Legislature(2013 - 2014)HOUSE FINANCE 519

04/12/2014 08:00 AM FINANCE


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08:05:06 AM Start
08:05:15 AM SB138
08:06:34 AM Public Testimony
11:02:07 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
-- Public Testimony - Individual Time Limited --
* Final sign-in by 11:00 a.m. *
*+ HB 349 AK RETIREMENT RESERVE FUND TELECONFERENCED
<Bill Hearing Postponed to 2:00 p.m.>
+ SB 194 TOURISM MARKETING BOARD TELECONFERENCED
<Bill Hearing Postponed to 2:00 p.m.>
+ SB 104 APPROPRIATIONS FROM THE DIVIDEND FUND TELECONFERENCED
<Bill Hearing Postponed to 2:00 p.m.>
+ SB 195 POSTSECONDARY EDUCATION LOANS/GRANTS TELECONFERENCED
<Bill Hearing Postponed to 2:00 p.m.>
+ Bills Previously Heard/Scheduled TELECONFERENCED
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
                                                                                                                                
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
8:05:15 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze discussed  that the  committee would  hear                                                                    
public testimony during the meeting.                                                                                            
                                                                                                                                
^PUBLIC TESTIMONY                                                                                                             
                                                                                                                                
8:06:34 AM                                                                                                                    
                                                                                                                                
LUKE  HOPKINS,  MAYOR,  FAIRBANKS NORTH  STAR  BOROUGH  (via                                                                    
teleconference),  discussed   a  group  of   mayors  wanting                                                                    
amendments to the bill. He  spoke in support of an amendment                                                                    
related to the  anticipated future PILT [payment  in lieu of                                                                    
taxes] agreement  and how it  pertained to existing  oil and                                                                    
gas taxes. He thanked the  House Resources Committee for its                                                                    
work on the amendment. He  asked the House Finance Committee                                                                    
to   retain   the   language    that   was   important   for                                                                    
municipalities to maintain the  property tax revenue stream.                                                                    
He  referred to  letters  provided to  the legislature  from                                                                    
various  mayors across  the state.  He  asked the  committee                                                                    
look  at  the  municipal  advisory  group  (similar  to  the                                                                    
Stranded Gas  Act advisory group)  that worked to  present a                                                                    
multitude  of   resolutions,  positions,  and   actions.  He                                                                    
believed  Representative  Steve  Thompson  had  chaired  the                                                                    
group. He relayed that the governor  had met with a group of                                                                    
mayors  to  discuss  action under  an  administrative  order                                                                    
proposed  by  the  group. He  acknowledged  that  procedures                                                                    
outlining  how  the  committee  would  arrive  at  decisions                                                                    
needed  to  be  established.   He  asked  the  committee  to                                                                    
maintain  the structure.  He thanked  the committee  for its                                                                    
time.                                                                                                                           
                                                                                                                                
Co-Chair  Stoltze  asked  about   the  bill  sections  Mayor                                                                    
Hopkins  was speaking  to. Mayor  Hopkins responded  that he                                                                    
did not have  the section in front of  him. Co-Chair Stoltze                                                                    
asked Mayor Hopkins to send  the committee an email with the                                                                    
section information.                                                                                                            
                                                                                                                                
Representative    Thompson   appreciated    Mayor   Hopkins'                                                                    
testimony.                                                                                                                      
                                                                                                                                
8:12:15 AM                                                                                                                    
                                                                                                                                
RICH  SEIFERT, SELF,  FAIRBANKS (via  teleconference), spoke                                                                    
against the  legislation. He relayed  that he served  on the                                                                    
Fairbanks North  Star Borough Budget Advisory  Committee. He                                                                    
believed  the  bill  represented  another  giveaway  to  oil                                                                    
companies that  oil producers would eventually  bankrupt the                                                                    
state.  He spoke  to  the  complexity of  the  bill and  the                                                                    
intent to revisit leases and  the existing tax structure. He                                                                    
did  not  understand  why it  was  currently  happening.  He                                                                    
stated that  everyone was complaining that  the industry did                                                                    
not  have   fiscal  certainty.  He  opined   that  the  bill                                                                    
eliminated  any  fiscal  certainty  for the  state  and  its                                                                    
communities. He referred to  the constitutional incentive to                                                                    
provide   the  best   return  to   the  state   through  the                                                                    
development of its resources. He  questioned the legality of                                                                    
the bill  related to the  constitutional mandate due  to the                                                                    
drastic  tax adjustment  and  the  open-ended adjustment  of                                                                    
future taxes.  He questioned the establishment  of the board                                                                    
on pages 58 and 59 of  the legislation. He noted that one of                                                                    
the duties pertained  to the state's tax  structure on rates                                                                    
of  oil and  gas  produced  south and  north  of 68  degrees                                                                    
latitude.  He urged  the committee  to  closely examine  the                                                                    
bill for its legality and  to consider the dire consequences                                                                    
that could  occur with its passage;  it was not a  legacy he                                                                    
would want his name attached to.                                                                                                
                                                                                                                                
8:15:23 AM                                                                                                                    
                                                                                                                                
MERRICK PIERCE, MEMBER, ALASKA GASLINE PORT AUTHORITY BOARD                                                                     
(via teleconference),  testified in opposition to  the bill.                                                                    
He  asked  the committee  to  consider  whether the  Parnell                                                                    
Administration was  displaying basic competence.  He relayed                                                                    
that  under  the  current  administration  the  air  quality                                                                    
problem in Fairbanks  had worsened, the Air  Force had tried                                                                    
to pull  out for the  second time, the refineries  wanted to                                                                    
shut down,  and the  construction of new  homes in  the area                                                                    
was  down  significantly.  He   stated  that  Fairbanks  was                                                                    
currently  an "economic  basket  case." He  referred to  the                                                                    
"boondoggle"  paint  job  at  the  governor's  mansion;  the                                                                    
governor had  picked the much  more expensive  contractor to                                                                    
do the  job and the contractor  had later been fined  by the                                                                    
Environmental  Protection   Agency.  He  wondered   how  the                                                                    
governor  could  be  trusted  with  the  complexity  of  the                                                                    
legislation.  He  stated  that  realistically  Alaska  would                                                                    
deplete  the  Statutory  Budget Reserve  and  Constitutional                                                                    
Budget  Reserve in  approximately  five  years. He  stressed                                                                    
that it  was critically  important for the  state to  have a                                                                    
new source of  revenue from the gas  pipeline; otherwise the                                                                    
state's economy would  collapse due to the  magnitude of the                                                                    
multi-billion  dollar  deficits  with  only  one  source  of                                                                    
revenue from the  oil pipeline. He stated  that the governor                                                                    
had  never  articulated   the  Hartwick's  Rule  fundamental                                                                    
principle   resource  economics.   The  rule   pertained  to                                                                    
investing  in  infrastructure to  bring  in  new revenue  to                                                                    
offset declines  in revenue  from finite  revenue resources.                                                                    
He asserted  that it was  up to  the legislature to  come up                                                                    
with an accurate solution. He  believed the governor was out                                                                    
of  line  in  his  thinking  that  the  state  should  allow                                                                    
transnational  corporations with  LNG projects  that compete                                                                    
with Alaska to  determine when, if, and where  the state got                                                                    
a project. He  used a business analogy with  the governor as                                                                    
the CEO. He believed the  governor's plan under SB 138 would                                                                    
allow the competition to decide  when and if the state would                                                                    
get a project.                                                                                                                  
                                                                                                                                
Mr. Pierce outlined steps he  believed were critical for the                                                                    
legislature to take.  First, he asserted that  the state had                                                                    
to  be in  control of  the  project timing,  which meant  it                                                                    
needed  to  be  a  majority  equity owner  of  at  least  51                                                                    
percent.  Second,  the  state should  not  produce  its  own                                                                    
gasline. He  spoke to fraudulent  tariffs related  to Trans-                                                                    
Alaska Pipeline  System (TAPS)  and keeping  competition off                                                                    
the North  Slope. Third, he believed  the legislature needed                                                                    
to  meet  with  the  customers related  to  the  timing  and                                                                    
ownership interests.  He stressed  that failure  would occur                                                                    
if the customers were ignored.  He elaborated that customers                                                                    
wanted gas  in 2019 and  the governor's plan called  for gas                                                                    
in  2022. He  opined  that the  timeframe almost  guaranteed                                                                    
customers  would  go  to Canada.  He  recommended  that  the                                                                    
legislature  conduct  hearings   to  understand  "how  badly                                                                    
Parnell  has  mismanaged  AGIA" [Alaska  Gasline  Inducement                                                                    
Act].  He  questioned  what  the state  owed  for  the  $300                                                                    
million that  was spent.  He wondered  why the  governor had                                                                    
not met with  companies wanting to advance  the pipeline. He                                                                    
stated  that  ExxonMobil  had   never  been  responsive.  He                                                                    
stressed the importance of understanding  the issue prior to                                                                    
moving  forward   with  legislation.  He  believed   it  was                                                                    
insanity to give  away oil or tax property  tax. He referred                                                                    
to  a  Wood  MacKenzie  analysis showing  that  if  properly                                                                    
built, the gas  pipeline would bring in $400  billion in new                                                                    
revenue over  the first 30  years of operation.  However, he                                                                    
was  concerned  about language  in  the  bill that  property                                                                    
taxes would increase because the  TAPS pipeline would not be                                                                    
valued  at  fair  value. He  emphasized  the  importance  of                                                                    
hearing from  the markets on  the timing,  ownership models,                                                                    
btu  [British  Thermal Unit]  content  of  the gas,  and  to                                                                    
understand the competition. He  provided various examples of                                                                    
competing LNG  projects. He advised hearing  from others who                                                                    
had successfully  built gasline projects. He  stated that it                                                                    
was  not difficult  to build  a  gas transmission  pipeline;                                                                    
there were  305,000 miles of  gas pipelines across  the U.S.                                                                    
He  provided an  example  of a  pipeline  success story.  He                                                                    
thanked the committee for its time.                                                                                             
                                                                                                                                
8:21:05 AM                                                                                                                    
                                                                                                                                
DON LEISTIKOW,  SELF, FAIRBANKS (via  teleconference), spoke                                                                    
in  opposition  to  the  bill.  He  had  grown  increasingly                                                                    
concerned over  the past couple  of decades. He  stated that                                                                    
the past  couple of years  had been difficult  to understand                                                                    
the  administration's  position  on   several  oil  and  gas                                                                    
related bills. He was concerned  about the financial aspects                                                                    
of SB  138. He  detailed that  it was  difficult to  see any                                                                    
controls  on the  conditions  that he  believed  would be  a                                                                    
blank  check to  oil  companies and  gas  producers. He  had                                                                    
heard testimony  pertaining to  the reasons  for SB  21 [oil                                                                    
and gas taxation passed in 2013].  He stated that SB 138 was                                                                    
offering all of the remaining  items that had not been given                                                                    
away  under  SB 21.  He  spoke  from  the perspective  of  a                                                                    
nonpartisan voter. He could not  understand why the bill was                                                                    
gift wrapped  in the current  way. He believed  specifics of                                                                    
the  legislation  were  opaque.   He  did  not  believe  the                                                                    
approach  was  helpful  to  the  citizens  of  Fairbanks  or                                                                    
Alaska. He  wanted the  legislature to  take a  more serious                                                                    
look  at the  bill  to  remove the  blank  check aspect.  He                                                                    
believed the bill should be shelved.                                                                                            
                                                                                                                                
8:23:55 AM                                                                                                                    
                                                                                                                                
LYNN  WILLIS, SELF,  EAGLE RIVER  (via teleconference),  was                                                                    
concerned about a reliable and  affordable supply of gas. He                                                                    
reminded  the  committee that  Dan  Fauske  with the  Alaska                                                                    
Gasline Development Corporation (AGDC)  had stated that once                                                                    
the cost of the Alaska  Stand Alone Pipeline (ASAP) exceeded                                                                    
the cost  of importing LNG  he would consider himself  to be                                                                    
on a  fool's errand.  He stated  the legislature  should not                                                                    
pass the bill  if it did not understand  the legislation. He                                                                    
questioned what  mechanism would  be available to  deal with                                                                    
contract   offers  if   the  opportunity   to  evoke   clear                                                                    
legislative intent  was closed. He believed  the legislature                                                                    
had  probably hired  the best  consultants  to evaluate  the                                                                    
proposal, but  he thought the  same could be said  for AGIA.                                                                    
He spoke  to the loss of  over $300 million under  AGIA plus                                                                    
an additional  $130 million owed  by the state. He  spoke to                                                                    
expenditures  on the  Cook  Inlet  supply contracts  through                                                                    
2018. He  discussed costs spent  on the AGDC ASAP,  which he                                                                    
believed may  be abandoned  for the  Alaska LNG  project. He                                                                    
noted that  AGIA was continuing  to restrict volume  on AGDC                                                                    
ASAP. He reasoned  that the state would  not consolidate its                                                                    
natural gas  demands in  the Railbelt  region if  it pursued                                                                    
trucking LNG into Fairbanks. He  believed the state would be                                                                    
competing  with  its  own  Cook   Inlet  gas  producers.  He                                                                    
stressed that state  funds were being used to  pay for three                                                                    
pipeline  projects  simultaneously  (i.e.  AGIA,  ASAP,  and                                                                    
Alaska  LNG).  He questioned  why  the  legislature was  not                                                                    
asking how long  ago the AGIA project to  Alberta had become                                                                    
uneconomical. He  wondered who was conducting  and reviewing                                                                    
depletion studies  that may support  release of  North Slope                                                                    
gas  to ensure  maximum  oil production  while allowing  the                                                                    
project. He  believed the legislation may  become law before                                                                    
all  of   the  questions  were  answered.   He  advised  the                                                                    
committee  that  the  legislature   should  be  cautious  in                                                                    
deliberations due  to the state's  deficit. He  reminded the                                                                    
committee  that  the  state  was  a  sovereign  and  not  an                                                                    
investment  bank.  He referred  to  prior  testimony by  Dr.                                                                    
Scott Goldsmith, Institute of  Social and Economic Research,                                                                    
University  of   Alaska  Anchorage.  He  relayed   that  Mr.                                                                    
Goldsmith  had indicated  to  the  Senate Finance  Committee                                                                    
that the  state was  drawing down its  cash reserves  at the                                                                    
rate of  $7 million per  day. The  state needed to  learn as                                                                    
much as possible prior to passing legislation.                                                                                  
                                                                                                                                
8:27:34 AM                                                                                                                    
                                                                                                                                
RACHEL  PETRO,   PRESIDENT  AND   CEO,  ALASKA   CHAMBER  OF                                                                    
COMMERCE,  ANCHORAGE  (via  teleconference),  discussed  the                                                                    
chamber  membership. She  stated  that  the announcement  in                                                                    
January  [2014]  on the  Heads  of  Agreement (HOA)  between                                                                    
Alaska  businesses  and  the state  was  welcome  news.  The                                                                    
chamber believed that  the best way for  Alaskans to develop                                                                    
their gas resources  was to have the state  participate as a                                                                    
business  partner  in an  Alaska  gas  project. The  chamber                                                                    
supported the  principles in  the HOA  and SB  138 including                                                                    
state  participation in  an Alaska  gas  project, the  state                                                                    
taking  a   percentage  gas  share  of   royalties  and  gas                                                                    
production  tax, participation  in the  project at  the same                                                                    
percentage  of  the  gas share,  and  establishing  a  clear                                                                    
process to move a project  forward. She spoke to identifying                                                                    
the necessary  tools to  confidentially develop  the various                                                                    
project  enabling arrangements  and  contracts. The  chamber                                                                    
believed  in  the establishment  of  a  public process  that                                                                    
would  provide   for  legislative  oversight,   review,  and                                                                    
approval. She  did not  see any deal  killers in  the recent                                                                    
CS. The chamber appreciated all  of the vetting on the bill.                                                                    
The chamber wanted to see  continued vetting and to keep the                                                                    
alignment  between  business  partners and  momentum  moving                                                                    
forward toward access to Alaska's gas.                                                                                          
                                                                                                                                
Co-Chair Stoltze remarked on chamber support.                                                                                   
                                                                                                                                
8:30:14 AM                                                                                                                    
                                                                                                                                
DON ETHERIDGE,  ALASKA AFL-CIO, JUNEAU, spoke  in support of                                                                    
the legislation and the letter  of intent that was traveling                                                                    
with the bill.  The group believed the  bill represented the                                                                    
best option to  determine whether the state's  gasline was a                                                                    
workable deal. The group was in  favor of the local hire and                                                                    
training  provisions included  in the  letter of  intent. He                                                                    
reasoned  that when  money was  spent  on construction,  the                                                                    
workers would  bring money  back into  the state.  He stated                                                                    
that Alaskan  workers would spend  the money in  Alaska. The                                                                    
group  supported the  first step  of the  project. He  noted                                                                    
that  the  legislature  would have  another  opportunity  to                                                                    
withdraw from the project.                                                                                                      
                                                                                                                                
Co-Chair Stoltze wondered if the  Mr. Etheridge believed the                                                                    
state was settling  on the deal. Mr.  Etheridge replied that                                                                    
the state  had the best deal  at present with the  people at                                                                    
the table. He  had faith in the  administration and believed                                                                    
it was on top of the situation.                                                                                                 
                                                                                                                                
Co-Chair  Stoltze noted  that  Angela Rodell,  Commissioner,                                                                    
Department of Revenue,  Joe Balash, Commissioner, Department                                                                    
of   Natural  Resources,   and  Michael   Pawlowski,  Deputy                                                                    
Commissioner, Strategic Finance,  Department of Revenue were                                                                    
all present in the committee room.                                                                                              
                                                                                                                                
8:33:12 AM                                                                                                                    
                                                                                                                                
BROTHER TOM  PATMOR, SELF, CLAM GULCH  (via teleconference),                                                                    
was  maddened when  oil companies  or their  contractors got                                                                    
away with things  while the government had  its back turned.                                                                    
He  noted that  whenever legislators  traveled to  visit the                                                                    
North Slope their itineraries were  planned ahead of time by                                                                    
oil  companies; government  officials were  shown only  what                                                                    
the  companies  wanted them  to  see.  He had  witnessed  an                                                                    
explosion on  a gas  pad and  an x-ray  truck burned  to the                                                                    
ground. He  noted that the occurrences  were newsworthy, but                                                                    
they  were not  reported.  He relayed  that  the state  fire                                                                    
marshal had  no record of  the two  events. He spoke  to the                                                                    
lack  of  security  around  the  buildings  at  Alyeska.  He                                                                    
believed  ExxonMobil had  promised  23 times  that it  would                                                                    
take  action at  Point Thomson  before it  did anything.  He                                                                    
remarked that  the committee would  be horrified by  some of                                                                    
the things  he had seen during  his 25 years of  work on the                                                                    
North Slope. He had personally  been involved in the killing                                                                    
of many  bears around  Prudhoe Bay. He  was bothered  by the                                                                    
practice  and  was willing  to  testify  to the  occurrences                                                                    
under oath. He suggested that the  mafia in Las Vegas may be                                                                    
a better  partner than  an oil company.  He did  not believe                                                                    
oil companies could be trusted.                                                                                                 
                                                                                                                                
Representative  Guttenberg   thanked  Mr.  Patmor   for  his                                                                    
testimony.                                                                                                                      
                                                                                                                                
8:36:18 AM                                                                                                                    
                                                                                                                                
AMY  NIBERT, PRESIDENT  and CEO,  ABC  OF ALASKA,  ANCHORAGE                                                                    
(via teleconference),  spoke in support of  the legislation.                                                                    
The  organization   represented  over  150   contractors  in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
8:36:57 AM                                                                                                                    
                                                                                                                                
BARBARA  HUFF  TUCKNESS,   DIRECTOR,  TEAMSTERS  LOCAL  959,                                                                    
relayed that  the group  had over  1,000 members  working on                                                                    
the North Slope.  She stressed that if SB 21  had not passed                                                                    
the prior  year that  some of the  employees would  not have                                                                    
jobs on the  North Slope. She hoped  that everyone continued                                                                    
to look  at Alaska's  future. She believed  the state  had a                                                                    
future. She  represented the working  people of  Alaska. She                                                                    
supported the  letter of intent  accompanying the  bill, but                                                                    
she did  not know if  people had  seen it. She  stressed the                                                                    
importance of  vocational training.  She relayed  that there                                                                    
had  been   over  25,000  Teamsters  working   on  the  last                                                                    
pipeline;  the workers  had not  all come  from Alaska.  The                                                                    
group was working hard to  train Alaskan workers. She stated                                                                    
that oil companies were making  contributions to help ensure                                                                    
that  the  state had  trained  workers.  She believed  there                                                                    
would be  around three project labor  agreements. She stated                                                                    
that  if the  state was  going  to put  money into  pipeline                                                                    
construction, the legislature needed  to make sure there was                                                                    
control over  the costs.  She noted that  it was  a "company                                                                    
thing" and  not a  "union thing." She  stated that  the best                                                                    
thing companies  could do would  be to ensure  project labor                                                                    
agreements  were in  place. She  believed the  project labor                                                                    
agreements  would benefit  Alaska.  She  was concerned  that                                                                    
there was  nothing about  Alaskan workers  in the  bill. She                                                                    
wondered who  would represent the unrepresented  people. The                                                                    
Teamsters tried  to make sure  the unorganized  workers were                                                                    
protected.  She asked  the committee  to do  something about                                                                    
Alaskan-hire.  She believed  members would  support it.  The                                                                    
Teamsters had  a good relationship  with the  producers. She                                                                    
relayed  that her  boss  met  with industry  representatives                                                                    
every couple of  weeks to discuss different  jobs. There was                                                                    
a significant amount of work  coming on line in the upcoming                                                                    
summer.  She  acknowledged  that  SB  21  had  impacted  the                                                                    
state's budget, but  it was a positive move.  She pointed to                                                                    
the importance  of long-term  planning. She  emphasized that                                                                    
the state  needed a  seat at  the table  during negotiation.                                                                    
She stressed the large scale  of the project and believed it                                                                    
was the largest in the nation if not, in the world.                                                                             
                                                                                                                                
8:42:25 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze   thanked  Ms.   Huff  Tuckness   for  her                                                                    
leadership   running    elections   with    the   Teamsters'                                                                    
membership. He appreciated her stand for workers.                                                                               
                                                                                                                                
Representative Gara  wondered how a project  labor agreement                                                                    
would increase the chances of Alaska hire.                                                                                      
                                                                                                                                
Ms.  Huff Tuckness  replied  that  negotiations with  unions                                                                    
occurred  through   project  labor   agreements.  Applicable                                                                    
unions  included  the  Teamsters,  pipe  fitters,  operating                                                                    
engineers,  and laborers  local  in  Fairbanks. Through  the                                                                    
negotiations with subcontractors the  unions were allowed to                                                                    
bring  existing employees  through the  Teamsters' different                                                                    
hiring halls.  She noted that the  pipeline training offices                                                                    
were  large.  She  remarked  that   much  of  the  financial                                                                    
assistance had  come from the  House Finance  Committee. She                                                                    
relayed that  the project  labor agreement  brought everyone                                                                    
together; the  organization's hiring provisions  included an                                                                    
Alaska resident requirement. She  believed the commitment to                                                                    
hiring Alaskans based on qualifications was important.                                                                          
                                                                                                                                
8:45:20 AM                                                                                                                    
                                                                                                                                
Representative  Holmes thanked  Ms.  Huff  Tuckness for  her                                                                    
work. She  referred to  the letter of  intent and  asked for                                                                    
further  detail  on  items  Ms.  Huff  Tuckness  would  like                                                                    
included in the legislation.                                                                                                    
                                                                                                                                
Ms. Huff  Tuckness responded that  there was nothing  in the                                                                    
current bill  related to  the hire  of Alaskan  workers. She                                                                    
stressed that  training was  needed and  should be  going to                                                                    
Alaskans. She relayed that under  Article 11 in the Heads of                                                                    
Agreement,  the letter  of intent  language  had been  taken                                                                    
out. She read letter of intent language:                                                                                        
                                                                                                                                
     It is the  intent of the Alaska  State Legislature that                                                                    
     the  Alaska  LNG  project  honor  the  commitments,  as                                                                    
     copied  below, made  in "Article  11:  Alaska Hire  and                                                                    
     Content", agreed  to in the  Heads of Agreement  by and                                                                    
     among  the  administration  of  the  State  of  Alaska,                                                                    
     Alaska  Gasline  Development  Corporation,  TransCanada                                                                    
     Alaska Development  Inc., ExxonMobil  Alaska Production                                                                    
     Inc., ConocoPhillips,  Alaska Inc., and  BP Exploration                                                                    
    (Alaska) Inc. through construction of the project.                                                                          
                                                                                                                                
     For  the Alaska  LNG  Project, the  Alaska LNG  Parties                                                                    
     will, within the constraints of law:                                                                                       
                                                                                                                                
        a. Employ Alaska residents and contract with Alaska                                                                     
          businesses to the extent they are qualified,                                                                          
          available, ready, willing and cost competitive;                                                                       
                                                                                                                                
Ms. Huff Tuckness stressed that  the Teamsters believed item                                                                    
a.  was  extremely  important for  Alaskan  businesses.  The                                                                    
organization  had  many  employers   that  worked  with  the                                                                    
industry as  subs on  the slope. She  continued to  read the                                                                    
letter of intent:                                                                                                               
                                                                                                                                
        b. Use, as far as practicable, job centers and                                                                          
          associated services operated by the State                                                                             
          Department of Labor and Workforce Development;                                                                        
        c. Participate with the State Department of Labor                                                                       
          and Workforce Development to update the training                                                                      
          plan for an LNG export project including main                                                                         
          operations;                                                                                                           
        d. Advertise for available positions locally and                                                                        
          use, as far as practicable, Alaska job service                                                                        
          organizations to notify the Alaska public; and                                                                        
        e. Work with the State Department of Labor and                                                                          
          Workforce Development and other organizations to                                                                      
          provide training.                                                                                                     
                                                                                                                                
     11.2 Prior to construction, the Alaska LNG Parties                                                                         
     commit to negotiate in good faith project labor                                                                            
     agreements for the Alaska LNG Project.                                                                                     
                                                                                                                                
Ms.  Huff  Tuckness relayed  that  she  had been  unable  to                                                                    
locate the letter of intent  traveling with the legislation.                                                                    
The  organization was  supportive of  the letter  of intent,                                                                    
but she  believed Alaskan workers deserved  to have language                                                                    
included in  the bill.  She stressed the  large size  of the                                                                    
project; she  believed the Alaskan workforce  would be proud                                                                    
to be a part of the project.                                                                                                    
                                                                                                                                
8:49:33 AM                                                                                                                    
                                                                                                                                
LARRY  DEVILBISS, MAYOR,  MAT-SU BOROUGH,  expressed support                                                                    
for  the project.  He  observed that  the  project had  gone                                                                    
through  many  changes  in  the process.  He  spoke  to  the                                                                    
borough's  primary  concern.  He  had  met  with  a  project                                                                    
manager who  had indicated 98  percent completion  on right-                                                                    
of-way, but could  not disclose any of  the information. The                                                                    
borough believed  that Cook Inlet was  the logical location;                                                                    
it also  believed that  using Port  MacKenzie as  a terminus                                                                    
location  would  save  significant money.  He  believed  the                                                                    
decision  had  been  made.  Additionally,  he  believed  the                                                                    
borough  should  stay  out of  the  economics.  The  project                                                                    
manager  had relayed  that there  had  been more  difficulty                                                                    
getting across  the Big  Susitna River  than Cook  Inlet. He                                                                    
was concerned that  if the pipeline route  traveled down the                                                                    
west side  of the Big Susitna  River, it would have  a major                                                                    
impact on the  gas value to Mat-Su. He had  not been able to                                                                    
determine who  was representing the state's  interest in the                                                                    
specific project phase (i.e. alignment  and other). He asked                                                                    
the committee  to look into and  be aware of the  issue. The                                                                    
borough  was the  second largest  municipality in  the state                                                                    
and was headed towards becoming  the largest. He stated that                                                                    
if the  gas was  further away from  Mat-Su markets  it would                                                                    
minimize the value  of an anchor tenant at its  own port. He                                                                    
gave the committee kudos for helping the project along.                                                                         
                                                                                                                                
Co-Chair Stoltze noted that  department staff were available                                                                    
to meet with Mayor Devilbiss during his visit.                                                                                  
                                                                                                                                
8:53:17 AM                                                                                                                    
                                                                                                                                
LISA WEISSLER, SELF, JUNEAU,  spoke against the legislation.                                                                    
She was  a former oil  and gas  attorney; she had  worked on                                                                    
AGIA  and  had  been  a legislative  staffer.  She  provided                                                                    
further  detail  about   her  professional  background.  She                                                                    
referred to  a committee  hearing in which  Co-Chair Stoltze                                                                    
asked if  the project  was a  good deal  for the  state. She                                                                    
believed the  answer was no.  She opined that the  state was                                                                    
making  commitments  too  soon,   with  too  little  project                                                                    
information, which  could result  in greater risk  and fewer                                                                    
rewards  to the  state. She  asserted that  the state  could                                                                    
lose billions of dollars in  upfront investment costs if the                                                                    
pipeline was not built. She  believed the producers were the                                                                    
ones  getting a  good  deal.  She pointed  to  the Heads  of                                                                    
Agreement and  relayed that producers would  get 100 percent                                                                    
ownership and control  of their portion of  the project with                                                                    
very few  obligations to the state.  Additionally, the state                                                                    
would share  upfront costs  in risks and  would give  up its                                                                    
right  to switch  between royalty  in-kind  and royalty  in-                                                                    
value.  She  elaborated  that  the  producers  would  decide                                                                    
whether conditions to move forward  were acceptable and when                                                                    
to request for the state to  take its production tax as gas.                                                                    
She  continued  that  the cost  of  gas  infrastructure  was                                                                    
deductible from the state's oil  tax; according to the Heads                                                                    
of Agreement the state gas  tax would be structured to allow                                                                    
producers to book  the gas reserves. She  discussed that the                                                                    
state would  pay the transportation marketing  costs for the                                                                    
state royalty  and tax gas.  She noted that the  state could                                                                    
potentially  be  paying  the producers  to  market  its  gas                                                                    
(currently the  producers provided  the service  under their                                                                    
existing leases).                                                                                                               
                                                                                                                                
Ms.  Weissler  communicated  that  the state  would  have  a                                                                    
minority vote  on management  decisions and  producers would                                                                    
control  gas production.  She shared  that the  property tax                                                                    
for communities  would be based  on through-put  rather than                                                                    
property  value. Additionally,  there was  no regulation  of                                                                    
the pipeline tariff, no requirement  to provide instate gas,                                                                    
no requirement to pay for  expansions, and no requirement to                                                                    
provide  pipeline  access  to  third-party  producers.  Most                                                                    
significantly, the project would be  the end of AGIA and the                                                                    
assurance  that there  would be  a  pipeline with  favorable                                                                    
terms  for the  state; she  noted that  producers had  never                                                                    
liked the requirement. She stressed  that the issues she had                                                                    
listed  were  only  the beginning.  She  referred  to  prior                                                                    
testimony from  producers that  they wanted  the flexibility                                                                    
to negotiate  new oil tax;  they had  stated that SB  21 had                                                                    
been a good start. She  had heard consultants state that the                                                                    
legislation only  set the groundwork and  that changes could                                                                    
be made.  She referred  to a  document from  the departments                                                                    
that outlined  agreements that would be  negotiated with the                                                                    
passage  of   SB  138.  She   remarked  the   contracts  and                                                                    
agreements   were  piecemeal;   some  required   legislative                                                                    
approval,  while   others  did  not.  She   pointed  to  the                                                                    
precedent agreement  where the shippers and  pipeline owners                                                                    
were free  to negotiate how  shipping would occur  (i.e. who                                                                    
would bear risks, cost overruns,  what occurred in the event                                                                    
of a  pipeline shutdown, and  other). She observed  that the                                                                    
Memorandum of  Understanding already  stated that  the state                                                                    
would  pay if  production stopped;  the precedent  agreement                                                                    
would  be negotiated  during the  upcoming summer  and would                                                                    
not be back before the legislature for approval.                                                                                
                                                                                                                                
Ms. Weissler underscored that the  bill did not just lay the                                                                    
groundwork; it  provided authority  to move forward  on some                                                                    
very significant  agreements that would be  difficult to get                                                                    
out of.  She opined  that the bill  needed to  clarify which                                                                    
contracts  were subject  to legislative  approval and  when.                                                                    
She  asked  that the  legislation  include  a best  interest                                                                    
finding  and  determination requirement.  Additionally,  she                                                                    
believed  the bill  should define  the contracts.  She asked                                                                    
that the administration put out  a best interest finding and                                                                    
determination  that explained  why  the project  was in  the                                                                    
state's  best interest  and factors  used  to determine  the                                                                    
conclusion. She  stated that the  best interest  finding had                                                                    
been used  for the  Stranded Gas  fiscal contract  and AGIA.                                                                    
The most recent  version of the bill  included a requirement                                                                    
for the  proposed contract to  be put  out 90 days  prior to                                                                    
its delivery  to the  legislature. She  did not  believe the                                                                    
provision was  sufficient. She stated  that there  needed to                                                                    
be something  more concrete for  the public to look  at. She                                                                    
believed  it was  reasonable and  that it  was the  public's                                                                    
right. She  had written  a proposed amendment  modeled after                                                                    
the  Stranded  Gas  Development Act.  She  stated  that  the                                                                    
bottom line  was that the bill  was not a good  deal for the                                                                    
state. She believed the bill set  the state down a path that                                                                    
would  come back  to haunt  it. She  urged the  committee to                                                                    
vote against the legislation.                                                                                                   
                                                                                                                                
9:00:55 AM                                                                                                                    
                                                                                                                                
Representative Wilson  asked for  the testimony  in writing.                                                                    
Ms. Weissler agreed.                                                                                                            
                                                                                                                                
9:02:04 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:35:15 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stoltze asked if there was anyone signed up to                                                                         
testify.                                                                                                                        
                                                                                                                                
9:35:40 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
11:00:57 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stoltze asked if there was anyone signed up to                                                                         
testify.                                                                                                                        
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
CSSB 138(FIN) am was HEARD and HELD in committee for                                                                            
further consideration.                                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
AKLNG Project Flow Chart 031014 25%.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
HCS CSSB138(RES) Summary of Changes.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
HCS CSSB138(RES) Sectional Analysis.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 4.4.14 Letter of Clarification - DNR & TC.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 4.3.14 Agreements Matrix.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 HRES MOU Questions Answers Administration 2 12 14.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 Transmittal Letter.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 AKLNG Project Flow Chart 031014 25%.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB138 4.11.14 TC Letter of Clarification Timeline.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB138 Response to Geran Tarr 4-3-2014 FINAL.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB138 Response to Geran Tarr 3-21-2014 FINAL signed.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB138 Response to HRES 3-21-2014 FINAL signed.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 138 Revenue and Debt Capacity 20-22-25 as attachment to 3-21-2014 Tarr response.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB138 Resource Development Council Letter.pdf HFIN 4/12/2014 8:00:00 AM
SB 138
SB 104 Response HFC Prescription Costs Letter.pdf HFIN 4/12/2014 8:00:00 AM
SB 104