Legislature(1997 - 1998)
03/12/1998 10:15 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 393 - DEVELOP STRANDED GAS RESOURCES Number 2150 CHAIRMAN HODGINS announced the committee would hear HB 393, "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." He stated that there is a marked of version of HB 393, which is the committee substitute that the committee is proposing. Number 2164 PAT CARTER asked that the committee look at the version with the words "O&G mark-up 3/12/98" written on the front which is the original bill with the changes written in and CSHB 393(O&G)0- GH2006\B, 3/11/98. He said "These should be substantially similar since its what legal worked off of. The drafting manual states that the new text underlined and the deleted text bracketed only applied to changes in existing statute and therefor it is very difficult to disseminate between the original bill and the mark- up." He asked the committee to turn to page 2 on the marked-up version finding (4) was deleted and renumbered accordingly. He stated that in (7) "although developing technology may offer other alternatives, such as gas-to-liquids (GTL), was deleted and Insert A, was added which reads: Page 2, line 28: (7) following "marine tankers;" INSERT: although experimental research is being conducted on other alternative technologies such as gas-to-liquids (GTL), this technology is not yet commercially viable. If this research results in commercially viable technology, and after economic analysis by the state of Alaska of the application of this technology it is shown that local or state tax or regulatory changes are necessary to commercialize an Alaska project utilizing this technology, then this technology may be considered in regards to this legislation. Number 2237 MR. CARTER stated that (9) was deleted. In (10) of the original bill, "for an enormous volume of gas," "that volume of gas represents approximately one-quarter of the entire East Asian LNG market today and probably cannot be placed into that market all at once", and "which means that the project must secure most, if not all, of the projected growth in demand for LNG in the East Asian market over the ramp up period;" was deleted. Inset B was added which reads: Page 3, Line 16: INSERT a new finding: (11) the state has contracted an extensive financial analysis of the commercialization of North Slope gas; this analysis, performed by a recognized expert in petroleum economics, Dr. Pedro Van Meurs, indicates that changes in the local, state, and federal tax structure may be necessary to make commercialization of North Slope gas resources economically viable; Number 2304 MR. CARTER stated Insert C was added, which reads: Page 5, line 12: INSERT: (b) The legislature intends that, in order to provide the stable fiscal terms that will encourage development of stranded gas projects, any contract negotiated pursuant to this Act will express whether the state intends to be bound to the full extent allowed by the Constitution of the State of Alaska; however, the legislature further intends that the terms of a contract negotiated under this chapter will not be binding on or enforceable against the state or the other parties to the contract unless the commissioner is authorized to execute the contract by the legislature as provided in this chapter. Mr. CARTER stated that on page 6 , line 21 the word "economic" was added before "proximity" and as well as throughout the bill. Insert CC was added which reads: Page 7, line 31: INSERT new : (6) a plan to mitigate the increased demand for public services and other negative effects caused by the project; (7) a plan for the safe management and operation of the project once it is constructed; Number 2349 MR. CARTER stated that on page 9, line 31, the date is changed from 2004 to 2001. Insert D was added was reads: Page 14, line 9: INSERT: (c) Subject to the voluntary agreement of the qualified sponsors, the commissioner may include a term in the contract providing for incentives to encourage training and hiring of Alaska residents. Number 2377 Mr. CARTER stated that on page 15, line 4 the words "any two" were deleted and the word "both" was added. He stated that (iii) and (iv) were deleted. He stated that on page 14, line 7 following As 43.82.240 "or to a municipal advisory" was added. On page 14, line 12 after the word "Law" "and municipal advisory group established held under AS 43.82.510" was added. He asked Commissioner Condon to speak to this. Number 2423 WILSON CONDON, Commissioner, Department of Revenue, stated that it would be a group that is established and authorized to share confidential information with the municipal advisory group. Number 2452 MR. CARTER stated that on page 19, line 31, "enter into the proposed contract" was deleted and "submit the contract to the legislature, together with a request from the Governor, for authority to enter into the proposed contract pursuant to AS 43.82.435" was added. Similar language was also added on page 20, line 13, with Insert E. TAPE 98-23, SIDE B Number 0003 CHAIRMAN HODGINS asked if that would be the ratification language. MR. CARTER replied that is correct. Number 0038 Mr. CARTER stated that on page 21, line 2 after the word "public" "and members of the legislature" is added and (3) is renumbered to (4) and vise versa. He stated that on page 21, line 24 after "appropriate", "and with the pertinent municipal advisory group" is added. He stated that on page 21, line 31, "the commissioner may execute the contract is deleted. Insert F is added which reads: Page 22. Line 2: Following "state" INSERT: the commissioner shall under 43.82.435 submit the contract to the legislature, together with a request from the Governor for authorization to execute the contract. Number 0096 MR. CARTER stated that on Insert G is added which reads: Page 22, between lines 5 and 6, INSERT: Sec. 43.82.435. Legislative Authorization. The commissioner may not execute a contract developed pursuant to this chapter and a contract developed pursuant to this contract is not binding upon or enforceable against the state or other parties to the contract unless the commissioner is authorized to execute the contract by means of general law. The state and the other parties to the contract shall execute the contract within 60 days of the effective date of the authorizing legislation. Sec. 43.82.440. Judicial Review. A person may only bring an action challenging the constitutionality of an enactment under AS 43.82.435 or the enforceability of a contract executed pursuant to an enactment under AS 43.82.435 if the action is commenced within 120 days after the date that the contract was executed by the state and the other parties to the contract. MR. CARTER stated that page 23, Article 6 was deleted and Insert H was added. He asked Commissioner Condon to explain it. Number 0108 COMMISSIONER CONDON stated that in the original bill the contract provided for either a formula or an equity participation in the project. Rather than having a specific formula in the legislation the new municipal provision provides that the proposed contract would provide for payment made directly to municipalities and those payments would be negotiated in line with the principles of AS 43.82.520 (b). He stated that the legislation would require the creation of an municipal advisory group and one member appointed from each municipality whose taxing power would be affected by the proposed project. He stated that the commissioner, in developing the contract would be obligated to keep the municipal advisory group informed and to seek their advice and counsel in arriving at the municipal sharing formula. Number 0191 MR. CARTER stated that on page 24, line 23 was added, which reads: (1) "affected municipality" means a municipality for which it is reliably expected by the commissioner of revenue that after the commencement of activities under AS 43.82.200 that a contract entered into pursuant to AS 43.82. 020 will affect taxes that otherwise would be imposed by that municipality pursuant to AS 43.82.210. MR. CARTER stated that Insert J was added which is the definition of economic proximity and is renumbered accordingly. He stated that on page 25, line 15, Insert K was added, which is the definition of uneconomic or uncompetitive. Number 0278 REPRESENTATIVE TOM BRICE asked when legislative approval of the contracts is mentioned is it the approval in the form of resolution or statute. Number 0292 COMMISSIONER CONDON replied that the committee substitute would provide a template for bringing modifications to the state's fiscal system before the legislature. It calls for the development of a proposal which the commissioner would not have the authority to sign. A bill would come before the legislature that, if passed, would give the authority to the commissioner to enter into a contract. Number 0325 REPRESENTATIVE BRICE stated that a bill is either a resolution or a statute and he asked if he was taking statutory to mean a House bill. Number 0330 COMMISSIONER CONDON replied absolutely. He stated that it might not show up as a section in the codified statutes but it is a bill as opposed to a resolution. Number 0339 REPRESENTATIVE BRICE stated that his concern is that it would leave some leeway for legislative manipulation of that contract. He stated that by resolution that language would be less easily manipulated. Number 0361 COMMISSIONER CONDON replied that it would provide an opportunity for legislative review before the contract was submitted to the legislature along with the request for authority to enter into the contract. He stated that there is both the opportunity to change the contract in response to legislative views and then an up or down vote once authorization to enter into the contract is requested. Number 0414 REPRESENTATIVE BRICE referred to Insert E and stated that the legislature can approve the contract by action of both bodies through resolution. A resolution would stand for the legislatures endorsement of a contract which is much different than having a piece of legislation that will be able to be amended in the committee process. Number 0469 COMMISSIONER CONDON replied that it is the legislature's decision as to how this gets structured. He stated that this bill does not give the commissioner the authority to enter into the contract what it does is, requires the commissioner, under a detailed set of criteria, to come back to the legislature with a specific proposal in contract form and a requirement for it to become legally effective, a specific legislative authorization to enter into the contract. The legislature would not have the authority to amend the contract; they would have the authority either to give authority to the commissioner to enter into it or to deny it. Number 0526 REPRESENTATIVE BRICE stated that he has a strong concern that the authority needs to be defined to be approved by the legislature through passage of a resolution, so there is a certain amount of specificity as to how the legislature will react to the contract. Number 0548 REPRESENTATIVE ROKEBERG stated that if a general law was passed, it would be possible to amend or change the terms of the contract so the issue is, if it should be a law or resolution. He stated that the question is, does the legislature want to be able to change the terms of the contract. Number 0574 COMMISSIONER CONDON stated that as the bill is structured, without the passage of a subsequent bill it can not be done by a resolution it has to be done by a bill. REPRESENTATIVE RYAN stated that there is a separation of power and the job of the administration is to bring the deal back to the legislature. He stated that at that point the legislature could approve or disapprove it, it is not in the legislature's power to cut the deal, only to approve it. He stated that legislative approval is necessary, but we should not be negotiating the deal. Number 0657 REPRESENTATIVE ROKEBERG stated that he did not agree, he would think that the legislature would have the right to make changes in general law as well as granting authority. Number 0685 COMMISSIONER CONDON stated that it could happen in a lot of different ways. For example, if there was a proposed contract that project participants and the commissioners have agreed to it. If the legislature grants the authority to enter into the deal then there would be a contract and the legal effects that go along with it. At that point, the legislature could say that they do not like the deal but like the ideas. Therefore, the legislature could take the provisions out of the contract and put them into the general law and pass it as a bill which would then be the fiscal system. He stated that would be the choice the legislature has. Number 0764 REPRESENTATIVE ROKEBERG stated that is the point that Representative Brice was making. He stated that it is in the realm of politics, authority and responsibility; by crafting legislation we can shift the authority and the ultimate decision making from one branch of government to another. Number 0797 COMMISSIONER CONDON stated that this proposed legislation does not limit the legislature's authority at all. It does require a process by which the administration can bring something back to the legislature. He stated that there are some policy advantages by having the proposal come back in the form of a contract. He stated that fiscal certainty is important in trying to reduce perceived risk to attract investors. He stated that putting the fiscal system in place in the form of a contract has the advantage of increasing the fiscal certainty that would be investors would have but the legislature has full discretion to say whether they like the idea. Number 0918 MR. CARTER referred to a memo by Tam Cook from legal services that this may violate the separation of powers doctrine. He said "As I understand it the administration is not required to seek legislative approval and they have continued to take that position under oil contracts. The latest one is the governor's transmittal letter on SB 164 dated April 22, 1995." He read from the memo "That while the executive branch has consistently and in my view correctly asserted that legislative approval provisions are unconstitutional it is often conformed to them to accommodate the legislative desire for oversight." Number 0982 COMMISSIONER CONDON referred to the separation of power doctrine and stated that the legislature has taken the position that they will prevent the executive branch from acting unless there is specific legislative authorization. Any time the administration wants to build something with revenue bonds there needs to be specific legislative authority to do so. However, there is general authority to build roads etc. He stated that this bill would not give the administration the authority to do so, it gives the command to the administration to develop a proposal for legislative authorization. He stated that without legislative authorization there can not be a separation of power problem. Number 1090 REPRESENTATIVE BRICE stated that the believed the legislature has been clear in its support of the gas line. He stated that HB 393 gives the administration the authority to break down the terms and negotiate the contract. He stated that he is hearing that Commissioner Condon wants more authority to negotiate fiscal terms and then come back to the legislature and ask for specific statute changes to meet those fiscal terms. He had hoped in the event that there was a contract, the legislature would either sign off through resolution or not. He stated that his confusion is that instead, the administration is going to come back with further changes to the state's fiscal system. Number 1216 COMMISSIONER CONDON stated that what the bill would do is ask the legislature for the authority to enter into the contract. In order to do so a bill would have to be passed. Number 1253 REPRESENTATIVE BRICE replied "The difference between HB 393 and HJR 12 in general terms, are two specific different animals." He stated that the administration asks for legislative approval submitted in House bill form, but to say that the legislature can not go into that contract and make changes is absolutely foreign. He stated that to say that the legislature will approve by resolution, the difference is in the discretion. Number 1324 COMMISSIONER CONDON stated that if there is a contract they will have no discretion unless it is agreed to. REPRESENTATIVE BRICE asked if he wanted a resolution. COMMISSIONER CONDON replied that it in fact has to be done in the form of a bill. Number 1357 REPRESENTATIVE ALAN KEMPLEN stated that there would be further discussions of this. The notion of fiscal certainty has been reinforced enough to move forward with the project. He stated that the process is building a case for a long term commitment to the terms of the contract. He stated that he believed this to be a good approach. Number 1509 REPRESENTATIVE OGAN referred to Ms. Cook's memo and asked if we are binding further legislatures from changing the terms of the contract. Number 1559 COMMISSIONER CONDON replied that the answer to that question is unknown. At some point in time the legislature will have the option of saying that they want to bind a future legislature, once contested the answer will be known. There are differing views on how far the legislature can go in binding future legislatures. Number 1650 REPRESENTATIVE OGAN asked that in order to avoid legislation, it would be prudent to make sure the law is not ambiguous. Number 1669 COMMISSIONER CONDON replied that he agreed with that but in respect to this issue, litigation would be wanted to find out the extent of the legislature's authority. Number 1689 REPRESENTATIVE OGAN referred to Article 9, Section 1, and asked if he could explain what is provided in the article. Number 1735 COMMISSIONER CONDON replied that the question of binding future legislatures would not arise now but when dealing with a proposed contract. CHAIRMAN HODGINS asked Representative Ryan to present his committee substitute. Number 1783 REPRESENTATIVE RYAN stated that there were a number of changes that he requested that are not reflected in the draft. He stated that he would not ask the committee to introduce his committee substitute until it is includes what he intended it to. He stated that he was going to talk with the legislative legal department. Number 2366 REPRESENTATIVE ROKEBERG made a motion to adopt CSHB 393(O&G). 0- GH2006, version B, 3/11/98. TAPE 98-24, SIDE A Number 0006 CHAIRMAN HODGINS asked if there was an objection. Hearing none, CSHB 393(O&G) 0-GH2006, version B, 3/11/98 was adopted. Number 0076 REPRESENTATIVE ROKEBERG stated that he had two conceptual amendments. He stated that he would like to change that an affected community is not only those that have their revenue base affected but those that have a socio-economic impact for the services of those communities, specifically the Mat-su valley and the Anchorage area. Therefore, in the definition of the affected municipalities on page 26, line 17 add the word "revenue" before the term "affected municipality". He stated that he would like to create a new definition of economically affected communities which would state that "the municipalities incorporated under state law which have a history of or can demonstrate that they may have their services impacted by this type of project would be the economically affected communities." Number 0291 REPRESENTATIVE OGAN stated that definitions are usually put in statute for terms that are in the bill. REPRESENTATIVE ROKEBERG stated that he did have another amendment that would do so. Number 0348 REPRESENTATIVE ROKEBERG made a motion to adopt the conceptual amendments. CHAIRMAN HODGINS asked if there was an objection. Number 0355 REPRESENTATIVE OGAN objected for discussion purposes. He stated that he is moving amendments to definitions and the committee does not know where he is going with the definitions. He stated that it would be helpful to have the amendments written. Number 0408 CHAIRMAN HODGINS stated that the committee could adjourn with the motion pending. Number 0438 REPRESENTATIVE ROKEBERG stated that he would explain the other portion to his amendment. On page 24, line 18, the economically affected communities would be added. He stated that he would bring the formal amendments to the committee. He withdrew his conceptual amendments. Number 0542 REPRESENTATIVE OGAN stated that he concurred with Representative Rokeberg's direction with the amendments. Number 0565 REPRESENTATIVE KEMPLEN referred to page 7, line 31 and stated that would address Representative Rokeberg's concerns. He referred Representative Rokeberg's above-mentioned proposed change on page 24, and stated that it was his understanding that the municipal participation was for those communities that were giving up property taxes. Number 0638 REPRESENTATIVE KEMPLEN stated that he would like to present a conceptual amendment on page 14, line 25 add "with a credit cap of $100 million." CHAIRMAN HODGINS asked that he present that amendment in written form at the next meeting. He announced that the bill would be held over.
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