Legislature(2001 - 2002)

04/18/2001 05:09 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB 158 - REPORT:STATE PARTICIPATE IN NAT GAS PIPE.                                                                            
VICE  CHAIR FATE  announced the  final item  of business,  CS FOR                                                               
SENATE BILL NO.  158(RES) am, "An Act  directing the commissioner                                                               
of revenue  to prepare  a report to  the legislature  relating to                                                               
the state's participation  in owning or financing  a gas pipeline                                                               
project; and providing for an effective date."                                                                                  
Number 0802                                                                                                                     
SENATOR JOHN  TORGERSON, Alaska  State Legislature,  came forward                                                               
as  the  chairman of  the  Senate  Resources Standing  Committee,                                                               
sponsor of SB 158.  He  explained that he'd had SB 158 introduced                                                               
in order  to have a  study on whether  the state should  have any                                                               
sort  of equity  ownership  in a  pipeline, if  and  when one  is                                                               
built.   The "meat" of  the bill, on  page 2, stipulates  some of                                                               
the  desired reporting,  then  goes  on to  look  at the  state's                                                               
financial  position  and  whether this  creates  additional  risk                                                               
regarding the state's creditworthiness, for example.                                                                            
SENATOR TORGERSON  pointed out that  on page 3, the  bill directs                                                               
the commissioner of  [the Department of] Revenue to  enter into a                                                               
contract  with a  qualified  person or  firm;  on [lines]  11-13,                                                               
because the contract is to  be done immediately, it excludes that                                                               
from the competitive sealed-bid  process.  In addition, paragraph                                                               
(b)(2) directs  the commissioner to  report to the chairs  of the                                                               
standing  committees  [that  have legislative  jurisdiction  over                                                               
natural resources  ... or  their designees]  to provide  the data                                                               
available to make the report.                                                                                                   
SENATOR TORGERSON  also alluded to paragraphs  (b)(3) and (b)(4),                                                               
which  stated  that  the   commissioner  shall  provide  progress                                                               
reports to the chairs of  the standing committees at intervals of                                                               
no  more  than   60  days,  and  shall  prepare   and  deliver  a                                                               
comprehensive report  with final recommendations.   He noted that                                                               
the report is to be done by January 31, 2002.                                                                                   
Number 1002                                                                                                                     
REPRESENTATIVE OGAN thanked Senator  Torgerson for presenting the                                                               
bill.   He explained that his  own thinking has changed  over the                                                               
years about state  ownership of a gas  pipeline, through becoming                                                               
more familiar with  the constitution and the fact  that the state                                                               
owns the subsurface rights to  the resources of the state, making                                                               
the resources  basically publicly owned.   He mentioned ambiguity                                                               
surrounding the  oil pipeline and  said he is more  interested in                                                               
at least exploring  the opportunity on the  gas pipeline project.                                                               
He asked Senator Torgerson to comment.                                                                                          
SENATOR  TORGERSON said  he agrees,  but won't  be sure  until he                                                               
sees  the  report  whether  the   state  should  take  an  equity                                                               
interest.   At the time of  the oil pipeline, he  said few people                                                               
thought state  ownership was a  good idea.   However, there  is a                                                               
lot of discussion today that the  state should at least be at the                                                               
table  for  its  12.5  percent  royalty  interest;  he  suggested                                                               
perhaps  12.5  percent  is  what  the state  should  own  in  the                                                               
pipeline,  in order  to  be at  the bargaining  table  and to  be                                                               
informed   regarding  tariffs,   for  example,   which  now   are                                                               
confidential.  He expressed hope  that the report generated by SB
158 will answer  all the questions about whether it  is a good or                                                               
bad idea.                                                                                                                       
SENATOR TORGERSON noted that there  was a similar report in 1982;                                                               
it was  a $27-billion  project, and  the recommendation  was that                                                               
the state not  get involved, "but that maybe we  would issue what                                                               
they called  'senior debt'  or maybe a  guaranteed debt,  in case                                                               
there [were] overruns  on the pipeline and other  things."  Times                                                               
have  changed, however,  and he  said people  are looking  at the                                                               
history  of  TAPS  [Trans-Alaska Pipeline  System]  and  thinking                                                               
perhaps [the  state] should have been  part of that.   He pointed                                                               
out that there are many  more possibilities for in-state usage of                                                               
natural gas  than for  oil, so  it opens  a lot  of avenues.   He                                                               
emphasized  the need  for the  report in  order to  make some  of                                                               
those determinations.                                                                                                           
Number 1235                                                                                                                     
REPRESENTATIVE  OGAN  asked  Senator  Torgerson  whether  he  had                                                               
thought  about  modifying  the   bill  to  study  possible  state                                                               
ownership  up  to a  point,  like  for  the "hub"  concept  being                                                               
considered  currently.   He said  it  appears to  be drafted  for                                                               
ownership of  the entire pipeline;  he asked whether that  is how                                                               
Senator Torgerson  envisions this being studied  or whether there                                                               
would be  enough latitude for the  chairs to ask that  the report                                                               
be broken  out more than  one way, such  as ownership to  a point                                                               
"where  everybody  connects,"  from   which  the  pipeline  would                                                               
SENATOR TORGERSON replied:                                                                                                      
     First of all,  I believe that any  ownership would only                                                                    
     go to our  borders; so it wouldn't be  the entire line,                                                                    
     but it could be everything  within the borders, if that                                                                    
     was determined ... that that's what we wanted to do.                                                                       
     In my thinking,  we should be able to  take the report,                                                                    
     and the  components that are generated  by that report,                                                                    
     and  either back  in or  extend it  to any  degree we'd                                                                    
     like to, such  as if ... the hub's in  Fairbanks or Big                                                                    
     Delta, and  that's as far  as we  want to own  it, that                                                                    
     could   very   well   be  something   that   we   could                                                                    
     mathematically back  into, once we take  the components                                                                    
     that are generated by the report.                                                                                          
     I believe that  for a lot of in-state  usage and excess                                                                    
     capacity  in the  line, we  may have  to pay  for that.                                                                    
     And ...  that may be dead  space for a while,  until we                                                                    
     find some  in-state usage.   But, again, we  don't know                                                                    
     until  ... we  have  all this  taken care  of.   But  I                                                                    
     didn't really put  "hub" in here for  that reason, that                                                                    
     "owning all or a portion  of the project" [page 2, line                                                                    
     5] pretty  well covers,  I think,  the latitude  that I                                                                    
     want the department to have.                                                                                               
SENATOR TORGERSON,  in further response,  surmised that  once the                                                               
state finally decides  to be a part-owner, there  will be further                                                               
studies,   at  least   through  the   administration  and   other                                                               
economists, "to grind  out numbers" before signing  on the dotted                                                               
line;  he said  he himself  would need  that.   It would  require                                                               
another bill, he suggested, which  would entail a lot of research                                                               
in order to create authority  or ownership, as well as agreements                                                               
with the producers.  This is just the first step, he concluded.                                                                 
Number 1462                                                                                                                     
REPRESENTATIVE DYSON drew attention  to Amendment 1, submitted by                                                               
Representative Ogan, which read [punctuation added]:                                                                            
     Page 3, line 17:                                                                                                           
          Delete "standing"                                                                                                     
     Page 3, line 22:                                                                                                           
          Delete "standing"                                                                                                     
[There  were  two  versions;  the  corrected  version  added  the                                                               
handwritten portion relating to page 3, line 22.]                                                                               
REPRESENTATIVE DYSON asked Senator  Torgerson whether he intended                                                               
to preclude the  participation of the House  Special Committee on                                                               
Oil and Gas in the process.                                                                                                     
Number 1564                                                                                                                     
SENATOR TORGERSON noted that the  bill [page 3, lines 18-19] says                                                               
"standing committees  ... or  their designees".   He  stated, "It                                                               
was not to preclude anything  else."  Senator Torgerson specified                                                               
that he had  seen the proposed amendment and had  no objection to                                                               
it,  but  added  that  "or designees"  is  wide-open  to  anybody                                                               
appointed to do it.                                                                                                             
REPRESENTATIVE DYSON  suggested that  if Representative  Ogan, as                                                               
chairman  of the  House Special  Committee  on Oil  and Gas,  was                                                               
comfortable with  it, the leadership  would add the  committee to                                                               
prevent the  bill from  having to go  to a  conference committee,                                                               
for example.                                                                                                                    
REPRESENTATIVE DYSON then  referred to page 2,  beginning at line                                                               
8, and  asked Senator Torgerson  whether he intended  to preclude                                                               
the  investigation  of  using  the permanent  fund  corpus  as  a                                                               
financing vehicle.                                                                                                              
Number 1564                                                                                                                     
SENATOR  TORGERSON answered,  "No, I  just didn't  list it."   He                                                               
referred to [page 2, lines 10-12],  which says "issue debt ... in                                                               
[another]  appropriate form".   He  stated, "The  recommendations                                                               
could be anything."   He added that he  wouldn't recommend paying                                                               
cash for it upfront.                                                                                                            
REPRESENTATIVE DYSON  indicated investing  in this  project might                                                               
be a better investment [for  the permanent fund than investing in                                                               
stocks, which had declined in value recently].                                                                                  
SENATOR TORGERSON responded:                                                                                                    
     I didn't think  it necessary for us to do  that.  If we                                                                    
     want to pay cash for  it, that's a legislative decision                                                                    
     down the  road a ways,  and certainly ...  the governor                                                                    
     would have  the right to  veto that.   But ...  I don't                                                                    
     think you'll  see a recommendation  to just  throw cash                                                                    
     on the table.                                                                                                              
     Now, it  may be  that a  GO [general  obligation] bond,                                                                    
     you're actually  pledging the assets  of the  state, so                                                                    
     any  GO bond,  we're  actually  pledging the  permanent                                                                    
     fund because it is an asset  of the state. ... And that                                                                    
     is going to  give us ... probably a  higher bond rating                                                                    
     because we  do have that;  of course, we have  no debt,                                                                    
     either ....                                                                                                                
REPRESENTATIVE  DYSON mentioned  another  option,  forming a  new                                                               
corporation and  having the permanent  fund owning some or  a lot                                                               
of the stock.  He then asked,  "So, on the record, this bill does                                                               
not preclude exploring that option?"                                                                                            
SENATOR TORGERSON replied, "No."                                                                                                
Number 1741                                                                                                                     
REPRESENTATIVE  OGAN made  a motion  to adopt  Amendment 1  [text                                                               
provided previously].                                                                                                           
REPRESENTATIVE  DYSON objected  in  order  to ask  Representative                                                               
Ogan  whether he'd  heard Senator  Torgerson  indicate he  didn't                                                               
believe  Amendment  1 was  necessary  because  there could  be  a                                                               
designee of the standing committee.                                                                                             
REPRESENTATIVE  OGAN  said  he  had  heard  that,  and  expressed                                                               
confidence that  the House Resources Standing  Committee wouldn't                                                               
have a  problem designating  the House  Special Committee  on Oil                                                               
and Gas.   However, this puts  the committee in the  loop without                                                               
having to  go through the designation  process.  He said  it just                                                               
means that  the committees being  reported to will be  the Senate                                                               
Resources  Standing  Committee,   the  House  Resources  Standing                                                               
Committee, and the House Special Committee on Oil and Gas.                                                                      
REPRESENTATIVE DYSON removed his objection.                                                                                     
Number 1795                                                                                                                     
VICE CHAIR  FATE asked whether  there was any  further objection.                                                               
There being no objection, Amendment 1 was adopted.                                                                              
Number 1805                                                                                                                     
VICE CHAIR FATE brought attention  to Amendment 2, also submitted                                                               
by Representative Ogan, which read:                                                                                             
     Page 3, lines 1 - 7:                                                                                                       
          Delete all material                                                                                                   
The language being deleted by Amendment 2 read:                                                                                 
          6)  consistent with the constitutional authority                                                                      
     that   requires   provision   for   "the   utilization,                                                                    
     development, and conservation  of all natural resources                                                                    
     belonging to  the state .  . . for the  maximum benefit                                                                    
     of its people," state  participation under (1), (2), or                                                                    
     (5)  of  this  subsection would  ensure  or  materially                                                                    
     contribute to natural  gas development and distribution                                                                    
     within   the  state   by  installation   of  additional                                                                    
     pipeline  facilities connecting  to population  centers                                                                    
     in  the  state,  thereby   supplying  the  energy  base                                                                    
     required   for    the   state's    long-term   economic                                                                    
REPRESENTATIVE  OGAN brought  to the  committee's attention  that                                                               
the  above  language, inserted  by  an  amendment on  the  Senate                                                               
floor, had  resulted in  a substantial fiscal  note; he  said the                                                               
fiscal note  looks inflated.   He said  he doesn't  disagree with                                                               
the  language, but  "population centers"  is somewhat  ambiguous;                                                               
Bethel, for  example, is a population  center in its region.   He                                                               
said it is  a "no brainer" that  it would happen if  there were a                                                               
pipeline built down the southern route.                                                                                         
VICE  CHAIR   FATE  announced  that  the   additional  amount  is                                                               
$375,000; the fiscal  note started at $215 [thousand]  and is now                                                               
up to $590 [thousand].                                                                                                          
REPRESENTATIVE  OGAN, noting  that  Senator  Torgerson had  voted                                                               
against the Senate floor amendment,  asked, "What are we going to                                                               
get for 300,000 bucks?"                                                                                                         
VICE CHAIR FATE  expressed his own concern that  it may legislate                                                               
the  distribution of  gas into  areas that  may not  be practical                                                               
now.   In addition,  it cuts out  private industry;  usually, the                                                               
market will  dictate where the  gas will  go, and people  who can                                                               
make a  profit will  take the gas  there.  He  noted that  on the                                                               
House  side,  a study  is  in  its  final  stages, and  it  looks                                                               
promising  that  some entrepreneur  in  the  private sector  will                                                               
undertake that project.   He said [the  section] isn't applicable                                                               
at every  point, especially in  rural Alaska; other than  the way                                                               
it is structured,  however, he had no problem with  it.  He added                                                               
that things  may be demanded of  the state, which perhaps  is the                                                               
reason for the escalation of the fiscal note.                                                                                   
Number 2016                                                                                                                     
SENATOR   TORGERSON  said   everyone   wants  gas   in  all   the                                                               
communities, but it just doesn't fit  in the bill; that is why he                                                               
opposed it on the floor.  He told members:                                                                                      
     This is a  bill that looks at financing  and whether or                                                                    
     not the  state should take participation  in financing,                                                                    
     not  a bill  on routes,  and not  a bill  on additional                                                                    
     pipelines to  try to supply  routes somewhere.   That's                                                                    
     an engineering question and a  financing question.  And                                                                    
     that's why the fiscal note is so high.                                                                                     
SENATOR TORGERSON indicated the  Department of Revenue would have                                                               
to hire  an engineer to  determine what will be  built, including                                                               
details, and  then have  to come  up with  a number  to determine                                                               
whether the state  should be part of that, as  far as building it                                                               
or owning  it.  He  said it is a  great piece of  legislation for                                                               
another  bill,  "once  you  get things  figured  out,"  but  just                                                               
doesn't fit into this bill.                                                                                                     
Number 2053                                                                                                                     
REPRESENTATIVE  DYSON expressed  concern about  the time  left in                                                               
this session.   He asked  whether, if this committee  deleted the                                                               
section, that would cause problems on the Senate floor.                                                                         
SENATOR TORGERSON  said he  didn't know.   He reiterated  that it                                                               
didn't  belong in  the bill  to  begin with,  then suggested  the                                                               
language perhaps could  be fixed by making it  a financing study,                                                               
which would  be germane to  the bill, rather than  an engineering                                                               
study.  "You  can't use population center,"  he added, concurring                                                               
with Representative Ogan.                                                                                                       
REPRESENTATIVE DYSON replied  that if Amendment 2  were moved, he                                                               
would support it.                                                                                                               
REPRESENTATIVE  OGAN suggested  that amending  the language  back                                                               
out of the bill at least would draw  attention to it.  He said it                                                               
is important legislation and emphasized  the need to pass it this                                                               
session.   He then said he  wanted the record to  clearly reflect                                                               
that  [Amendment 2]  is in  no way  discouraging the  development                                                               
[and distribution] of gas to these areas.                                                                                       
Number 2236                                                                                                                     
REPRESENTATIVE  OGAN made  a motion  to adopt  Amendment 2  [text                                                               
provided previously].  There being  no objection, Amendment 2 was                                                               
Number 2269                                                                                                                     
LARRY  PERSILY,  Deputy   Commissioner,  Department  of  Revenue,                                                               
testified  briefly via  teleconference.   He sought  confirmation                                                               
that Amendment 2 would take  out the Senate floor amendment, then                                                               
agreed that the  fiscal note would return to  the original amount                                                               
of $215  [thousand].  He  commented, "That's  fine.  We  were not                                                               
excited about  becoming engineers."   In  response to  a question                                                               
regarding   whether   it   could    be   interpreted   that   the                                                               
administration supports  the amendment, Mr. Persily  stated, "You                                                               
[can] interpret that I support the amendment."                                                                                  
Number 2340                                                                                                                     
REPRESENTATIVE DYSON made  a motion to move CSSB  158(RES) am, as                                                               
amended, out  of committee with individual  recommendations and a                                                               
fiscal note of $215 [thousand].                                                                                                 
VICE  CHAIR FATE  thanked the  sponsor, then  announced that  the                                                               
bill was moved from the committee.                                                                                              
REPRESENTATIVE  KOHRING pointed  out  that he  hadn't heard  Vice                                                               
Chair Fate  ask whether there  was any  objection.  He  said he'd                                                               
been going to  object, but instead would address it  on the House                                                               
[There being  no objection,  HCS CSSB 158(O&G)  was moved  out of                                                               
the House Special Committee on Oil and Gas.]                                                                                    

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