Legislature(1997 - 1998)

04/29/1997 02:00 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HOUSE BILL NO. 250                                                           
       "An    Act    establishing    a   North    Slope    Gas                 
       Commercialization  Team   to  develop   recommendations                 
       regarding a North Slope gas  project; and providing for                 
       an effective date."                                                     
  REPRESENTATIVE MARK HODGINS testified in support of CSHB 250                 
  (O&G).    He observed  that  HB  250 was  introduced  by the                 
  Governor.    He  discussed  changes  made by  the  committee                 
  substitute.      He   noted  that   the   North   Slope  Gas                 
  Commercialization   Team  (team)   was  consolidated.     He                 
  explained that the "confidentiality"  provision was retained                 
  in the bill at the advise of legislative legal  counsel.  He                 
  noted that the team was reduced to three members.  The  team                 
  would be comprised  of the commissioner of the Department of                 
  Natural  Resources, the  commissioner of  the Department  of                 
  Revenue and  the  Attorney General.    He stated  that  this                 
  change  would  allow the  fiscal  note  to be  reduced.   He                 
  recommended that the  fiscal note  be reduced to  zero.   He                 
  observed  that  the  Governor  has  a  contingency  fund  of                 
  approximately $400  thousand dollars.   He  stressed that  a                 
  zero  fiscal   note   would  facilitate   passage   of   the                 
  legislation.    He  acknowledged that  there  would  be some                 
  contractual and travel  needs.  He emphasized that the North                 
  Slope natural  gas project  is not  deemed to  be economical                 
  under  current  circumstances.   He  stressed that  the team                 
  would consider what  state and local  governments can do  to                 
  alleviate taxes and make the project economical.                             
  Representative Davies asked what form tax relief would take.                 
  Representative  Hodgins observed  that the  North  Slope gas                 
  project is  an enormous  undertaking.   He noted  that there                 
  would be a ramp up period.  He stressed that a tax lessening                 
  at the front end could help the project.  He emphasized that                 
  if the project  is not  economical it will  not happen.   He                 
  stressed that the project represents $150 billion dollars in                 
  revenues.    Federal  revenues  would be  approximately  $26                 
  billion dollars.  He noted that the message must be  sent to                 
  the  federal  government  that  there  will  be  no  federal                 
  revenues if the project does not go forward.                                 
  Representative  Davies expressed  concern  that  all of  the                 
  taxes and royalties  could be eliminated without  making the                 
  project economical.                                                          
  Representative Hodgins responded that the team will identify                 
  the  level  of  taxation  needed  for  the  project   to  be                 
  profitable.  He asserted that no one wants to be involved in                 
  the project unless there is going to be a profit.                            
  Co-Chair  Therriault  observed  that  the  project  will  be                 
  subject  to  legislative approval.    Representative Hodgins                 
  noted that the House Oil and  Gas Committee will meet during                 
  the interim.  He stressed that  the Committee will provide a                 
  public forum for discussions.                                                
  support of the  legislation.   He noted that  the team  will                 
  look  at what is  needed to take North  Slope natural gas to                 
  Asian markets.   The  legislation addresses  how the  Public                 
  Records Act  and the  Public  Meetings Act  will govern  the                 
  operations of the team.                                                      
  Commissioner Condon  discussed the  Department of  Revenue's                 
  fiscal note.   He stated that  the fiscal note contains  $75                 
  thousand dollars in the contractual line for continuation of                 
  a contract with Dr. van Meurs.  Dr. van Meurs will work with                 
  the Administration and Legislature.   There is an additional                 
  $75  thousand  dollars   in  the  contractual  line   for  a                 
  socioeconomic study.  He emphasized that the study will help                 
  the Legislature to judge if fiscal terms should be modified.                 
  The fiscal note  also includes $50 thousand  dollars for the                 
  continuation of a  temporary position  in the Department  of                 
  Revenue.  He observed that the position is currently working                 
  on the  project  full-time.    He  stated  that  funding  is                 
  necessary for travel between Anchorage and Juneau.                           
  Commissioner Condon stressed that the federal government can                 
  have a large influence  on the economics of the project.  He                 
  maintained that, if the project is  not built in Alaska, the                 
  market will be supplied  by a project outside of  the United                 
  States.  He  added that there  will be some travel  costs to                 
  Washington D.C.                                                              
  Representative  Davies observed that  page 5, lines  12 - 24                 
  was  deleted from  HB  250.    This language  addressed  the                 
  State's  participation  in  a North  Slope  gas  project and                 
  further   actions  needed  to  ascertain  or  alleviate  the                 
  anticipated   socioeconomic   impacts   of    the   project.                 
  Commissioner   Condon  reiterated   the   importance  of   a                 
  socioeconomic study.   He stressed that the study  will help                 
  with  legislative  decisions  regarding  the  project.    He                 
  recommended that State  participation not  be proposed.   He                 
  stated that any  proposals should  be analyzed to  determine                 
  its value to the State of Alaska.                                            
  PAUL FUHS,  YUKON PACIFIC testified  in support of  CSHB 250                 
  (O&G).    He discussed  subsection  (10)  on page  two.   He                 
  observed  that  this  section   expresses  the  intent  that                 
  negotiations take place with all potential project sponsors,                 
  with the goal  that a  contract be signed  with the  project                 
  sponsor group.                                                               
  Mr. Fuhs stressed that  the project must be backed  by long-                 
  term gas sales.   He emphasized the difficulty of  obtaining                 
  contracts or financing if there  is an unstable tax climate.                 
  He disagreed with the  statement that the project  would not                 
  be economical even  if all of  the State's taxes were  given                 
  away.  He  stated that  an analysis, by  Credit Swiss  First                 
  Boston,  showed  positive  economics for  the  project.   He                 
  maintained that the  goal is  for a unified  proposal to  be                 
  made  to  the  Asian  markets.    He  stated  that  permits,                 
  participation  of producers,  and state  and federal  fiscal                 
  terms are needed to assess the  economics.  He observed that                 
  the analysis differed  in their  estimations of how  quickly                 
  full production is achieved.  He stated that they anticipate                 
  placing 5 to 6 million tons the first year and 2 - 3 million                 
  tons every additional year.   He argued that the  project is                 
  in the "ball  park".  He  maintained that the Asian  markets                 
  are patiently waiting for a proposal from Alaska.                            
  JUNEAU spoke in regards to the public information provisions                 
  in the bill.  He maintained that provisions of public access                 
  will hurt the  prospects of the  project and are bad  public                 
  policy.  He referred to page 4, line 14.   He noted that the                 
  provision states that the  North Slope Gas Commercialization                 
  Team is not a governmental body for the purposes of the Open                 
  Meetings Act.  The legislation also provides that the Public                 
  Records  Act  does  not  apply  to  documents  that  contain                 
  sensitive,  proprietary,  or  privileged  information.    He                 
  stressed that  the determination of "sensitive" is up to the                 
  administrative decision  maker.   He noted  that all  of the                 
  material could  be kept  secretive forever.   He  maintained                 
  that there is no  reason for the secrecy.  He  observed that                 
  the team  has been functioning  for a year  and that  he has                 
  already obtained  documents from the Department  of Revenue.                 
  He stated that  the Department of  Revenue and the  Attorney                 
  General have  produced 95 percent  of the documents  that he                 
  has requested.   He  acknowledged that  some documents  were                 
  withheld on the grounds that  they contained proprietary and                 
  privileged information.  He observed that he did  not appeal                 
  the decision to withhold these documents.                                    
  Mr. Erickson  noted that  the Attorney  General advised  him                 
  that the  team is not covered by the  Open Meetings Act.  He                 
  emphasized  that  the Governor  did  not request  provisions                 
  regarding the Open  Meeting Act or  Public Records Act.   He                 
  stressed that  these provisions are  not needed to  put into                 
  statute  practices  that have  already  been going  on.   He                 
  maintained that these provisions represent  change to a long                 
  standing  public  policy  that  includes  the  public.    He                 
  maintained that public participation is an important part of                 
  doing governmental business.  He stated that gas sales could                 
  be the dominate  public policy issue of the next decade.  He                 
  stressed  that  it  is  not  an  "auspicious  start  for the                 
  process,  of getting  a gas  pipeline built, ...to  have the                 
  public  cut  out  of the  beginning  of  the  process."   He                 
  observed that there  was discussion in the  1970's regarding                 
  the "deal" between the State and oil companies.  He stressed                 
  that if the  Administration has  the ability to  selectively                 
  decided  what documents are available  to the public and the                 
  legislature,  that  the  public  will  question  legislative                 
  In  response  to a  question  by Representative  Davies, Mr.                 
  Erickson   did  not   dispute  that  meetings   between  the                 
  commissioners  and a  third  party are  not  under the  Open                 
  Meetings Act.  He clarified that his concerns are in regards                 
  to documentation.   He added that provisions relating to the                 
  Open Meetings  Act are  unnecessary.   He stated  that draft                 
  documents are part of the public record.                                     
  In  response  to  a question  by  Representative  Davis, Mr.                 
  Erickson stated that  documents have already been  submitted                 
  to the team  by oil companies involved  in the project.   He                 
  stated  that   Commissioner  Condon  indicated   that  these                 
  documents  contained  market  projections.   He  noted  that                 
  documents  containing  commercial  information  can be  kept                 
  confidential.  He  clarified that he is  more concerned with                 
  provisions  relating  to   the  Public  Records  Act.     He                 
  emphasized  that   "sensitive"  could   be  interpreted   as                 
  something that is embarrassing.                                              
  Co-Chair  Therriault  stated that  objections  by detractors                 
  could  result  in  industry withholding  information  to the                 
  detriment of the project.                                                    
  Mr. Erickson stressed  that discussions  have been going  on                 
  for a year without litigation.  He maintained that "if it is                 
  not broken don't  fix it".  He  acknowledged that litigation                 
  could be brought  forth.  He  emphasized that under  current                 
  practices it  would be difficult to substantiate accusations                 
  of  a secret conspiracy to  give away the  tax resource.  He                 
  stressed  that  it   would  be   difficult  to  charge   the                 
  Administration of withholding information.  He observed that                 
  future legislatures  cannot  be bound.   He  added that  the                 
  State's  taxing  power or  its  sovereignty cannot  be given                 
  away.  He  maintained that  the result would  be a  contract                 
  that has no legal authority,  but which has moral authority.                 
  (Tape Change, HFC 97-115, Side 2)                                            
  In  response  to a  question  by Representative  Davies, Mr.                 
  Erickson acknowledged that  there will  be a public  process                 
  before  anything  becomes   law.    He  stressed   that  the                 
  Legislature does  not stand any different than the public in                 
  regards to access.                                                           
  Representative Davies  noted that  legislators may  view oil                 
  and gas tax  records in confidentially.  Mr.  Erickson noted                 
  that  there  are  no  statutes  that  would  parallel  these                 
  provisions in regards to the gas  project.  He observed that                 
  if legislators view documents in confidentiality  they could                 
  not talk about what they discover.                                           
  Representative Hodgins noted that  the legislation speaks to                 
  the  definition  of  proprietary  interests.    He  provided                 
  members with a  memorandum from Jack Chenoweth,  Legislative                 
  Counsel, dated 4/18/97 (copy  on file).  He stated  that the                 
  legislation  allows negotiations of  sensitive material in a                 
  private  setting   before  a   proposal  is   made  to   the                 
  Legislature.  He observed that the Legislature is the public                 
  Representative  Davies  questioned why  it  is  necessary to                 
  include   the  Public   Meetings  Act   provisions   in  the                 
  legislation.   Representative  Hodgins  observed that  Legal                 
  Services  indicated that  the provisions  on confidentiality                 
  need to be  included.   Representative Davies observed  that                 
  confidentiality  pertains  more  to   the  records  than  to                 
  Representative Davies expressed concern that the legislation                 
  extends  to notice  of a  meeting that  would not  prejudice                 
  confidential information.  He observed that the principle of                 
  the Open  Meetings Act  is that  the public  can follow  the                 
  deliberations or reasoning of a body.                                        
  Representative Hodgins  stressed that if  a commissioner  is                 
  meeting with  agents of the  project that they  are probably                 
  exempt from any  public records.  Written  material would be                 
  part of the  public record.   He emphasized  that the  three                 
  major  resource  holders on  the  North Slope  would provide                 
  proprietary  information they do not wish to be available on                 
  a public forum.                                                              
  Representative Davies clarified that he  is referring to the                 
  remaining intermediate documents  that may  be created.   He                 
  asked  if  it is  the intent  that  documents, that  are not                 
  proprietary, be  held confidential.   Representative Hodgins                 
  stated  that  it is  the intent  that  the document  that is                 
  produced would come before the Legislature.                                  
  explained that there was a joint federal/state working group                 
  on the 1979  Beaufort Sea lease sale.  She observed that the                 
  group was doing  work that is very similar to  what the team                 
  will be doing.  The Alaska Supreme Court ruled that the 1979                 
  Beaufort  Sea  working  group   should  have  noticed  their                 
  Co-Chair  Therriault observed  that the  notice requirements                 
  could be problematic.  Ms. di  Franco noted that it has been                 
  the Department's position  to release  as many documents  as                 
  possible.    She indicated  that  the Department  of Revenue                 
  would continue to  release documents that are  not sensitive                 
  in nature.  She maintained that the Department will continue                 
  to  be as  open as  they are  able to,  per agreements  with                 
  negotiating parties.                                                         
  Representative Martin expressed  concern with the delegation                 
  of  authority  to  a  "secret  team".   Co-Chair  Therriault                 
  pointed  out  that  the   Legislature  will  participate  in                 
  decision making.                                                             
  Representative Grussendorf observed that the commissioner of                 
  the Department of Labor  would not be included on  the team.                 
  He  emphasized  the  role  that   the  commissioner  of  the                 
  Department of  Labor could play  in relation to  Alaska hire                 
  and Alaskan businesses.   He asked why the  commissioners of                 
  the  Department of Labor and  the Department of Commerce and                 
  Economic Development were dropped off.                                       
  Representative   Hodgins   explained  that,   due   to  time                 
  constraints, the Committee  decided to focus on  tax issues.                 
  He noted that Commissioner Condon's testimony indicated that                 
  the other commissioners would  be involved in an  ex officio                 
  manner.  He emphasized the intent to keep the team small.                    
  Co-Chair  Therriault observed  that  the  reduction of  size                 
  influenced the reduction  of the fiscal  note.  He  stressed                 
  that the Legislature can address local hire issues.                          
  Representative Grussendorf referred to the  fiscal note.  He                 
  did not think that the fiscal note should be zero.  Co-Chair                 
  Therriault  reiterated  that  the  intent   is  to  use  the                 
  Governor's contingency fund.                                                 
  Representative Martin asked why the team was declared a non-                 
  governmental body.   Representative Hodgins emphasized  that                 
  there  were  problems  with codifying  a  task  force.   The                 
  legislation allows confidentiality.  The team will produce a                 
  contract.    The  contract  will  be   turned  over  to  the                 
  Legislature for consideration.                                               
  Representative Martin expressed concern  that the Department                 
  of Law  will be  required to  provide assistance  to a  non-                 
  governmental body.                                                           
  Representative Davies suggested the addition of  language on                 
  page 4,  line 20  after "working  documents."   He suggested                 
  "would reveal proprietary or privileged information that the                 
  potential sponsor  requested be kept confidential"  be added                 
  and   "contain   sensitive,   proprietary,   or   privileged                 
  information  and  the potential  sponsor  requests  that the                 
  records  or  working  documents  be  kept  confidential"  be                 
  deleted.  He explained that the potential  sponsor would not                 
  be  able  to   request  that   working  documents  be   kept                 
  confidential.  The  Department of  Revenue would decide  the                 
  status of working  documents.   The potential sponsor  would                 
  request  that information they provide be kept confidential.                 
  Any  working  document   that  did   not  reveal   sensitive                 
  information could be released.                                               
  Ms. di Franco stated that  the legislation as written allows                 
  the Department  of Revenue  to do  what is  intended by  the                 
  proposed amendment.  She stated that working  documents that                 
  were   summary  documents  or  more  broadly  analytical  of                 
  specific   information   would  not   be   covered   by  the                 
  confidentiality provision.                                                   
  Representative  Davies interpreted  the language  to mean  a                 
  document  that  simply  analyzes  records  that  have   been                 
  requested   to  be   kept   confidential,   could  be   kept                 
  Representative Hodgins  observed that  the opinion by  Legal                 
  Services  would  go  against  the  proposed amendment.    He                 
  observed that the  definition of proprietary is  included in                 
  the  legislation.     He  emphasized  that  there   will  be                 
  proprietary information in  the course of negotiations.   He                 
  maintained that the  team could  not negotiate with  private                 
  entities if everything  was going to  be part of the  public                 
  record.  He assumed that the public will have the ability to                 
  receive information that is not sensitive.                                   
  Representative  Davies  stated  that   he  would  like   the                 
  legislation to clarify that only  those documents that would                 
  reveal confidential information would  be held confidential.                 
  Representative Hodgins observed that the lines that would be                 
  deleted by the proposed amendment give the person who brings                 
  forward the information the right to declare if the material                 
  is confidential.    Co-Chair Therriault  suggested that  the                 
  language  is clear  that documents  must contain  sensitive,                 
  proprietary    or    privileged   information    to   remain                 
  Representative Hodgins explained  that the sponsor would  be                 
  allowed  to determine  the nature of  the material  in their                 
  request for confidentiality.   He  noted that gas  companies                 
  would have proprietary information they would not want to be                 
  Representative  Davies  did  not  move  the amendment.    He                 
  observed  that  the  Department of  Revenue's  intent  is to                 
  release information that is not proprietary.                                 
  Co-Chair  Therriault  provided  members with  a  zero  House                 
  Finance Committee fiscal note for  the Department of Revenue                 
  (copy  on  file).     Representative  Grussendorf  expressed                 
  concern with the zero fiscal note.                                           
  Representative  Davies  emphasized  that  the  proposal  may                 
  request that the  Legislature change the fiscal terms of the                 
  State  to  the  tune of  millions  of  dollars a  year.   He                 
  stressed  that  an  appropriate amount  of  money  should be                 
  appropriated to ensure that the  Legislature receives a good                 
  proposal that has been fully considered.  He maintained that                 
  contingency funds are for unanticipated contingencies.                       
  Representative Foster MOVED to report CSHB 250 (O&G)  out of                 
  Committee with individual  recommendations.   Representative                 
  Davies OBJECTED.                                                             
  A roll call vote was taken on the MOTION.                                    
  IN FAVOR: Davis, Foster, Kelly, Kohring, Martin, Therriault                  
  OPPOSED:  Grussendorf, Davies                                                
  Co-Chair Hanley  and Representatives  Moses and Mulder  were                 
  absent for the vote.                                                         
  The MOTION PASSED (6-2).                                                     
  Co-Chair   Therriault  MOVED  to  adopt  the  House  Finance                 
  Committee zero fiscal  note.  There  being NO OBJECTION,  it                 
  was so ordered.                                                              
  Representative Davies  MOVED to  Amend fiscal  note of  $150                 
  thousand dollars in the contractual line.                                    
  A roll call vote was taken on the MOTION.                                    
  IN FAVOR: Grussendorf, Davies                                                
  OPPOSED:  Davis, Foster, Kelly, Kohring, Martin, Therriault                  
  Co-Chair Hanley  and Representatives Moses  and Mulder  were                 
  absent for the vote.                                                         
  The MOTION FAILED (2-6).                                                     
  HB   250   was   reported   out   of  Committee   with   "no                 
  recommendation" and  with a  zero fiscal  note by  the House                 
  Finance Committee for the Department of Revenue.                             
  (Tape Change, HFC 97-116, Side 1)                                            

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