Legislature(2007 - 2008)HOUSE FINANCE 519

05/09/2007 01:30 PM FINANCE


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02:13:09 PM Start
02:13:38 PM HB177
03:36:38 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 177                                                                                                            
                                                                                                                                
     "An Act relating to the Alaska Gasline Inducement Act;                                                                     
     establishing the Alaska Gasline Inducement Act matching                                                                    
     contribution fund; providing for an Alaska Gasline                                                                         
     Inducement    Act   coordinator;    making    conforming                                                                   
     amendments; and providing for an effective date."                                                                          
                                                                                                                                
Vice Chair Stoltze MOVED to ADOPT  the work draft for HB 177,                                                                   
labeled  25-GH1060\V,  Bullock,   5/9/07.    There  being  NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
Representative   Gara  asked  which   draft  is   before  the                                                                   
committee.   Co-Chair Chenault  said it  is the latest  draft                                                                   
the administration has brought forward.                                                                                         
                                                                                                                                
2:15:52 PM                                                                                                                    
                                                                                                                                
MARCIA  DAVIS,  DEPUTY COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                   
REVENUE, made  a comparison  of the  old House Resources  CS,                                                                   
version  O, and the  new House  Finance CS,  version V.   Ms.                                                                   
Davis referred to  a minor change on the bottom  of page 1 of                                                                   
version V.   "To ship"  was a  correction because  a producer                                                                   
commits to ship gas to a gas pipeline system.                                                                                   
                                                                                                                                
Co-Chair Chenault  introduced Commissioner Galvin  and Deputy                                                                   
Commissioner Marty Rutherford.                                                                                                  
                                                                                                                                
PAT GALVIN,  COMMISSIONER, DEPARTMENT  OF REVENUE,  addressed                                                                   
the changes in the new CS, version V.                                                                                           
                                                                                                                                
                                                                                                                                
Ms. Davis  noted legislative legal  drafting changes  on page                                                                   
2.   She explained a  change in Sec.  43.90.110 (1)  (C) that                                                                   
relates to  the manner in  which the state provides  matching                                                                   
funds  of up  to $500  million.   It  defines what  qualified                                                                   
expenditures are.   There has been some broadening  of what a                                                                   
qualified expense  can be.   Previously it  had to  relate to                                                                   
the obtaining  of the  FERC or  RCA certificate.   It  is now                                                                   
recognized  that there  are  other permits  and  requirements                                                                   
that would qualify.                                                                                                             
                                                                                                                                
2:23:28 PM                                                                                                                    
                                                                                                                                
Ms. Davis pointed to drafting  changes on page 3.  She listed                                                                   
items that would  not qualify, such as expenditures  for work                                                                   
product or assets  that have be acquired or  developed by the                                                                   
licensee before  the license is  issued.  Sec.  43.90.130 (2)                                                                   
deals with  a word  change from  "detailed" to "thorough"  to                                                                   
better comply with a FERC standard.                                                                                             
                                                                                                                                
Ms. Davis explained  that on page 4, subsections  (C) and (D)                                                                   
contain edits  from legislative  legal.  The word  "thorough"                                                                   
in subsection (i) was again changed  from "detailed".  Page 5                                                                   
includes a listing  of all items that must be  included in an                                                                   
application.  In subsection (3)  (B) is an important addition                                                                   
which  was included  as  a result  of  concerns expressed  by                                                                   
Trans Canada regarding pre-filing procedures before FERC.                                                                       
                                                                                                                                
2:26:01 PM                                                                                                                    
                                                                                                                                
Ms.  Davis acknowledged  drafting  changes on  page  8.   She                                                                   
pointed to subsection (8), where  a change is needed from the                                                                   
word "owned" to  "used".  Commissioner Galvin  clarified that                                                                   
the V  version contains this change.   Ms. Davis  referred to                                                                   
page 9 and the  addition in subsection (16)  of "rejection of                                                                   
an application as incomplete,  the".  She explained that this                                                                   
is  the provision  that requires  an applicant  to waive  the                                                                   
right  to  file  legal  challenges  against  the  application                                                                   
process.   The new  wording narrows  the focus.   The  waiver                                                                   
does not affect a party that is not an applicant.                                                                               
                                                                                                                                
Ms. Davis turned to page 10, subsection  (20).  It deals with                                                                   
an applicant's  financial and  technical ability, as  well as                                                                   
with  the  applicant's  safety,   health,  and  environmental                                                                   
compliance.     Representative  Hawker  asked   if  the  word                                                                   
"detailed" belongs  in the section.   Ms. Davis  explained it                                                                   
is used in a different way here and is acceptable.                                                                              
                                                                                                                                
2:31:04 PM                                                                                                                    
                                                                                                                                
Ms.  Davis spoke  to Sec.  43.90.140,  regarding the  process                                                                   
being  fair to  applicants.    All applications  will  remain                                                                   
unopened until a  specific date.  There is a  short period of                                                                   
time in which  requests for additional information  are made,                                                                   
but no  one can resubmit  or change information.   Subsection                                                                   
(e) was added  to make clear that once the  applications come                                                                   
in they are  available to the legislature  including complete                                                                   
and incomplete applications.                                                                                                    
                                                                                                                                
Ms. Davis explained that Sec.  43.90.150 removes a definition                                                                   
of "proprietary  or trade  secret" and  places it  elsewhere.                                                                   
Previously all  information of  a winning applicant  would be                                                                   
made  public.   Now,  confidential  information  will  remain                                                                   
confidential.                                                                                                                   
                                                                                                                                
2:34:56 PM                                                                                                                    
                                                                                                                                
Ms.  Davis  discussed  Sec.  43.90.160,  which  provides  for                                                                   
public  review  and comment.  Subsection  (c)  adds a  phrase                                                                   
"when  the  commissioners  determine   the  applications  are                                                                   
complete", and  allows the legislature  and their  agents and                                                                   
contractors, to see confidential  information. Representative                                                                   
Joule  asked  a question  about  the  word  "when" in  the  O                                                                   
version  of the  bill,  which  changed to  "after"  in the  V                                                                   
version.  Ms. Davis thought it was a drafting preference.                                                                       
                                                                                                                                
2:37:15 PM                                                                                                                    
                                                                                                                                
Ms. Davis  turned to page 12,  which shows the deletion  of a                                                                   
phrase.  Representative  Hawker agreed with the  deletion and                                                                   
surmised  that the  language  was  put there  by  one of  the                                                                   
potential  applicants.   Commissioner  Galvin responded  that                                                                   
the  language  was  put  there   by  a  legislator  based  on                                                                   
testimony from the Port Authority.   The department disagreed                                                                   
with the amendment  because of its questionable  value to the                                                                   
state.  The language muddied the water.                                                                                         
                                                                                                                                
2:39:52 PM                                                                                                                    
                                                                                                                                
Ms. Davis  said page  13 has legal  corrections and  drafting                                                                   
preferences.   Sec. 43.90.190 changes  the time period  of 60                                                                   
days to 90 days  for the legislature to approve  the issuance                                                                   
of a license.   Co-Chair Chenault thought 90  days was enough                                                                   
time for the legislature to consider  all of the bids because                                                                   
there is time during the public process to evaluate them.                                                                       
                                                                                                                                
2:42:09 PM                                                                                                                    
                                                                                                                                
Ms. Davis turned to Sec. 43.90.200,  the timeline obligations                                                                   
on  the  part  of  the  applicant   having  received  a  FERC                                                                   
certificate.     She  talked  about  subsection   (a),  which                                                                   
describes when  the applicant should accept  the certificate.                                                                   
In version O there was a provision  that the applicant had to                                                                   
accept  the   certificate  after  exhausting   administrative                                                                   
rights  of  appeal.   In  the  V version,  the  reference  to                                                                   
"administrative"  was   removed,  and  "or  earlier   at  the                                                                   
licensee's discretion" was added.   Subsection (c) on page 15                                                                   
contains a  change which gives  the licensee two  years after                                                                   
the effective date  of the certificate or 5  years after open                                                                   
season  to get  credit support.    Subsection (f)  references                                                                   
when a FERC certificate is in effect.                                                                                           
                                                                                                                                
Ms. Davis addressed  Sec. 43.90.210 and a change  on page 16.                                                                   
What  has   been  inserted  is   an  exception  for   when  a                                                                   
modification or amendment is required  because of an order or                                                                   
requirement  of a  regulatory agency  with jurisdiction  over                                                                   
the project.    Previously,  it required if any  modification                                                                   
in any  way diminished the net  present value of  the project                                                                   
to the state,  it resulted in the state's inability  to grant                                                                   
or authorize  that modification.   "Net present"  was deleted                                                                   
in front  of value because  there are other less  restrictive                                                                   
terms.                                                                                                                          
                                                                                                                                
Commissioner Galvin added that  this change was not picked up                                                                   
in Version V and would have to be corrected.                                                                                    
                                                                                                                                
2:47:00 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  emphasized  that  he  had  previously                                                                   
raised  these  concerns  and  they  were  his  own,  not  the                                                                   
industry's.   He emphasized  that he has  spoken with  no one                                                                   
about this  language.  He related  that he is a fan  of AOGCC                                                                   
as  a checks  and balance  system.   He  voiced concern  with                                                                   
language that puts side bars on AOGCC.                                                                                          
                                                                                                                                
2:51:13 PM                                                                                                                    
                                                                                                                                
Commissioner  Galvin  agreed   with  Representative  Hawker's                                                                   
concerns.   The language in this  section is not  intended to                                                                   
put any  restrictions  on AOGCC.   A decision  made by  AOGCC                                                                   
that  ends up  making  a licensee  change  a  project can  be                                                                   
accommodated by the commissioners.   It is intended to ensure                                                                   
independence by AOGCC.  Representative  Hawker agreed that is                                                                   
the intent, but thought the words did not allow for that.                                                                       
                                                                                                                                
Ms. Davis read the paragraph as  it is intended to flow.  The                                                                   
second sentence  clarifies that  orders or requirements  of a                                                                   
regulatory  agency  take  priority.    Representative  Hawker                                                                   
summarized his understanding of  the section.  He suggested a                                                                   
word change.                                                                                                                    
                                                                                                                                
2:58:23 PM                                                                                                                    
                                                                                                                                
Representative  Gara wanted  to ensure  AOGCC's authority  is                                                                   
what it should be.  He gave an  example.  Commissioner Galvin                                                                   
said  that the  department recognizes  the potential  problem                                                                   
with  AOGCC's off  take  rate.   The administration  has  put                                                                   
forth a request for clarification on off take rate issues.                                                                      
                                                                                                                                
Representative  Hawker concluded  that the  language in  Sec.                                                                   
43.90.110 does accomplish the intended purpose.                                                                                 
                                                                                                                                
3:02:26 PM                                                                                                                    
                                                                                                                                
Ms. Davis explained  that Sec. 43.90.220 gives  the state its                                                                   
right to audit  the records of a licensee and  to participate                                                                   
in the  governing bodies  associated with  the project  as it                                                                   
proceeds.    Subsection  (c) deals  with  ensuring  that  the                                                                   
commissioners have the right to  attend the governing body or                                                                   
bodies  and receive relevant  notices  and information.   She                                                                   
referred  to the  top of  page  17 and  related an  important                                                                   
change that deals with not disclosing  sensitive information.                                                                   
                                                                                                                                
Ms.  Davis addressed  Sec. 43.90.230,  the license  violation                                                                   
section.   Subsections  (1) and  (2)  and (3)  list when  the                                                                   
licensee is in violation of the  license.  Subsection (4) was                                                                   
added  to clarify  the consequences  of failure  to accept  a                                                                   
certificate.                                                                                                                    
                                                                                                                                
3:06:00 PM                                                                                                                    
                                                                                                                                
Representative  Kelly  asked   about  Sec.  43l.90.210  where                                                                   
AOGCC's  order could result  in the  project's success  being                                                                   
diminished.   He wanted assurance  that under girding  all of                                                                   
that was commissioner approval.   Commissioner Galvin assured                                                                   
him it was so.                                                                                                                  
                                                                                                                                
Ms. Davis  said the  changes on  page 18  are style  changes.                                                                   
The  change  on  page  19  is  substantive  and  addresses  a                                                                   
concern.  In dealing with abandonment  of project, subsection                                                                   
(c)  is  the  definition  that an  arbitrator  would  use  to                                                                   
determine   whether  or   not  a   project  was   uneconomic.                                                                   
Subsection (1) adds other "external"  sources of financing at                                                                   
the request  of the producers.   Representative  Hawker noted                                                                   
it is protection for any large  company.  Ms. Davis said that                                                                   
is  correct.   In response  to a  question by  Representative                                                                   
Hawker,  Ms. Davis  said it  does provide  credit support  if                                                                   
there are  firm transportation  commitments.   Representative                                                                   
Hawker  opined that "external"  was problematic.   Ms.  Davis                                                                   
commented that  "if the economics determine that  they should                                                                   
be shipping, they won't be able to prove up element two."                                                                       
                                                                                                                                
3:10:08 PM                                                                                                                    
                                                                                                                                
Ms. Davis turned to subsection  (e).  There was a deletion of                                                                   
a provision in  the O version that talks  about reimbursement                                                                   
to  a  successful  licensee  who  has  established  that  the                                                                   
project is not  economic.  The reimbursement by  the state to                                                                   
such  a  licensee would  have  been  for  50 percent  of  all                                                                   
qualified  expenditures.    In  Version  V  this  amount  was                                                                   
increased to all qualified expenditures.                                                                                        
                                                                                                                                
Ms. Davis turned  to deletions in Sec. 43.90.250  as shown on                                                                   
page 20.  The  deletions relate to what the  AGIA coordinator                                                                   
is entitled to receive.                                                                                                         
                                                                                                                                
Sec. 43.90.260,  on page  21, addresses royalty  inducements.                                                                   
In  subsection (C)  a reference  to gas  processing was  move                                                                   
into another section.   On page 22 in version  O, a provision                                                                   
that  provided  for a  royalty  in  kind, royalty  in  value,                                                                   
election  option  that the  shipper  or resource  owner  that                                                                   
makes a  commitment for  capacity in  the first finding  open                                                                   
season would have  a right to elect to.  They  could elect to                                                                   
require the  state to take  its gas in  value.  In  turn, the                                                                   
entity  would agree  to sell  part  of its  gas instate,  but                                                                   
under terms that were equivalent  to the value price that the                                                                   
state would  be receiving for  its gas outside.   The royalty                                                                   
experts  worked  on  this  and  found  many  problems.    She                                                                   
highlighted  various  problems   with  the  mechanism.    The                                                                   
language for that provision was deleted.                                                                                        
                                                                                                                                
3:14:55 PM                                                                                                                    
                                                                                                                                
Ms.  Davis drew  attention  to  page 22,  subsection  (B)(2),                                                                   
language which provides  more detail and binders  on what the                                                                   
state  needs to  do with  respect  to ensuring  that when  it                                                                   
makes its  election for taking  gas in kind, that  it doesn't                                                                   
create  an  undue  burden  on  producers  relative  to  their                                                                   
transportation  costs.    It  was set  forth  as  an  earlier                                                                   
direction  to the  Commissioner  of Natural  Resources,  that                                                                   
they  not impact  transportation  unduly and  that they  give                                                                   
ample notice.  This provision  provides more detail about the                                                                   
first point.                                                                                                                    
                                                                                                                                
Representative  Gara  asked  about  the change  on  page  22,                                                                   
whether  it impairs  the state's  ability  to switch  between                                                                   
royalty in value or royalty in  kind.  Ms. Davis said it does                                                                   
not.  Commissioner  Galvin said it indicates a  change in the                                                                   
timing.  The  state may choose  not to make a switch.   There                                                                   
is a  value to it and  that's why it  is being offered  as an                                                                   
inducement.                                                                                                                     
                                                                                                                                
3:17:13 PM                                                                                                                    
                                                                                                                                
Representative  Kelly asked what  the state's prerogative  in                                                                   
the agreement  is.  Commissioner Galvin explained  that there                                                                   
are  parameters surrounding  the state's  ability to  switch.                                                                   
The intent is to preserve the  ability to switch, recognizing                                                                   
that costs and risks are associated  with that.  It's limited                                                                   
to  only the  gas  committed in  open  season.   Through  the                                                                   
structure  of leases and  regulations  will be protection  to                                                                   
ensure compliance.  Representative  Kelly summarized that the                                                                   
existing  lease  mechanisms are  in  place until  a  mutually                                                                   
acceptable  agreement  replaces  them.   Commissioner  Galvin                                                                   
clarified  the  structure.   The  terms  of the  leases  will                                                                   
remain  until  regulations  are updated,  then  the  licensee                                                                   
would  have the option  of taking  the new  language.   There                                                                   
will always be a contract in place.   Ms. Davis referred to a                                                                   
new  subsection (d)  on  page  24, which  is  to clarify  the                                                                   
definition of gas production tax.                                                                                               
                                                                                                                                
3:21:40 PM                                                                                                                    
                                                                                                                                
Ms. Davis discussed  Sec. 43.90.330, inducement  vouchers.  A                                                                   
new subsection (d) was added to  give it a parallel structure                                                                   
to  the requirements  that  are  imposed on  resource  owners                                                                   
relative  to receiving  these types of  benefits for  royalty                                                                   
and tax benefits.  It sets up  a mechanism whereby the owners                                                                   
agree  not to  oppose  the rolled-in  rate  structures.   The                                                                   
correction  on the  bottom of  page 25  was from  legislative                                                                   
legal and the attorney general's office.                                                                                        
                                                                                                                                
Ms. Davis  noted that  on page  26, Sec. 43.90.420  clarifies                                                                   
that  constitutional claims  by third  parties would  proceed                                                                   
under  existing administrative  procedures.    Representative                                                                   
Gara asked  if the intention is  to have a 90-day  statute of                                                                   
limitations  for challenging  the  statute on  constitutional                                                                   
grounds.    Ms. Davis  explained  that  90-day limit  is  for                                                                   
constitutionality  challenges for  the chapter, the  statute,                                                                   
as  well as  for the  issuance  of a  license.   Commissioner                                                                   
Galvin noted that statutory or  administrative appeals of the                                                                   
decision could  also occur.   Ordinary  citizens may  want to                                                                   
challenge.  Administrative  appeals would occur  30 days from                                                                   
the  date of  the decision.   Constitutional  appeals do  not                                                                   
generally have  a timeframe.   The provision would  provide a                                                                   
timeframe for constitutional appeals.                                                                                           
                                                                                                                                
3:25:15 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked if there is a limit  to the appeal                                                                   
period.  He gave an example.   Commissioner Galvin reiterated                                                                   
that statutory  challenges to an agency decision  are limited                                                                   
to  the  30-day  time  period.   He  referred  to  a  similar                                                                   
decision in  Point Thomson.   The court dismissed  the appeal                                                                   
and  noted that  it needed  to go  through an  administrative                                                                   
appeal process, which is limited to the 30-day period.                                                                          
                                                                                                                                
Representative Gara continued  to explain that conduct can be                                                                   
challenged that is not covered  by the statutory time period.                                                                   
He wanted further assurances that  challenges could not occur                                                                   
years from the decision.  Commissioner  Galvin noted that the                                                                   
provision has  been well reviewed.  The  administration wants                                                                   
to  limit  and  expedite  review   of  an  action  against  a                                                                   
licensing process.  The decision  would be subject to the 30-                                                                   
day challenge  for statutory  purposes and on  constitutional                                                                   
basis, it would be 90 days.                                                                                                     
                                                                                                                                
3:29:07 PM                                                                                                                    
                                                                                                                                
Representative   Gara  summarized  that   if  it  is   not  a                                                                   
constitutional   challenge  it  would   be  subject   to  the                                                                   
Administrative  Procedures  Act.   He  suggested  the  90-day                                                                   
limit be tied to the constitutionality  of the chapter or the                                                                   
legality  or constitutionality  of a  license.   Commissioner                                                                   
Galvin further explained  that the concern was  that doing so                                                                   
would mean an additional 90-day  wait.  He added that he felt                                                                   
comfortable with the current approach.                                                                                          
                                                                                                                                
Representative  Gara wanted  100 percent  assurance that  the                                                                   
30-day  limit  would  apply.    Commissioner  Galvin  assured                                                                   
Representative  Gara  that  he  would  recheck  it  with  the                                                                   
Department of Law.                                                                                                              
                                                                                                                                
3:32:10 PM                                                                                                                    
                                                                                                                                
Ms.  Davis  said the  bottom  of  page  26 was  an  important                                                                   
addition which  deals with the state's commitment  to provide                                                                   
assurance to the licensee that  it would be supported and not                                                                   
have to  compete with a competing  natural gas pipeline.   If                                                                   
for  any  reason  the  state   does  deviate  and  support  a                                                                   
competitor's  project  through   tax,  royalty,  or  monetary                                                                   
treatment,  if it  makes that  payment  as a  result of  that                                                                   
violation,   that  payment   will  be   considered  in   full                                                                   
satisfaction of all  claims a licensee would  have that arise                                                                   
out of that conduct by the state.                                                                                               
                                                                                                                                
Ms. Davis explained  that royalty and tax are  purely royalty                                                                 
and tax.  Other types of permitting  are not preferential, so                                                                   
language was  removed to  that effect.   Added is  subsection                                                                   
(3)  to make  it  clear that  anything  the  state does  with                                                                   
respect  to  reviewing,  processing,   facilitating  permits,                                                                   
rights  of ways and  authorizations for  a competing  natural                                                                   
gas pipeline, does not invoke  the provisions of this project                                                                   
assurance   clause.    This   provision  addresses   industry                                                                   
concerns that the state could not support other projects.                                                                       
                                                                                                                                
3:34:25 PM                                                                                                                    
                                                                                                                                
Ms. Davis  noted that  on page  28, a  definition section  is                                                                   
added.  The definition of "amended  certificate" intends that                                                                   
someone does not  get a certificate after the  passage of the                                                                   
license  and creates  extended  deadlines.   A definition  of                                                                   
"applicant"  was added  for clarity.   A  definition of  "gas                                                                   
treatment plant" was added, as  was a "net present value".  A                                                                   
new definition  of "point  of production"  was added  on page                                                                   
30.   The  definitions of  "proprietary"  and "trade  secret"                                                                   
were also added to this section.                                                                                                
                                                                                                                                
Ms. Davis  related that on  page 32  there is a  reference to                                                                   
the  Public Records  Act, which  was amended.   It  clarifies                                                                   
that "privileged" was added.                                                                                                    
                                                                                                                                
Ms.  Davis noted  that a  new section  (8) was  added at  the                                                                   
bottom  of page  33,  which clarifies  that  because AGIA  is                                                                   
placed  in  Title  43  under   the  Department  of  Revenue's                                                                   
jurisdiction, having  this provision  in Title 38  will allow                                                                   
the  Department  of  Natural  Resources  authority  to  adopt                                                                   
regulations to implement AGIA.                                                                                                  
                                                                                                                                
3:36:38 PM                                                                                                                  
                                                                                                                              
Commissioner  Galvin indicated  that  the  Department of  Law                                                                   
feels soundly  that the  Administrative Procedure  Act, which                                                                   
requires a 30-day period for judicial  review, would pertain.                                                                   
Any  action brought  outside of  that would  be dismissed  on                                                                   
procedural grounds.                                                                                                             
                                                                                                                                
Discussion ensued regarding timelines for this legislation.                                                                     
                                                                                                                                

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