Legislature(2007 - 2008)CAPITOL 106

03/30/2007 08:30 AM OIL & GAS

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08:30:57 AM Start
08:31:08 AM HB177
02:05:24 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 12:30 pm --
Heard & Held
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
8:31:08 AM                                                                                                                    
CHAIR KOHRING announced that the  sole order of business would be                                                               
HOUSE  BILL NO.  177,  "An  Act relating  to  the Alaska  Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."                                                                                               
CHAIR KOHRING  recessed the  House Special  Committee on  Oil and                                                               
Gas meeting  to a call of  the chair [for the  purpose of waiting                                                               
for a committee substitute to be delivered to the committee].                                                                   
8:44:40 AM                                                                                                                    
CHAIR KOHRING reconvened  the House Special Committee  on Oil and                                                               
Gas.  Present at the  reconvening were Representatives Dahlstrom,                                                               
Samuels,  Doogan, Kawasaki,  and Kohring.   Representative  Olson                                                               
arrived as the meeting was in progress.                                                                                         
8:46:13 AM                                                                                                                    
REPRESENTATIVE DAHLSTROM moved to  adopt the committee substitute                                                               
(CS) for  HB 177, Version 25-GH1060\E,  Bullock, 3/30/07, Version                                                               
E as a work draft.                                                                                                              
8:46:19 AM                                                                                                                    
CHAIR KOHRING objected.                                                                                                         
REPRESENTATIVE  DOOGAN objected  and explained  that he  does not                                                               
know the content of  Version E well enough to adopt  it as a work                                                               
[There was discussion regarding the  correct procedure and it was                                                               
determined that  a vote  did not  have to  be taken;  instead the                                                               
motion with the two objections was left pending.]                                                                               
8:48:07 AM                                                                                                                    
PATRICK  GALVIN,  Commissioner,   Department  of  Revenue  (DOR),                                                               
explained the changes  made to HB 177 in Version  E.  He directed                                                               
the committee's attention to page  2, lines 22-24, which reads in                                                               
               ... however, the state's contribution may                                                                        
      not exceed 50 percent of the qualified expenditures                                                                       
       incurred before the end of the first binding open                                                                        
     season ...                                                                                                                 
COMMISSIONER  GALVIN said  that the  changes are  to capture  the                                                               
concept  that   the  license  applicant   can  suggest   a  state                                                               
contribution amount  within the limits  stated.  On page  2, line                                                               
30 there is a language change  to "is incurred" from the previous                                                               
language of  "cost occurs."   The section  on abandonment  is now                                                               
Section 240 of  the bill, and the numbering has  changed from the                                                               
original version.  On  page 3, lines 18 to 19,  there is an added                                                               
clause allowing the commissioners  to use "technical advisors" as                                                               
independent contractors to assist  in application development and                                                               
8:52:39 AM                                                                                                                    
COMMISSIONER  GALVIN  continued  to  page  3,  lines  22-24,  and                                                               
explained that  DOR had suggested inserting  some restrictions on                                                               
appellate   rights   of   the   participants   by   incorporating                                                               
limitations already  in the state's  procurement code.   However,                                                               
legal counsel explained that language  in the state's procurement                                                               
codes does  not exactly  match that  in HB  177.   Therefore, the                                                               
provision  provides  the  commissioners the  authority  to  adopt                                                               
regulations  regarding  appeal  rights substantially  similar  to                                                               
those in  the procurement  codes.  He  explained that  changes on                                                               
page  4, lines  5-6, concern  the requirement  that an  applicant                                                               
provide for the receipt and delivery  point of gas before an open                                                               
season has  occurred.  He said  the applicant is not  expected to                                                               
provide  information  as  to  in-state  delivery  points  in  the                                                               
license application.  In reference to  page 4, lines 18 to 22, he                                                               
explained that in the original  bill there was language detailing                                                               
what the  applicants must  provide in terms  of the  tariff rates                                                               
and transportation services.  He  said there was language in that                                                               
section  concerning a  liquefied natural  gas (LNG)  project that                                                               
was intended to  apply to a project in Canada  or an LNG project.                                                               
He offered that the language has  been modified on page 5, line 1                                                               
to clarify  some of the  requests made of  an LNG applicant.   In                                                               
response  to  a question,  he  said  that  the changes  take  the                                                               
concept of proposed  transportation services and expand  on it to                                                               
provide additional  clarity and application to  both Canadian and                                                               
LNG projects.                                                                                                                   
8:56:43 AM                                                                                                                    
COMMISSIONER GALVIN  went on  to explain the  changes on  page 5,                                                               
lines 14 and 28.   He said that the original bill  had a 36 month                                                               
deadline  in  which  to  have   an  open  season,  the  suggested                                                               
amendment shortens that time to 24  months.  He noted a change on                                                               
4, lines 1-2, which references  a statute that prohibits an "over                                                               
the top route" as described in AS 38.35.017(b).                                                                                 
8:58:42 AM                                                                                                                    
COMMISSIONER GALVIN said  that there are changes made  to page 6,                                                               
line  9,  to  clarify  that  section  with  respect  to  required                                                               
technical  information.     Page  6,  line   16,  incorporates  a                                                               
stylistic change  that recognizes  the normal sequence  of events                                                               
with  regard  to gas  pipeline  compression  and pipe  additions.                                                               
Moving  on to  page 7,  line 18,  he explained  that the  changes                                                               
require the applicant  to describe how they propose  to address a                                                               
North Slope gas treatment plant,  and reminded the committee that                                                               
there is  an inherent option  for an  applicant to propose  a gas                                                               
treatment plant  as part of  their transportation system.   If an                                                               
applicant is to  include a gas treatment plant in  its system, it                                                               
would have to  use the same debt to equity  ratio required by the                                                               
state.   On page 7,  line 26 a reference  is added to  require an                                                               
applicant to propose  not only a percentage, but  a "total dollar                                                               
amount" of the state's contribution  under AS 43.90.110(1).  This                                                               
allows the state  to examine what the applicant  intends to spend                                                               
to  arrive at  an open  season.   He responded  to a  question by                                                               
explaining  that  DOR desires  the  applicants  to at  a  minimum                                                               
provide an estimate of costs to  be spent in preparation for open                                                               
season so that the state can  have some basis from which to gauge                                                               
the potential  net present value of  the project.  He  stated the                                                               
state  would like  to gauge  whether the  applicant would  have a                                                               
"breaking  off point"  depending  upon the  success  of the  open                                                               
season, and how  much the state may have to  spend, he explained.                                                               
He  responded to  a further  comment  by indicating  that DOR  is                                                               
willing  to  discuss   the  need  to  place   parameters  on  the                                                               
applicant's  ability to  exceed their  stated spending  limit for                                                               
that phase of the project.                                                                                                      
9:03:59 AM                                                                                                                    
COMMISSIONER GALVIN explained  that there is a  possible error on                                                               
page 7, lines  27 and 28 which refers to  AS 43.90.110(1) and (2)                                                               
and  opined the  reference should  be to  AS 43.90.110(1)(a)  and                                                               
(b).  He  stated that the intent of this  change was to reference                                                               
the 50 percent  contribution up to open season  and the post-open                                                               
season sections of the bill.                                                                                                    
9:05:31 AM                                                                                                                    
COMMISSIONER GALVIN referred to three  new subsections on page 8,                                                               
which read [original punctuation modified slightly for clarity]:                                                                
               ...(16)  waive the right to appeal the award                                                                     
        to another applicant or the determination under                                                                         
         AS 43.90.180(b) that no application merits the                                                                         
     issuance of a license;                                                                                                     
               (17)  commit to negotiate, prior to                                                                              
       construction, a project labor agreement, to assure                                                                       
       expedited construction and labor stability for the                                                                       
     project by qualified residents of the state;                                                                               
               (18)  commit that the state contribution                                                                         
      received by the licensee may not be included in the                                                                       
      applicant's rate base and shall be used as a credit                                                                       
     against the licensee's cost of service; ...                                                                                
COMMISSIONER GALVIN  explained that the  intent of section  16 is                                                               
to  require  an applicant  to  waive  their  right to  appeal  an                                                               
adverse  decision.   Section  17  was  suggested  by DOR  and  is                                                               
intended  to  require applicants  to  set  forth that  they  will                                                               
commit to negotiate project labor agreements.                                                                                   
CHAIR  KOHRING suggested  that  proposed section  17  might be  a                                                               
point of contention  by some members of the  committee, but noted                                                               
its addition allows the committee to consider it.                                                                               
9:07:31 AM                                                                                                                    
REPRESENTATIVE   DOOGAN  asked   if  the   term  "project   labor                                                               
agreement"  has  a generally  accepted  meaning,  or whether  the                                                               
phrase can have a range of meanings.                                                                                            
COMMISSIONER GALVIN  said he was  unaware of whether there  was a                                                               
specified  meaning to  the aforementioned  term.   He went  on to                                                               
explain  that  section 18,  line  23  is  a technical  change  to                                                               
confirm  that any  state  contribution to  the  project would  be                                                               
deducted from the rate base.                                                                                                    
COMMISSIONER  GALVIN explained  that Version  E contains  changes                                                               
suggested by DOR, by the  chair and by legislative legal counsel.                                                               
He  directed the  committee's attention  to page  9, section  150                                                               
which read [original punctuation provided]:                                                                                     
          Sec. 43.90.150. Proprietary information and trade                                                                   
     secrets.  (a)   At  the   request  of   the  applicant,                                                                
     information  submitted  under  this  chapter  that  the                                                                    
     applicant  identifies and  demonstrates is  proprietary                                                                    
     or is  a trade secret  is confidential and  not subject                                                                    
     to   public  disclosure   under  AS 40.25   unless  the                                                                    
     applicant  is granted  a  license  under this  chapter;                                                                    
     after a  license is awarded, all  information submitted                                                                    
     by  the  licensee  under this  chapter  shall  be  made                                                                    
          (b)  If the commissioners determine that the                                                                          
     information   submitted  by   the   applicant  is   not                                                                    
     proprietary  or is  a trade  secret, the  commissioners                                                                    
     shall notify  the applicant and return  the information                                                                    
     at the request of the applicant.                                                                                           
          (c)  An applicant that protests or appeals the                                                                        
     award of  a license or  the process by which  the award                                                                    
     of  a  license is  made  shall  be considered  to  have                                                                    
     consented to  the disclosure of all  of the information                                                                    
     submitted under  this chapter  by the  applicant making                                                                    
     the protest  or appeal,  including information  that is                                                                    
     confidential under (a) of this section.                                                                                    
          (d)  In this section, "proprietary" means that                                                                        
     the  information   is  treated  by  the   applicant  as                                                                    
     confidential   and  the   public  disclosure   of  that                                                                    
     information  would  adversely  affect  the  competitive                                                                    
     position of  the applicant, or materially  diminish the                                                                    
     commercial value of the information to the applicant.                                                                      
COMMISSIONER  GALVIN  explained  that  this  section  covers  the                                                               
treatment  of  an  applicant's  confidential  information.    The                                                               
section is  designed to capture  the concept that once  a license                                                               
has been issued, all information is public.                                                                                     
REPRESENTATIVE SAMUELS asked if  whether the legislature would be                                                               
aware that there  was information that it did not  have access to                                                               
when    reviewing    the    commissioners'    license    issuance                                                               
COMMISSIONER GALVIN  answered yes,  and noted that  the applicant                                                               
must provide  a public summary  of the information it  desires be                                                               
considered confidential.  He explained  in response to a question                                                               
that  the sort  of  information that  may  be confidential  could                                                               
include  the  potential  methods   that  pipeline  companies  may                                                               
propose with  others to  share risks  between themselves  and the                                                               
REPRESENTATIVE  DOOGAN   expressed  concern  that   keeping  some                                                               
information confidential  will make  it difficult for  the public                                                               
at large to evaluate the adequacy of the selection process.                                                                     
COMMISSIONER GALVIN  stated that there  would likely not  be much                                                               
confidential information relevant to the  actual value of the gas                                                               
pipeline  project to  the  state.   He opined  that  most of  the                                                               
information   likely  to   be  in   the  confidential   arena  is                                                               
information  that  weighs  more  on  the  likelihood  of  project                                                               
REPRESENTATIVE DOOGAN said that  throughout these hearings people                                                               
have been  using "risk" as  a code word  for how much  money they                                                               
are going to have to pay.   He asked whether the amount a shipper                                                               
would have to pay would be part of evaluation process.                                                                          
COMMISSIONER  GALVIN  opined   that  the  issue  of   risk  is  a                                                               
combination of  how much an  applicant is  going to have  to pay,                                                               
and  the  level of  uncertainty  the  applicant  must bear.    He                                                               
suggested that  the level of  information that will  be available                                                               
to the  public will provide  a "clear  band" around the  range of                                                               
criteria.   He  set  forth  that DOR  is  attempting  to craft  a                                                               
procedure that  is as  transparent as possible  and has  very few                                                               
confidential  aspects.     He   relayed  that   the  confidential                                                               
information would not be the  driving factor in the license award                                                               
9:22:04 AM                                                                                                                    
REPRESENTATIVE   SAMUELS   asked   about  the   situation   where                                                               
confidential  information   sets  forth   a  proposal   that  the                                                               
applicant eventually  does not enact and  questioned whether that                                                               
information would ever become public knowledge.                                                                                 
COMMISSIONER GALVIN  responded that  under the  current proposal,                                                               
any information  that was  confidential would  be made  public as                                                               
soon as the legislature approved of the license issuance.                                                                       
REPRESENTATIVE  DOOGAN  expressed  his  concern  that  under  the                                                               
current proposal, only the  successful applicant's information is                                                               
made   public  while   the   information   in  the   unsuccessful                                                               
applications remains confidential.                                                                                              
COMMISSIONER  GALVIN  replied that  the  intent  is not  to  draw                                                               
distinctions  between  public  and non-public  information.    He                                                               
offered that the bid parameters  of an unsuccessful applicant are                                                               
not normally  made public.  He  stated that the bill  attempts to                                                               
be  sensitive  to normal  business  dynamics,  and noted  that  a                                                               
challenger to the  license award would also  have its information                                                               
made public.                                                                                                                    
COMMISSIONER  GALVIN   explained  that  the  intent   behind  the                                                               
application evaluation and ranking  criteria, AS 43.90.170, is to                                                               
provide more structure to the  determination of which application                                                               
provides  the  most  net  present  value to  the  state  and  the                                                               
greatest likelihood of success.                                                                                                 
9:30:43 AM                                                                                                                    
REPRESENTATIVE SAMUELS asked about the  meaning of the section on                                                               
page 11, line 16 which reads [original punctuation provided]:                                                                   
      (d)  In this section, "net present value" means the                                                                       
     discounted value of a future stream of cash flow ...                                                                       
COMMISSIONER GALVIN  suggested this  section be addressed  by the                                                               
DOR's economists.                                                                                                               
9:32:53 AM                                                                                                                    
COMMISSIONER  GALVIN reviewed  proposed AS  43.90.180 which  read                                                               
[original punctuation provided]:                                                                                                
          Sec. 43.90.180. Notice to the legislature of intent to                                                              
     issue license;  denial of license. (a)  If, after evaluation                                                             
     of    complete   applications    under   AS 43.90.170    and                                                               
     consideration    of   public    comments   received    under                                                               
     AS 43.90.160,   the   commissioners  and   the   coordinator                                                               
     determine that  an application proposes a  project that will                                                               
     sufficiently  maximize the  benefits to  the people  of this                                                               
     state and  merits issuance of  a license,  the commissioners                                                               
               (1)  issue a determination, with written findings                                                                
     addressing   the   basis    for   the   determination;   the                                                               
     determination becomes  a final  agency action  in accordance                                                               
     with AS 43.90.190;                                                                                                         
               (2)  publish a notice of intent to issue a                                                                       
     license that includes findings addressing  the basis for the                                                               
     determination; and                                                                                                         
               (3)  submit the determination along with the                                                                     
     findings,  supporting  documentation,  and  a  copy  of  the                                                               
     notice published under (2) of  this subsection to the chairs                                                               
     of the  legislative standing committees  having jurisdiction                                                               
     over   natural  resources   for   action   as  provided   in                                                               
     AS 43.90.190.                                                                                                              
          (b)  If the commissioners determine that no                                                                           
     application proposes  a project that  sufficiently maximizes                                                               
     the  benefits  to  the  people  of  this  state  and  merits                                                               
     issuance  of  a license,  the  commissioners  shall issue  a                                                               
     written  notice of  that determination  and the  findings on                                                               
     which the determination is based.                                                                                          
          (c)  The commissioners' determination under this (b)                                                                  
     of this  section is  a final agency  action for  purposes of                                                               
     appeal to the superior court.                                                                                              
          (d)  Within 90 days after a determination under (b) of                                                                
     this section, the commissioners may  issue a new request for                                                               
     applications for a license under AS 43.90.120.                                                                             
COMMISSIONER  GALVIN  noted  there  is  a  reference  within  the                                                               
evaluation  criteria  which  references  the  section  on  public                                                               
comment.    He  went  on  to  say  that  the  next  area  with  a                                                               
substantive change is  on page 12, line 11  which reads [original                                                               
punctuation provided]:                                                                                                          
          Sec. 43.90.190. Legislative approval; issuance of                                                                   
     license. (a)  After receiving a determination  from the                                                                  
     commissioners  under AS 43.90.180,  the House  standing                                                                    
     committee  and  the  Senate standing  committee  having                                                                    
     jurisdiction over  natural resources shall  introduce a                                                                    
     bill  in their  respective chambers  that provides  for                                                                    
     the approval  of the license  proposed to be  issued by                                                                    
     the commissioners.                                                                                                         
          (b)  If a bill approving the issuance of the                                                                          
     license becomes law, the  commissioners shall issue the                                                                    
     license  as soon  as  practicable  after the  effective                                                                    
     date of the Act approving  the issuance of the license.                                                                    
     The   issuance  of   the   license   approved  by   the                                                                    
     legislature  is a  final administrative  action on  the                                                                    
     date the  license is issued  for purposes of  appeal to                                                                    
     the superior court.                                                                                                        
          (c)  If the legislature fails to approve the                                                                          
     issuance of the license, the commissioners may request                                                                     
     new applications for a license under AS 43.90.120.                                                                         
9:35:10 AM                                                                                                                    
COMMISSIONER  GALVIN explained  that  this provision  was at  the                                                               
request  of the  committee  chair and  requires  approval of  the                                                               
issuance of the licenses in the form of a bill.  .                                                                              
CHAIR  KOHRING  set  forth that  nothing  in  the  aforementioned                                                               
section is "rock solid," but just something for consideration.                                                                  
9:36:36 AM                                                                                                                    
COMMISSIONER GALVIN referred to page  11, line 21, which proposes                                                               
that  the Alaska  Gasline Inducement  Act  (AGIA) coordinator  be                                                               
added  to the  review process.   In  response to  a question,  he                                                               
noted  that the  timing of  the  hiring of  the AGIA  coordinator                                                               
still needs to be evaluated.                                                                                                    
CHAIR KOHRING set forth there needs  to be a procedure if the two                                                               
commissioners cannot agree.                                                                                                     
COMMISSIONER GALVIN  expressed confidence that the  governor will                                                               
make decision  should the  commissioners be unable  to come  to a                                                               
unified decision.                                                                                                               
9:38:21 AM                                                                                                                    
COMMISSIONER GALVIN noted that language  on page 12, lines 25-26,                                                               
is intended to clarify that  the obligation to take certification                                                               
either from  Federal Energy Regulatory  Commission (FERC)  or the                                                               
Regulatory  Commission  of  Alaska   (RCA)  does  not  become  an                                                               
obligation until after all the  administrative appeal rights have                                                               
been exhausted by the applicant.                                                                                                
COMMISSIONER GALVIN explained that changes  on page 13, lines 19-                                                               
20 clarify  when the time starts  to run for purposes  of appeal.                                                               
Changes  on  page  13,  lines  27-28  set  forth  that  [original                                                               
punctuation provided]:                                                                                                          
          ... An amendment or modification approved under                                                                       
     this section  must be consistent with  the requirements                                                                    
     in AS 43.90.130 and  may not diminish the  value to the                                                                    
     state of the project or  the like likelihood of success                                                                    
     for the project.                                                                                                           
COMMISSIONER  GALVIN summarized  that the  aforementioned section                                                               
is to ensure  that the project value or likelihood  of success is                                                               
not diminished if the project terms are modified.                                                                               
9:41:29 AM                                                                                                                    
REPRESENTATIVE  SAMUELS   asked  about  the  situation   where  a                                                               
modification decreases the value to  the state, but increases the                                                               
likelihood of project success.                                                                                                  
COMMISSIONER GALVIN  opined that  such a modification  should not                                                               
be allowed.                                                                                                                     
REPRESENTATIVE SAMUELS  asked about the criteria  which determine                                                               
when the value to the state is diminished.                                                                                      
COMMISSIONER  GALVIN responded  that  decisions on  modifications                                                               
are  intended to  be referenced  back to  the initial  evaluation                                                               
criteria,  therefore  would  use  the same  criteria  as  in  the                                                               
initial evaluation process.                                                                                                     
9:42:54 AM                                                                                                                    
COMMISSIONER  GALVIN  said  that  technical changes  made  to  AS                                                               
43.90.210  are  designed  to  clarify   that  the  scope  of  the                                                               
commissioners' ability  to require the production  of information                                                               
is related only to the license  procedures of AGIA.  He explained                                                               
that  modifications  on  page  15,   line  23,  concern  remedies                                                               
available to  the commissioners  if a  licensee has  violated the                                                               
license terms.   One remedy is to allow the  state to acquire the                                                               
work product  from the  licensee.  In  other similar  sections of                                                               
the bill,  language has  been clarified to  make clear  that only                                                               
the  work   product  developed  during  the   license  period  is                                                               
available to  the state.   He explained that AS  43.90.240 covers                                                               
the procedure  for abandonment of  the project and  contains some                                                               
modifications  suggested   by  DOR   regarding  the   process  of                                                               
arbitration.   He said  the DOR is  continuing to  craft language                                                               
defining the term "uneconomic."   If the project is determined to                                                               
be uneconomic,  the state could  acquire the work product  at the                                                               
applicant's net cost, he explained.                                                                                             
9:48:06 AM                                                                                                                    
COMMISSIONER GALVIN  said that AS  43.90.250 covers  the position                                                               
of AGIA coordinator  and has been modified at the  request of the                                                               
chair to place the position  in the governor's office, to clarify                                                               
the   appointment  process,   and   to   further  delineate   the                                                               
responsibilities  of  the  position.   The  AGIA  coordinator  is                                                               
subject to  legislative confirmation and to  reconfirmation after                                                               
a gubernatorial election.                                                                                                       
9:50:29 AM                                                                                                                    
COMMISSIONER GALVIN  set forth that  AS 43.90.260 has  been moved                                                               
from Article 3, but  has not been changed.  He  said that all the                                                               
upstream inducements  in Article 3  of HB 177 have  been modified                                                               
to make  it clear that they  are all contractual in  nature.  The                                                               
language  on  page  18,  lines  12 and  13  which  states  the  "                                                               
inducement[s]  in  AS 43.90.310  and 43.90.320  are  contractual"                                                               
provides  a clear  statement of  that intent,  he indicated.   AS                                                               
43.90.310 covers the  royalty inducement provisions of  AGIA.  He                                                               
said that  43.90.310(c) consists mostly  of new language  that is                                                               
intended to create  a contractual relationship.   He offered that                                                               
the intent  of this  section is  to have  a regulatory  method to                                                               
establish  valuation  for  purposes of  upstream  determinations.                                                               
The  applicant  will  have  the option  to  have  that  alternate                                                               
methodology put into their contract,  he explained.  Although the                                                               
regulations may change  to update the method used,  each time the                                                               
lessee will  have the option  as to  whether to change  its lease                                                               
9:54:18 AM                                                                                                                    
COMMISSIONER  GALVIN explained  that language  was added  on page                                                               
20,  line  27 authorizing  the  commissioner  of  DOR to  sign  a                                                               
certificate regarding the proposed  production tax exemption.  He                                                               
disclosed that  legislative legal  counsel does not  support this                                                               
approach because of concerns regarding its constitutionality.                                                                   
The committee took an at-ease from  9:55:57 AM to 9:56:01 AM.                                                               
CHAIR KOHRING  recessed the  House Special  Committee on  Oil and                                                               
Gas meeting at a call of the chair at 9:56:49 AM.                                                                             
[The motion to  adopt Version E as a work  draft was left pending                                                               
with objections by Chair Kohring and Representative Doogan.]                                                                    
12:36:07 PM                                                                                                                   
CHAIR KOHRING reconvened  the House Special Committee  on Oil and                                                               
Gas  meeting.   Present at  the reconvening  were Representatives                                                               
Samuels,  Doogan, Kawasaki,  Olson,  and Kohring.  Representative                                                               
Dahlstrom   arrived    as   the   meeting   was    in   progress.                                                               
Representative Coghill was also in attendance.                                                                                  
12:36:34 PM                                                                                                                   
COMMISSIONER GALVIN reviewed  Article 4, page 21, lines  16 to 18                                                               
which reads [original punctuation provided]:                                                                                    
     ... Money  appropriated to  the fund  may be  spent for                                                                    
     the    purposes   of    the   fund    without   further                                                                    
     appropriation. Appropriations to the  fund do not lapse                                                                    
     under AS 37.25.010,  but remain in the  fund for future                                                                    
     disbursements.  Nothing in  this  subsection creates  a                                                                    
     dedicated fund ...                                                                                                         
and  explained the  modifications were  suggested by  legislative                                                               
legal counsel.   Furthermore,  changes were  made to  proposed AS                                                               
43.90.410  because  the  existing   administrative  code  is  not                                                               
designed   to   allow   two  commissioners   to   jointly   adopt                                                               
regulations.  The proposal allows  the commissioner of revenue to                                                               
adopt  the   regulations  for  decisions  made   jointly  by  the                                                               
commissioners of  Department of Natural Resources  (DNR) and DOR,                                                               
he explained.  The clause  "before the commencement of commercial                                                               
operations"  clarifies the  cut-off for  when the  assurance that                                                               
the  state  will not  provide  benefits  to a  competing  project                                                               
expires, and is added on page 22,  line 16.  The intent is to add                                                               
a "stay  faithful" clause  to the  deal which  ends once  the gas                                                               
pipeline  begins  operations,  he  explained.   A  definition  of                                                               
competing  project is  added  on  page 22,  line  30, and  states                                                               
[original punctuation provided]:                                                                                                
          (b)  In this section, "competing natural gas                                                                          
     project"  means  a   project  designed  to  accommodate                                                                    
     throughput  of  more  than 500,000,000  cubic  feet  of                                                                    
     North Slope gas a day.                                                                                                     
COMMISSIONER  GALVIN explained  that this  provision is  to allow                                                               
for in-state gas volumes to  proceed without violating the nature                                                               
of the  "faithful" clause.   He went on  to explain that  on page                                                               
23, line 7,  the phrase "diminish the likelihood  of success" was                                                               
added  as  a  factor  to  consider  when  determining  whether  a                                                               
licensee can assign its license.   There is also a change on page                                                               
23, line 21 to make clear  that any job training program need not                                                               
be limited to  jobs on the gas pipeline project,  but can include                                                               
related vocational training.   A definition of  "North Slope" was                                                               
added  on  page  24,  line  30   and  31.    Further  changes  in                                                               
definitions include  the addition of the  word "financial" before                                                               
commitments on page 25, lines 13  and 14.  A conforming amendment                                                               
was made on page  25, line 3.  Further language  on page 27, line                                                               
22, concerns language added  by counsel regarding confidentiality                                                               
and reads [original punctuation provided]:                                                                                      
               (12)  records that are                                                                                         
               (A)  proprietary or a trade secret in                                                                          
     accordance with AS 43.90.150;                                                                                            
               (B)  applications that are received under                                                                      
       AS 43.90.120 - 43.90.140 until notice is published                                                                     
     under AS 43.90.160.                                                                                                      
12:44:53 PM                                                                                                                   
COMMISSIONER GALVIN  further noted that  Section 5, page  27 sets                                                               
forth the legislative  intent that the first  request for license                                                               
applications be  issued within 90  days after the  effective date                                                               
of  AGIA,  a requirement  that  was  previously  set forth  as  a                                                               
mandatory requirement.   He explained that  a severability clause                                                               
regarding the upstream tax inducement  provisions was inserted to                                                               
insure that even if the production  tax exemption was found to be                                                               
unconstitutional, the remainder of AGIA would still be valid.                                                                   
The committee took at ease from 12:48 to 12:52.                                                                                 
12:53:21 PM                                                                                                                   
DON  BULLOCK, Attorney,  Legislative  Legal Counsel,  Legislative                                                               
Legal  and Research  Services, Legislative  Affairs Agency,  said                                                               
the structure of AGIA remains basically the same.                                                                               
REPRESENTATIVE  SAMUELS  asked  about the  change  regarding  the                                                               
amount of money  the state would match up to  open season, noting                                                               
it  went from  80 percent  to 50  percent.   [Version E,  page 2,                                                               
lines 22 to 24.]                                                                                                                
MR.  BULLOCK  explained that  prior  language  provided that  the                                                               
state would match  contributions made by the  licensee equally up                                                               
until the  end of the first  binding open season, but  it was not                                                               
clear whether  there would be any  funds left at the  end of open                                                               
season.   Under the  revision, the applicant  will put  forth the                                                               
amount of  matching funds  they propose to  receive in  the first                                                               
period,  with the  limitation it  not  exceed 50  percent of  the                                                               
qualified  expenditures  incurred before  the  end  of the  first                                                               
binding open season.                                                                                                            
12:55:59 PM                                                                                                                   
MR. BULLOCK explained  that in AGIA, "North Slope"  is defined as                                                               
North of 68 degrees North  latitude, whereas federal law relating                                                               
to  the natural  gas act  uses a  marker of  North of  64 degrees                                                               
North latitude.   He noted  that there are  constitutional issues                                                               
regarding  the separation  of  executive  and legislative  powers                                                               
relating to  contract approval and regarding  the confirmation of                                                               
the  AGIA coordinator.  He  relayed that the courts have narrowly                                                               
construed provisions regarding the  ability of the legislature to                                                               
appoint  commissioners.    He noted  that  the  AGIA  coordinator                                                               
position   "does  not   fit  easily"   into  the   constitutional                                                               
provisions  that  provide  for  legislative  confirmations.    He                                                               
reminded the committee of his  earlier testimony that the 10 year                                                               
tax exemption  was likely to  be constitutional because it  was a                                                               
matter of general law, subject to future legislative change.                                                                    
12:58:37 PM                                                                                                                   
REPRESENTATIVE   DOOGAN   asked   if   the   problem   with   the                                                               
constitutionality  of the  confirmation of  the AGIA  coordinator                                                               
would  be  lessened if  confirmation  was  only for  the  initial                                                               
MR. BULLOCK replied  that was not the issue, rather  the issue is                                                               
whether  the  confirmation   is  required  at  all.     The  AGIA                                                               
coordinator position is to be in the governor's office.                                                                         
12:59:42 PM                                                                                                                   
REPRESENTATIVE DOOGAN  asked if the constitutional  issue changes                                                               
if the  tax exemption is based  on the volume of  gas rather than                                                               
period of time.                                                                                                                 
MR. BULLOCK replied  that it could be.  He  noted that the Alaska                                                               
State  Constitution,  Article  IX,  Section 1,  and  Article  IX,                                                               
Section  4 appear  to allow  the  legislature to  enact some  tax                                                               
exemptions by general law.                                                                                                      
1:01:46 PM                                                                                                                    
REPRESENTATIVE DOOGAN  reiterated his  question as to  whether an                                                               
exemption   based  on   volume  is   more  likely   to  withstand                                                               
constitutional scrutiny than one based on time.                                                                                 
MR. BULLOCK  replied that a  period of  time would deal  with how                                                               
long the legislature  wanted to allow the exemption.   He offered                                                               
that an exemption  if different than credit  because an exemption                                                               
states the taxpayer is not subject  to tax, while a credit states                                                               
that a calculated tax will be reduced.                                                                                          
1:02:40 PM                                                                                                                    
REPRESENTATIVE  SAMUELS asked  about  drafting  the contracts  to                                                               
provide flexible  royalty rates which would  increase or decrease                                                               
in conjunction with other tax issues.                                                                                           
MR. BULLOCK  noted that a  royalty is not a  tax, but a  share of                                                               
ownership and that share is negotiated  at the time of the lease.                                                               
He noted  that while  there may  be some  changes to  the royalty                                                               
provisions in the state leases, which  the lessee may seek to add                                                               
to  the lease.   Change  would be  considered a  revision of  the                                                               
lease and be a new contract, he explained.                                                                                      
1:05:17 PM                                                                                                                    
REPRESENTATIVE SAMUELS  asked about the ability  to incorporate a                                                               
flexible royalty  rate to  balance a possible  rise in  taxes and                                                               
the possibility that such an approach  would be less likely to be                                                               
MR.  BULLOCK replied  that royalty  terms  are contractual  terms                                                               
that are negotiated between the  parties.  He indicated the lease                                                               
could have a  reference to any measure that would  adjust for the                                                               
lease  amounts.   He noted  that the  royalty provisions  tax the                                                               
activity of  producing oil and  gas, measured  by the value.   He                                                               
reminded  the committee  that the  state only  gets a  portion of                                                               
royalties  from federal  land  as it  is not  an  owner on  those                                                               
1:07:40 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked  whether  there  is  a  benefit  to                                                               
including  inducements as  contractual royalty  terms within  the                                                               
lease  instead of  structuring inducements  as  a production  tax                                                               
exemption that may face a constitutional challenge.                                                                             
1:08:38 PM                                                                                                                    
MR. BULLOCK agreed with the aforementioned  point.  He went on to                                                               
say that  since the  state is constitutionally  required to  be a                                                               
good  steward of  its natural  resources, there  is a  perception                                                               
that   royalty  incentives   could  be   inconsistent  with   the                                                               
stewardship responsibilities.   He  opined that  "royalties would                                                               
definitely be safer."   He reminded the committee  that there are                                                               
constitutional  provisions  which   restrict  the  impairment  of                                                               
contractual terms.                                                                                                              
1:09:08 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked  if lowering  the  state's  royalty                                                               
share in current  contracts would be considered  an impairment of                                                               
contractual terms.                                                                                                              
MR.  BULLOCK  stated  he  was   not  sure,  noting  that  in  the                                                               
aforementioned example, the state's interests would be impaired.                                                                
MR. BULLOCK explained that the  lease abandonment provisions have                                                               
been  moved to  be within  a  more appropriate  place within  the                                                               
structure  of  the  bill.     He  referred  to  AS  43.90.110  on                                                               
inducements as  "where that 50  percent cap  comes in."   He went                                                               
noted  that  in  Version  E  the  state  takes  the  position  as                                                               
coordinator of vocational  training, noting that there  is also a                                                               
new section regarding the development  of a training program.  He                                                               
explained   that  a   change  in   AS   43.90.110  requires   the                                                               
commissioner of  DOR to consult  with the commissioner of  DNR to                                                               
adopt  regulations   to  enhance  the  definition   of  qualified                                                               
expenditures for  purposes of the state's  matching contribution.                                                               
Other changes  include some re-numbering because  the abandonment                                                               
provisions  of the  bill were  moved  to another  section of  the                                                               
bill.   He opined that there  were legal problems with  the prior                                                               
requirement   that  the   commissioners  issue   a  request   for                                                               
application for the license within  90 days of the effective date                                                               
of  the  act.   To  remedy  this,  this  section was  changed  to                                                               
indicate  that  the   commissioners  must  do  it   "as  soon  as                                                               
practical."  He  said there is an un-codified section  at the end                                                               
of the  bill setting  forth that legislative  intent is  that the                                                               
commissioners act  within 90  days of the  effective date  of the                                                               
1:12:27 PM                                                                                                                    
MR.  BULLOCK explained  that there  was  some desire  to use  the                                                               
existing state  procurement code provisions to  award the license                                                               
and  govern appeals.   However,  he  explained that  there are  a                                                               
number of terms in the  procurement codes that would be difficult                                                               
to apply  to the gas  pipeline project.  Therefore,  he suggested                                                               
that  the   commissioners  are  required  to   adopt  regulations                                                               
substantially similar to those in  the existing state procurement                                                               
codes.  AS 43.90.130 has been  modified to be more affirmative in                                                               
that  the  applicant is  making  the  commitments listed  in  the                                                               
application, he explained.  The  "over the top route" through the                                                               
Beaufort  Sea and  down through  the  McKenzie, has  specifically                                                               
been  excluded, he  said.   He said  this exclusion  still leaves                                                               
room for highway  routes and an in-state route to  tidewater.  He                                                               
explained that  the time period for  arriving at the end  of open                                                               
season is  shortened from 36 months  to 24 months.   He indicated                                                               
this a  target date, which  requires the  licensee to move  a bit                                                               
CHAIR KOHRING  noted that he  had suggested this change  with the                                                               
intent to move things up a bit.                                                                                                 
MR. BULLOCK  stated that there  is flexibility to change  the law                                                               
if  it  becomes apparent  that  the  suggested time  periods  are                                                               
problematic.   He noted that  changes had been made  to recognize                                                               
that expansion  would likely first involve  compression, and then                                                               
pipeline looping later.                                                                                                         
1:16:37 PM                                                                                                                    
REPRESENTATIVE SAMUELS asked  if the time period would  be in the                                                               
contract, which the legislature could not change.                                                                               
MR. BULLOCK opined that the  applicant has the option to complete                                                               
the work under the time period  set as well as the flexibility to                                                               
request more time.                                                                                                              
1:17:45 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked if  the  statute  and the  contract                                                               
would have  to be  changed if  the licensee  needs a  longer time                                                               
period than 24 months.                                                                                                          
MR. BULLOCK  agreed that the  terms of the  law would have  to be                                                               
changed  to grant  the licensee  additional time.   He  put forth                                                               
that  there is  a requirement  that the  applicant commit  not to                                                               
protest  the award  of the  license  to another  applicant, or  a                                                               
determination by the commissioners not  to issue a license to any                                                               
1:19:50 PM                                                                                                                    
REPRESENTATIVE   DOOGAN  asked   if  the   term  "project   labor                                                               
agreement" in AS 43.90.130(17) has legally defined meaning.                                                                     
MR.  BULLOCK  said  that  the  term  is  not  defined  in  Alaska                                                               
statutes,  but  that  there  is  a case  where  a  project  labor                                                               
agreement was upheld.  He recalled  that in a footnote, the court                                                               
set  forth  a  definition for  the  term.    He  stated it  is  a                                                               
contractual provision  whereby laborers are identified  and agree                                                               
not to  strike in return  for the benefits  of the contract.   He                                                               
said that  project labor  agreements raise  some "right  to work"                                                               
constitutional  issues, but  that  an Alaska  Supreme Court  case                                                               
affirmed the  use of  a project  labor agreement  in a  case from                                                               
Fairbanks.   In  response to  a question,  he explained  that the                                                               
Fairbanks case has some differences  as it involved public monies                                                               
for  a public  contract.   The  gas  pipeline situation  involves                                                               
public  money  going  to  develop  a  project,  and  he  has  not                                                               
researched  the  possible  effect  of these  differences  on  the                                                               
court's  holding  as  applied  to  the  project  labor  agreement                                                               
section of AGIA.                                                                                                                
1:21:32 PM                                                                                                                    
MR. BULLOCK reviewed section  43.90.140 regarding the appointment                                                               
of an AGIA  coordinator and stated the intent was  to add a third                                                               
person to the decision making process.                                                                                          
REPRESENTATIVE DOOGAN set forth that  his expectation is that the                                                               
governor will be  the ultimate decision maker,  and asked whether                                                               
it  is possible  to structure  AGIA so  the commissioners  make a                                                               
recommendation,  but the  governor makes  the actual  decision of                                                               
who to award the license to.                                                                                                    
1:22:52 PM                                                                                                                    
MR. BULLOCK indicated there is no  legal reason not to proceed as                                                               
stated  in the  aforementioned method,  but noted  that there  is                                                               
some separation  of powers issues, although  the commissioners do                                                               
work for the governor.                                                                                                          
REPRESENTATIVE DOOGAN  opined that since the  governor is elected                                                               
and  will   likely  be   the  one   actually  making   the  final                                                               
determination, it may be preferable  to state explicitly that the                                                               
governor makes the final decision.                                                                                              
MR.  BULLOCK  stated   Version  E  makes  sets   forth  that  the                                                               
commissioners are  entitled to  seek additional  information from                                                               
applicants related only to the  application itself.  AS 43.90.150                                                               
concerns information  the applicant  wishes to  keep confidential                                                               
and includes  a definition of  "proprietary."   The commissioners                                                               
make  the  determination  and  can   require  a  summary  of  the                                                               
information.    Upon appeal,  an  applicant's  information is  no                                                               
longer confidential,  he explained.  AS  43.90.160 covers notice,                                                               
review,  and  comment  by  the  public and  relates  to  all  the                                                               
applications   the   commissioners   have  reviewed   and   found                                                               
acceptable.   He  stated the  work of  Representative Dahlstrom's                                                               
committee  is  reflected  in  AS  43.90.170 so  as  to  make  the                                                               
criteria  for review  more  directed  as to  what  the state  can                                                               
expect from  the project.   He opined  that this  approach brings                                                               
back the  focus that the  greatest benefit  will be at  the well-                                                               
head value.   He opined  that the  criteria have been  crafted to                                                               
determine how capable  the applicant is and how likely  it is the                                                               
applicant will  be able to  build the  pipeline.  He  offered his                                                               
belief that this  section is one of the most  important pieces of                                                               
the bill  as it  gives the  commissioners the  basis on  which to                                                               
review applications to make a recommendation.                                                                                   
1:28:12 PM                                                                                                                    
REPRESENTATIVE  SAMUELS  asked  about   the  definition  of  "net                                                               
present value"  as the  "discounted value of  a future  stream of                                                               
cash  flow"  on  page  11,  line  16-17.    He  opined  that  his                                                               
inclination is to set specific  numbers as the current definition                                                               
may be somewhat subjective.                                                                                                     
MR.  BULLOCK replied  that  he thinks  it  is reasonable,  noting                                                               
there are presumptions made to  the net present value calculation                                                               
and  perhaps  this  is  the  appropriate place  to  do  it.    He                                                               
suggested  that the  commissioners  could  approach this  through                                                               
regulation,  which   can  be  more  responsive   to  change  than                                                               
parameters set in statute.                                                                                                      
1:30:10 PM                                                                                                                    
MR. BULLOCK reviewed AS 43.90.180  which sets forth the procedure                                                               
for  legislative approval  of the  commissioners' recommendation.                                                               
The process  for legislative approval  set forth in  AS 43.90.190                                                               
is  that the  chairs of  the committees  that received  the bills                                                               
will introduce  a bill  to approve the  issuance of  the license.                                                               
This is a change from the original  bill which was set up so that                                                               
if  the legislature  did nothing,  the license  would be  issued.                                                               
Version E requires the legislature to  consider and a pass a bill                                                               
for the  license to be issued.   He suggested this  resolves some                                                               
of the timing issues in the  original bill, because as a bill, it                                                               
would carry over into the next legislative session.                                                                             
1:33:12 PM                                                                                                                    
REPRESENTATIVE DOOGAN asked  about the procedure if  the bill did                                                               
not pass  in regular  session, but there  was a  special session.                                                               
He  queried whether  the bill  would be  taken up  from the  last                                                               
committee of  referral, or whether it  would have to "go  back to                                                               
square one."                                                                                                                    
MR.  BULLOCK replied  that new  bills are  introduced in  special                                                               
session.  He  opined that there is flexibility in  the rules, but                                                               
in general new bills are introduced in special session.                                                                         
1:34:11 PM                                                                                                                    
REPRESENTATIVE  SAMUELS   asked  why  the  request   for  a  bill                                                               
approving the  license would not just  be given to the  House and                                                               
Senate standing rules committees, referring to page 12, line 13.                                                                
MR. BULLOCK  answered that it  could be  set up that  way, noting                                                               
that other committees  can request bills introduced  to the rules                                                               
REPRESENTATIVE SAMUELS asked  if it was possible  to increase the                                                               
time limits,  or set  forth a calendar  day limit  to accommodate                                                               
possible scenarios.                                                                                                             
MR. BULLOCK  replied that a  calendar day approach  was possible,                                                               
but  opined   that  there  is  flexibility   in  the  legislative                                                               
organization now  to manage the  bill.   He opined that  the "day                                                               
requirement" raises problems as  to when the legislature receives                                                               
the bill relative to the end of the session.                                                                                    
1:36:39 PM                                                                                                                    
REPRESENTATIVE  SAMUELS  expressed  concern  that  the  political                                                               
dynamic  could slow  down approval  of  the bill.   He  indicated                                                               
there should be some sort of deadline for a vote.                                                                               
REPRESENTATIVE DOOGAN set forth  that his understanding that once                                                               
the bill for approval is introduced,  it would not be until after                                                               
the next  election and a  new legislative session that  one could                                                               
definitively say the legislature failed to adopt the bill.                                                                      
MR.  BULLOCK agreed  with  the  aforementioned statement,  noting                                                               
that the  bill "would be  dead" if not passed  by the end  of the                                                               
second legislative  session after  introduction.  The  bill could                                                               
also not pass  by being voted down, he noted.   He indicated that                                                               
this  provision contemplates  that  the  legislature reviews  the                                                               
commissioners' determination that the  recommended project is the                                                               
one that  maximizes benefit  to the state.   AS  43.90.200 covers                                                               
certification by  regulatory agencies  and requires  the licensee                                                               
accept  the  certificate issued  by  the  regulatory agency  only                                                               
after all rights relating to appeal are expired.                                                                                
1:40:19 PM                                                                                                                    
MR.  BULLOCK  went on  to  say  that  a financial  commitment  is                                                               
required, opining  that the intent  is to make sure  the licensee                                                               
is making a  firm commitment to go forward with  the project.  AS                                                               
43.90.210  concerns amendments  or modifications  to the  project                                                               
plan and  adds that any  changes may  not "diminish the  value to                                                               
the state  of the project  of the  likelihood of success  for the                                                               
1:41:27 PM                                                                                                                    
REPRESENTATIVE  SAMUELS  referred  to   a  past  failed  refinery                                                               
project in 1980  which resulted in a state debt  of around $70 to                                                               
$80 million.   He expressed  concern that the  modification terms                                                               
as  set forth  in the  statute  are subjective  terms which  will                                                               
require negotiation and indicated  his desire for assurances that                                                               
a modification will not result in project failure.                                                                              
MR. BULLOCK indicated  he could not offer  that assurance through                                                               
a specific  provision, but said that  the section of the  bill on                                                               
ranking and criteria offers a  system to really test the projects                                                               
viability.   Furthermore, the commissioners  have the  ability to                                                               
request  further  information.     He  noted  that  if  something                                                               
occurred  to put  the project's  economic viability  in jeopardy,                                                               
there are provisions  in the modification section of  the bill to                                                               
allow the state to consider ways to salvage the project.                                                                        
1:43:41 PM                                                                                                                    
REPRESENTATIVE SAMUELS  noted modification would occur  after the                                                               
license was issued, and without legislative review.                                                                             
MR. BULLOCK suggested that a  provision could be added to require                                                               
legislative review  of substantial modifications to  the contract                                                               
REPRESENTATIVE  DOOGAN  opined  that  language  in  AS  43.90.210                                                               
regarding likelihood of success does  not necessarily mean a "net                                                               
present value"  calculation as  contemplated under  AS 43.90.170.                                                               
He   opined  that   as  written,   Section   210  would   include                                                               
consideration  of   non-monetary  value.     He   suggested  that                                                               
modifying this provision to mean  "net present value" may tighten                                                               
it up somewhat.                                                                                                                 
MR. BULLOCK  agreed that  a "best  interest" concept  can include                                                               
many  factors,   noting  the   legislature  may   structure  such                                                               
provisions to emphasize factors it considers most important.                                                                    
1:46:57 PM                                                                                                                    
REPRESENTATIVE DOOGAN  suggested that  the criteria  to determine                                                               
whether a  modification should  be allowed  be the  same criteria                                                               
used to make the initial license award.                                                                                         
MR.  BULLOCK suggested  the modification  section could  refer to                                                               
the initial  criteria section.   He  explained that  AS 43.90.220                                                               
provides the state  the ability to account for funds  spent.  The                                                               
language  recognizes that  parties  besides the  licensee may  be                                                               
making the expenditures.  He said  that it is still unclear as to                                                               
how the state's  contribution of $500 million is to  be paid as a                                                               
matching contribution,  or as reimbursement  to the  licensee for                                                               
funds  spent.    AS  43.90.230 provides  that  the  commissioners                                                               
determine,  through  administrative  hearing, whether  there  has                                                               
been  a   license  violation  and   a  cure  thereof.     Project                                                               
abandonment is covered by AS 43.90.240  and is based on a finding                                                               
that the  project is uneconomic.   Version E incorporates  use of                                                               
an  arbitrator  from  the  American  Arbitration  Association  to                                                               
determine  whether  the  project  is  indeed  uneconomic.    That                                                               
determination is then filed in the court, he explained.                                                                         
1:51:29 PM                                                                                                                    
CHAIR KOHRING asked whether "uneconomic" is defined in the bill.                                                                
MR. BULLOCK  replied that  this determination  comes back  to the                                                               
value and  expected rate  of return  for the  project.   He noted                                                               
that the tariff  will have a rate  of return built in  to it, but                                                               
opined it will  not mean much if there is  an insufficient volume                                                               
of gas.                                                                                                                         
REPRESENTATIVE  SAMUELS  noted   that  economic  evaluations  may                                                               
differ between companies based on differing business focuses.                                                                   
REPRESENTATIVE DOOGAN asked if this  determination was limited to                                                               
the economics of project itself.                                                                                                
MR. BULLOCK replied  that the project itself and  its benefits to                                                               
the  state intertwine  because of  policy decisions  made in  the                                                               
determination of the license award.   He said there is nothing in                                                               
HB 177 that  precludes development of another  project should the                                                               
first licensee abandon its project.                                                                                             
1:58:44 PM                                                                                                                    
MR. BULLOCK reviewed the inducement  sections of the bill, noting                                                               
that they are intended to be  contractual.  He explained that DNR                                                               
will determine how the royalty provisions will work.                                                                            
1:59:15 PM                                                                                                                    
REPRESENTATIVE  DOOGAN asked  about  the possible  constitutional                                                               
problems  with AS  43.90.320, the  gas  production tax  exemption                                                               
MR. BULLOCK  opined that  the tax  exemption approach  in Section                                                               
320 definitely raises a constitutional  issue under Section IX of                                                               
the  Alaska  State  Constitution.   He  offered  that  putting  a                                                               
taxation   provision  in   the  contract   could  bring   up  the                                                               
constitutional  provision against  impairment of  contracts.   He                                                               
said it is a  matter of opinion as to how a  court will rule, but                                                               
opined that the  court would not look  favorably upon contracting                                                               
away the power to tax.   He noted that the Alaska Constitution is                                                               
crafted to  allow the legislature to  have considerable financial                                                               
flexibility.   He noted  that there  is a  desire to  give fiscal                                                               
certainty to business interests,  and that the ultimate decision-                                                               
maker may be the courts.                                                                                                        
2:05:24 PM                                                                                                                    
MR.   BULLOCK  explained   that  Article   4  of   AGIA  concerns                                                               
miscellaneous provisions.  He explained  that under AS 43.90.400,                                                               
once  the matching  contribution amounts  are appropriated,  they                                                               
will not lapse,  but will be available to the  commissioners in a                                                               
non-dedicated  fund.   Under  Article 4,  the  state assures  the                                                               
licensee  it  will  not extend  favorable  treatment  to  another                                                               
party.   License transfers are  allowed in certain  conditions as                                                               
set forth in AS 43.90.450.   He emphasized that a transfer of the                                                               
production  tax exemption  must also  include whatever  committed                                                               
capacity that transferor  has in the pipeline,  referring to page                                                               
17,  lines  13-17.   He  explained  that  Section  5 on  page  27                                                               
expresses  the statutory  intent that  the commissioners  issue a                                                               
request for  applications within 90  days after passage  of AGIA.                                                               
He said that  a severability clause is  included, although courts                                                               
recognize  the concept  of severability  even without  a specific                                                               
provision in the statute.                                                                                                       
CHAIR  KOHRING said  that  HB  177 would  be  held in  committee.                                                               
[Representative Dahlstrom's motion  to adopt Version E  as a work                                                               
draft was carried over for consideration at the next meeting.]                                                                  

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