Legislature(2001 - 2002)

02/13/2001 10:03 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 38 - ALASKA STRANDED GAS DEVELOPMENT                                                                                       
                                                                                                                                
[Contains testimony relating to HB 9]                                                                                           
                                                                                                                                
CHAIR OGAN  announced that the  first order of business  would be                                                               
HOUSE BILL  NO. 38,  "An Act  amending the  application deadline,                                                               
and the  standards applicable to  determining whether  a proposed                                                               
new investment  constitutes a qualified project,  for purposes of                                                               
the Alaska  Stranded Gas  Development Act;  and providing  for an                                                               
effective date."  [Committee packets  included a copy of SCS CSHB                                                               
393(FIN), the  version of HB 393  that in 1998 became  the Alaska                                                               
Stranded Gas Development Act.]                                                                                                  
                                                                                                                                
Number 0127                                                                                                                     
                                                                                                                                
WILSON  CONDON, Commissioner,  Department  of Revenue,  explained                                                               
that HB  38, introduced  on behalf of  the governor,  would amend                                                               
the  Alaska   Stranded  Gas  Development   Act,  passed   by  the                                                               
legislature  in 1998  and codified  in AS  43.82.   First, HB  38                                                               
would expand  the applicability  of that  Act beyond  the current                                                               
LNG [liquefied  natural gas] option,  to include any  option that                                                               
would  commercialize stranded  gas in  Alaska, including  a long-                                                               
distance transmission proposal or  a gas-to-liquids (GTL) option.                                                               
Second, HB  38 would extend  by six  months the current  June 30,                                                               
2001, deadline for people to  make applications for consideration                                                               
under the Alaska Stranded Gas Development Act.                                                                                  
                                                                                                                                
COMMISSIONER CONDON  reviewed the history  of the 1998 Act.   Its                                                               
fairly detailed procedures  were put in place  by the legislature                                                               
for  consideration of  modifications  to the  fiscal system  that                                                               
might be appropriate to a gas  development project.  At the time,                                                               
there was  much discussion  that [HB  393], as  introduced, would                                                               
apply to any project that  would have commercialized stranded gas                                                               
in Alaska.   After  much deliberation,  the legislature  chose to                                                               
limit the applicability of the Act to an LNG project only.                                                                      
                                                                                                                                
Number 0507                                                                                                                     
                                                                                                                                
COMMISSIONER CONDON  explained the procedures established  by the                                                               
1998 Act.   The Act  envisions an  application made by  a project                                                               
sponsor;  review by  the commissioners  of  [the Departments  of]                                                               
Revenue and  Natural Resources to  determine whether  the project                                                               
qualifies; negotiations  between the  state executive  branch and                                                               
the  project sponsors  over proposed  fiscal arrangements,  which                                                               
would be structured  in the form of a  contract, with contractual                                                               
payments  in lieu  of taxes;  public review;  an opportunity  for                                                               
modification; and  submittal of the proposal  to the legislature,                                                               
which would decide  to either grant or deny  the executive branch                                                               
the authority to enter into the contract.                                                                                       
                                                                                                                                
COMMISSIONER CONDON  noted that  also important in  the Act  is a                                                               
provision   for  the   participation  of   both  revenue-affected                                                               
municipalities and economically affected  municipalities.  In the                                                               
former,  arrangements would  change  the  applicability of  local                                                               
property  tax;  in  the  latter,   costs  related  to  activities                                                               
surrounding  the  project  would   cause  a  potential  financial                                                               
burden.   These communities would  be given a role  in developing                                                               
the fiscal contract.                                                                                                            
                                                                                                                                
Number 0845                                                                                                                     
                                                                                                                                
CHAIR OGAN  recalled that  the genesis  of [HB  393] was  the Van                                                               
Meurs report,  which said one  key to unlocking the  economics of                                                               
the  LNG  line  to  Valdez  was to  defer  taxes  and  compensate                                                               
affected communities.                                                                                                           
                                                                                                                                
COMMISSIONER CONDON said  that was a fair  characterization.  The                                                               
state  had  employed, under  contract,  Dr.  Pedro van  Meurs,  a                                                               
consultant  with   offices  in  Calgary  [Alberta,   Canada]  who                                                               
specializes in advising governments  about fiscal arrangements in                                                               
terms  of  their  participation  in the  oil  and  gas  business.                                                               
Speaking of Dr. van Meurs, Commissioner Condon said:                                                                            
                                                                                                                                
     As he looked at Alaska's  fiscal system, he advised us,                                                                    
     as you  know, in  a lengthy report  focused principally                                                                    
     on  LNG; but  in helping  us with  the legislation,  he                                                                    
     believed  that it  was important  that the  legislation                                                                    
     apply   to    any   potential   project    that   would                                                                    
     commercialize gas in Alaska.                                                                                               
                                                                                                                                
     And he advised  us that the fiscal system  that we have                                                                    
     in place, which  works ... relatively well  for the oil                                                                    
     production that we have, ...  was not ideally suited to                                                                    
     the public interest in terms of ... the gas business.                                                                      
                                                                                                                                
     ... In terms of the  public's share in the resource, he                                                                    
     thought  that we  would be  better served  by a  fiscal                                                                    
     system that was less  front-end-loaded, which means ...                                                                    
     a  system ...  where the  state  gets ...  much of  its                                                                    
     share even  before a potential  project begins  to earn                                                                    
     money, ...  and, as well, less  regressive, which means                                                                    
     that  when prices  are  high, we  take  a much  smaller                                                                    
     share of the economic rent than when prices are low.                                                                       
                                                                                                                                
     And in  terms of tailoring  a fiscal system  that would                                                                    
     best    serve    the    public   interest    for    gas                                                                    
     commercialization, he  advised us  that we  should come                                                                    
     up  with a  set  of procedures  that  would tailor  our                                                                    
     fiscal   system  to   the   particulars   of  the   gas                                                                    
     development  project,  and  that  we ought  to  try  to                                                                    
     achieve  one that  was less  front-end-loaded and  more                                                                    
     progressive.                                                                                                               
                                                                                                                                
CHAIR OGAN  invited Representative Green  to join members  at the                                                               
committee table.                                                                                                                
                                                                                                                                
Number 1172                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON  referred to  HB 38, page  2, line  4, which                                                               
read, "reasonably foreseeable demand in  this state for gas".  He                                                               
asked  whether "in  this state"  means  the provisions  of HB  38                                                               
"would only be  available to a scenario that would  supply gas to                                                               
consumers  and wholesalers  in  the Interior  and  ... along  the                                                               
length of the pipe."                                                                                                            
                                                                                                                                
COMMISSIONER  CONDON  replied no,  then  suggested  going to  the                                                               
underlying question.   If  the question  is whether  somebody who                                                               
was  going to  try  to build  the "over  the  top" project  could                                                               
apply,  for  example,  he  said  the answer  is  yes.    The  Act                                                               
certainly envisions  that the  state would  insist on  making gas                                                               
available within the economic proximity  of the project, and that                                                               
means anything close.                                                                                                           
                                                                                                                                
Number 1336                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON requested  clarification.   He referred  to                                                               
[HB 38, page 2, lines 3-5],  which read, "making gas available to                                                               
meet  the reasonably  foreseeable demand  in this  state for  gas                                                               
within the  economic proximity  of the project."   He  asked what                                                               
"in this state" means besides for people in this state.                                                                         
                                                                                                                                
COMMISSIONER CONDON  emphasized the  phrase "within  the economic                                                               
proximity  of  the project."    He  said  if  a project  goes  by                                                               
Fairbanks and Delta [Junction] and  across the border, it was not                                                               
envisioned that  this Act  would require the  delivery of  gas to                                                               
Ketchikan, for  example.   This provision of  the Act  deals with                                                               
who can  apply and what a  qualified project is, not  what can be                                                               
imposed on the  project; the latter is in  a different provision.                                                               
There is  no question that envisioned  under this Act would  be a                                                               
requirement that  gas be delivered  to Fairbanks if  the pipeline                                                               
went by Fairbanks.                                                                                                              
                                                                                                                                
Number 1409                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON  asked whether  deleting that  entire phrase                                                               
wouldn't  make   any  difference,   then,  because   "making  gas                                                               
available  for folks  within  the state  and  along the  pipeline                                                               
route is covered in other portions."                                                                                            
                                                                                                                                
COMMISSIONER  CONDON  said  this  has  to  do  with  whether  the                                                               
application will  be considered in  the first place.   He stated,                                                               
"I  think you  ought  to leave  this  in there,  as  well as  the                                                               
provision in  the Act  that deals  specifically with  what you're                                                               
[going to] make them do."                                                                                                       
                                                                                                                                
Number 1499                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS  asked how  projects unrelated to  LNG would                                                               
move forward if [the legislature] doesn't make these changes.                                                                   
                                                                                                                                
COMMISSIONER  CONDON  replied  that  this  [HB  38]  provides  an                                                               
opportunity for  project sponsors  with a  project other  than an                                                               
LNG  project to  come to  the state  with an  application, before                                                               
December  31 of  this  year, and  "engage with  the  state in  an                                                               
exercise which  hopefully would tailor the  state's fiscal system                                                               
to the particulars  of a project."  If no  one applied before the                                                               
December 31  deadline, that  would be  the end  of it  unless the                                                               
legislature later extended the deadline.                                                                                        
                                                                                                                                
Number 1578                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS  asked:   If  the  legislature didn't  pass                                                               
this, and  projects came  that were not  LNG projects,  how would                                                               
"you" approach that project?                                                                                                    
                                                                                                                                
COMMISSIONER  CONDON   posed  a  scenario  in   which  the  three                                                               
producers  decide they  want  to build  a  pipeline to  mid-North                                                               
America,  or perhaps  Foothills  Pipe Lines  Ltd.  would file  an                                                               
application with the FERC  [Federal Energy Regulatory Commission]                                                               
and   the  Canadian   National  Energy   Board  to   refresh  the                                                               
arrangements  made  20  years  ago  to  carry  gas  to  mid-North                                                               
America.  Instead of deciding  to apply under the Alaska Stranded                                                               
Gas Development Act, they may  decide to talk to the legislature;                                                               
the  ball would  land  in  the legislature's  court  in terms  of                                                               
making decisions  about what the  state's tax policy ought  to be                                                               
with   respect   to   whatever   project   is   being   proposed.                                                               
Commissioner  Condon said  this is  simply one  of many  possible                                                               
vehicles  to put  before the  legislature the  issue of  what the                                                               
state's fiscal system regarding a gas project ought to be.                                                                      
                                                                                                                                
Number 1704                                                                                                                     
                                                                                                                                
CHAIR OGAN  requested confirmation that the  governor already has                                                               
the ability to negotiate an  agreement like this and then present                                                               
his own  bill before the  legislature regarding payments  in lieu                                                               
of   taxes  or   deferments,  for   example.     He  stated   his                                                               
understanding  that   [Governor  Knowles]  had  done   that  with                                                               
Northstar.                                                                                                                      
                                                                                                                                
COMMISSIONER  CONDON clarified  that the  arrangements made  with                                                               
respect to Northstar pertained to royalty,  not tax.  But yes, he                                                               
said,  the governor  could present  to the  legislature a  set of                                                               
proposed statutory changes that would  modify the tax system that                                                               
would  be  applicable  to  gas production  in  Alaska;  then  the                                                               
legislature would act upon that, as it deemed appropriate.                                                                      
                                                                                                                                
Number 1771                                                                                                                     
                                                                                                                                
CHAIR  OGAN  said  he  interprets  this as  a  concession  and  a                                                               
negotiating tool.   He  likened it  to rewarding  a horse  with a                                                               
carrot  before it  even  heads out,  rather than  using  it as  a                                                               
reward afterwards.                                                                                                              
                                                                                                                                
COMMISSIONER CONDON replied that he  is reluctant to use the word                                                               
"concession" because  it implies giving something  away, which he                                                               
hopes  the state  won't do.   Alaska's  fiscal system  that would                                                               
apply  to  a  gas  project  is in  place,  he  reminded  members,                                                               
including royalties  and a "suite  of taxes."  Noting  that three                                                               
years ago this  was worked on jointly by the  legislature and the                                                               
executive branch, Commissioner Condon explained:                                                                                
                                                                                                                                
     We thought it made sense  to have ... a pretty definite                                                                    
     structure in  place, which the executive  branch was to                                                                    
     use  to bring  a proposal  to the  legislature for  its                                                                    
     consideration  ... in  tailoring the  fiscal system  to                                                                    
     meet  the precise  needs  of both  the  public and  the                                                                    
     project.                                                                                                                   
                                                                                                                                
     And so, that's  how we ... ended up  with this [Alaska]                                                                    
     Stranded  Gas  Development  Act that  was  put  on  the                                                                    
     books.   And,  of course,  ... the  Act itself  doesn't                                                                    
     make  any  changes  at  all.    It  simply  provides  a                                                                    
     procedure  for developing  a set  of proposed  changes,                                                                    
     which  would be  presented to  the legislature  for its                                                                    
     consideration.                                                                                                             
                                                                                                                                
     There  are  obviously  lots   of  different  ways  that                                                                    
     proposals could  be put  together for  the legislature.                                                                    
     But what  was envisioned  three years  ago was  to have                                                                    
     the executive branch  go out and do a  specified set of                                                                    
     assignments - homework, if you  will - for developing a                                                                    
     proposal for  dealing with a  gas project, and  then to                                                                    
     bring   that    before   the   legislature    for   the                                                                    
     legislature's consideration. ...                                                                                           
                                                                                                                                
     And  clearly,  ...   the  legislature  establishes  tax                                                                    
     policy. ...  Of all the  areas where ...  the executive                                                                    
     branch proposes and the  legislative branch disposes, I                                                                    
     think tax policy is about the most sensitive.                                                                              
                                                                                                                                
Number 1988                                                                                                                     
                                                                                                                                
CHAIR OGAN responded that nothing  prevents the governor, at this                                                               
point, from using this as a  model for the pipeline route or GTL,                                                               
for  example, and  going  ahead and  negotiating  these kinds  of                                                               
terms  and then  presenting  [the legislature]  with  a bill  for                                                               
passage.    He  indicated  that with  the  proposed  system,  the                                                               
legislature  can  only vote  yes  or  no; if  the  administration                                                               
presents a bill, however, the legislature can modify it.                                                                        
                                                                                                                                
CHAIR OGAN  said he  sees this, essentially,  as a  delegation of                                                               
legislative powers  to the  governor.  If  the public  is excited                                                               
about a  project such as a  pipeline, that "head of  steam" might                                                               
cause the legislature  to avoid trying to stop it,  even if there                                                               
were some negotiated items that legislators didn't like.                                                                        
                                                                                                                                
CHAIR OGAN  indicated he  is more  comfortable with  the governor                                                               
negotiating, using this  as a model, and then coming  back to the                                                               
legislature; legislators could  see what they did  or didn't like                                                               
and then [send  it back] for renegotiation.  That  would give the                                                               
legislature  a  little  more power,  which  is  "constitutionally                                                               
defined to the legislature" to manage resources.                                                                                
                                                                                                                                
Number 2100                                                                                                                     
                                                                                                                                
COMMISSIONER CONDON  responded that  he doesn't fully  agree with                                                               
that  analysis.   If,  for  example,  the governor  negotiates  a                                                               
package and brings  it before the legislature, asking  that it be                                                               
voted up  or down,  the legislature could  decide it  didn't like                                                               
three provisions  and pass bills  which reflect its  own judgment                                                               
regarding what  is the best  set of provisions.   The legislature                                                               
would  send that  to the  governor; although  the governor  could                                                               
veto  it, clearly  [the legislature]  has full  plenary authority                                                               
and hasn't delegated any of  it.  Commissioner Condon pointed out                                                               
that  the  only way  the  governor  could,  for example,  hire  a                                                               
consultant  and  ask  the  consultant  to pay  for  part  of  the                                                               
negotiating would be to follow this procedure.                                                                                  
                                                                                                                                
CHAIR OGAN remarked  that for him, the issue is  timing, which is                                                               
everything when negotiating a contract.                                                                                         
                                                                                                                                
Number 2238                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOULE said  he thinks the point is  well made that                                                               
the  [legislature],  through  the   committee  process,  has  the                                                               
opportunity to make changes that  legislators deem necessary.  He                                                               
said he didn't  agree with the governor then, and  is glad to see                                                               
something like  this come out.   He noted that  [HB 9 and  HB 38]                                                               
are  almost identical  except that  one has  a date  changed from                                                               
June 30,  2001, to  December [31], 2001,  and the  other doesn't.                                                               
He asked Commissioner Condon to speak to that.                                                                                  
                                                                                                                                
COMMISSIONER CONDON  noted that  Representative Green's  bill [HB                                                               
9] would  expand coverage of the  Act in exactly the  same manner                                                               
as the  governor's bill [HB 38].   He explained the  other change                                                               
in the governor's bill, extending the deadline:                                                                                 
                                                                                                                                
     The  governor  believed that  we  ought  to change  ...                                                                    
     those dates,  believing that  ... given  the likelihood                                                                    
     that any  legislation might not  pass until the  end of                                                                    
     the  legislative  session,  there  simply  wouldn't  be                                                                    
     enough  time for  someone ...  to gear  up and  make an                                                                    
     application if  the bill  passed in May  and you  had a                                                                    
     June 30 cutoff point  for making applications under the                                                                    
     bill.                                                                                                                      
                                                                                                                                
     So, it was his thought  we ought to extend the deadline                                                                    
     until the  end of the  year, but nevertheless  that the                                                                    
     deadline should  be ... an  early deadline so  that ...                                                                    
     if people  are going to  use this vehicle, ...  they do                                                                    
     it soon and get moving.                                                                                                    
                                                                                                                                
Number 2380                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JOULE referred  to the  change to  open it  up to                                                               
more than  LNG.   He asked whether  this gives  people additional                                                               
time  "in  looking  at  other   things  and  making  those  other                                                               
potentials a part of their application process."                                                                                
                                                                                                                                
COMMISSIONER CONDON clarified that passage  of either HB 38 or HB                                                               
9 would make it possible for  someone who is proposing to build a                                                               
project  to "pipeline"  gas  from the  North  Slope to  mid-North                                                               
America, for example,  to apply under this Act; the  same is true                                                               
for someone  proposing a GTL project.   They could not  apply now                                                               
because  only a  project that  would take  gas to  market as  LNG                                                               
would qualify for consideration.                                                                                                
                                                                                                                                
Number 2486                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked how the  producers' working group is  doing and                                                               
whether Commissioner  Condon expects them to  apply regarding LNG                                                               
before June 30.                                                                                                                 
                                                                                                                                
COMMISSIONER  CONDON specified  that  he doesn't  expect them  to                                                               
apply  for   consideration  under   the  [Alaska]   Stranded  Gas                                                               
Development Act  on June 30;  however, he doesn't know  that they                                                               
won't apply.                                                                                                                    
                                                                                                                                
Number 2553                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS  requested  confirmation  that  under  this                                                               
proposal, after  the administration  has negotiated  the contract                                                               
and it  has come back  to the legislature, the  legislature would                                                               
still have authority to change the contract.                                                                                    
                                                                                                                                
COMMISSIONER CONDON affirmed that.                                                                                              
                                                                                                                                
Number 2583                                                                                                                     
                                                                                                                                
CHAIR  OGAN asked:    Has a  report  or study  has  been done  to                                                               
justify this  legislation?   Who is  asking for  this?   And what                                                               
basis is  the governor using  to bring this  legislation forward?                                                               
He noted  its mention  as a  "sidebar issue"  with the  Van Meurs                                                               
report, but  pointed out that  when HB  9 was heard  [January 30,                                                               
2001], there  was no  testimony regarding  the need  for it.   He                                                               
related  that he'd  had  some  off-the-record conversations  with                                                               
producers, who had  indicated they weren't ready  to discuss this                                                               
because they don't really know whether they have a project yet.                                                                 
                                                                                                                                
COMMISSIONER CONDON answered:                                                                                                   
                                                                                                                                
     The governor asked  me what I thought we had  to do, in                                                                    
     terms    of   legislative    proposals   relating    to                                                                    
     commercializing North  Slope gas.   And I said  to him,                                                                    
     "When we  had this issue  looked at three years  ago by                                                                    
     ... Dr.  van Meurs,  he recommended  that we  make this                                                                    
     legislation   applicable    to   all    the   different                                                                    
     possibilities for commercializing  North Slope gas, and                                                                    
     ...  I  recommend  that you  put  legislation  in  that                                                                    
     tracks the  recommendation we got from  Dr. van Meurs."                                                                    
     And so, the governor thought  about it and accepted the                                                                    
     proposal  that I  made. ...  I made  the recommendation                                                                    
     because  I  thought  we  ought to  return  ...  to  the                                                                    
     proposal that we made three years ago.                                                                                     
                                                                                                                                
Number 2688                                                                                                                     
                                                                                                                                
CHAIR OGAN asked  whether this is the  legislation that Cambridge                                                               
[Energy Research Associates] was hired to work on.                                                                              
                                                                                                                                
COMMISSIONER CONDON answered:                                                                                                   
                                                                                                                                
     As  has  proven  to  be   the  case,  the  question  of                                                                    
     commercializing North  Slope gas is something  that you                                                                    
     and  other  members  of  the  legislature  are  vitally                                                                    
     interested in.   And we  retained Cambridge to  help in                                                                    
     gathering information and  presenting information which                                                                    
     we thought  would be pertinent to  whatever legislative                                                                    
     deliberations, including  this legislation, but  just a                                                                    
     general  question,   policy  making  with   respect  to                                                                    
     commercializing North  Slope gas.  And  so, the thought                                                                    
     was ...  that Cambridge  would be  a good  resource for                                                                    
     gathering and evaluating  information relating to North                                                                    
     Slope gas commercialization.                                                                                               
                                                                                                                                
Number 2761                                                                                                                     
                                                                                                                                
CHAIR  OGAN   asked  Commissioner   Condon  whether   anyone  had                                                               
consulted with him regarding his testimony that day.                                                                            
                                                                                                                                
COMMISSIONER  CONDON  replied  no; this  procedural  legislation,                                                               
which deals with the state fiscal  system, is not in the realm of                                                               
expertise of Cambridge Energy Research Associates.                                                                              
                                                                                                                                
Number 2816                                                                                                                     
                                                                                                                                
CHAIR   OGAN  expressed   concern  about   Commissioner  Condon's                                                               
statement that he  doesn't see this as a concession.   Chair Ogan                                                               
compared this  to a balloon  payment, which  he believes to  be a                                                               
concession.   Without it,  [project sponsors]  would have  to pay                                                               
taxes  now  instead  of  later,  and it  is  perhaps  a  powerful                                                               
negotiating tool.  He reiterated  his concern about the timing of                                                               
giving what  he perceives as  a concession and just  trusting the                                                               
governor to "do us right."                                                                                                      
                                                                                                                                
COMMISSIONER  CONDON replied  that  this  legislation doesn't  do                                                               
anything other than  set up a process.  This  Alaska Stranded Gas                                                               
Development Act  just sets  up a structure  for dealing  with the                                                               
issues;  this would  expand the  applicability of  that structure                                                               
[beyond LNG].  He stated:                                                                                                       
                                                                                                                                
     It's a  policy call that  the executive branch  and the                                                                    
     legislature  worked closely  together on  when we  went                                                                    
     through  this  exercise  three  years  ago,  and  we're                                                                    
     certainly  prepared to  do that  with  you once  again.                                                                    
     But, obviously, the  objective here is to  come up with                                                                    
     what  we  believe  to  be the  most  sensible  way  for                                                                    
     addressing these  issues and  bringing them  before you                                                                    
     for your consideration.                                                                                                    
                                                                                                                                
Number 2973                                                                                                                     
                                                                                                                                
CHAIR OGAN asked whether anyone is  "kicking tires on GTL at this                                                               
point."                                                                                                                         
                                                                                                                                
COMMISSIONER CONDON  said that depends  on what Chair  Ogan means                                                               
by "kicking tires."  He then stated:                                                                                            
                                                                                                                                
     You're going to  hear from ... the  folks that proposed                                                                    
     to link up with the Sasol  folks for a GTL project.  We                                                                    
     have  the pilot  plant  that BP's  constructing on  the                                                                    
     Kenai  Peninsula.   The folks  that have  talked to  us                                                                    
     often about GTLs - Exxon -  sort of have not been by to                                                                    
     talk to us lately about GTLs ....                                                                                          
                                                                                                                                
TAPE 01-14, SIDE B                                                                                                              
Number 3001                                                                                                                     
                                                                                                                                
CHAIR OGAN asked whether, if  this legislation passes, someone is                                                               
"ripe to apply."                                                                                                                
                                                                                                                                
COMMISSIONER CONDON  answered that he  believes there won't  be a                                                               
GTL  application between  now and  December 31.   That  belief is                                                               
based on  conversations with various  people that he  deals with;                                                               
nobody has mentioned it.                                                                                                        
                                                                                                                                
CHAIR  OGAN commented  that  a  couple of  years  ago, Exxon  was                                                               
"seriously  at  the table  on  this."   He  thanked  Commissioner                                                               
Condon and turned to public testimony.                                                                                          
                                                                                                                                
Number 2946                                                                                                                     
                                                                                                                                
RICHARD  PETERSON,  President,  Alaska  Natural  Gas  to  Liquids                                                               
Company, came forward to testify,  specifying that his company is                                                               
based on Anchorage.  He told members:                                                                                           
                                                                                                                                
     When we look at legislation  or projects that are going                                                                    
     to go  on in Alaska,  we generally like to  say, "Well,                                                                    
     they're going  to look at  all projects and  not single                                                                    
     out  any one  specific  project."   When  we looked  at                                                                    
     House Bill 393 with the  limitation to LNG, it may have                                                                    
     sent  an   unintended  message  to  the   rest  of  the                                                                    
     potential gas  development community that this  was the                                                                    
     only type of project that would be considered.                                                                             
                                                                                                                                
     So,  we would  say that  in any  future legislation  or                                                                    
     change  that  ...  maybe  you  shouldn't  be  specific.                                                                    
     Maybe  we shouldn't  even say  "with respect  to a  gas                                                                    
     pipeline,  GTL, or  LNG," because  ...  maybe there  is                                                                    
     somebody else  out there who  could say,  "My goodness,                                                                    
     Alaska will  consider anything  that can  be economic."                                                                    
     And  maybe there's  a different  way than  those three.                                                                    
     So, I would say that  legislation that you put in place                                                                    
     would not  be specific  to any one  particular project,                                                                    
     and  it  would  just  open the  field  for  any  viable                                                                    
     project.                                                                                                                   
                                                                                                                                
Number 2860                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON  asked Mr.  Peterson whether HB  38 or  HB 9                                                               
seemed to fit his criteria more.                                                                                                
                                                                                                                                
MR. PETERSON  answered that  Representative Green's  proposal [HB                                                               
9] is  not specific as to  the type of project;  in that respect,                                                               
he  thinks it  would  be  more what  the  Alaska  Natural Gas  to                                                               
Liquids group would  propose.  In further  response, Mr. Peterson                                                               
said  he  would   be  glad  to  discuss   his  organization  with                                                               
Representative Dyson in the future.                                                                                             
                                                                                                                                
Number 2788                                                                                                                     
                                                                                                                                
CHAIR  OGAN  asked  Mr. Peterson  whether,  if  this  legislation                                                               
passed - assuming  that the date of the [deadline]  is at the end                                                               
of this year - he would "have  the resources to be ready to build                                                               
a project and apply for it, between now and then?"                                                                              
                                                                                                                                
MR. PETERSON  answered that a  lot of it  has to do  with whether                                                               
the Department  of Natural  Resources and  "Commissioner Condon's                                                               
area" believe  that the proposal  that [his group]  has presented                                                               
makes sense  for the state.   He added, "Until they  tell us that                                                               
they're willing  to continue on  [working] with us in  that area,                                                               
we're not  going to do  anything further.   So, it's hard  to say                                                               
whether or not we  will apply this year ... for  one on the North                                                               
Slope."                                                                                                                         
                                                                                                                                
Number 2760                                                                                                                     
                                                                                                                                
CHAIR  OGAN said  in his  mind, the  record has  been established                                                               
fairly clearly that the governor  isn't precluded from using this                                                               
as a  framework to  negotiate and then  propose legislation.   He                                                               
said he  doesn't see a project  associated with at least  the GTL                                                               
portion of  the legislation.  He  asked, "Now, you don't  own any                                                               
gas; is that correct?"                                                                                                          
                                                                                                                                
MR. PETERSON affirmed that.                                                                                                     
                                                                                                                                
CHAIR  OGAN asked,  "Whose  gas do  you  anticipate turning  into                                                               
GTLs?"                                                                                                                          
                                                                                                                                
MR. PETERSON answered:                                                                                                          
                                                                                                                                
     Initially,  we proposed  to do  this with  Exxon's gas,                                                                    
     BP's and, back  in that timeframe, ARCO's gas.   And at                                                                    
     that  time, Exxon  told us  that they  would not  enter                                                                    
     into  a project  that  used  competing GTL  technology,                                                                    
     although it was difficult to  say that it was competing                                                                    
     because  Exxon  does  not have  a  commercially  proven                                                                    
     technology  at this  point, and  neither did  the other                                                                    
     two "majors" at that point.   So, their general feeling                                                                    
     is, they  would not  like to  participate in  a project                                                                    
     that uses technology that is not their own.                                                                                
                                                                                                                                
     So, the  next option  was the state  royalty gas.   And                                                                    
     once you  go into the  state royalty gas,  it seriously                                                                    
     limits the size  of a GTL project, and  that can affect                                                                    
     the economics  - and  which it does.   And  that's what                                                                    
     has created  additional issues that  we've had  to deal                                                                    
     with, because  ... the volume  that would  be available                                                                    
     for  a  GTL  project   being  so  limited  reduces  the                                                                    
     economics  and  makes it  a  little  more difficult  to                                                                    
     happen.                                                                                                                    
                                                                                                                                
Number 2661                                                                                                                     
                                                                                                                                
CHAIR  OGAN  asked whether  there  were  further questions.    He                                                               
thanked Mr.  Peterson, then asked  whether anyone else  wished to                                                               
testify.  There being no  response, Chair Ogan closed the hearing                                                               
on HB 38.                                                                                                                       
HB 9 - STRANDED GAS DEVELOPMENT PROJECT                                                                                       
                                                                                                                                
[Contains discussion of HB 38]                                                                                                  
                                                                                                                                
CHAIR OGAN  announced that  the next order  of business  would be                                                               
HOUSE BILL  NO. 9, "An  Act amending the standards  applicable to                                                               
determining  whether  a  proposed new  investment  constitutes  a                                                               
qualified  project  for  purposes  of  the  Alaska  Stranded  Gas                                                               
Development Act; and providing for an effective date."                                                                          
                                                                                                                                
Number 2625                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOE  GREEN, Alaska  State Legislature,  sponsor of                                                               
HB  9, told  members  that Commissioner  [Condon],  who had  just                                                               
presented HB 38 to the committee,  had said perhaps 90 percent of                                                               
what he himself would refer to.   He himself would offer comments                                                               
and ask questions relating to Commissioner Condon's remarks.                                                                    
                                                                                                                                
REPRESENTATIVE  GREEN reminded  members  that the  state has  had                                                               
incentives  in  the past;  some  have  been activated,  and  some                                                               
haven't.    He  offered  examples:    a  "low-production  royalty                                                               
reduction" instituted  several years  ago for the  marginal wells                                                               
in Cook  Inlet; the exploration credits  instituted several years                                                               
ago to encourage exploration in  unexplored regions of the state;                                                               
and  modification of  the Northstar  royalty  agreement that  had                                                               
been struck some years before.                                                                                                  
                                                                                                                                
REPRESENTATIVE  GREEN noted  that  there  was extensive  dialogue                                                               
surrounding [HB]  393 [in 1998];  a member  of the body  was very                                                               
vocal about wanting to limit  this possible incentive to LNG, the                                                               
"hot" issue at  the time.  Representative Green  pointed out that                                                               
gas prices have fluctuated wildly,  and projecting gas prices and                                                               
development is  difficult; furthermore, the huge  resource at the                                                               
North  Slope is  extremely  far from  the  market, including  the                                                               
Pacific Rim.   A company will  be reluctant to spend  billions of                                                               
dollars in such a situation, he indicated.                                                                                      
                                                                                                                                
REPRESENTATIVE GREEN  mentioned the  current gas shortage  in the                                                               
Midwest.   Although  there is  a desire  to get  American gas  to                                                               
American markets,  he said,  it is  a long, long  way.   He asked                                                               
what can  be done  to help,  if help  is needed.   Representative                                                               
Green pointed  out that if  [gas] can be  sold at $16,  a company                                                               
would  build the  line tomorrow.   But  can that  be expected  to                                                               
last?   If gas goes  to $6 or  $4, for  example, will there  be a                                                               
return  on the  investment?   He  emphasized that  any company  -                                                               
whether  producing gas,  oil,  or candy  bars -  aims  to make  a                                                               
profit.                                                                                                                         
                                                                                                                                
Number 2296                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN pointed  out  that if  the  incentive is  a                                                               
deferred  tax, the  tax  would  be paid  anyway.   Many  "royalty                                                               
companies"  will  use  their  own money,  but  they  also  borrow                                                               
capital.  There is a cost for  that.  The company would be paying                                                               
a tremendous  amount of interest on  that money until there  is a                                                               
return; if taxes were added to that, it would be a burden.                                                                      
                                                                                                                                
REPRESENTATIVE  GREEN differentiated  between  how companies  and                                                               
governments look at "present worth"  dollars.  If a company could                                                               
defer current expenses for a few  years - and then pay them back,                                                               
even with interest,  after the product is coming in  and there is                                                               
an inflow  of money  - it  would be  to the  company's advantage;                                                               
that  is called  present  worth.   Governments, however,  whether                                                               
state  or local,  doesn't work  on a  present-worth basis,  other                                                               
than the discounted value of  the money they may get; governments                                                               
aren't concerned about this year or  next year, other than how it                                                               
affects their spending.                                                                                                         
                                                                                                                                
Number 2197                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  referred to  discussion during  the hearing                                                               
on HB 38 that day.  He stated:                                                                                                  
                                                                                                                                
     We  heard that  if we  pass this  kind of  an incentive                                                                    
     that goes beyond just going  to LNG, ... it would apply                                                                    
     whether they  go to a  gas-to-liquids project or  go to                                                                    
     just  [a] gas  sales project.   Is  there a  benefit of                                                                    
     having an incentive potential?                                                                                             
                                                                                                                                
     It's not a giveaway.  It's  not a negotiation.  It just                                                                    
     says that if  you qualify, we've got a  thing over here                                                                    
     that you can  work under.  Does that benefit?   And the                                                                    
     concern  was  expressed,  "Well,   yeah,  but  if  they                                                                    
     exercise that, they  come running in and  they've got a                                                                    
     head  of steam."   And  I submit  to you  that this  is                                                                    
     selling the legislature short.                                                                                             
                                                                                                                                
REPRESENTATIVE GREEN  recalled that last  year there was  a "head                                                               
of steam" to allow BP to take  over ARCO; that was a very popular                                                               
concept with the  public and many legislators.   To their credit,                                                               
the leadership of both bodies  developed a committee of House and                                                               
Senate members who  "worked long and hard,  got some heavy-weight                                                               
consultants to back  us up, went to the  Federal Trade Commission                                                               
[FTC], and  said we didn't think  that that was the  best, in the                                                               
interest of the state."                                                                                                         
                                                                                                                                
REPRESENTATIVE  GREEN acknowledged  that he  didn't know  whether                                                               
that committee of legislators was  instrumental in persuading the                                                               
FTC or  not.  But  finally, the BP  takeover was disallowed.   He                                                               
emphasized his  belief that  the legislature  has some  clout and                                                               
doesn't always  listen to the  governor.   He added, "We  do have                                                               
the wherewithal to take a long look  at it and make sure it is in                                                               
the best interest of the state."                                                                                                
                                                                                                                                
REPRESENTATIVE  GREEN  cautioned  that  right now,  there  is  an                                                               
attitude among the industry that  maybe the State of Alaska isn't                                                               
open  for  business, because  the  state  is only  interested  in                                                               
allowing an incentive relating to LNG.                                                                                          
                                                                                                                                
Number 2038                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON asked,  "Aside from  what we  both probably                                                               
consider  a limitation  we put  into [HB]  393, how  else do  you                                                               
think we  have been sending  the message  that we're not  open to                                                               
any other options?"                                                                                                             
                                                                                                                                
REPRESENTATIVE GREEN  answered that  although there was  a desire                                                               
to not limit it  to LNG, the dialogue was, "No,  no, no, it's LNG                                                               
or nothing."   That reverberated  around the  domestic investment                                                               
world.  Representative Green said he  believes it is time to show                                                               
that it isn't  necessarily the case, and that the  state truly is                                                               
open to "as good a deal as we can make."                                                                                        
                                                                                                                                
Number 1980                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON  asked  whether  that is  on  any  kind  of                                                               
delivery of the product.                                                                                                        
                                                                                                                                
REPRESENTATIVE GREEN  replied, "Certainly.  If  the only delivery                                                               
might  be ...  to  the Midwest,  then it's  better  to have  that                                                               
delivery than no delivery at all."   He indicated it could be LNG                                                               
or gas-to-liquids, or  the line could come down  to Fairbanks and                                                               
"trifurcate into three  different ways, to sell the  gas."  Those                                                               
aren't  mutually  exclusive.    Emphasizing that  the  market  is                                                               
fluctuating,  Representative  Green   suggested  that  the  state                                                               
doesn't  want  to  limit  or  even send  the  message  that  it's                                                               
limiting the possibility of selling to that market.                                                                             
                                                                                                                                
REPRESENTATIVE GREEN explained that  there is a tremendous amount                                                               
of gas available right now, not  only around the world but in the                                                               
Lower 48.     If the  gas price  stayed at  $15 or  $16, [Alaska]                                                               
probably would  not be able  to sell its  gas because a  lot more                                                               
gas  would  be developed  closer  to  the  market.   "And  that's                                                               
something we must  not lose sight of, that it's  not a given that                                                               
our  gas  is  going  to   be  a  marketable  product,"  he  said.                                                               
Representative Green stated:                                                                                                    
                                                                                                                                
     We need  to be able to  react when there's a  chance to                                                                    
     react.   And I don't want  to cause a lot  of pessimism                                                                    
     or  fear, but  you may  recall  that I  talked to  this                                                                    
     group - or  certainly to several of you -  that the gas                                                                    
     line, once  in, whatever it  is, is  not going to  be a                                                                    
     panacea to replace the crude line.                                                                                         
                                                                                                                                
     The value that nets back to  us, as a royalty owner, is                                                                    
     going to be  a far cry from [what] it  was when we were                                                                    
     selling oil  barrels.   And so,  don't ever  think that                                                                    
     what  we're going  to get  from a  gas line,  no matter                                                                    
     where we sell it, is  going to be anything like Prudhoe                                                                    
     Bay was.  It'll be a  big step forward, but it won't be                                                                    
     the panacea.                                                                                                               
                                                                                                                                
Number 1850                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN addressed  the question of why  HB 9 doesn't                                                               
have an  expiration date.   He explained  that he didn't  want to                                                               
put  an  expiration  date  until  he found  out  the  will  of  a                                                               
committee, either the  House Special Committee on Oil  and Gas or                                                               
the House  Resources Standing  Committee.  He  noted that  with a                                                               
six-month  extension,  should  the legislature  adjourn  in  May,                                                               
"there really isn't  a whole lot of benefit to  anything going to                                                               
the  end of  the year,  because  the deal  might be  made but  we                                                               
wouldn't be able to react until next year - the bill's dead."                                                                   
                                                                                                                                
REPRESENTATIVE GREEN  suggested that  if there is  going to  be a                                                               
"short fuse," it  should be at least through July  1, 2002.  That                                                               
way,  people who are working  on a potential deal will have time,                                                               
and it  will allow the legislature  to reconvene and see  what is                                                               
going to happen.  If  something is working, the legislature could                                                               
extend the sunset  date; otherwise, the legislature  could let it                                                               
die.  At least it would allow time for people to think about it.                                                                
                                                                                                                                
REPRESENTATIVE  GREEN reiterated  Commissioner [Condon's]  point:                                                               
It isn't the case that once the  deal is cut, it is cut in stone.                                                               
Rather, if  the legislature didn't  like a  deal that was  cut by                                                               
the  governor and  a company,  just as  with the  BP merger,  the                                                               
legislature wouldn't approve it.   Then the company would go back                                                               
to the boards, drop it altogether, or do something else.                                                                        
                                                                                                                                
Number 1684                                                                                                                     
                                                                                                                                
CHAIR OGAN  expressed concern that  the governor might  "spin it"                                                               
that a pipeline  deal in the Lower 48 was  stopped by legislators                                                               
who  turned  down  a  deal  that the  governor  negotiated.    He                                                               
returned  to  the analogy  of  a  train  with  a head  of  steam,                                                               
emphasizing  how hard  it is  to stop.   Although  HB 393  talked                                                               
about  approval   by  the  legislature,  Chair   Ogan  said,  his                                                               
impression was  that it  was an  "up or down"  [vote].   He isn't                                                               
sure  the legislature  would  have  a line-item  veto  on a  deal                                                               
negotiated  by  the  governor, although  Commissioner  Condon,  a                                                               
former  attorney  general whose  opinion  he  respects, had  said                                                               
differently.  Chair Ogan asked Representative Green to comment.                                                                 
                                                                                                                                
REPRESENTATIVE GREEN responded:                                                                                                 
                                                                                                                                
     My feeling is  just the opposite:  yes, we  do.  And we                                                                    
     did  hear it  from  - as  you  say -  a  member of  the                                                                    
     present administration, both  currently as commissioner                                                                    
     of  [the Department  of] Revenue  and a  prior attorney                                                                    
     general,   so  his   word  would   certainly  be   more                                                                    
     impressive  than mine,  because  I'm  neither a  lawyer                                                                    
     [nor] a tax expert.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GREEN  reiterated  that   with  the  proposed  BP                                                               
merger, the  legislature didn't stop  it but was  instrumental in                                                               
going  to the  FTC to  perhaps  get it  stopped; the  legislature                                                               
stood together, saying  it was not the best thing  for the state,                                                               
which was very  powerful.  In this particular  case, however, the                                                               
legislature would just not approve it.                                                                                          
                                                                                                                                
REPRESENTATIVE  GREEN commented  on changes  regarding Northstar,                                                               
which [the  legislature] did approve:   "I think there was  a lot                                                               
of  thoughtful deliberation  that it  was a  better deal  for the                                                               
state to  modify that  royalty.   There may be  those of  you who                                                               
disagree, but  the majority  of us  felt that  this was  a better                                                               
deal."                                                                                                                          
                                                                                                                                
Number 1480                                                                                                                     
                                                                                                                                
CHAIR OGAN  asked Representative Green whether  he considers this                                                               
a concession.                                                                                                                   
                                                                                                                                
REPRESENTATIVE GREEN answered no; he  considers this as "a way to                                                               
look for a way - it says that now you are free to negotiate."                                                                   
                                                                                                                                
Number 1438                                                                                                                     
                                                                                                                                
CHAIR OGAN referred to AS 29.45.810, which read in part:                                                                        
                                                                                                                                
     Sec. 29.45.810.  Exemption from municipal taxation.                                                                        
          (a) A party to a contract approved by the                                                                             
     legislature  as a  result of  submission of  a proposed                                                                    
     contract developed  under AS  43.82 or  as a  result of                                                                    
     acts by  the legislature  in implementing  the purposes                                                                    
     of  AS  43.82, and  the  property,  gas, products,  and                                                                    
     activities  associated  with   the  approved  qualified                                                                    
     project that  is subject to  the contract,  are exempt,                                                                    
     as   specified  in   the  contract,   from  all   taxes                                                                    
     identified  in the  contract that  would be  levied and                                                                    
     collected  by  a  municipality under  state  law  as  a                                                                    
     consequence of  the participation  by the party  in the                                                                    
     approved qualified project.                                                                                                
                                                                                                                                
CHAIR OGAN said  he doesn't understand how it  isn't a concession                                                               
to exempt people from municipal taxes,  even if they are going to                                                               
pay them later.                                                                                                                 
                                                                                                                                
REPRESENTATIVE GREEN  emphasized that both parties  would have to                                                               
agree before  it is  a "done  deal."  The  contract is  where the                                                               
negotiations occur,  he added,  "and that  hasn't been  signed by                                                               
anybody, and won't be, with this  bill; it just says, 'Hey, go do                                                               
your  best.'"   Representative  Green  emphasized  that it  is  a                                                               
deferral, not an exemption.                                                                                                     
                                                                                                                                
CHAIR OGAN  indicated it is  an exemption that  requires trusting                                                               
that  the  governor  will consult  with  the  municipalities  and                                                               
negotiate an adequate payment in lieu of taxes.                                                                                 
                                                                                                                                
REPRESENTATIVE  GREEN replied  that  he doesn't  know; it  hasn't                                                               
been  determined.    "That's when  the  negotiations  start,"  he                                                               
added.                                                                                                                          
                                                                                                                                
Number 1278                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS asked  what  Representative  Green what  he                                                               
thinks about the date proposed by the governor [in HB 38].                                                                      
                                                                                                                                
REPRESENTATIVE GREEN  replied that if  the legislature is  out of                                                               
session, he would  prefer to know that the  legislature still has                                                               
this bill in  effect, so that whatever is  negotiated through the                                                               
interim can be  approved under the bill.  He  recommends going to                                                               
2002  because it  allows another  legislative  session to  review                                                               
whatever might  be done.   He said  if [the committee]  wished to                                                               
extend it  another year, he  would suggest having it  until July,                                                               
so that it is through another legislative session.                                                                              
                                                                                                                                
Number 1188                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS asked  whether  the date  is for  accepting                                                               
applications or negotiating a contract.                                                                                         
                                                                                                                                
REPRESENTATIVE GREEN said  he would have to  reread the language,                                                               
but he believed the  intent was that it would have  to be a "done                                                               
deal" by that termination date.                                                                                                 
                                                                                                                                
REPRESENTATIVE  GUESS pointed  out that  those are  two different                                                               
questions:  submitting  a contract and having a  "done deal," and                                                               
just submitting a contract.                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  replied, "That's not so  critical then, and                                                               
I  wouldn't have  any objection.  ... My  estimation was  that it                                                               
would be  a 'done  deal,' and I  would like us  to be  in session                                                               
before that happened."                                                                                                          
                                                                                                                                
REPRESENTATIVE  GUESS  suggested  perhaps the  [committee]  could                                                               
look into that.                                                                                                                 
                                                                                                                                
Number 1101                                                                                                                     
                                                                                                                                
CHAIR OGAN  referred to  page 22,  line 21, of  HB 393,  which is                                                               
codified as AS 43.82.435.  That statute read:                                                                                   
                                                                                                                                
     The governor  may transmit  a contract  developed under                                                                    
     this  chapter  to  the   legislature  together  with  a                                                                    
     request for  authorization to  execute the  contract. A                                                                    
     contract developed  under this  chapter is  not binding                                                                    
     upon or enforceable against the  state or other parties                                                                    
     to the  contract unless the  governor is  authorized to                                                                    
     execute the  contract by law.  The state and  the other                                                                    
     parties  to  the  contract  may  execute  the  contract                                                                    
     within  60 days  after the  effective date  of the  law                                                                    
     authorizing the contract.                                                                                                  
                                                                                                                                
CHAIR OGAN read  the first sentence.  He commented  that it seems                                                               
to be  contrary to [Representative  Green's] contention  that "we                                                               
can  basically renegotiate  the terms  if we  don't like  some of                                                               
it."   He said it appears  the legislature would either  give the                                                               
governor authorization  to execute the contract  or not, although                                                               
he  supposed the  legislature could  deny authorization  and then                                                               
ask that [the governor] renegotiate.   Chair Ogan reiterated that                                                               
if it  is presented  in a  bill, the legislature  has a  lot more                                                               
line-item, hands-on authority.                                                                                                  
                                                                                                                                
Number 1020                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN suggested  that if  legislators don't  like                                                               
all or  a part of  a contract, it would  go back to  the governor                                                               
with  the caveat  that the  legislature would  accept it  if, and                                                               
only if, that change was made.                                                                                                  
                                                                                                                                
CHAIR  OGAN  announced  that  he  would  like  to  call  in  Jack                                                               
Chenoweth [Legislative Legal Services  attorney] to clarify that,                                                               
because he himself was interpreting the statute differently.                                                                    
                                                                                                                                
REPRESENTATIVE GREEN emphasized  that it would be  "yes" or "no,"                                                               
but the "no"  would be "no, because" if [the  contract] was close                                                               
[to  gaining legislative  approval],  unless it  was an  outright                                                               
rejection.   "But  that's not  required  in there;  it just  says                                                               
'yes' or 'no,'"  he added.                                                                                                      
                                                                                                                                
CHAIR OGAN said that is the way he interpreted it.                                                                              
                                                                                                                                
Number 0905                                                                                                                     
                                                                                                                                
REPRESENTATIVE CHENAULT  referred to lines  23-25 [page 22  of HB                                                               
393, and the second sentence of AS 43.82.435], which read:                                                                      
                                                                                                                                
     A contract developed under this  chapter is not binding                                                                    
     upon or enforceable against the  state or other parties                                                                    
     to the  contract unless the  governor is  authorized to                                                                    
     execute the contract by law.                                                                                               
                                                                                                                                
REPRESENTATIVE  CHENAULT commented,  "I  assume we  give him  the                                                               
authorization to execute the contract."                                                                                         
                                                                                                                                
Number 0880                                                                                                                     
                                                                                                                                
CHAIR OGAN affirmed that.  He offered closing comments:                                                                         
                                                                                                                                
     I hope  that industry doesn't interpret  that ... we're                                                                    
     not  open   for  business.     I  think  I'd   be  more                                                                    
     comfortable  if  they were  coming  to  us and  saying,                                                                    
     "Yeah,  we  have this  project,"  or,  "We're ready  to                                                                    
     build a  gas pipeline ...  down the highway,  and we've                                                                    
     done these studies;  here are the facts;  these are the                                                                    
     bottom  lines." ...  That's  basically  what was  being                                                                    
     done with  the LNG project.  ... We had some  real good                                                                    
     data  to  base  this  on, and  ...  I  was  comfortable                                                                    
     delegating this  authority to the governor  to do this,                                                                    
     under that scenario.                                                                                                       
                                                                                                                                
CHAIR  OGAN  noted  that  when  the  "working  group"  makes  its                                                               
scheduled presentation  to the  committee, he  wants to  know how                                                               
far along they are.                                                                                                             
                                                                                                                                
Number 0740                                                                                                                     
                                                                                                                                
CHAIR   OGAN  suggested   that   Representative  Green   consider                                                               
modifying [HB 9] so that the  "execution provision" is not an "up                                                               
or down."  Rather, the  governor would negotiate the contract and                                                               
submit all the terms of the  contract in a bill;  the legislature                                                               
could either modify  the bill or send it back  to the governor to                                                               
renegotiate specified portions.   That would give the legislature                                                               
a little more leverage.                                                                                                         
                                                                                                                                
Number 0714                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  emphasized that  he wants  to do  this now,                                                               
then explained:                                                                                                                 
                                                                                                                                
     It's not [a] good time  to pass legislation if there is                                                                    
     a bill pending; then you  have a tremendous pressure to                                                                    
     approve, ... and  so you really don't have  the time to                                                                    
     study it  in detail that you  do now.  If  this is done                                                                    
     and he  comes in, we have  as much time as  we think we                                                                    
     need  to take.    And if  it's  a short-term  contract,                                                                    
     don't even bring  it to us, because we  won't have time                                                                    
     to look at it.  He knows that.                                                                                             
                                                                                                                                
     But what I'm concerned about is  if we wait to pass the                                                                    
     enabling   legislation  to   modify   or  get   another                                                                    
     incentive,  they've negotiated  some incentive,  and we                                                                    
     are almost  ... pressure-bound to say,  "Well, okay, in                                                                    
     order to get  this project, ... we're going  to have to                                                                    
     go the way  it's been negotiated."  I  think that's the                                                                    
     wrong way to negotiate.                                                                                                    
                                                                                                                                
Number 0555                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked when HB 9  might be heard again by the                                                               
House Special Committee on Oil and Gas.                                                                                         
                                                                                                                                
CHAIR OGAN answered:                                                                                                            
                                                                                                                                
     A few years ago, when we  passed [HB] 393, we had Exxon                                                                    
     actively here saying, "We want  this, we need this."  I                                                                    
     haven't heard anybody  but a bill sponsor  - either you                                                                    
     or  the  governor -  come  before  us and  explain  any                                                                    
     desire for this legislation,  with the exception of Mr.                                                                    
     Peterson [who  testified during the hearing  on HB 83].                                                                    
     ...  I hope  sincerely someone  comes to  us and  says,                                                                    
     "We've got a project; ... we need to discuss this."                                                                        
                                                                                                                                
REPRESENTATIVE  GREEN  noted  his disagreement  with  Chair  Ogan                                                               
about when  the best  time is to  pass legislation  or negotiate.                                                               
Rather  than  setting it  aside,  Representative  Green said,  he                                                               
believes  the incentive  should be  passed; if  nobody wants  it,                                                               
nothing is lost.  "But we  may have deterred somebody if we don't                                                               
pass it," he cautioned.                                                                                                         
                                                                                                                                
CHAIR  OGAN   cited  his   personal  experience   in  negotiating                                                               
contracts and  said he would like  to get the best  deal possible                                                               
for  Alaska.     He  reiterated  that  he  believes   this  is  a                                                               
concession.                                                                                                                     
                                                                                                                                
REPRESENTATIVE   GREEN  pointed   out  that   this  is   not  the                                                               
negotiation but a method to use.   He said there is a significant                                                               
difference between  a government  and a billion-dollar  deal, and                                                               
what [Chair Ogan]  did as a person.  Chair  Ogan was negotiating,                                                               
but this is not negotiating.                                                                                                    
                                                                                                                                
CHAIR  OGAN said  he would  respectfully disagree.   He  believes                                                               
this  is  an important  negotiating  tool,  and  that it  is  the                                                               
legislature's  constitutional  responsibility  to  negotiate  the                                                               
best deal and be at the table.   "We are a 12-1/2 percent owner,"                                                               
he added, "and we need to be  treated like an owner rather than a                                                               
renter."  [HB 9 was held over.]                                                                                                 

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