this section may apply to a contract developed under AS 43.82.020 that 16 provides for periodic payment in lieu of taxes on oil under AS 43.55. 17 (b) For the part of the contract term beginning immediately after the date of 18 full project funding or the date of issuance of a certificate of public convenience and 19 necessity for construction and initial operation of the Alaska Natural Gas Pipeline, 20 whichever date is later, and ending 12 years after that date, the commissioner may 21 develop a term for the contract that provides for payments in lieu of the taxes on oil set 22 out in AS 43.55. For the part of the contract term covered by this subsection, the 23 payments in lieu of taxes may be established with as much certainty as the 24 Constitution of the State of Alaska allows. 25 (c) Implementation of a contract provision authorized in this section may be 26 made subject to the dispute resolution procedures of the contract. 27 * Sec. 12. AS 43.82.270 is amended to read: 28 Sec. 43.82.270. Project plans and work commitments. A contract under 29 AS 43.82.020 must include provisions for implementation of the qualified project 30 plan approved under AS 43.82.140, as may be modified as a result of the 31 development of a contract under this chapter, and provisions for updating the plan
01 at reasonable intervals until the commencement of commercial operations of the 02 approved qualified project. The commissioner of revenue, in consultation with the 03 commissioner of natural resources, may, as a term in a contract under AS 43.82.020, 04 include work commitments or other obligations in the contract to be accomplished 05 before the commencement of commercial operations of the approved qualified project. 06 * Sec. 13. AS 43.82.435 is amended by adding a new subsection to read: 07 (b) A contract authorized by this section and executed by the governor may 08 contain provisions that provide for amendment of contract terms without further action 09 by the legislature, except that any term relating to taxes described in AS 43.82.210(a), 10 payments in lieu of those taxes, or credits under AS 43.82.200(1) may not be amended 11 without further legislative authorization under this section. 12 * Sec. 14. AS 43.82 is amended by adding a new section to read: 13 Sec. 43.82.437. Collateral agreements. (a) The commissioner of revenue, 14 with the concurrence of the commissioner of natural resources, may negotiate 15 collateral agreements that are required to implement the state's acquisition of an 16 ownership interest in the project and each project entity to be created to own and 17 operate any part of the project that is the subject of a proposed contract developed 18 under this chapter. Each collateral agreement shall be a condition subsequent to the 19 proposed contract developed under this chapter, shall be subject to review and 20 authorization to execute by the legislature, and, on approval, may be entered into by 21 the public corporation as provided in (b) of this section. The authority of the 22 commissioner of revenue to negotiate collateral agreements on behalf of the state 23 lapses 180 days after the effective date of the law authorizing the contract under 24 AS 43.82.435, except that, with respect to collateral agreements submitted by the 25 commissioner of revenue to the legislature within the 180-day time limit, the time 26 limit shall be extended to five days after authorization has been approved. Each 27 project entity collateral agreement to be negotiated must incorporate the following 28 minimum elements: 29 (1) if organized to do business in the state, the project entity shall be a 30 limited liability company organized under AS 10.50 (Alaska Revised Limited Liability 31 Company Act);
01 (2) for project entities organized under AS 10.50, the operating 02 agreement adopted under AS 10.50.095, or equivalent governing document for project 03 entities organized under other jurisdictions ("Operating Agreement"), must include the 04 limitation that the state's obligation to fund continuing capital and operating 05 obligations shall be subject to annual appropriation by the legislature, and that the 06 state's failure to appropriate a capital or operating obligation may not be considered a 07 default of the state's obligation, but shall be considered only to reduce the state's 08 ownership interest on a pro rata basis based on the amount of the failed appropriation 09 relative to the amount of the capital or operating obligations funded by the remaining 10 project owners; 11 (3) the Operating Agreement must provide that the managing members 12 and member representatives owe a duty to act in the best interest of the entity and 13 perform their duties in good faith toward the goal of implementation of the project; 14 (4) the Operating Agreement must provide that the entity may not 15 effect a material change or amendment to the Qualified Project Plan without the 16 review and authorization of the legislature; 17 (5) the Operating Agreement must provide that the members of the 18 governing body of any subsidiary entity organized by the entity shall be the members 19 of the governing board of the entity, unless otherwise authorized by the legislature; 20 (6) the Operating Agreement must provide that the state has the 21 unilateral right to initiate expansions of the project if the state funds or obtains third- 22 party funding from a creditworthy customer for the expansion or extension and must 23 include terms for voluntary expansion, including 24 (A) holding periodic binding or nonbinding open seasons to 25 assess market demand for expansion every three to five years; 26 (B) committing to satisfy all creditworthy demands for capacity 27 expansion in reasonable engineering increments; 28 (C) committing to expansion for creditworthy shippers in less 29 than reasonable engineering increments when the shippers commit to 30 contributions in aid of construction sufficient to keep the project entity whole, 31 including authorized return; and
01 (D) committing the project entity to propose and defend the use 02 of rolled-in pricing for all expansions; 03 (7) the Operating Agreement must provide that, in the event the entity 04 elects to contract with a vendor to operate the entity or implement the project, the 05 vendor shall be independent of and not an affiliate of the members of the entity; 06 (8) the Operating Agreement must provide that the state member shall 07 have the right to participate in all meetings of the governing board of the entity and 08 vote on all decisions of the entity, including decisions affecting tax allocations 09 between or among the taxpaying members of the entity; 10 (9) the Operating Agreement must provide that the state member shall 11 have the right to review all books and records of the entity, including all contracts, and 12 to audit the finances of the entity at any time and from time to time; 13 (10) the Operating Agreement must provide that, on termination, 14 liquidation, or dissolution of the entity, the state shall have a right of first refusal and 15 option to acquire all of the assets of the entity at the then fair value of the assets; 16 (11) the Operating Agreement must provide that, in the event a 17 member seeks to transfer or divest its ownership interest in the entity, the state shall 18 have a right of first refusal and option to acquire the member's ownership interest at 19 the then fair value of the interest; 20 (12) the Operating Agreement must provide that, in the event that the 21 entity seeks to transfer or divest any or all of the project assets, the state shall have a 22 right of first refusal and option to acquire the project assets at the then fair value of the 23 project assets; 24 (13) the Operating Agreement must include a right of first refusal and 25 option by which the state may acquire all or any part of the project assets at the then 26 fair value of the project assets in the event that the Federal Energy Regulatory 27 Commission, United States Department of Energy, the United States Department of 28 Justice, the Federal Trade Commission, or other applicable federal or state agency or 29 adjudicatory body orders one or more qualified sponsors, the qualified sponsor group, 30 or an affiliate of a qualified sponsor or sponsor group to divest any or all ownership 31 interest in the project;
01 (14) the Operating Agreement must provide that the project entity shall 02 use project financing supported by federal guarantee instruments as defined in the 03 Alaska Natural Gas Pipeline Act to the maximum extent available from the United 04 States Treasury and must limit the equity portion of project capitalization to not more 05 than 20 percent of total capital; 06 (15) for the purposes of the provisions required by this subsection, the 07 Operating Agreement must define "fair value" as the value as agreed to by the affected 08 members or as determined under the dispute resolution process if agreement cannot be 09 reached; "fair value" shall be determined based on original cost less depreciation, 10 comparable sales, or income approach valuation methodologies. 11 (b) A collateral agreement negotiated by the commissioner on behalf of a 12 public corporation that is established by law to enter into agreements to acquire an 13 ownership interest in the project to be developed under the authorized contract may be 14 executed and implemented by the board of directors of the public corporation. 15 Notwithstanding any other provision of law, the commissioner members of the board 16 constitute a quorum for doing the business of the corporation for the first 120 days 17 following the effective date of a law establishing the public corporation. During this 18 transition period, actions by the board must be approved (A) by unanimous 19 commissioner member approval, or (B) if some or all of the public members of the 20 board have been appointed at the time of the action, by a majority of all the board 21 members existing on the date the action is taken. 22 (c) A collateral agreement executed by the members of the board of a public 23 corporation under (b) of this section is binding only on the public corporation and does 24 not make the state a party to the collateral agreement. 25 (d) Except as provided in this section and in AS 43.82.310, a collateral 26 agreement necessary to implement a contract that has been authorized by the 27 legislature under the terms of AS 43.82.435 is not subject to any of the provisions of 28 this chapter. 29 (e) In this section, "collateral agreement" includes an agreement between 30 either the state or an entity established by the state, and a qualified sponsor or 31 qualified sponsor group, or an affiliate of those entities, to form limited liability
01 companies, limited liability partnerships, or any other recognized form of business 02 association, whether incorporated or unincorporated, that would own or operate any 03 portion of the project that is the subject of a proposed contract developed under this 04 chapter. 05 * Sec. 15. AS 43.82.500 is amended to read: 06 Sec. 43.82.500. Obligation to share payments with municipalities. If the 07 commissioner develops a contract under AS 43.82.020 that includes terms that exempt 08 a qualified sponsor, the members of a qualified sponsor group, or a related party 09 to the contract, and the property, gas, products, and activities associated with the 10 approved qualified project that is subject to the contract, from a municipal tax or 11 assessment in accordance with AS 29.45.810 or AS 29.46.010(b), or AS 43.82.200 12 and 43.82.210, the commissioner shall include a term in the contract that provides for 13 [THE PARTY PAY] a portion of the periodic payments to be made payable [DUE 14 UNDER THE CONTRACT] to the revenue-affected municipality. 15 * Sec. 16. AS 43.82.505 is amended to read: 16 Sec. 43.82.505. Payments to economically affected municipalities. If the 17 commissioner executes a contract under AS 43.82.020 that will produce one or more 18 economically affected municipalities, the commissioner shall include a term in the 19 contract that provides for [A PORTION OF THE] periodic impact payments to the 20 state that may be appropriated to the Alaska natural gas pipeline construction 21 impact fund established in (c) of this section to benefit the economically affected 22 municipalities under the principles in AS 43.82.520. 23 * Sec. 17. AS 43.82.505 is amended by adding new subsections to read: 24 (b) A special account is established in the general fund into which the 25 Department of Revenue shall deposit impact payments received by the state under (a) 26 of this section. 27 (c) The Alaska natural gas pipeline construction impact fund is established in 28 the Department of Commerce, Community, and Economic Development. The 29 legislature may appropriate money deposited in the special account established in (b) 30 of this section, as well as any additional money considered necessary, to the Alaska 31 natural gas pipeline construction impact fund to address the economic and social
01 impacts incurred by an economically affected municipality, or incurred by a nonprofit 02 organization serving the unorganized borough, during the construction of a project that 03 is the subject of a proposed contract developed under this chapter. 04 (d) The Department of Commerce, Community, and Economic Development 05 shall adopt regulations under which economically affected municipalities and 06 nonprofit organizations may apply for and be eligible to receive grants to alleviate 07 impact caused by construction of a gas pipeline. The department shall give priority in 08 the allocation of grants to municipalities and organizations that are experiencing or 09 will experience the most direct or severe impact from gas pipeline construction. The 10 department shall finance, under (e) of this section, all meritorious grant applications 11 each year, to the extent money is available in the Alaska natural gas pipeline 12 construction impact fund. Within 10 days after the convening of each regular session 13 of the legislature, the department shall submit to the legislature a list of all 14 municipalities and organizations that have received grants, a list of all municipalities 15 and organizations determined by the department to be eligible for further grants, a 16 recommendation of the amount of money to be granted for those additional 17 applications, and written justification of each past and potential grant. 18 (e) The commissioner of commerce, community, and economic development, 19 in consultation with the relevant municipal advisory group established under 20 AS 43.82.510, shall use money appropriated to the Alaska natural gas pipeline 21 construction impact fund to make grants to municipalities, and to nonprofit 22 organizations serving the unorganized borough, for impacts on transportation, 23 infrastructure, law enforcement, emergency services, health and human services, 24 education, the labor force, population, wages, and subsistence and for sociocultural 25 impacts, brought about by the construction of the gas pipeline. In determining whether 26 an expenditure or proposed expenditure by a municipality or nonprofit organization is 27 eligible for a grant under this subsection and in allocating available money among 28 grant proposals, the commissioner shall consider the recommendations of the relevant 29 municipal advisory group established under AS 43.82.510 and whether the proposed 30 expenditure meets the purposes of this section. 31 (f) Grant money received under this section may not be used for the retirement
01 of municipal debt. 02 (g) Amounts appropriated to the Alaska natural gas pipeline construction 03 impact fund under (c) of this section for a fiscal year that are not used for grants to 04 municipalities and organizations under (d) and (e) of this section shall be retained in 05 the Alaska natural gas pipeline construction impact fund and remain available for 06 distribution as grants under this section in succeeding fiscal years. 07 (h) Nothing in this chapter exempts money deposited into the special account 08 in the general fund established in (b) of this section from the requirements of AS 37.07 09 (Executive Budget Act) or dedicates that money, or money appropriated to the Alaska 10 natural gas pipeline construction impact fund, for a specific purpose. 11 * Sec. 18. AS 43.82.510(c) is amended to read: 12 (c) Each municipal advisory group serves until the later of 90 days after 13 final distribution of impact payment money under AS 43.82.505, or 14 commencement of operations of the qualified project. Expenses of a municipal 15 advisory group are eligible for reimbursement under a grant made under 16 AS 43.82.505 [A FINAL ACTION IS TAKEN ON THE APPLICATION FOR 17 WHICH THE GROUP WAS APPOINTED]. 18 * Sec. 19. AS 43.82.900 is amended by adding a new paragraph to read: 19 (14) "related party" means an entity, including a limited liability 20 company or similar incorporated or unincorporated entity, that 21 (A) is affiliated with a qualified sponsor or qualified sponsor 22 group; 23 (B) owns or operates a qualified project or any segment of a 24 qualified project; and 25 (C) is an intended beneficiary of the fiscal terms included in a 26 contract developed under this chapter. 27 * Sec. 20. AS 43.82.445 is repealed. 28 * Sec. 21. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 31 section heading of AS 43.82.220 from "Contract terms relating to royalty" to "Contract terms
01 relating to oil and gas lease, royalty provisions, and other agreements." 02 * Sec. 22. The uncodified law of the State of Alaska is amended by adding a new section to 03 read: 04 RETROACTIVITY. (a) Sections 2 - 15 and 18 - 20 of this Act are retroactive to 05 January 1, 2004. 06 (b) Section 1 of this Act is retroactive to January 1, 2005. 07 * Sec. 23. This Act takes effect immediately under AS 01.10.070(c).