Legislature(2007 - 2008)HOUSE FINANCE 519
02/27/2007 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB138 | |
| HB139 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 49 | TELECONFERENCED | |
| *+ | HB 138 | TELECONFERENCED | |
| *+ | HB 139 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 138
"An Act making supplemental appropriations and other
appropriations; amending the lapse dates of certain
appropriations; and providing for an effective date."
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
introduced Larry Ostrovsky, Chief Assistant Attorney
General, Oil, Gas, and Mining Section, Civil Division,
Department of Law; Nico Bus, Acting Director, Division of
Administrative Services, Department of Natural Resources;
and Jerry Burnett, Director, Division of Administrative
Services, Department of Revenue.
Section 1 Law
Capital - Oil, Gas & Mining
Work related to the state gas pipeline and bringing
North Slope natural gas to market, and other oil and
gas projects. The Department of Law's Oil, Gas &
Mining section continues to play a major role in the
State's top priority project related to the
construction of a gas pipeline and bringing natural gas
to market. A number of contracts with outside counsel
and experts are underway and will continue to be needed
as negotiations continue. In addition the Department
of Law anticipates the Exxon Royalty Reopener will go
to trial in either FY 07 or FY 08 and continues to
prepare for a four to five week hearing before the
Federal Energy Regulation Committee (FERC) considering
(in part) the state's and Anadarko's challenges to the
TransAlaska Pipeline Service (TAPS) 2005 FERC tariff.
$21,500.0
LARRY OSTROVSKY, CHIEF ASSISTANT ATTORNEY GENERAL, OIL, GAS,
AND MINING SECTION, CIVIL DIVISION, DEPARTMENT OF LAW, noted
the large size of the supplemental bill. He related that
the bill is broken down into FY 07 and FY 08. He spoke of
the history of expenditures for litigation and gas pipeline
matters. The return to the state on a $9 million investment
into litigation is about $90 million. The majority of the
supplemental request deals with litigation. The reason for
such a large supplemental is due to gas pipeline
expenditures this past year and the numerous special
sessions.
1:45:15 PM
Representative Stoltze announced that the Department of Law
subcommittee has invited Mr. Ostrovsky to speak on this
issue later this week and questions could be addressed at
that time.
Representative Hawker wondered to which counsel the $21
million would go. Mr. Ostrovsky replied that some of the
money would go to the firm of Morrison and Foerster, LLP,
which has provided litigation services to the state for TAPS
tariff work for over three decades. The firm of
Kirkpatrick, Lockhart, and Gates, LLP, is dealing with
income tax issues. For royalty matters, Spencer Hosie and
other counsel out of Anchorage have been engaged. Greenberg
Traurig, LLP, out of Washington, D.C., is dealing with gas
pipeline issues.
Representative Hawker requested an explanation as to how the
$21.5 million would be split between the gas pipeline and
other projects. Mr. Ostrovsky offered to provide that
information in writing. He explained the factors that went
into determining the cost of cases. About $2.5 million went
to tax tariff cases this year and about $1.3 million will be
spent in FY 08. For income tax cases, $2.8 million was
spent this year and $4.45 million will be spent next year.
About $300,000 was spent this year on royalty cases; about
$1 million will be spent next year. Mr. Ostrovsky opined
that there are royalty matters at stake worth over $50
million. Point Thomson litigation costs were about $1
million this year and will be about $500,000 next year, due
to its status in administrative appeal, which is less
costly.
Mr. Ostrovsky addressed gas pipeline expenditures, which
were estimated at $3 million for this year and $6 million
for next year. That estimate has since been reduced due to
no expenditures during December and January. Current
estimates are at about $500,000 per month.
1:52:55 PM
Representative Hawker asked about the effective dates of the
request. He wondered if there were outstanding bills or
just prospective costs. Mr. Ostrovsky reported that the
request was mostly due to outstanding bills: $2.5 million on
TAPS tariff work, which could be worth as much as $100
million a year over five years. Representative Hawker
inquired if it was an administrative decision to continue
the TAPS tariff work. Mr. Ostrovsky said it was.
Representative Hawker asked if that work was satisfactory.
Mr. Ostrovsky replied that it was. Representative Hawker
wondered if the work was not adequate on gas pipeline
negotiations and questioned why new attorneys were
solicited. Mr. Ostrovsky explained why fresh lawyers were
engaged.
1:55:55 PM
Representative Hawker inquired whether, now that the
Department of Law has hired the legislature's attorneys, if
the legislature has the availability of unbiased legal
counsel. Mr. Ostrovsky replied that was a concern of the
Legislative Budget and Audit Committee. There is a waiver
with Greenberg Traurig which states that they can help the
administration formulate legislation, but once it is
introduced, they are free to comment in any way they see
fit. The legislature is also free to review any documents
produced. If there is an irreconcilable conflict, the state
would have to withdraw and find other counsel.
Representative Hawker thought it would be problematic for an
attorney to be working on both sides of an issue. He
questioned the reasoning behind letting Morris and Forester
go. Mr. Ostrovsky thought it was a unique situation and
made sense to get a second perspective. The governor wants
to move in a different direction and sees a common interest
between the administration and the legislature. It is also
a matter of efficiency.
1:58:39 PM
Representative Gara inquired about the TAPS litigation. Mr.
Ostrovsky explained that in 2003 RCA made the determination
of intrastate rates through TAPS at $1.96 per barrel. Most
of the oil that goes through TAPS, about 90 percent, is
interstate and is about $4.60 per barrel. The state and the
carriers had a TAPS settlement agreement for many years,
which could expire as soon as 2009. That agreement states
that there will be no undue discrimination in rates. The
state believes that it is discriminatory to intrastate rates
and has asked FERC to change to the RCA rates. The carriers
believe the opposite to be true.
2:00:42 PM
Section 2(a) Natural Resources Capital
Gas Pipeline Analysis
Outside experts and consultants will be retained for
work related to the gas pipeline, including outside
legal counsel and experts on federal pipeline law and
FERC procedures. A consultant to advise the state on
crafting an RFP consistent with the Alaska Gasline
Inducement Act (AGIA) for gasline proposals and with
analyzing those proposals under AGIA will also be
retained.
$6,550.0
NICO BUS, ACTING DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF NATURAL RESOURCES, explained the
request for gas pipeline analysis, which is intended to
cover the retention of outside experts and consultants on a
number of aspects relating to the gas pipeline analysis,
specifically outside experts on FERC, tariff cost overrun,
and royalty evaluation methodology.
Mr. Bus related the two aspects of the request, one for an
RFP consultant to help the state solicit bids on gasline
applicants, and monitor it through the process from a legal
and commercial framework. The other aspect is for FERC
experts and outside counsel for $1.25 million. The total of
$6.550 million can be split between two fiscal years, FY 07
- $4.135 million, and FY 08 - $2.450 million, for continuity
and to treat it as a capital appropriation.
2:02:29 PM
Representative Hawker asked why there is a "new funding
request" without first having a briefing on AGIA. Mr. Bus
explained the reasoning behind the appropriation.
Representative Hawker requested a fiscal note.
Representative Chenault asked if $4.1 million is expected to
be expended the remainder of FY 07 and $2.4 million in FY
08. Mr. Bus said yes.
Section 2(b) Natural Resources Capital
Oil and Gas Lease Litigation
This project will help offset the costs of litigation
arising out of the DNR's exercise of the state's rights
under its leases and the unit agreement (Point Thomson
appeal). This request will help fund the costs of
outside experts and legal counsel.
$1,500.0
Mr. Bus explained that the amount of $1.500 million is
requested as an appropriation to DNR to support any oil and
gas lease litigation. It may be dealt with by DOL and DNR
cooperatively. Representative Chenault asked if any
duplication would be refunded. Mr. Bus stated that DNR
would work closely with DOL.
Representative Hawker asked for a breakdown between FY 07
and FY 08 spending. Mr. Bus explained that $600,000 would
be spent in FY 07 and about $700,000 in FY 08.
2:05:42 PM
Section 3(a) Revenue Capital
Commercialization of North Slope Gas $419.5 - two
internal economists to work on gasline issues $1,360.0
for two contractual economists and/or commercial
analysts' firms to assist in modeling and analyzing tax
incentives and impacts, marketing options and criteria
to evaluate applicants and proposed projects $1,169.6
for specialized legal counsel
$50.9 for other costs, including financial and legal
research
$3,000.0
JERRY BURNETT, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF REVENUE, explained that the request
is for commercialization of North Slope gas. He broke the
request down into $419,000 for two state economists for 17
months, $1.3 million for external economists, and about $1.2
million for attorneys and law firms, and about $50,000 for
travel and meeting expense. That is about $874,000 in FY 07
and about $2 million in FY 08.
Representative Chenault asked if the two state economists
are currently on staff. Mr. Burnett related how current
staff would be reorganized. He thought that Roger Marks and
Dr. Michael Williams would be working on this issue.
2:08:20 PM
Representative Hawker inquired if there would be incentives
regarding this sort of development. He also questioned the
meaning of creating new tax structures. Mr. Burnett replied
that he could not answer those questions yet.
Representative Gara asked how long outside legal help would
be needed. Mr. Ostrovsky replied that it depends on the
case. He gave an example of a TAPS tariff case.
Representative Gara suggested a cheaper way to add staff to
the Department of Law. Mr. Ostrovsky observed two problems:
low paying salaries and difficulty in finding qualified
expertise due to poor salaries.
2:12:58 PM
Section 3(b) Revenue
Tax Division Petroleum Production Tax (PPT)
implementation costs: $521.7 for three positions and
contracts for developing regulations, expenses for
public hearings and legal advice on regulations.
$521.7
Mr. Burnett noted that the fiscal note identifies almost
$1.4 million for a full year's implementation of the
Petroleum Production Tax (PPT).
Section 3(c) Revenue
Tax Division Language to allow the department to make
refunds for capital expenditures and lease bids as
provided in the PPT, AS 43.55.023(f).
$0.0
Mr. Burnett explained that this language appropriates the
funding for the transferable tax credit refunds in FY 07.
2:14:39 PM
Section 4(a) Natural Resources Gas Pipeline
Extend lapse date from June 30, 2007, to June 30, 2008,
for the Bullen Pt. Road right-of-way permitting multi-
year allocation in sec. 7(d)(1), ch. 6, SLA 2005, pg.
11, as amended by sec. 34(c), ch. 82, SLA 2006, pg.
151. The amount expected to be available is $100.0.
The lapse extension also applies to sec. 7(d)(2)
Division of Oil and Gas Increased Workload, which
expects $150.0 to be available.
The lapse extension also applies to sec. 7(d)(3)
Commissioner's office increased workload. This
allocation is expected to be fully expended by June 30,
2007.
$0.0
Mr. Bus explained the three elements in the section affected
by extending the lapse date from June 30, 2007, to June 30,
2008. He shared the logic for extending the Bullen Point
Road project, the Division of Oil and Gas Increased Workload
appropriation, and a Workload appropriation in the
Commissioner's Office.
Representative Chenault asked about the Bullen Point Road
right-of-way permitting. Mr. Bus related the details about
that project. He presented a map of the project.
2:17:37 PM
4(b) Administration - Alaska Oil and Gas Conservation
Commission
Extend the lapse date from June 30, 2007, to June 30,
2008, for the gas pipeline development multi-year
appropriation made in sec. 20(a), ch. 3, FSSLA 2005,
pg. 106, line 21. The amount expected to be available
is $250.0.
$0.0
ERIC SWANSON, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES,
DEPARTMENT OF ADMINISTRATION, addressed the section which
extends the lapse date for the gas pipeline development.
Representative Chenault asked about gas off take rates in
Point Thomson. He also wondered about the ramifications due
to the Exxon litigation.
2:19:20 PM
JOHN NORMAN CHAIR, ALASKA OIL AND GAS CONSERVATION
COMMISSION (AOGCC), responded to second question first. He
reported that the Exxon study of the Point Thomson reservoir
is back on track. It was interrupted or suspended because
Exxon was hit with default notices on the unit and on the
leases. He anticipates the outcome of the dispute will
derive useful information to resolve the gas off take rate
at Point Thomson reservoir. He emphasized that he has not
received any applications regarding off take rates. AOGCC
initiated proceedings to update the field rules for the
Prudhoe Bay reservoir and to initiate the Point Thomson
study. He reiterated that the operators have not been
cooperative in working out the off take rate regarding the
reservoirs.
2:23:07 PM
Mr. Norman explained that the Point Thomson reservoir has no
gas off take and is unique because of extremely high
pressures. It is called a retrograde reservoir, a
complicated reservoir that requires a great deal of study.
The potential to waste liquid hydrocarbon exists.
2:25:53 PM
Mr. Norman related that the total amount to be dispersed
from FY 06 to FY 10 remains at $4.7 million. He spoke of
receiving $1.2 million to update Prudhoe Bay off take rate.
He anticipates ending FY 06 with about $250,000, not spent
or encumbered, of the $4.7 million. The request is that
$250,000 be carried forward in order to insure that the
project is done correctly.
2:28:31 PM
4(b) Natural Resources - Gas Pipeline
Extend lapse date from June 30, 2007, to June 30, 2008,
for the gas pipeline risk analysis and royalty issues
multi-year allocation in sec. 20(c)(1), ch. 3, FSSLA
2005, pg. 107, line 2. The amount expected to be
available is $1,500.0. The lapse extension also applies
to sec. 20(c)(2) gas pipeline corridor geologic hazards
and resource evaluation. This allocation is expected
to be fully expended by June 30, 2007.
$0.0
Mr. Bus explained the two parts: extending the lapse date
for gas pipeline risk analysis and evaluating the Gas
Pipeline Corridor Geologic Hazards & Resource Evaluation
appropriation.
Representative Hawker asked why the old process should
continue to receive funding. Mr. Bus deferred to Mr. Banks
to answer.
KEVIN BANKS, DIRECTOR, DIVISION OF OIL & GAS, DEPARTMENT OF
NATURAL RESOURCES, explained what the risk assessment money
has done so far. That concept continues in the AGIA bill,
which comes out on Friday.
4(b) Revenue Commissioner's Office
Extend lapse date from June 30, 2007, to June 30,
2008, for the gas pipeline development multi-year
appropriation made in sec. 20(e), ch. 3 FSSLA 2005, pg.
107, line 13. The amount expected to be available is
$100.0.
$0.0
4(b) Revenue Alaska Natural Gas Development Authority
Extend lapse date from June 30, 2007, to June 30, 2008,
for the gas pipeline development multi-year
appropriation made in sec 20(f), ch. 3, FSSLA 2005, pg
107, line 16. The amount expected to be available is
$500.0.
$0.0
Mr. Burnett explained that this section contains two lapse
date extensions used for work on commercialization of
natural gas. The amount of money expected to be available
will be carried forward to FY 08.
2:34:10 PM
4(c) Natural Resources - Gas Pipeline
Extend lapse date from June 30, 2007, to June 30,
2008, for the Bullen Pt. Road right-of-way permitting
multi-year allocation in sec. 20(d)(1), ch. 3, FSSLA
2005, pg. 107, line 10, as amended by sec. 34(d), ch.
82, SLA 2006, pg. 151. The amount expected to be
available is $800.0.
The lapse extension also applies to sec. 20(d)(2)
Division of Oil and Gas Increased Workload. This
allocation is expected to be full expended by June 30,
2007.
The lapse extension also applies to sec. 20(d)(3)
Commissioner's office increased workload, which expects
$10.0 to be available.
$0.0
Mr. Bus related that this section extends a lapse date which
affects Bullen Point Road Right-of-Way Permitting
appropriation.
2:34:50 PM
Representative Kelly asked if LB&A agreed with the Greenberg
Traurig waiver of conflict. Mr. Ostrovsky said the waiver
was from the administration. Representative Kelly asked if
both sides agreed. Mr. Ostrovsky said yes.
Representative Gara repeated his suggestion to cut expenses
by not contracting out services and, instead, using in-house
attorneys.
HB 138 was heard and HELD in Committee for further
consideration.
2:37:26 PM
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