Legislature(2001 - 2002)

04/22/2002 01:47 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 519-NATURAL GAS PIPELINE: SPECIAL PROVISIONS                                                                               
                                                                                                                                
[Contains  comparison to  HB  38  during Commissioner  Pourchot's                                                               
testimony; contains references to SB 360.]                                                                                      
                                                                                                                                
CO-CHAIR  MASEK announced  that  the committee  would hear  HOUSE                                                               
BILL NO.  519, "An Act  authorizing priority treatment  under the                                                               
Right-of-Way Leasing  Act for an  Alaska North Slope  natural gas                                                               
project; expanding  the scope  for the  kinds of  gas development                                                               
projects  that may  become qualified  projects  under the  Alaska                                                               
Stranded  Gas   Development  Act;  extending  the   deadline  for                                                               
submitting   applications   under   the   Alaska   Stranded   Gas                                                               
Development  Act; exempting  an  Alaska North  Slope natural  gas                                                               
project from  state property tax  and all municipal  taxes during                                                               
construction; and providing for an  effective date."  [Before the                                                               
committee was CSHB 519(O&G).]                                                                                                   
                                                                                                                                
Number 0129                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE  moved  to   adopt  the  proposed  committee                                                               
substitute (CS),  version 22-LS1651\O,  Chenoweth, 4/22/02,  as a                                                               
work draft.   There being no objection, Version O  was before the                                                               
committee.                                                                                                                      
                                                                                                                                
Number 0178                                                                                                                     
                                                                                                                                
REPRESENTATIVE PETE KOTT, Alaska  State Legislature, presented HB                                                               
519 as  chairman of the  House Rules Standing  Committee, sponsor                                                               
of the legislation.  He began to explain changes in Version O.                                                                  
                                                                                                                                
[There was discussion by members about packet materials.]                                                                       
                                                                                                                                
Number 0322                                                                                                                     
                                                                                                                                
CO-CHAIR MASEK  called an at-ease  at 2:01  p.m.  She  called the                                                               
meeting back to order at 2:03 p.m.                                                                                              
                                                                                                                                
Number 0369                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOTT  pointed out that  the list of changes  to HB                                                               
519  in committee  packets relates  to earlier  drafts.   He then                                                               
indicated Section 2 of CSHB  519(O&G) has been deleted in Version                                                               
O, as  was discussed in  the House  Special Committee on  Oil and                                                               
Gas.    He offered  his  belief,  from  talking  to some  of  the                                                               
producers and  supporters of  the bill, that  Section 2  had been                                                               
redundant.                                                                                                                      
                                                                                                                                
REPRESENTATIVE KOTT explained further changes.   On page 4, lines                                                               
5-8,  Version  O  essentially  adopts  by  reference  the  Alaska                                                               
Stranded Gas  Development Act, which  gives the  commissioner the                                                               
opportunity to  negotiate the terms  with the producers.   And on                                                               
page 4, line  24, after the word "facilities", the  words "to be"                                                               
have been added,  to clarify that facilities to  be exempted from                                                               
a general tax are those facilities  that will be built, not those                                                               
currently built.                                                                                                                
                                                                                                                                
REPRESENTATIVE  KOTT  acknowledged  that  the latter  is  a  huge                                                               
change; he said  it wasn't crystal clear in  the earlier version,                                                               
and that  the intent is to  make it perfectly clear  that the tax                                                               
relief is to be provided to  those facilities that would be under                                                               
construction if this  bill were to pass.  He  suggested the chair                                                               
of the House Special Committee on  Oil and Gas could confirm that                                                               
such an intention was discussed in that committee.                                                                              
                                                                                                                                
Number 0578                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOTT   highlighted  features  of  HB   519.    He                                                               
explained  that  it  will  "incentivize   and  bring  about  some                                                               
hardcore  discussion"  regarding  development of  a  natural  gas                                                               
pipeline.  Noting that a  pipeline has been discussed extensively                                                               
for years  with no results, he  suggested this bill is  a vehicle                                                               
to "take to the table" some future discussions in earnest.                                                                      
                                                                                                                                
REPRESENTATIVE KOTT  emphasized an  important feature,  that this                                                               
bill  is tied  "somewhat directly"  to federal  legislation.   He                                                               
noted that congressional members have  asked why they should pass                                                               
any incentive or netback provision  to the producers if the state                                                               
isn't doing  so.  Furthermore,  although a window  of opportunity                                                               
was wide open ten years ago,  he characterized it today as having                                                               
an inch left before it  closes.  Acknowledging some may disagree,                                                               
he  referenced  discussions  with  others and  pointed  out  that                                                               
Alaska is in direct competition with  some huge [gas] fields.  He                                                               
said it  is imperative to  "step onto  the playing field"  to get                                                               
something going, which HB 519 does.                                                                                             
                                                                                                                                
REPRESENTATIVE  KOTT offered  that estimates  that there  will be                                                               
natural gas on the North Slope  for 50 years are conservative; he                                                               
suggested it is  closer to perhaps 100 years.   Proposing that it                                                               
be developed [now],  he said, "Otherwise, we may  not see another                                                               
opportunity in our lifetimes for this field to be developed."                                                                   
                                                                                                                                
Number 0803                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOTT  explained  that   the  bill  grants  a  tax                                                               
exemption from  property taxes of  municipalities and  the state.                                                               
The exemption  is during the  time of construction,  which begins                                                               
when the commissioner says the  qualifications have been met, and                                                               
ends  the  second  calendar  year after  the  pipeline  has  been                                                               
constructed.  He told members:                                                                                                  
                                                                                                                                
     It's  my  understanding, ...  talking  to  some of  the                                                                    
     folks,  one ...  interested party  directly, that  were                                                                    
     this  bill   to  pass,  they  would   enter  into  that                                                                    
     negotiation  between  them  and  the  commissioner,  to                                                                    
     bring ...  clarity and  certainty to  the cost  of this                                                                    
     project.   They're  not going  to  wait a  year or  so;                                                                    
     they're  going   to  get  right  in   there  and  start                                                                    
     discussing  the mechanics  of it.   And  this is  where                                                                    
     your  tax-exempt status  would be  discussed, and  what                                                                    
     eventual conditions may be levied.                                                                                         
                                                                                                                                
REPRESENTATIVE KOTT noted that the  under the state constitution,                                                               
Article IX, Section  4, the legislature can  exempt entities from                                                               
paying taxes.                                                                                                                   
                                                                                                                                
Number 0928                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOTT  highlighted  other   features.    Of  great                                                               
importance,  since it  sets out  conditions  for negotiating,  is                                                               
that  the  bill extends  the  life  of  the Alaska  Stranded  Gas                                                               
Development Act, which  has expired, until [2005].   In addition,                                                               
it asks that  the department expedite the  permitting process; he                                                               
explained that if  a project is worthy and could  go forward, the                                                               
permitting  process  should  not  stall  it  for  several  years.                                                               
Furthermore,  the   bill  defines   a  viable   project,  listing                                                               
qualifications,  to clarify  that in  order to  qualify for  this                                                               
tax-exempt period,  a company must meet  those qualifications [as                                                               
determined] by the commissioner.   Finally, the bill sets out, in                                                               
general provisions, that whoever  is responsible for building the                                                               
pipeline will use  Alaskans, to the maximum  extent possible, for                                                               
production, development, and building of the needed facilities.                                                                 
                                                                                                                                
REPRESENTATIVE KOTT told  members the foregoing is  what the bill                                                               
does in very general terms.  He concluded:                                                                                      
                                                                                                                                
     Again,  the big  issue  is to  provide this  tax-exempt                                                                    
     status for this period of time.   Again, it can ... and                                                                    
     will  be  negotiated  between  the  producers  and  the                                                                    
     department on  what those conditions  may be,  based on                                                                    
     the  economics  of  the project.    It's  important,  I                                                                    
     believe, that  we provide some  incentive to  make this                                                                    
     project viable.   I think the viability  of the project                                                                    
     has certainly  been on everybody's  plate, and  I think                                                                    
     that's  a  reason  why  we  haven't  seen  anything  go                                                                    
     forward for the  last ten years, even  though it's been                                                                    
     discussed.  We're no closer  today, in reality, than we                                                                    
     were ten years ago.                                                                                                        
                                                                                                                                
REPRESENTATIVE  KOTT  indicated  other testifiers  could  provide                                                               
technical or historical information.                                                                                            
                                                                                                                                
Number 1230                                                                                                                     
                                                                                                                                
PAT  POURCHOT,  Commissioner,  Department  of  Natural  Resources                                                               
(DNR),  testified  before  the committee,  noting  that  he  also                                                               
serves as chair  of the governor's Natural Gas Cabinet.   He said                                                               
the administration opposes the provisions  of the bill that would                                                               
grant  a state  and local  property tax  exemption valued  at, at                                                               
least, $500  million, in the  absence of economic  information on                                                               
project viability and the economic need,  and in the absence of a                                                               
negotiating  framework in  which  the state  might bring  forward                                                               
other issues of concern to the state.                                                                                           
                                                                                                                                
COMMISSIONER    POURCHOT    specified,    however,    that    the                                                               
administration  supports the  provisions  that  would expand  and                                                               
extend the Alaska  Stranded Gas Development Act  - passed several                                                               
years ago  by this legislature  - which  sets up a  framework for                                                               
looking at  not just property  tax, but  also a number  of issues                                                               
with project  sponsors; he  offered the  belief that  it provides                                                               
the kind  of forum whereby  there could be negotiated  terms that                                                               
would benefit  and advance  a project, as  well as  protect state                                                               
interests.                                                                                                                      
                                                                                                                                
Number 1343                                                                                                                     
                                                                                                                                
COMMISSIONER POURCHOT  offered some history.   Several years ago,                                                               
the state  commissioned a  renowned expert,  Pedro van  Meurs, to                                                               
look  at a  liquefied  natural  gas (LNG)  route.   His  [report]                                                               
analyzed different tax incentives and  what the state might do to                                                               
advance the  line; it pinpointed  property tax as  something that                                                               
could have a significant [negative]  impact, because of its being                                                               
a regressive  tax at  an inopportune  time -  during construction                                                               
and  before  revenues  flow.     At  the  same  time,  Mr.  Meurs                                                               
recognized that a  property tax exemption might  be structured to                                                               
be "backloaded"  so that exemptions  are upfront, with  some sort                                                               
of repayment later.                                                                                                             
                                                                                                                                
COMMISSIONER POURCHOT  told members  the foregoing was  very much                                                               
part of the  discussion when the Alaska  Stranded Gas Development                                                               
Act was passed.   He said it  was always assumed it  would be the                                                               
kind of topic  one might negotiate, in addition  to other issues,                                                               
and then bring back to the  legislature.  He noted that unlike HB                                                               
519, that Act  also includes a provision to  formally involve the                                                               
input  of  municipalities,  particularly those  impacted  by  the                                                               
property taxes.   He explained, "In the stranded gas  Act, it was                                                               
felt that a formalized process of  them being able to comment and                                                               
participate  ...  in  elements   of  the  negotiations  would  be                                                               
appropriate."                                                                                                                   
                                                                                                                                
Number 1469                                                                                                                     
                                                                                                                                
COMMISSIONER POURCHOT  recalled that when the  administration had                                                               
brought   forward  so-called   marginal  field   legislation  and                                                               
Northstar  legislation in  previous  years,  the legislature  was                                                               
very  much   interested  in   looking  at   economic  assumptions                                                               
regarding the basis  on which tax or royalty  structures might be                                                               
changed.    A lot  of  law  was  written  into both  those  bills                                                               
governing what the administration should  be looking at, he said,                                                               
and on what basis it should  be making conclusions; a lot related                                                               
to  getting   economic  information  on  project   viability  and                                                               
weighing alternative  tax consequences  before giving  a specific                                                               
kind of royalty or tax benefit.  He concluded:                                                                                  
                                                                                                                                
     That would be  the same type of arena that  we would be                                                                    
     looking for in  this regard, and probably  a better way                                                                    
     of structuring  both benefits  and incentives  that can                                                                    
     advance a project, as well  as protect state interests,                                                                    
     and put forward  some of the things that  the state may                                                                    
     be  interested  in, also,  in  bringing  forth in  such                                                                    
     negotiations.                                                                                                              
                                                                                                                                
Number 1532                                                                                                                     
                                                                                                                                
CO-CHAIR   SCALZI  asked   whether   Commissioner  Pourchot   was                                                               
discussing Version O.                                                                                                           
                                                                                                                                
COMMISSIONER POURCHOT  noted that he'd  just now seen it  and had                                                               
listened to Representative  Kott describe the changes.   He said,                                                               
"I believe my testimony would still  be appropriate for the CS in                                                               
front of you."                                                                                                                  
                                                                                                                                
Number 1550                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI  characterized Representative  Kott's description                                                               
as  a deferment  of taxes,  rather than  an exemption,  which Co-                                                               
Chair  Scalzi indicated  is his  own understanding  as well.   He                                                               
asked, "If that's  the case, does the  administration support the                                                               
deferment?"                                                                                                                     
                                                                                                                                
COMMISSIONER    POURCHOT   offered    his   understanding    from                                                               
Representative   Kott's  testimony   that  there   would  be   an                                                               
opportunity  to negotiate  some sort  of recoupment,  payback, or                                                               
deferral.  He said, however:                                                                                                    
                                                                                                                                
     I think that's in theory  true, but it certainly defies                                                                    
     any type of negotiation that  I've been involved in, in                                                                    
     the sense  that there are  two separate things  in this                                                                    
     bill.  ... On  the one  hand,  the bill  asks that  ...                                                                    
     during  construction and  the  following  two years  of                                                                    
     operation, all  of that activity  would be  exempt from                                                                    
     both ... state and local  property taxes.  On the other                                                                    
     hand, in the other provisions,  the stranded gas Act is                                                                    
     extended and expanded  to include ... all  types of gas                                                                    
     projects, not just  LNG.  This is very  similar, by the                                                                    
     way, to  House Bill  38 before  the committee  that the                                                                    
     governor introduced last year.                                                                                             
                                                                                                                                
     It is  not inconceivable, but  it is a stretch  that if                                                                    
     you are  legislatively given a  benefit of  no property                                                                    
     taxation, then  to turn  and do  a negotiation,  to ask                                                                    
     the   administration  to   then   negotiate  back   for                                                                    
     something that you've already given  away in statute --                                                                    
     ...  if  they're  even  interested  in  negotiating  on                                                                    
     something they  already have, you're  going to  have to                                                                    
     give something.   So, you're already at a ...  lot of a                                                                    
     disadvantage  in  that  type  of  negotiation,  because                                                                    
     there  are other  things  that  project sponsors  would                                                                    
     like  to see,  that they've  testified [about]  before:                                                                    
     the  valuation  of  gas,  how   the  state  treats  its                                                                    
     royalty[-in-kind]   gas   versus  in-value   gas,   ...                                                                    
     severance tax,  royalty rates.   So, you have  opened a                                                                    
     lot  of new  fronts, if  you think  you're going  to go                                                                    
     back and then negotiate  recoupment or repayment of ...                                                                    
     a benefit that you've already legislated.                                                                                  
                                                                                                                                
Number 1696                                                                                                                     
                                                                                                                                
CO-CHAIR  SCALZI said  he also  interprets Version  O to  say the                                                               
commissioner,   rather  than   the  legislature,   will  do   the                                                               
negotiations on any deferred taxes.   "I haven't picked up on the                                                               
part where we're at, in this," he  added.  He asked, "Do you have                                                               
any qualms about the legislative body  being the one that has the                                                               
final say on this?"                                                                                                             
                                                                                                                                
COMMISSIONER POURCHOT answered  that it was a  "very large issue"                                                               
several  years  ago,  relating   to  the  bills  he'd  referenced                                                               
earlier;   at   that   time  the   administration,   like   prior                                                               
administrations, felt that  kind of activity was  the province of                                                               
the executive  branch.  It  was an  act of comity,  "according to                                                               
our lawyers,"  he said, of  bringing the negotiated deal  back to                                                               
the legislature  for final approval, as  happened with Northstar.                                                               
He  said that  is still  anticipated in  the Alaska  Stranded Gas                                                               
Development Act.   Commissioner Pourchot added, "By  the way, the                                                               
commissioner in  that regard, I  believe, is the  commissioner of                                                               
revenue.  ... We  would  want to  assist  him ...  if  he got  to                                                               
royalties."  He  concluded, "So, I guess the  difference is final                                                               
approval versus actual negotiation."                                                                                            
                                                                                                                                
Number 1792                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  followed up on Co-Chair  Scalzi's questions.                                                               
He  said  the  three  references   to  the  Alaska  Stranded  Gas                                                               
Development Act make quite clear  the commissioner's role in that                                                               
negotiation.     He  also  offered   his  belief  that   in  this                                                               
legislation the  interests of the affected  municipalities are to                                                               
be taken  into consideration during  the negotiation period.   He                                                               
said  he'd felt  certain  in  the hearing  in  the House  Special                                                               
Committee on  Oil and Gas [which  he'd chaired] "that we  had met                                                               
those objectives, both  for the municipality and  for the ability                                                               
of  the  commissioner  of  revenue  to  make  those  negotiations                                                               
meaningful for both the state  and the municipality, but with the                                                               
...  assent,  of  course,  of  the ...  people  involved  in  the                                                               
project."  He concluded that it  is "somewhat a reopening of that                                                               
stranded gas Act" in regard to the tax regime.                                                                                  
                                                                                                                                
CO-CHAIR  MASEK asked  whether there  were further  questions and                                                               
then thanked Commissioner Pourchot for his testimony.                                                                           
                                                                                                                                
Number 1888                                                                                                                     
                                                                                                                                
LARRY PERSILY,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department of Revenue (DOR), testified  on HB 519, indicating his                                                               
testimony  would  be  similar to  Commissioner  Pourchot's.    He                                                               
advised members  that the DOR  has objections  to the bill  as it                                                               
relates to  not only state  and municipal property tax,  but also                                                               
to sales tax.   He said the bill "gives it away  for six or seven                                                               
years,  and  then tells  the  Department  of Revenue,  under  the                                                               
stranded gas Act, to go negotiate the best deal we can."                                                                        
                                                                                                                                
MR. PERSILY  informed members  he has  been a  negotiator before,                                                               
and  there must  be something  to negotiate  with.   By giving  a                                                               
total waiver  of property and  sales tax during  construction and                                                               
for the first  two full years of production, the  bill would - to                                                               
his belief -  make it impossible to negotiate  property and sales                                                               
tax.    "We  could,  under  the stranded  gas  Act,  continue  to                                                               
negotiate  a  contract   for  payments  in  lieu   of  taxes  for                                                               
production  tax," he  noted.   "None  of that  would involve  the                                                               
municipalities.   The  municipalities  would  see their  revenues                                                               
affected by property tax and sales tax."                                                                                        
                                                                                                                                
MR. PERSILY referred  to the definition of what  would be covered                                                               
under the  tax waiver.   He  expressed concern  that it  is still                                                               
ambiguous  and that  the phrase  "and  related facilities"  could                                                               
present  problems.   For example,  would it  include the  need to                                                               
expand a  saltwater treatment plant at  Prudhoe Bay as part  of a                                                               
project,  well  conversions  from   oil  to  gas,  or  separation                                                               
facilities?  Would  they be eligible for the  property tax waiver                                                               
or not?  He explained:                                                                                                          
                                                                                                                                
     Oil  companies are  like everyone  else.   You look  at                                                                    
     your tax form  and you try to find as  many ways as you                                                                    
     can - within the law,  within reason - to minimize your                                                                    
     taxes.   It's American.   I  guess it's  good business.                                                                    
     And it's probably  the way it should be.   We feel that                                                                    
     the  "and related  facilities"  would present  problems                                                                    
     that would  end up  in disputes  between the  state and                                                                    
     whoever   is  doing   the  developing   of  those   new                                                                    
     facilities  that would  need  to be  constructed for  a                                                                    
     natural gas project.                                                                                                       
                                                                                                                                
Number 2039                                                                                                                     
                                                                                                                                
MR.  PERSILY  informed  members that  he'd  provided  an  updated                                                               
spreadsheet  [dated April  22, 2002]  showing estimated  property                                                               
tax losses.   He brought attention to the assumptions  on the top                                                               
of the first page, which read:                                                                                                  
                                                                                                                                
     4.5 bcf/d                                                                                                                  
     $21.3 billion project to Chicago                                                                                           
     $3.0 billion conditioning                                                                                                  
     $17 billion pipeline                                                                                                       
                                                                                                                                
     30% of pipeline in Alaska                                                                                                  
     All of conditioning plant on North Slope                                                                                   
     22% of Alaska pipeline on North Slope                                                                                      
     12% of Alaska pipeline in Fairbanks North Star Borough                                                                     
     18.5 mill rate on North Slope                                                                                              
     15.5 mill rate in Fairbanks                                                                                                
     Production starts in Year 6                                                                                                
                                                                                                                                
MR.  PERSILY explained  that Year  1 would  be when  the decision                                                               
would be  made to go ahead  and start applying; in  Year 2, there                                                               
would  be mobilization,  so there  would be  property tax  due on                                                               
equipment arriving in Alaska.   Production would start in Year 6,                                                               
and  property  tax  would  be   waived  for  two  full  years  of                                                               
production.   "You'd be  looking at  waiving three-quarters  of a                                                               
billion dollars or  so in property tax revenues to  the state, to                                                               
the  Fairbanks  North  Star  Borough,  and  to  the  North  Slope                                                               
Borough," he pointed out.                                                                                                       
                                                                                                                                
MR.  PERSILY  turned   attention  to  the  second   page  of  the                                                               
spreadsheet,  which shows  property tax  waivers if  HB 519  were                                                               
interpreted to include Point Thomson.  He explained:                                                                            
                                                                                                                                
     The reason  we raised  that is,  Point Thomson  is very                                                                    
     heavy in  gas - 9 tcf  [trillion cubic feet].   So if I                                                                    
     were  a  producer,  and  if  I  wanted  to  argue,  for                                                                    
     example, that  I'm developing Point Thomson  because of                                                                    
     the  gas  line  -  and  without a  gas  line,  I'm  not                                                                    
     developing  Point Thomson  - would  I try  to put  that                                                                    
     under the waiver  of [HB] 519?  It's  just something we                                                                    
     wanted to raise.                                                                                                           
                                                                                                                                
MR. PERSILY offered to answer questions.                                                                                        
                                                                                                                                
Number 2114                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  surmised that Mr. Persily  hadn't considered                                                               
the words  "to be" inserted  in Version  O, but instead  had used                                                               
"and  related  facilities  constructed".    He  also  asked  what                                                               
scenario Mr. Persily  had used for the  computations, and whether                                                               
it involved negotiation or having all the taxes be exempt.                                                                      
                                                                                                                                
MR. PERSILY  answered, "Under  the legislation,  the way  we read                                                               
it,  property taxes  on the  project and  related facilities  are                                                               
exempt, period.  And then we can negotiate."                                                                                    
                                                                                                                                
REPRESENTATIVE  FATE asked  whether the  computations were  made,                                                               
then,  on the  basis  that  there would  be  no negotiations  for                                                               
mitigating impacts to the municipalities.                                                                                       
                                                                                                                                
MR. PERSILY affirmed that.                                                                                                      
                                                                                                                                
Number 2183                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI  said he hadn't seen  Version O until just  a few                                                               
minutes ago, either, and had  prepared amendments similar to what                                                               
the proposed  CS does, "in that  it defers payments."   He added,                                                               
"The amendments  were to defer them  to a time certain,  and then                                                               
specifically say  how the paybacks  would come forth."   He asked                                                               
Mr. Persily whether conceptually it  would give the Department of                                                               
Revenue more  comfort - and "more  of a leg to  stand on" because                                                               
there  would  be a  deferral  to  a time  certain  -  if it  were                                                               
specified  that   there  would  be   a  payback  but   also  that                                                               
negotiations would take place in the future.                                                                                    
                                                                                                                                
MR.  PERSILY said  that was  the  original intent  of the  Alaska                                                               
Stranded Gas  Development Act in 1998,  to sit down and  see what                                                               
is needed  to help make  the project  economical, to see  how the                                                               
state can contribute to that,  and to defer payments until later.                                                               
During construction and  the early years of a  project this size,                                                               
property tax is a heavy burden  because there is no positive cash                                                               
flow but a lot of taxes.  He added:                                                                                             
                                                                                                                                
     But perhaps  the state could  negotiate a  contract for                                                                    
     payment  in  lieu  of  taxes,  to  bring  back  to  the                                                                    
     legislature  for approval;  ...  maybe  it would  waive                                                                    
     some of  them, but it would  defer some of the  rest of                                                                    
     the  payments to  a time  where  there's positive  cash                                                                    
     flow.  Particularly in times  of high prices, the state                                                                    
     could increase its take.                                                                                                   
                                                                                                                                
Number 2271                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI  asked whether, if  it were  specifically spelled                                                               
out in  the proposed  CS, Mr.  Persily would  feel there  is that                                                               
negotiating leverage which he believes is lacking now.                                                                          
                                                                                                                                
MR. PERSILY replied:                                                                                                            
                                                                                                                                
     Without  seeing the  exact language,  ...  that is  the                                                                    
     intent.   If it  ... gave us  the ability  to negotiate                                                                    
     deferral,  waiver, reduction  - some  structure, rather                                                                    
     than  giving  away  the  tax and  then  telling  us  to                                                                    
     negotiate with nothing - sure.   I think we could get a                                                                    
     good deal for the state  and for the developers of this                                                                    
     project.                                                                                                                   
                                                                                                                                
Number 2309                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked:                                                                                                     
                                                                                                                                
     If  we  deferred  this  half  billion  or  six  hundred                                                                    
     million dollars of taxes until  later and then recouped                                                                    
     most or all of that in  a later portion of the project,                                                                    
     when there was a positive  cash flow, they would act as                                                                    
     a deterrent or  negative as far as the  netback for the                                                                    
     wellhead value  that the state  would base  its royalty                                                                    
     on?                                                                                                                        
                                                                                                                                
MR. PERSILY  answered, "If I  understand the question,  when they                                                               
pay tax, that reduces the netback."                                                                                             
                                                                                                                                
REPRESENTATIVE GREEN said, "So, when they  pay this tax on top of                                                               
the  other, then  that  has  a further  dampening  effect on  the                                                               
netback during those years of payback."                                                                                         
                                                                                                                                
MR.  PERSILY replied,  "I believe  it  would, but  that might  be                                                               
something we could negotiate."                                                                                                  
                                                                                                                                
CO-CHAIR  MASEK asked  whether there  were further  questions and                                                               
then thanked Mr. Persily for his testimony.                                                                                     
                                                                                                                                
Number 2406                                                                                                                     
                                                                                                                                
PAMELA  LaBOLLE, President,  Alaska  State  Chamber of  Commerce,                                                               
came  forward  to urge  passage  of  HB  519.   She  said  Alaska                                                               
absolutely  needs a  gas pipeline.   She  expressed concern  that                                                               
sometimes people  outside Alaska  seem to have  a large  say over                                                               
what happens in  the state.  With the defeat  [in the U.S. Senate                                                               
of  the  opening  of  the  Arctic  National  Wildlife  Refuge  to                                                               
development] last  week, and with  no other large  development on                                                               
the  horizon  to spur  economic  growth,  she said,  members  are                                                               
concerned about the state's economic future.                                                                                    
                                                                                                                                
MS. LaBOLLE  told the committee  that while the final  results of                                                               
the  producers' study  haven't been  released yet,  it should  be                                                               
apparent  this is  a  project of  enormous cost  and  risk.   She                                                               
suggested the state and local  governments would benefit greatly,                                                               
for years to  come, if the producers were encouraged  to take the                                                               
inherent risks  and develop the  North Slope gas resources.   She                                                               
continued:                                                                                                                      
                                                                                                                                
     The  temporary  tax  exemption provided  by  this  bill                                                                    
     should be  looked upon  as an  investment by  the state                                                                    
     and  municipalities to  encourage the  producers to  go                                                                    
     forward with  a project that will  create jobs, benefit                                                                    
     municipalities,    spur   economic    opportunity   for                                                                    
     business,  and  start  a  whole  new  industry,  a  gas                                                                    
     industry for Alaska.                                                                                                       
                                                                                                                                
     By  revitalizing the  Alaska  Stranded Gas  Development                                                                    
     Act and having it apply  to this project, the state and                                                                    
     producers can  create a contract  that will  assure tax                                                                    
     clarity and  certainty, and protect vital  interests of                                                                    
     the state and affected municipalities.                                                                                     
                                                                                                                                
     How often  does the state  have an opportunity  to take                                                                    
     such  a bold  step  to  encourage large-scale  economic                                                                    
     growth?   Several states and  cities around  our nation                                                                    
     have   offered,  to   businesses,  tax   incentives  to                                                                    
     encourage them  to invest.   The  state should  be less                                                                    
     concerned with  perhaps giving away too  much, and more                                                                    
     concerned  with not  missing a  significant opportunity                                                                    
     for economic growth,  perhaps the only one  in the next                                                                    
     few decades.  Thank you.                                                                                                   
                                                                                                                                
Number 2527                                                                                                                     
                                                                                                                                
REPRESENTATIVE VIC  KOHRING, Alaska State  Legislature, concurred                                                               
with Ms. LaBolle's testimony.  He  said on one hand, Alaska would                                                               
be giving  up potential state  and municipal revenues,  but there                                                               
would be  a substantial benefit  from construction  and operation                                                               
of  the gas  pipeline,  in terms  of  investment in  communities,                                                               
jobs,  and  so forth.    He  offered  his  opinion that  the  tax                                                               
exemptions in the bill should be retained for that reason.                                                                      
                                                                                                                                
Number 2575                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked  Ms. LaBolle whether she  had any idea                                                               
what the returns to the state would be.                                                                                         
                                                                                                                                
MS.  LaBOLLE said  no,  but that  she imagines  them  to be  very                                                               
significant - billions of dollars.                                                                                              
                                                                                                                                
REPRESENTATIVE  GREEN  asked, "What  would  you  say if  it  were                                                               
significantly less than that?"                                                                                                  
                                                                                                                                
MS.  LaBOLLE answered,  "We need  income resources.   You're  ...                                                               
looking  for every  million dollars  you can  find in  the budget                                                               
right  now.   Why  would we  quibble whether  it  be millions  or                                                               
billions,  when,  in  fact,  anything  is going  to  be  a  great                                                               
advantage for the state?"                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN  asked  whether   it  wouldn't  be  to  her                                                               
advantage,  however,  as  a  citizen  and  member  of  the  state                                                               
chamber, to have  the state be able to negotiate  from a stronger                                                               
position, to get a higher amount.                                                                                               
                                                                                                                                
MS. LaBOLLE said she believed it would be.                                                                                      
                                                                                                                                
Number 2655                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE suggested Ms.  LaBolle probably isn't in a                                                               
position to  know all the  "numbers" for the bills  she supports,                                                               
but that her position is  more to support economic development in                                                               
general.   She  stated  her understanding,  from  talking to  Ms.                                                               
LaBolle and members  of the state chamber, that they  see this as                                                               
an  opportunity   for  growth   in  Alaska,   including  economic                                                               
development and jobs.                                                                                                           
                                                                                                                                
CO-CHAIR MASEK thanked Ms. LaBolle for her testimony.                                                                           
                                                                                                                                
Number 2696                                                                                                                     
                                                                                                                                
KEN  THOMPSON  testified  via  teleconference,  saying  he  would                                                               
comment  as  a  citizen  and  share  some  natural  gas  industry                                                               
experience on  some elements of  this bill.   He told  members he                                                               
believes  the  elements  of  [HB  519]  that  extend  the  Alaska                                                               
Stranded Gas Development Act are  positive; that [Act] is helpful                                                               
for  resources   like  this,  he   said,  and   those  particular                                                               
provisions should be extended.                                                                                                  
                                                                                                                                
MR.  THOMPSON  commented  with  regard to  the  exemption  of  ad                                                               
valorem or property  taxes.  He recalled that  several years ago,                                                               
as an  oil-and-gas industry executive, he'd  personally felt that                                                               
to  some  degree  the  ad   valorem  tax  during  the  period  of                                                               
construction  of  the  pipeline  was unfair;  at  that  point,  a                                                               
company has  billions of dollars  at stake  that it has  laid out                                                               
and  financed,  and  yet  has   an  asset  it  cannot  use  until                                                               
completion.  Then and now,  therefore, he favors some deferral of                                                               
ad valorem taxes until cash flow  starts on the gas pipeline.  He                                                               
said he believes that aspect of the bill is positive.                                                                           
                                                                                                                                
Number 2777                                                                                                                     
                                                                                                                                
MR.  THOMPSON  suggested changes  to  consider.   First,  the  ad                                                               
valorem tax should  start again when gas is shipped.   He said he                                                               
simply doesn't understand why there  should be an exemption for a                                                               
couple of  years after the  startup of  cash flow.   He remarked,                                                               
"As an  Alaskan, I  can understand  some unfairness  in receiving                                                               
taxes on an asset  that's not in use.  But once  it goes into use                                                               
and gas  starts flowing, there should  be a tax."   He noted that                                                               
the provision  he was talking about  was on page 6,  lines 20-22,                                                               
in the bill version he had.                                                                                                     
                                                                                                                                
MR. THOMPSON offered  a second change:   narrowing the definition                                                               
of  the gas  project.   He suggested  the exemption  should apply                                                               
specifically to  the gas  pipeline and  select components  of the                                                               
natural gas  processing plant  that is getting  the gas  ready to                                                               
ship.  For example, there should  be some deferral or waiver when                                                               
removing the  carbon dioxide to  get the  gas ready to  ship down                                                               
the pipeline.                                                                                                                   
                                                                                                                                
MR. THOMPSON pointed  out, however, that some of  that plant will                                                               
be used, for  example, to return carbon dioxide to  the field for                                                               
enhanced oil  recovery.   He added,  "That should  make a  lot of                                                               
money,  so  I   don't  think  it  should  have   a  property  tax                                                               
exemption."   He  therefore suggested  [the exemption]  should be                                                               
"downstream of the  natural gas processing plant."   He explained                                                               
that  the  current  language  could  be  interpreted  by  certain                                                               
producers  as even  trying to  exempt part  of the  Point Thomson                                                               
project, a  stand-alone development project  that he said  is not                                                               
the gas pipeline or processing plant.                                                                                           
                                                                                                                                
Number 2887                                                                                                                     
                                                                                                                                
MR.  THOMPSON offered  a  third suggestion:    taking this  great                                                               
benefit  off the  table  if  the companies  do  not  commit to  a                                                               
pipeline project by  either December 31, 2003, or  June 30, 2004.                                                               
He noted  the 2005  extension date at  the end of  the bill.   He                                                               
explained that it has been 25  years since the startup of Prudhoe                                                               
Bay [oil]  production, and  yet still there  is no  gas marketing                                                               
from there.  "I think the  time has already passed," he remarked.                                                               
He suggested  executives and  managers should  be going  to their                                                               
chief executive  officers and  boards with  a clear  message that                                                               
the  State of  Alaska has  run out  of patience.   "It's  time to                                                               
commit to  a project now," he  said.  "These companies  are doing                                                               
projects  overseas,  where  they're  running  into  lease  terms,                                                               
penalty  payments, other  circumstances  and  consequences."   He                                                               
further said:                                                                                                                   
                                                                                                                                
     I like the positives of  this, of giving something that                                                                    
     makes the economics  better, but pull it  off the table                                                                    
     quickly.   Make them  show economics, that  unless they                                                                    
     commit  to a  project by  the  end of  2003, ...  these                                                                    
     economic benefits are removed; they're off the table.                                                                      
                                                                                                                                
     If  you extend  it 'til  June  2005, you  won't get  an                                                                    
     answer 'til  June 2005  - and  you'll probably  in that                                                                    
     legislative session in 2005 be  asked for an extension.                                                                    
     I would,  ... in the  negotiations, make it  very firm.                                                                    
     I guess  I could live with  June 30, 2004, but  I would                                                                    
     not  extend  it.   These  pipeline  companies  and  the                                                                    
     producing companies  have completed study  after study.                                                                    
     It's been 25 years.  It's time to get on with it.                                                                          
                                                                                                                                
[Not on tape because of the tape change, but recorded in the                                                                    
committee secretary's log notes, is Mr. Thompson's comment that                                                                 
he interprets this bill as an exemption, not a deferral.]                                                                       
                                                                                                                                
TAPE 02-34, SIDE B                                                                                                              
Number 2984                                                                                                                     
                                                                                                                                
MR.  THOMPSON  asked the  committee  to  think about  whether  an                                                               
"economic  test" should  be done.    Pointing out  that the  bill                                                               
grants $500  million to $750  million in benefits, he  said these                                                               
companies  keep  issuing  press   releases  that  this  [proposed                                                               
pipeline] isn't economically feasible.  He remarked:                                                                            
                                                                                                                                
     I  don't see  where  they'd object  at  all to  showing                                                                    
     testimony that,  indeed, it is  not economic.   I don't                                                                    
     think  that any  of them  would be  opposed to  showing                                                                    
     their economic  data ... if they're  making these press                                                                    
     statements.   And  then the  state  could rest  assured                                                                    
     that  the giving  of a  gift  of $500  million to  $750                                                                    
     million truly was justifiable. ...                                                                                         
                                                                                                                                
     Having  said that,  I do  believe this  is the  kind of                                                                    
     incentive that  is necessary to move  this forward, and                                                                    
     certainly  would support  this  bill  if these  changes                                                                    
     that I've  suggested were made.   And I think  it could                                                                    
     be  helpful  to  the  state, and  would  give  a  good,                                                                    
     economic   benefit  that's   justifiable  to   pipeline                                                                    
     companies  and  to  the producers.    In  fact,  that's                                                                    
     another reason I like this  bill, is this could benefit                                                                    
     pipeline  companies   as  well,  and  those   types  of                                                                    
     investors, and not just producers.                                                                                         
                                                                                                                                
Number 2902                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN, noting  that June 30, 2004,  would be after                                                               
the legislative session,  asked whether perhaps April  1 would be                                                               
a better date for an extension to 2004.                                                                                         
                                                                                                                                
MR. THOMPSON said that is a great point.  He added:                                                                             
                                                                                                                                
     I  actually believe  in December  31, 2003;  I'm pretty                                                                    
     firm on  that.  But  ... different people have  told me                                                                    
     that's not  fair, so  I don't mind  a few  more months.                                                                    
     But to  extend it two  or three  more years --  I mean,                                                                    
     it's been  25 years.  Enough  is enough, as far  as I'm                                                                    
     concerned.   And so  that April  would be  a timeframe,                                                                    
     certainly, with  the legislature  still in  session ...                                                                    
     for further debate on this.                                                                                                
                                                                                                                                
Number 2854                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA asked  Mr. Thompson  to elaborate  about                                                               
his  proposed change  from "related  activities"  to "the  select                                                               
components  of  the  plant".   She  requested  that  he  describe                                                               
exactly what  he would allow.   She noted that the  committee had                                                               
just received [Version  O] and therefore she  didn't know exactly                                                               
where it would go.                                                                                                              
                                                                                                                                
MR. THOMPSON answered:                                                                                                          
                                                                                                                                
     This is  an example  of what Commissioner  Pourchot was                                                                    
     describing, that there needs to  be a negotiation.  And                                                                    
     I  think  that  that  would be  something  between  the                                                                    
     commissioners and the pipeline investors to clarify.                                                                       
                                                                                                                                
     But let  me give you  an example.   In the  natural gas                                                                    
     policy council hearing last  September, in the producer                                                                    
     testimony, as  far as a  project ... they showed  an 11                                                                    
     percent rate of return  after taxes, assuming a $3-per-                                                                    
     mcf  [million  cubic  feet]  gas   price  in  the  cost                                                                    
     estimates  at that  time.   And their  definition of  a                                                                    
     project ...  included some capital investment  at Point                                                                    
     Thomson as well as a  pipeline from Point Thomson.  And                                                                    
     I  disagree   with  that.     That  is   a  stand-alone                                                                    
     development project.  I believe  it is one Exxon should                                                                    
     move  forward with.   If  they choose  not to,  perhaps                                                                    
     take  the  leases  back  and  I'll  certainly  consider                                                                    
     forming a  company to develop  that field. ...  I think                                                                    
     it'd make some good money.  It should not be included.                                                                     
                                                                                                                                
     I  think what  should be  included is  the gas  project                                                                    
     itself,  which  is  the gas  processing  ...  and  then                                                                    
     downstream, meaning  the pipeline.  The  gas processing                                                                    
     plant is  very complex.   There are many  components of                                                                    
     that   gas   processing    plant   that   truly   [are]                                                                    
     conditioning the  gas to be  acceptable in  quality for                                                                    
     the pipeline.  And I  think those types [of] components                                                                    
     should have this waiver of  the ad valorem tax for that                                                                    
     length of time.                                                                                                            
                                                                                                                                
     There are other pieces,  in module components that will                                                                    
     be plugged  in, that  are not associated  directly with                                                                    
     the  conditioning of  gas down  the pipeline,  but some                                                                    
     ancillary  businesses.   In fact,  some components  may                                                                    
     help  the enhanced  oil recovery;  those should  be ...                                                                    
     excluded from the  exemption of the property  tax.  And                                                                    
     if,  for some  reason, these  companies feel  they need                                                                    
     help on that, that's a  separate subject that should be                                                                    
     a separate bill or separate hearings or what-have-you.                                                                     
                                                                                                                                
     But be  very careful what  this covers. ... I  think it                                                                    
     should   cover,   traditionally,    getting   the   gas                                                                    
     conditioned  for market,  into  the  pipeline, and  the                                                                    
     pipeline only - and nothing earlier than that.                                                                             
                                                                                                                                
CO-CHAIR MASEK thanked Mr. Thompson for his testimony.                                                                          
                                                                                                                                
Number 2689                                                                                                                     
                                                                                                                                
BILL  ALLEN,  Chairman and  Chief  Executive  Office (CEO),  VECO                                                               
Corporation, came forward  to testify in support of HB  519.  The                                                               
following  testimony  was read  on  Mr.  Allen's behalf  by  Rick                                                               
Smith, Vice President of VECO Corporation:                                                                                      
                                                                                                                                
     Madam Chairman  and members of  the committee, it  is a                                                                    
     pleasure to  be here with  you today, and  I appreciate                                                                    
     the  opportunity  to speak  with  you  on an  issue  of                                                                    
     utmost importance to  Alaska.  In fact,  I cannot think                                                                    
     of  a  single more  important  issue  at this  time  in                                                                    
     Alaska's  history.   As Alaskans,  we  have truly  been                                                                    
     blessed with a rich and  vibrant heritage.  Our land is                                                                    
     rich  in natural  resources  and  unmatched in  natural                                                                    
     beauty.    Our  modern  history  [was]  shaped  by  the                                                                    
     sacrifice  and vision  of courageous  pioneers who  saw                                                                    
     Alaska's  potential  and  worked  hard  to  make  it  a                                                                    
     reality.                                                                                                                   
                                                                                                                                
     Alaska achieved statehood only  after a prolonged fight                                                                    
     where Alaskans  put aside their differences  and worked                                                                    
     together toward  that single goal.   We got  the trans-                                                                    
     Alaska pipeline,  but only by  a single vote.   And the                                                                    
     recognition  of the  rights of  Native Alaskans  barely                                                                    
     made  it through  Congress -  and again,  only after  a                                                                    
     determined  and   difficult  fight.    In   each  case,                                                                    
     Alaskans had to stand  united against outside interests                                                                    
     and fight  tooth-and-nail for the right  to control our                                                                    
     own destiny.                                                                                                               
                                                                                                                                
Number 2532                                                                                                                     
                                                                                                                                
     What's relevant  here is  that the  outcome of  each of                                                                    
     those  monumental   efforts  dramatically   shaped  the                                                                    
     Alaska we all  enjoy today.  Without  the oil pipeline,                                                                    
     there  would  be no  permanent  fund,  and our  current                                                                    
     budget  dilemma would  be much  worse.   Without ANILCA                                                                    
     [Alaska  National  Interest  Lands  Conservation  Act],                                                                    
     Native Alaskans would have less  ability to shape their                                                                    
     own destinies.                                                                                                             
                                                                                                                                
     My  point is  that  we have  all  reaped benefits  from                                                                    
     those  visionary acts  by Alaska's  pioneers.   I  came                                                                    
     here in 1968  and started VECO in 1969.   I worked hard                                                                    
     and watched  VECO grow from  a small  company servicing                                                                    
     the  Kenai oil  patch to  an international  corporation                                                                    
     employing more than 4,000 people.   We grew with Alaska                                                                    
     and benefited tremendously  from Alaska's vibrant, oil-                                                                    
     driven economy.                                                                                                            
                                                                                                                                
Number 2488                                                                                                                     
                                                                                                                                
MR. ALLEN'S testimony continued:                                                                                                
                                                                                                                                
     I would love  to say that VECO's success  was merely of                                                                    
     my own  doing.  But  the truth is,  I was in  the right                                                                    
     place, at the right time,  with the right product.  And                                                                    
     I often  wonder where  I would  be today  if I  had not                                                                    
     taken that  chance and started  VECO way back then.   I                                                                    
     had a good-paying  job welding pipe, a  secure income -                                                                    
     at  least for  that time.   But  I knew  that with  the                                                                    
     discoveries  at Prudhoe  Bay, ...  Alaska was  going to                                                                    
     change and [was]  on the verge of something big.   So I                                                                    
     took  that  calculated  risk,  gave   up  my  job,  and                                                                    
     invested  in my  future.   The  rest, as  they say,  is                                                                    
     history.                                                                                                                   
                                                                                                                                
     Today, I'm  here before  you because  I can't  help but                                                                    
     see some important parallels.   Change is once again on                                                                    
     Alaska's  horizon.   But unlike  1969,  this time  it's                                                                    
     unclear  what  direction  ... that  change  will  take.                                                                    
     Alaska  is  truly  at  a   crossroads.    Many  of  our                                                                    
     traditional industries  are struggling -  often through                                                                    
     no  fault of  their  own.   And  as those  traditional,                                                                    
     mainstay  ...   Alaskan  industries   struggle,  Alaska                                                                    
     struggles,  and Alaskans  find themselves  out of  work                                                                    
     and unable to provide for their families.                                                                                  
                                                                                                                                
Number 2415                                                                                                                     
                                                                                                                                
     In addition,  as our state's  economy shrinks,  so does                                                                    
     your   ability  to   ensure   better  schools,   better                                                                    
     communities,  and  a better  quality  of  life for  all                                                                    
     Alaskans.   Alaska desperately  needs the  gas pipeline                                                                    
     and  the jobs,  revenues, and  economic growth  it will                                                                    
     bring.   Nothing  else holds  such great  potential for                                                                    
     Alaska's future.                                                                                                           
                                                                                                                                
     The North  Slope has enough proven  reserves of natural                                                                    
     gas  to fill  a pipeline  for  the next  50 years,  and                                                                    
     that's  just the  known  reserves.   Estimates  suggest                                                                    
     there may be enough gas to  keep the pipeline - and the                                                                    
     jobs and  revenues it will  create - operating  for the                                                                    
     next  100  years.   Unfortunately,  before  Alaska  can                                                                    
     realize  any  of  those  benefits,   we  must  build  a                                                                    
     pipeline.                                                                                                                  
                                                                                                                                
Number 2363                                                                                                                     
                                                                                                                                
MR. ALLEN'S testimony continued:                                                                                                
                                                                                                                                
     A   few  years   ago,   like  most   Alaskans,  I   was                                                                    
     enthusiastic  about the  prospects  for  the gas  line.                                                                    
     With  prices  soaring,  construction  seemed  imminent.                                                                    
     Well,  just   as  quickly,   prices  dropped   and  the                                                                    
     economics changed.   It's now  clear that  without some                                                                    
     incentives,  private  industry  is   not  going  to  be                                                                    
     willing to  risk the billions  of dollars  necessary to                                                                    
     construct  the gas  line  at this  time.   The  project                                                                    
     simply  does   not  "math  out"  unless   some  of  the                                                                    
     construction and startup risks are offset.                                                                                 
                                                                                                                                
     To that  end, for  the past  several months  members of                                                                    
     our congressional delegation have  worked hard to enact                                                                    
     federal  incentives  to  help   make  the  gas  line  a                                                                    
     reality.   But as with any  Alaska resource development                                                                    
     issue,  they are  fighting a  difficult, uphill  fight,                                                                    
     and they need our help.   Opponents of the gas line are                                                                    
     now pointing  out the  absence ...  of state  action on                                                                    
     the issue -  and using that point to try  to defeat our                                                                    
     delegation's effort in  D.C.  "If Alaska  does not care                                                                    
     enough to  offered incentives,"  they say,  "why should                                                                    
     we?"                                                                                                                       
                                                                                                                                
     Our  delegation has  indicated that  passage of  HB 519                                                                    
     will  send  a  clear   signal  to  Washington  and  the                                                                    
     producing companies that Alaska is  ready to step up to                                                                    
     the  plate and  invest,  along with  them, in  Alaska's                                                                    
     future.     Senior   officials   from  the   production                                                                    
     companies have  indicated a willingness to  proceed, if                                                                    
     federal and state legislation is  passed to help offset                                                                    
     some of the project's tremendous  risk.  They also seek                                                                    
     reasonable assurances of stability  in Alaska's tax and                                                                    
     economic [climate].                                                                                                        
                                                                                                                                
     If  you   think  about  it,   such  requests   are  not                                                                    
     unreasonable when  you consider the producers  would be                                                                    
     risking up  to $20  billion at a  time when  prices are                                                                    
     unstable.  But  please, make no mistake -  I'm not here                                                                    
     to speak  for the producers;  they didn't ask me  to do                                                                    
     this.                                                                                                                      
                                                                                                                                
Number 2254                                                                                                                     
                                                                                                                                
MR. ALLEN'S testimony continued:                                                                                                
                                                                                                                                
     I'm  here   as  an   Alaskan,  an  Alaskan   with  some                                                                    
     expertise, but  first and foremost, an  Alaskan who has                                                                    
     fought  alongside  you  for local  hire,  jobs,  and  a                                                                    
     brighter  future.   This  project  clearly offers  that                                                                    
     potential.                                                                                                                 
                                                                                                                                
     Some have  asked what this  legislation will cost.   My                                                                    
     answer is simple:   absolutely nothing, because without                                                                    
     this  legislation, the  gas line  will likely  never be                                                                    
     built.    And  you  can't tax  something  that  doesn't                                                                    
     exist,  so  any  taxes  potentially  deferred  by  this                                                                    
     legislation would never have been realized anyway.                                                                         
                                                                                                                                
     On  the  other  hand,  the  true  cost  lies  in  doing                                                                    
     nothing.  If this legislation  doesn't pass and the gas                                                                    
     line isn't built, what will  that cost Alaska?  The gas                                                                    
     line would  create thousands of  new jobs  and billions                                                                    
     in new revenue and economic  activity.  It would foster                                                                    
     a whole new  gas industry, an industry  we currently do                                                                    
     not  have,  and  help   provide  Alaska  with  economic                                                                    
     stability for at least the next 60 years.                                                                                  
                                                                                                                                
Number 2181                                                                                                                     
                                                                                                                                
     But we  know that  Alaska isn't the  only place  in the                                                                    
     world where natural gas exists.   And as with our other                                                                    
     resource    industries,    international    competition                                                                    
     increases every  year.  So  the choice is really  up to                                                                    
     us.  We can reach  out and seize this opportunity while                                                                    
     it still  exists, or  hold out  and hope  for something                                                                    
     better.   But  I've  never been  much  for waiting  and                                                                    
     hoping.                                                                                                                    
                                                                                                                                
     I believe  Alaska is at  the right place, at  the right                                                                    
     time, with the right product.   And our state's destiny                                                                    
     truly hangs  in the balance.   A window  of opportunity                                                                    
     is  still open  -  if  we act  now  to  help make  this                                                                    
     project  a reality.   But  I strongly  suspect that  if                                                                    
     that window shuts, it may never open again.                                                                                
                                                                                                                                
     Like the great Alaskan  leaders before you, I encourage                                                                    
     you now  to stand united  and act quickly on  behalf of                                                                    
     all Alaskans and future generations  to make this dream                                                                    
     a reality.                                                                                                                 
                                                                                                                                
Number 2104                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI mentioned testimony  by the Department of Natural                                                               
Resources and the  Department of Revenue that the  state would be                                                               
in a  stronger position to  negotiate if the taxes  were deferred                                                               
to  a time  certain  and  then were  under  consideration for  an                                                               
exemption for a later date.   He asked Mr. Allen whether he would                                                               
have any  problem with using  that methodology, rather  than what                                                               
is in Version O.                                                                                                                
                                                                                                                                
MR.  ALLEN answered  that  if there  is to  be  an incentive,  it                                                               
should be  given now.   He referred to  HB 393 [which  had become                                                               
the Alaska  Stranded Gas Development  Act] and said,  "You've got                                                               
all you need to ...  negotiate."  He suggested the municipalities                                                               
would need some  help with workers, for example,  and said, "They                                                               
tell  me  ... the  bill  will  do that,  help  those  guys."   He                                                               
concluded, "If we're  going to give them an  incentive, ... let's                                                               
do it; if we're not, let's don't."                                                                                              
                                                                                                                                
Number 1990                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE noted  that Russia  is "coming  online," has                                                               
huge  reserves,  and isn't  a  member  of OPEC  [Organization  of                                                               
Petroleum Exporting Countries].  He  suggested Russia may even be                                                               
a competitor of OPEC, which might  drive the price of gas and oil                                                               
down, negating  this project or  any other  in Alaska.   He asked                                                               
Mr. Allen to elaborate on why  Alaska might not get a pipeline if                                                               
it isn't constructed in the near future.                                                                                        
                                                                                                                                
MR. ALLEN  replied that there  is a market  in the Lower  48 that                                                               
the producers want to go to;  he indicated his belief that if the                                                               
state acts  now, [the producers]  will also, if there  is federal                                                               
legislation as  well.  He agreed  there is a lot  of competition,                                                               
including  Russia, which  has a  lot  of gas  and oil.   He  said                                                               
Alaska  has competition  all over  the world,  and mentioned  the                                                               
need for an  incentive; he also mentioned the Gulf  of Mexico and                                                               
Africa.  He  suggested if the companies start  putting capital in                                                               
other places, they won't come back [to Alaska] for a long time.                                                                 
                                                                                                                                
Number 1810                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  noted that it  might take six to  ten years                                                               
to build  the line and have  it operating.  He  pointed out areas                                                               
mentioned by  Mr. Allen  that are  on the  water, as  is Sakhalin                                                               
Island;  some  may not  require  a  pipeline  and thus  could  be                                                               
brought  online  within  two  or three  years  after  an  Alaskan                                                               
project is begun.  He suggested  it must be a significant concern                                                               
to investors in  the companies now.  Noting that  Alaska's may be                                                               
a 50-  to 100-year project, he  asked, "Do you think  that acting                                                               
this week  instead of maybe next  week, or even a  year from now,                                                               
truly  will  make  a  difference   as  far  as  this  project  is                                                               
concerned?"  He  again expressed concern about  the rapidity with                                                               
which a  tidewater project elsewhere  could come online  ahead of                                                               
the Alaskan project.                                                                                                            
                                                                                                                                
MR.  ALLEN  mentioned the  market  in  the Lower  48,  "somewhere                                                               
around Chicago," and indicated his  belief that unless it is LNG,                                                               
[other production  areas] can't  compete with  Alaska there.   He                                                               
said once  the producers  start rolling the  pipe and  are really                                                               
committed, they'll  go ahead.  He  noted that there will  be some                                                               
time period of study, permitting,  and engineering.  He remarked,                                                               
"They told  me that ... if  we get the [legislation]  in D.C. and                                                               
if we  do this, ... they're  going to start."   He mentioned $300                                                               
million or  so.   He said, "They're  already committed  when they                                                               
start doing  that.   They will  start this as  quick as  they can                                                               
because they want that market in the Lower 48, just like we do."                                                                
                                                                                                                                
Number 1615                                                                                                                     
                                                                                                                                
REPRESENTATIVE   KOHRING  thanked   VECO   Corporation  for   its                                                               
contributions to  the economy; he  mentioned hiring  Alaskans who                                                               
are qualified, as well as  dollars invested.  He agreed regarding                                                               
the window  of opportunity  and said if  there is  an opportunity                                                               
now, even  if a small  one, it should  be seized and  acted upon.                                                               
He offered that HB 519 is a good vehicle.                                                                                       
                                                                                                                                
CO-CHAIR  MASEK asked  whether there  were further  questions and                                                               
then thanked Mr. Allen.                                                                                                         
                                                                                                                                
CO-CHAIR MASEK  called an at-ease  at 3:15  p.m.  She  called the                                                               
meeting back to order at 3:16 p.m.                                                                                              
                                                                                                                                
Number 1499                                                                                                                     
                                                                                                                                
JOE  MARUSHACK,   Vice  President,  ANS   Gas  Commercialization,                                                               
Phillips  Alaska,  Inc.,  testified  in  support  of  HB  519  as                                                               
follows:                                                                                                                        
                                                                                                                                
     There are two  things that this legislation  does.  One                                                                    
     thing  the  proposed  legislation does  is  revive  the                                                                    
     Stranded  Gas Development  Act  process  passed by  the                                                                    
     legislature  in ...  '98.   The reason  we believe  you                                                                    
     should consider this  process is that it's  a good one.                                                                    
     It was a  long-negotiated, well-thought-out, thoroughly                                                                    
     debated process  that provided the opportunity  for the                                                                    
     kind  of fiscal  clarity  and certainty  we believe  is                                                                    
     essential to move  a gas project forward.   It provides                                                                    
     for public  notice and comment;  municipal involvement;                                                                    
     and, ultimately, legislative  approval of any agreement                                                                    
     between the state and the project's sponsors.                                                                              
                                                                                                                                
     The  second  thing  the proposed  legislation  does  is                                                                    
     provide   a   property   tax   abatement   during   the                                                                    
     construction   period  and   two  years   of  operation                                                                    
     afterwards.  The reason we  recommend you consider this                                                                    
     aspect of  the bill is  that it  sends a signal  to the                                                                    
     U.S.  Congress, currently  considering national  energy                                                                    
     legislation.  It  signals that the State  of Alaska has                                                                    
     some skin in the game.                                                                                                     
                                                                                                                                
Number 1417                                                                                                                     
                                                                                                                                
MR. MARUSHACK continued:                                                                                                        
                                                                                                                                
     For  the past  several  months, most  of Phillips'  gas                                                                    
     emphasis  has been  directed at  the  federal level  to                                                                    
     achieve  congressional legislation  changes to  advance                                                                    
     the  project.    These   include,  first,  new  federal                                                                    
     legislation  that creates  permitting certainty  and is                                                                    
     part  of  the  [U.S.]  Senate energy  bill;  second,  a                                                                    
     federal  mechanism ...  that  would  help mitigate  the                                                                    
     unacceptable  market  risk  of   [a]  project  of  this                                                                    
     magnitude, [and] which  provides downside mitigation to                                                                    
     the  project.    This  piece   of  legislation  is,  in                                                                    
     Phillips' view,  a most critical element  in moving the                                                                    
     project forward.   It shares the benefits  the Lower 48                                                                    
     consumers  will see  from  the ANS  gas  coming to  the                                                                    
     market, while addressing risk inherent  in such a large                                                                    
     and costly project.                                                                                                        
                                                                                                                                
     While   addressing  those   needs  in   D.C.,  we   are                                                                    
     continually   asked,   "What   is   Alaska   doing   to                                                                    
     proactively  progress the  project?"   This bill  would                                                                    
     send a positive response to D.C.                                                                                           
                                                                                                                                
     Much of  the debate about  the property tax  portion of                                                                    
     the  bill seems  to have  centered around,  "How do  we                                                                    
     know  when  it's needed?"  or  how  we can  recoup  the                                                                    
     foregone revenues  if [the] project  turns out  to have                                                                    
     better-than-expected economics.                                                                                            
                                                                                                                                
Number 1350                                                                                                                     
                                                                                                                                
MR. MARUSHACK continued:                                                                                                        
                                                                                                                                
     Let me state  clearly:  There is  no circumstance where                                                                    
     the property tax abatement proposed  in this bill would                                                                    
     make the  single difference  in the  project economics.                                                                    
     Does  it add  value?    Clearly.   Would  it lower  the                                                                    
     tariff,  increasing wellhead  value and  increasing the                                                                    
     state's royalty value?  Yes.   But in and of itself, it                                                                    
     will not - it cannot -  make the project.  What it does                                                                    
     do  is  let the  rest  of  the  country know  that  the                                                                    
     elected representatives  of this state ...  are willing                                                                    
     to do what they can to  try to develop a project.  This                                                                    
     is one  of a series of  issues that we need  to address                                                                    
     in order to improve the project economics.                                                                                 
                                                                                                                                
     As to  the uncertainty  of the economics,  that's where                                                                    
     the   stranded  gas   Act  ...   process  provides   an                                                                    
     opportunity to develop a  fiscal system which equitably                                                                    
     shares the risks and rewards.                                                                                              
                                                                                                                                
     We  support  the  revival  of   the  stranded  gas  Act                                                                    
     process, and the declaration of  support implied by the                                                                    
     property tax  abatement in this  bill, and urge  you to                                                                    
     pass it.                                                                                                                   
                                                                                                                                
CO-CHAIR  MASEK  asked  whether there  were  questions  and  then                                                               
thanked Mr. Marushack for his testimony.                                                                                        
                                                                                                                                
Number 1251                                                                                                                     
                                                                                                                                
RHONDA  BOYLES, Mayor,  Fairbanks North  Star Borough,  testified                                                               
via teleconference,  noting that she represents  82,000 people in                                                               
the  borough and  is a  business owner  in the  Interior "with  a                                                               
substantially  large investment."   She  said passage  of HB  519                                                               
will expedite building  a gas line, which  is "drastically needed                                                               
in the Interior"  for not only an alternative  energy source, but                                                               
for the possible benefits as well.                                                                                              
                                                                                                                                
MS. BOYLES  told members that  for investment in a  large project                                                               
like  this,   where  there  are   partners  involved,   it  isn't                                                               
unreasonable to  request clarity  and certainty.   "That's really                                                               
what this  is all about,"  she remarked.   Ms. Boyles  said there                                                               
also must  be a certain  level of trust  among the partners  - in                                                               
this  case, municipalities,  the state  and federal  governments,                                                               
the producers, and  the gas line builders.   She conveyed concern                                                               
that  political  agendas  or "pride  of  authorship"  of  certain                                                               
legislation might  stand in the  way of expediting  this project.                                                               
She asked that legislators make  decisions that are "good for all                                                               
of us."                                                                                                                         
                                                                                                                                
Number 1129                                                                                                                     
                                                                                                                                
MS. BOYLES offered  that this isn't about  losing property taxes,                                                               
but about  providing economic development  incentives.   She said                                                               
15 mills  would be  the average  charged in  the borough,  but 15                                                               
mills of zero is still zero.   Without a gas line, there wouldn't                                                               
be those  property taxes being  collected, nor would there  be an                                                               
ability to negotiate,  whether now or later.   She emphasized the                                                               
desire to  provide an environment  that is conducive  to economic                                                               
development and diversification.                                                                                                
                                                                                                                                
MS. BOYLES  brought attention to possible  socioeconomic impacts.                                                               
She said  she didn't  believe impacts would  be as  "emphatic" as                                                               
during construction of the oil  pipeline "because we're much more                                                               
sophisticated now."   She  offered that  the Alaska  Stranded Gas                                                               
Development Act  "does provide for us  to ask for some  relief in                                                               
the event we need it,  through the commissioner of the Department                                                               
of Revenue."                                                                                                                    
                                                                                                                                
Number 1012                                                                                                                     
                                                                                                                                
MS. BOYLES  emphasized that the long-term  financial structure of                                                               
this  gas line  must be  done  better than  it was  for the  TAPS                                                               
[Trans-Alaska Pipeline  System] line.  The  TAPS structure pitted                                                               
municipalities, the state, and the  producers against one another                                                               
in determining  "the assessed value  of that asset  going through                                                               
our boroughs."   She added, "That's an annual  exercise, and it's                                                               
been  fairly traumatic  in the  last six  to seven  years."   She                                                               
concluded:                                                                                                                      
                                                                                                                                
     We want a seat  at the table.  If I'm  asked to give up                                                                    
     property taxes, I will do  that - that's an investment.                                                                    
     But what I'd  like in return is a definite  seat at the                                                                    
     table,  to have  some kind  of input  on the  long-term                                                                    
     financial impact  that a natural  gas [line]  will have                                                                    
     relative to the property tax issue.                                                                                        
                                                                                                                                
MS. BOYLES closed  by encouraging the building of a  gas line and                                                               
specifying that she supports HB 519.                                                                                            
                                                                                                                                
Number 0916                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI alluded  to paragraph (15) on page 4,  line 8, of                                                               
Version O.   He noted that  the intent language, rather  than the                                                               
heart  of   the  bill  itself,   is  where  it   says  "including                                                               
accommodating  the interests  of  affected  municipalities."   He                                                               
then referred to page 5 [lines 7-9], which read in part:                                                                        
                                                                                                                                
     (7) an interest in taxable  property that is part of an                                                                
     Alaska  North Slope  natural  gas  project, whether  or                                                                
     not, under  AS 43.82,  the project has  been determined                                                                
     by   the   commissioner   of  revenue   to   meet   the                                                                
     requirements of AS 43.82.100                                                                                           
                                                                                                                              
CO-CHAIR SCALZI said AS 43.82  is "a qualification of a project."                                                               
He  then  remarked,  "I  guess   that's  where,  as  a  municipal                                                               
official, I would  be a little concerned over whether  or not you                                                               
had a  negotiating stature, at that  point.  But it  didn't sound                                                               
like,  from  your testimony,  that  you  were too  worried  about                                                               
that."  He asked whether that was correct.                                                                                      
                                                                                                                                
MS. BOYLES responded:                                                                                                           
                                                                                                                                
     The  real  point here  is  that  ...  we don't  have  a                                                                    
     negotiation  point   right  now,  sir,  with   all  due                                                                    
     respect.  We  don't have a gas line, and  I don't think                                                                    
     we're going to have unless  we all give something - the                                                                    
     federal   government,  the   state,  the   North  Slope                                                                    
     Borough, and the Fairbanks North Star Borough.                                                                             
                                                                                                                                
CO-CHAIR MASEK thanked Ms. Boyles.                                                                                              
                                                                                                                                
Number 0737                                                                                                                     
                                                                                                                                
KEN KONRAD, Senior Vice President,  BP Exploration (Alaska) Inc.,                                                               
testified via  teleconference in support  of HB 519,  noting that                                                               
he is Vice President of Gas for his company.  He told members:                                                                  
                                                                                                                                
     Creating  a  supportive   government  framework  is  an                                                                    
     essential  ingredient towards  developing a  successful                                                                    
     ANS   [Alaska   North   Slope]   gas   project.      An                                                                    
     international  project of  this  magnitude brings  many                                                                    
     inherent risks,  which several of the  prior folks have                                                                    
     alluded to.   Governments, working  constructively with                                                                    
     industry,  can  play a  major  role  in reducing  these                                                                    
     risks  by setting  clear  and  predictable rules  under                                                                    
     which a project would be undertaken.                                                                                       
                                                                                                                                
     BP has previously laid out  key government actions that                                                                    
     would  facilitate  future  investment on  this  massive                                                                    
     undertaking - specifically, a  clear and efficient U.S.                                                                    
     federal  regulatory process,  and  indeed, progress  is                                                                    
     being made  with Alaska  gas provisions  currently part                                                                    
     of this  pending U.S. Senate energy  bill; an efficient                                                                    
     and   predictable  Canadian/First   Nations  regulatory                                                                    
     process -  and BP here  remains very active  working in                                                                    
     Canada to establish such a  process, and progress there                                                                    
     is  being  made  also;  and   [a]  simple,  clear,  and                                                                    
     predictable fiscal  framework in  Alaska such  that the                                                                    
     massive,  long-payout  investments  being  contemplated                                                                    
     can  be undertaken  with the  knowledge that  the rules                                                                    
     won't change later.                                                                                                        
                                                                                                                                
Number 0591                                                                                                                     
                                                                                                                                
MR. KONRAD continued:                                                                                                           
                                                                                                                                
     House  Bill  519  would  be   a  positive  step  toward                                                                    
     achieving  the necessary  fiscal  framework in  Alaska.                                                                    
     The bill  is modeled  after House  Bill 393,  which was                                                                    
     passed in  1998.  As  we did  in 1998, BP  continues to                                                                    
     support  the  content  and  approach  inherent  in  the                                                                    
     stranded  gas Act,  which  this legislation  refreshes,                                                                    
     updates,  and  makes  available   for  a  gas  pipeline                                                                    
     project.                                                                                                                   
                                                                                                                                
     Specifically,  House Bill  519 and  the reenactment  of                                                                    
     the  stranded  gas  Act   would,  first  and  foremost,                                                                    
     demonstrate leadership  and intent by  this legislature                                                                    
     to   provide  stable   fiscal   terms  that   encourage                                                                    
     development  of   ANS  gas   while  fully   and  fairly                                                                    
     compensating the  people of the  state.  It  would also                                                                    
     establish   a  protocol,   beginning   with  a   formal                                                                    
     application  and  followed  by a  process  to  exchange                                                                    
     information between investors and  the state.  It would                                                                    
     empower the state to enter  into a contract negotiation                                                                    
     to  achieve clear  and simple  tax  and royalty  terms;                                                                    
     these terms  would need to be  subsequently approved by                                                                    
     both the executive branch and the legislature.                                                                             
                                                                                                                                
Number 0528                                                                                                                     
                                                                                                                                
MR. KONRAD continued:                                                                                                           
                                                                                                                                
     It  would   provide  a  process  with   the  state  and                                                                    
     investors while providing for municipal  input.  And it                                                                    
     would  provide  for  contract review,  approval,  [and]                                                                    
     termination provisions,  inclusive of  municipal input;                                                                    
     legislative  authorization; and  judicial review.   And                                                                    
     finally,  but also  importantly, it  would provide  for                                                                    
     prioritization   of   state   agency  support   for   a                                                                    
     qualifying project.   In aggregate, it would  set out a                                                                    
     thoughtful   and  workable   framework  through   which                                                                    
     important fiscal  issues could  be dealt  with, subject                                                                    
     to subsequent approval by ... the legislature.                                                                             
                                                                                                                                
     The  bill also  encourages Alaska  hire, training,  and                                                                    
     purchasing.  BP  has been and continues  to support the                                                                    
     use of  in-state capability.   However,  some technical                                                                    
     modifications  should  be   considered  to  ensure  the                                                                    
     bill's language does not draw legal challenge.                                                                             
                                                                                                                                
     Passage  of  House  Bill  519  would  send  a  positive                                                                    
     message  to  investors  and   provide  a  framework  to                                                                    
     achieve  fiscal  clarity  and predictability.    BP  is                                                                    
     fully supportive.                                                                                                          
                                                                                                                                
CO-CHAIR MASEK  asked whether there were  questions, then thanked                                                               
Mr. Konrad and called upon Mr. Marquez.                                                                                         
                                                                                                                                
Number 0410                                                                                                                     
                                                                                                                                
DAVID  MARQUEZ,  Attorney  for VECO  Corporation,  testified  via                                                               
teleconference   in  support   of  HB   519,  noting   that  VECO                                                               
Corporation is an Alaskan engineering,  construction, and oil and                                                               
gas  service   company  headquartered  in  Anchorage.     In  the                                                               
interests of  time, he  informed members that  he would  not read                                                               
the written  testimony he had provided  to the committee.   As "a                                                               
proud  citizen  of  this  state" since  1973,  Mr.  Marquez  told                                                               
members  that he  hopes  his  three children,  who  were born  in                                                               
Anchorage, will  be able to  get good  jobs in their  home state.                                                               
Returning  attention  to  the  bill,  he  offered  the  following                                                               
testimony:                                                                                                                      
                                                                                                                                
     This incentive  that helps reduce construction  costs -                                                                    
     through  the  grant of  a  temporary  exemption to  the                                                                    
     project from state property  taxation and all municipal                                                                    
     taxes, for a period  from commencement of the project's                                                                    
     construction through  the first two years  of operation                                                                    
     of the pipeline - is very important.                                                                                       
                                                                                                                                
     Keep in  mind, it's  temporary - maybe  four to  six or                                                                    
     seven years.  It does  not apply to any taxes currently                                                                    
     being  collected,  so  present  revenues  will  not  be                                                                    
     affected  by this  bill.   The  amount  of money  saved                                                                    
     through the  temporary tax  exemption reduces  the cost                                                                    
     of construction, plus reduces  the tariff and increases                                                                    
     the royalty and severance tax.                                                                                             
                                                                                                                                
     When  the  tax "holiday"  is  over  and a  pipeline  is                                                                    
     built,  the state  and local  governments  will have  a                                                                    
     pipeline on  which to  levy taxes  for many  decades; a                                                                    
     new industry,  a gas industry, will  have been created;                                                                    
     gas for  in-state use will be  available; Alaskans will                                                                    
     be employed.   If it is  not built, there won't  be any                                                                    
     of that.                                                                                                                   
                                                                                                                                
     I  urge  the  committee   to  think  about  the  timing                                                                    
     inherent in this bill.   If it is passed, the temporary                                                                    
     tax exemption is available, but,  of course, not yet in                                                                    
     effect.  It  isn't in effect until  construction on our                                                                    
     pipeline starts.   There's  no exemption  until there's                                                                    
     property to tax.                                                                                                           
                                                                                                                                
     Between now  and then, the  state continues to  get all                                                                    
     the taxes  it currently  gets.   Between now  and then,                                                                    
     we've  sent a  signal to  Washington and  the producers                                                                    
     that Alaska  wants this pipeline and  will take action.                                                                    
     Between now and  then, the state and  the producers sit                                                                    
     down.    The  state  gets lots  of  information,  under                                                                    
     Article  04 of  the Stranded  Gas Development  Act, and                                                                    
     they negotiate  about the  complete fiscal  regime that                                                                    
     will apply  to the  project, that will  be in  the best                                                                    
     long-term  fiscal  interest  of  the  state.    In  the                                                                    
     meantime, the producers continue  to work on a project,                                                                    
     hiring Alaskans and Alaska contractors.                                                                                    
                                                                                                                                
Number 0123                                                                                                                     
                                                                                                                                
MR. MARQUEZ continued:                                                                                                          
                                                                                                                                
     There  has  been   testimony  that  reflects  important                                                                    
     agreement on  certain issues about  this bill.   First,                                                                    
     ... it  is recognized that some  incentive is necessary                                                                    
     for this project.  Second,  a property tax exemption is                                                                    
     the most leveraging of the available incentives.                                                                           
                                                                                                                                
     Where  there  is  disagreement is  at  what  point  the                                                                    
     incentive should  be granted.   There seems to  be some                                                                    
     concern that this will be  seen as a giveaway and that,                                                                    
     instead,  the  state  should  negotiate  with  the  gas                                                                    
     owners before any  incentives are given.   VECO feels a                                                                    
     great  sense of  urgency  and feels  strongly that  the                                                                    
     incentive should be granted now.                                                                                           
                                                                                                                                
     The  Stranded  Gas  Development Act  will  protect  the                                                                    
     long-term  interest of  the  state and  municipalities.                                                                    
     If action is not taken  this year, the only opportunity                                                                    
     for a  significant boost  to the  state economy  may be                                                                    
     lost.  If  we take a year or two  or three to negotiate                                                                    
     any  incentives, the  opportunity  may be  lost as  the                                                                    
     producers move  on to  other projects.   There  will be                                                                    
     time, under  the Alaska  Stranded Gas  Development Act,                                                                    
     to negotiate a total fiscal  regime.  But VECO believes                                                                    
     concrete action  must be  taken this  year to  keep the                                                                    
     project  going,  or  it  may   be  decades  before  the                                                                    
     opportunity arises again.                                                                                                  
                                                                                                                                
     Finally,  as Bill  Allen  pointed out,  this  is not  a                                                                    
     "producer  bill."   [Not on  tape because  of the  tape                                                                    
     change, but in Mr.  Marquez's written testimony, is the                                                                    
     conclusion that  this is "an Alaska  bill that provides                                                                    
     for  a short-term  investment by  Alaska that  will pay                                                                    
     off  in a  project that  could  be shipping  gas for  a                                                                    
     hundred years."]                                                                                                           
                                                                                                                                
TAPE 02-35, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
MR. MARQUEZ addressed issues raised in previous testimony:                                                                      
                                                                                                                                
     Yes,  there are  going to  be tough  negotiations under                                                                    
     the  Stranded  Gas Development  Act.    But Alaska  has                                                                    
     always  had tough  negotiations between  the state  and                                                                    
     the   producers,   and    we   shouldn't   fear   those                                                                    
     negotiations.     We  should  look  upon   them  as  an                                                                    
     opportunity. ...                                                                                                           
                                                                                                                                
     You've  heard suggestions  about how  the Act  might be                                                                    
     changed,  and you've  also heard  testimony about  some                                                                    
     uncertainties.   I would submit that,  for example, the                                                                    
     phrase "and  related facilities",  if the bill  were to                                                                    
     pass  as  it now  stands,  that  could  be a  point  of                                                                    
     negotiation between the state  and the producers - what                                                                    
     is the scope of the exemption.                                                                                             
                                                                                                                                
     Also, you should  note that everything is  on the table                                                                    
     under  the Stranded  Gas Development  Act.   And you'll                                                                    
     notice,  when you  review those  terms, that  there are                                                                    
     many terms  that the  producers will  want.   I suggest                                                                    
     that the state - as it  often has, perhaps always has -                                                                    
     is  in  a  very strong  negotiating  position,  because                                                                    
     there  are many  things  the producers  will want,  and                                                                    
     there's  many things  that the  state will  be able  to                                                                    
     bargain for.                                                                                                               
                                                                                                                                
Number 0116                                                                                                                     
                                                                                                                                
MR. MARQUEZ continued addressing previous testimony:                                                                            
                                                                                                                                
     There's been the suggestion  that perhaps the exemption                                                                    
     should  stop at  the end  of construction,  and not  go                                                                    
     into  production.    I  would   ask  you  to  seriously                                                                    
     consider  not adopting  that suggestion.   My  point is                                                                    
     that Mr.  Marushack has noted  that this  exemption, in                                                                    
     itself, isn't  enough to make  the project go.   During                                                                    
     the first  two years of  operation, there still  may be                                                                    
     construction  activities,  and   there  may  be  market                                                                    
     fluctuations as  our gas  enters the  market.   I would                                                                    
     urge  you to  keep the  two  years after  the start  of                                                                    
     production in the bill, because  that ensures that this                                                                    
     is [an]  incentive that is  worth going after,  and one                                                                    
     that ... can make a difference for the producers.                                                                          
                                                                                                                                
Number 2005                                                                                                                     
                                                                                                                                
     With regard to the 2005  cutoff date for the submission                                                                    
     of  an application  for a  contract with  the state,  I                                                                    
     think that Mr. Thompson is  right - we've had 25 years,                                                                    
     and  we need  to take  action.   I think  the committee                                                                    
     just  needs to  understand  whether  ... changing  that                                                                    
     provision  would  help  the state  in  its  negotiating                                                                    
     position or not.   And I think that  if there's concern                                                                    
     about negotiating  positions, that's  what you  have to                                                                    
     think about.                                                                                                               
                                                                                                                                
     Today, I've  heard lots of  words of caution.   I would                                                                    
     urge you to  take action.  Look at the  benefits to the                                                                    
     state,  beyond  taxes  and  royalty,  to  the  economic                                                                    
     development that could happen with this bill.                                                                              
                                                                                                                                
CO-CHAIR MASEK thanked Mr. Marquez for his testimony.                                                                           
                                                                                                                                
Number 0302                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE referred  to  Mr. Marquez's  mention of  the                                                               
importance of  incentives.   He noted that  in the  House Special                                                               
Committee  on  Oil and  Gas,  there  was a  fairly  comprehensive                                                               
discussion about the producer's  workgroup, which has spent close                                                               
to $125 million on developing an  economic model that has not yet                                                               
been seen.   He  asked, "How  do we really  know an  incentive is                                                               
necessary?"                                                                                                                     
                                                                                                                                
MR. MARQUEZ replied:                                                                                                            
                                                                                                                                
     You've heard the testimony of  Joe Marushack today that                                                                    
     this  incentive, in  and of  itself, is  not enough  to                                                                    
     make a difference; it's just  one brick in the wall, if                                                                    
     you will.                                                                                                                  
                                                                                                                                
     Further,  under  the  Alaska Stranded  Gas  Development                                                                    
     Act,  Article 04,  which I  earlier referred  to -  and                                                                    
     those negotiations,  we've been told by  the producers,                                                                    
     will start  right after  this bill  has been  enacted -                                                                    
     under the provisions  of Article 04, the  state can get                                                                    
     all the information that it  wants, and there are great                                                                    
     confidentiality  provisions  that  will  encourage  the                                                                    
     producers to be forthright.                                                                                                
                                                                                                                                
     You  have to  remember  that this  tax exemption  isn't                                                                    
     going  to  come into  effect  for  a few  years,  until                                                                    
     construction actually  starts.   And during  that time,                                                                    
     the state  will have plenty  of time to study  data and                                                                    
     to  propose  an  overall tax  regime,  perhaps  getting                                                                    
     additional  revenue from  the  total  sources that  are                                                                    
     available.   And there'll be  plenty of time  for those                                                                    
     negotiations, and  plenty of time to  analyze the data.                                                                    
     I think the time is now ... to act.                                                                                        
                                                                                                                                
Number 0497                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  noted that Mr. Marquez,  Mr. Marushack, and                                                               
others  had indicated  the effective  date is  the date  when the                                                               
pipeline starts [to be built].   He pointed out the definition on                                                               
page 8 [beginning on line 1], which read in part:                                                                               
                                                                                                                                
          (2) "construction commencement date" means, for                                                                   
     property subject to tax under  this chapter used in the                                                                
     exploration   for,    production   of,    or   pipeline                                                                
     transportation of unrefined oil  through a facility the                                                                
     construction of  which was begun before  April 1, 1974,                                                                
     the  earlier  of  April  1,   1974,  or  the  date  the                                                                
     following occur ....                                                                                                       
                                                                                                                                
REPRESENTATIVE GREEN explained that  he was concerned about wells                                                               
that might  be used  to reinject  gas, for  example, or  water to                                                               
replace gas "voidage."  He asked  how one can be certain, reading                                                               
that  language, that  the  state won't  be  embroiled in  varying                                                               
interpretations of the starting date.                                                                                           
                                                                                                                                
MR.  MARQUEZ  answered  by  referring   to  earlier  mention  [by                                                               
Representative Kott] of  a change in Version O that  says "to be"                                                               
constructed.   He said  the purpose is  to capture  property that                                                               
will be  constructed for the pipeline,  not facilities previously                                                               
constructed.  He added:                                                                                                         
                                                                                                                                
     My understanding of that provision  that you've cited -                                                                    
     and  you might  want to  check with  attorney Chenoweth                                                                    
     [drafter of  the legislation]  - is  to make  sure that                                                                    
     ...  the oil  production facilities  are described  and                                                                    
     that ... the second part  of that provision goes to the                                                                    
     new facilities.  Certainly, it  is the intent that this                                                                    
     is  about the  gas  pipeline, and  not facilities  that                                                                    
     were previously constructed.                                                                                               
                                                                                                                                
Number 0644                                                                                                                     
                                                                                                                                
REPRESENTATIVE    GREEN   inquired    about   other    facilities                                                               
constructed afterward  such as  an "alternative  production well"                                                               
relating to gas sales, or an  injection well subject to this.  He                                                               
asked, "How far asunder from  the treating facilities and the gas                                                               
line would you envision this project going?"                                                                                    
                                                                                                                                
MR. MARQUEZ responded  that he believes the line  should be drawn                                                               
more  or less  along the  lines Mr.  Thompson was  talking about.                                                               
Clearly,  he  said,  some facilities  will  be  pipeline-related,                                                               
whereas others  will be partially  so; he suggested it  "would be                                                               
the subject of a great  negotiation under the Alaska Stranded Gas                                                               
Development Act, and  could be one of those items  that gives the                                                               
state quite a bit of  leverage."  He questioned the legislature's                                                               
ability to  define and describe  every single piece  of equipment                                                               
and every facility,  at this point, that might be  related to the                                                               
gas pipeline.                                                                                                                   
                                                                                                                                
Number 0758                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN  suggested  potential  ambiguity  could  be                                                               
eliminated by ensuring  the CS is clear about not  starting at an                                                               
earlier date, and  not utilizing facilities that  either may have                                                               
been  built  beforehand,  or  would   be  ancillary  and  perhaps                                                               
construed as  somehow associated [with  the pipeline].   He asked                                                               
whether Mr. Marquez would have any problem with that.                                                                           
                                                                                                                                
MR. MARQUEZ  related his belief  that the  bill is clear  now and                                                               
that  negotiations  could occur  under  the  Alaska Stranded  Gas                                                               
Development  Act.   He suggested  perhaps clarification  from Mr.                                                               
Chenoweth could be sought  regarding the provision Representative                                                               
Green had been discussing, however.                                                                                             
                                                                                                                                
Number 0830                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN  noted  that  there  has  been  conflicting                                                               
testimony about whether the bill  is a "donation" or giveaway, or                                                               
a deferment  to be recouped  later.   He asked Mr.  Marquez about                                                               
his understanding.                                                                                                              
                                                                                                                                
MR. MARQUEZ answered that he  understands it to be an investment,                                                               
and neither a donation  nor a giveaway.  He added  that for it to                                                               
be  an effective  investment,  it  must be  granted.   Under  the                                                               
Alaska  Stranded Gas  Development  Act, he  said,  there will  be                                                               
opportunities,  "with all  the other  parts of  the total  fiscal                                                               
regime, to  ... negotiate whatever  would be appropriate  for the                                                               
long-term  fiscal interests  of the  state."   He added,  "As ...                                                               
Commissioner Pourchot  indicated, it is  not out of  the question                                                               
that  ... any  payback  would be  part of  the  negotiation.   He                                                               
thinks it might  be a stretch, but certainly that  would be up to                                                               
the negotiators under the Alaska Stranded Gas Development Act."                                                                 
                                                                                                                                
Number 0938                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN referred  to  a  bill in  the  Senate.   He                                                               
remarked that  there has to  be some sort  of access.   He asked,                                                               
"Do you have a problem if this is amended to include access?"                                                                   
                                                                                                                                
MR. MARQUEZ answered:                                                                                                           
                                                                                                                                
     If  you look  at  the Alaska  Stranded Gas  Development                                                                    
     Act,  you'll see  that the  contract terms  include how                                                                    
     the producers are  going to make gas  available for in-                                                                    
     state use.   There's a reference to expansion.   If you                                                                    
     look at Section [43.82.]210  of the Alaska Stranded Gas                                                                    
     Development  Act  and  many of  the  other  provisions,                                                                    
     you'll see that those issues  are all things that could                                                                    
     be   negotiated   under   the   Alaska   Stranded   Gas                                                                    
     Development Act.   You certainly want  as much leverage                                                                    
     as  you  can, I've  heard  some  witnesses say.    And,                                                                    
     again, that's  ... a subject for  negotiation under the                                                                    
     Alaska Stranded Gas Development Act.                                                                                       
                                                                                                                                
Number 1041                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  replied that  while he'd heard  Mr. Marquez                                                               
say "in-state use," he hadn't heard him commit to access.                                                                       
                                                                                                                                
MR. MARQUEZ  responded, "I  don't know how  you get  in-state use                                                               
without access to the pipeline."                                                                                                
                                                                                                                                
REPRESENTATIVE  GREEN countered  that  he believes  they are  two                                                               
entirely different things.   He explained, "I  think in-state use                                                               
means that  from the gas  line, for example, at  Fairbanks, there                                                               
could be  a take-off for in-state  use, as opposed to  some other                                                               
operator leasing future  leases from us and  discovering gas, and                                                               
not being able to get into the gas line for sales."                                                                             
                                                                                                                                
Number 1095                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  prefaced his remarks  by saying he'd  like a                                                               
response from "a  producer who helped submit  this legislation to                                                               
the federal government."  He  then offered his understanding that                                                               
in the energy  bill before the U.S. Senate,  amendments have been                                                               
made  that  not  only  refer  to an  open  season,  but  also  to                                                               
[pipeline] capacity.                                                                                                            
                                                                                                                                
REPRESENTATIVE GREEN commented that  unless [the U.S. Senate] had                                                               
done something in the last few days, it doesn't address access.                                                                 
                                                                                                                                
CO-CHAIR  MASEK  asked that  Mr.  Marushack  of Phillips  Alaska,                                                               
Inc., address the issue.                                                                                                        
                                                                                                                                
Number 1154                                                                                                                     
                                                                                                                                
MR. MARUSHACK said:                                                                                                             
                                                                                                                                
     The  federal  enabling  legislation  had  a  number  of                                                                    
     provisions in  it.  Some  of them generally  talk about                                                                    
     in-state  use of  gas and  access  to the  gas.   Those                                                                    
     issues  are extremely,  extremely complicated.   And  I                                                                    
     will be the  first to admit ... those  issues are quite                                                                    
     broad  within  the enabling  legislation.    But in  my                                                                    
     view, it has to be that way.                                                                                               
                                                                                                                                
     We have got to sit across  the table from the state and                                                                    
     talk about,  "How much gas do  you need?  Where  do you                                                                    
     need  it?    How  do we  make  the  long-term  pipeline                                                                    
     commitments  in order  to get  the whole  project moved                                                                    
     forward?   And  if you  want to  take off  gas at  some                                                                    
     point  in  time  in  the future,  that  we  didn't  say                                                                    
     upfront, how do  we keep everybody else  whole?"  These                                                                    
     are extremely complicated issues.                                                                                          
                                                                                                                                
     Part of the  Stranded Gas Development Act,  in my view,                                                                    
     ... was we would sit across  the table - and this isn't                                                                    
     going to  take weeks,  this is going  to take  months -                                                                    
     and work these  issues out.  But you cannot  do it in a                                                                    
     one-week or  a two-week or a  two-paragraph legislative                                                                    
     bill,  if you  will. ...  It's  just going  to be  very                                                                    
     tough.  And the bottom line  on this thing is, until we                                                                    
     get absolute  clarity on  these things,  Phillips isn't                                                                    
     going to invest $20 billion in this project.                                                                               
                                                                                                                                
MR. MARUSHACK  added that his  company wouldn't go  forward until                                                               
these issues,  which affect the revenue  stream and profitability                                                               
of this project,  are well known and committed to  by both sides.                                                               
"But they won't be easy," he cautioned again.                                                                                   
                                                                                                                                
Number 1270                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked Mr. Marushack for his views on access                                                                
to the pipeline.                                                                                                                
                                                                                                                                
MR. MARUSHACK answered:                                                                                                         
                                                                                                                                
     There are a number of  ways that access to the pipeline                                                                    
     will  be  committed to.    First  of  all, in  an  open                                                                    
     season,   there  is   language   within  the   enabling                                                                    
     legislation  that ...  FERC [Federal  Energy Regulatory                                                                    
     Commission] will  have 120  days from  the promulgation                                                                    
     of the bill  in order to set the rules  for the initial                                                                    
     open  season.     And  everybody   -  the   state,  the                                                                    
     producers, other  producers, explorers - will  weigh in                                                                    
     on that discussion. ...                                                                                                    
                                                                                                                                
     If you're  not ready  to have access  at that  point in                                                                    
     time, we  are committing  -- our base-case  pipeline is                                                                    
     4.5/4.3 bcf  [billion cubic feet]  a day.  If  you just                                                                    
     take that  over a  20-year period, you're  talking more                                                                    
     gas than  we have.   So ...  even under the  base case,                                                                    
     there's   the  opportunity;   our  base   case  assumes                                                                    
     exploration  will  be  in  there.    Exploration  means                                                                    
     people ... who have commitments  ... to deliver gas but                                                                    
     don't have gas - they'll  be making deals, just like in                                                                    
     the Lower 48. ...                                                                                                          
                                                                                                                                
     There's actually  two final legs.   There  is expansion                                                                    
     built into this pipeline project.  ... We will have the                                                                    
     "Ts" and  the valves  in place.   The  compressors will                                                                    
     not  be in  place for  expansion.  ... But  there is  a                                                                    
     mechanism  within  the   enabling  legislation  that  a                                                                    
     producer can  go to  FERC and say,  "I have  this gas."                                                                    
     FERC looks at that.  If  the producers don't want to do                                                                    
     it  on  their own  -  I  should  say, if  the  pipeline                                                                    
     companies,  on their  own, don't  want  to expand  that                                                                    
     pipeline  - FERC,  per  the  enabling legislation,  can                                                                    
     force that pipeline  to be expanded.   Again, these are                                                                    
     complicated issues, though.                                                                                                
                                                                                                                                
Number 1367                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN   asked  whether,  in  the   views  of  Mr.                                                               
Marushack or  Mr. Marquez,  there is access  beyond a  very near-                                                               
term open  season -  in 2005  or 2006, for  example -  that would                                                               
allow companies to explore for gas  and then, in essence, use the                                                               
pipeline before  the time when  the producers no longer  have gas                                                               
to  fill it,  ten or  fifteen  years later.   He  asked, "Do  you                                                               
envision  that this,  in any  way, is  going to  adversely affect                                                               
competitors  from ultimately  getting in  the line,  say, in  the                                                               
next decade?"                                                                                                                   
                                                                                                                                
MR. MARUSHACK replied:                                                                                                          
                                                                                                                                
     Phillips is  the largest  exploration company  up here.                                                                    
     We are  putting more  money into  exploring for  gas, I                                                                    
     believe, than  anybody. ... Not  only am I  planning on                                                                    
     making sure  we have  access to  the pipeline,  but I'm                                                                    
     banking on  it, that we  will.  So,  no, I do  not have                                                                    
     any fear  that we  will have  problems getting  our gas                                                                    
     into the pipeline one way  or another.  Will [there] be                                                                    
     a one-,  two-, three-,  four-, five-year delay?   There                                                                    
     could  be.   It has  to be  economic expansion;  you're                                                                    
     right.   And  I'm willing  to  take that  risk, and  my                                                                    
     company's  willing  to  take that  risk,  and  ...  our                                                                    
     partners -  we have very  few 100 percent  leases; most                                                                    
     of ours are with other companies. ...                                                                                      
                                                                                                                                
     Phillips has  never required  anything in  the enabling                                                                    
     legislation that  guaranteed access.   But in  spite of                                                                    
     that, ...  we were part  of the team that  allowed that                                                                    
     access  language to  be -  expansion language  - to  be                                                                    
     [in]  the enabling  legislation.   So, ...  personally,                                                                    
     Representative Green, I'm not concerned.                                                                                   
                                                                                                                                
Number 1578                                                                                                                     
                                                                                                                                
CO-CHAIR MASEK  announced that  to her  belief, everyone  who had                                                               
signed  up  had  testified.   She  closed  public  testimony  and                                                               
invited  Representative  Kott  to   offer  comments  and  address                                                               
Representative Green's concerns regarding access.                                                                               
                                                                                                                                
Number 1609                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOTT  acknowledged this  is a  learning experience                                                               
for him.  He offered that  the terms tax "exemption" or "holiday"                                                               
can be  used interchangeably; at the  end of the day,  it will be                                                               
the department's  responsibility to  come to  the table  with the                                                               
producers and  negotiate to ensure  certainty and clarity  in the                                                               
economics  of  the project.    Furthermore,  there is  no  viable                                                               
project right  now to  tax, so  nothing is lost.   He  noted that                                                               
perhaps there will  be short-term losses in  return for extremely                                                               
long-term benefits.                                                                                                             
                                                                                                                                
REPRESENTATIVE KOTT suggested this  may bring [the state] perhaps                                                               
$250 million to $300 million a  year in revenue, multiplied by 50                                                               
years to 100 years - as much as  $30 billion.  In the worst case,                                                               
by  contrast,  he'd heard  three-quarters  of  a billion  dollars                                                               
lost,  he  said, multiplied  by  seven  years.   In  addition  to                                                               
monetary benefits, he proposed looking  at the ancillary benefits                                                               
of  putting  Alaskans  to  work,  beefing  up  the  economy,  and                                                               
providing  diversification.   "That's  what it's  all about,"  he                                                               
added.   He referred to  federal legislation and called  this one                                                               
component of a  three-legged stool.  He told  members he believes                                                               
HB  519  does  what  it  is  supposed  to  do,  to  open  up  the                                                               
opportunity  and send  a message  to Washington,  D.C., that  the                                                               
state is  a stakeholder, so  that Congress goes forward  with its                                                               
own incentive package.                                                                                                          
                                                                                                                                
Number 1822                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOTT noted  that  there'd  been discussion  about                                                               
whether  having   [an  exemption]  for  two   extra  years  after                                                               
production begins would jeopardize  the incentive package itself.                                                               
He remarked,  "I can't tell  you.  But  I also have  become aware                                                               
that  even when  there's gas  flowing through  the pipe,  there's                                                               
still additional construction  costs.  It doesn't  just end right                                                               
there.   So maybe  a couple of  years is most  viable to  make an                                                               
economic project ... that can go forward."                                                                                      
                                                                                                                                
REPRESENTATIVE  KOTT referred  to discussion  about changing  the                                                               
date for sunsetting  the Alaska Stranded Gas  Development Act and                                                               
said, "That's  fine.  The reason  why we went to  this particular                                                               
date is that  in the original bill,  it was three years.   So, we                                                               
just took this and ... made  it three years."  Based on testimony                                                               
from some of the producers, he  pointed out that it might require                                                               
a minimum of a year of  negotiating terms back and forth; he said                                                               
he probably wouldn't  favor "rolling this back" to  2003 or 2004.                                                               
Noting that it has been 25  years, he concluded, "I'd like to see                                                               
something  get off  the ground.   Certainly,  I think  all of  us                                                               
would like to see that."                                                                                                        
                                                                                                                                
Number 1937                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN  referred to his previous  experience in the                                                               
oil and gas industry.  He pointed  out that the bottom line for a                                                               
company  is the  stockholders.   Likewise,  he said,  he feels  a                                                               
commitment to the people of Alaska.   Noting the pressure to move                                                               
this legislation quickly, he reminded  members that the producers                                                               
still haven't  provided economic data requested  at the beginning                                                               
of the  year.   He expressed  concern that  they are  starting to                                                               
indicate  they'll  produce  the  economic data  only  after  this                                                               
[bill] is signed.                                                                                                               
                                                                                                                                
REPRESENTATIVE GREEN  related that  he'd worked for  Mr. Thompson                                                               
and  has  the  utmost  respect for  him.    Representative  Green                                                               
pointed out that  Mr. Thompson had urged the committee  to take a                                                               
thorough  look  at  this.   Representative  Green  said  he  felt                                                               
rushed,  unfairly so,  because a  number of  months have  gone by                                                               
during which  this bill could  have been considered,  rather than                                                               
trying to rush it through right at the end.                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN told  members he would have to  vote "no" on                                                               
passing  this  out  of  committee   until  he  could  review  the                                                               
materials added in the last couple of hours.  He explained:                                                                     
                                                                                                                                
     That's not the  way you do legislation  that affects us                                                                    
     for  fifty or  a  hundred years,  as  we've heard.  ...                                                                    
     We're  worried  about a  few  days  for a  hundred-year                                                                    
     process that's going to affect  this state, the biggest                                                                    
     thing since the TAPS line?  Come on. ...                                                                                   
                                                                                                                                
     I'll  be  glad to  spend  nights  looking through  this                                                                    
     thing  and trying  to make  sense out  of this  and the                                                                    
     other   things   that   are   happening   through   the                                                                    
     legislature.   But  I am  certainly not  ready to  sign                                                                    
     this thing off and send it  off to a committee that has                                                                    
     had none of this. ... This  is going to go to a finance                                                                    
     committee that is either going  to have to reinvent the                                                                    
     wheel or  hear this all  again and say, "Now,  you guys                                                                    
     have the onus of making  that decision in a few hours."                                                                    
     That's not right.                                                                                                          
                                                                                                                                
REPRESENTATIVE GREEN  concluded by  saying the  current committee                                                               
should be looking  at it; it's a resource issue.   He pointed out                                                               
that  Alaska's  own  state  agencies  have  cautioned  that  some                                                               
aspects of the bill aren't a good idea.                                                                                         
                                                                                                                                
Number 2142                                                                                                                     
                                                                                                                                
CO-CHAIR  MASEK  asked  whether  perhaps  Representative  Green's                                                               
concerns were because of the Senate bill he'd mentioned.                                                                        
                                                                                                                                
REPRESENTATIVE GREEN  answered that he hasn't  been involved with                                                               
that Senate bill, although he has  read it.  However, he has been                                                               
involved  with  the Joint  Committee  on  Natural Gas  Pipelines,                                                               
which has been  involved on the federal and state  levels, and he                                                               
has   talked   with   Alaska's   congressional   delegation   and                                                               
legislators from  other states.  He  pointed out that there  is a                                                               
direct issue with access in the Senate bill.  He said:                                                                          
                                                                                                                                
     I would like to  see that here.  I would  like to see a                                                                    
     bill  that  goes  out of  this  legislature  with  that                                                                    
     component.  Now,  it doesn't have to  say, "We're going                                                                    
     to provide  access."   But access  needs to  be spelled                                                                    
     out.   I  would hate  to go  into a  negotiation period                                                                    
     with it  excluded from here,  and saying,  "That wasn't                                                                    
     part  of the  deal; our  negotiations are  going to  be                                                                    
     confined  to what's  in here."    And we  refer to  the                                                                    
     stranded gas Act as things  that we would like.  "Well,                                                                    
     that will be something  for negotiation; sign this bill                                                                    
     and then we'll negotiate  according to the stranded gas                                                                    
     Act."                                                                                                                      
                                                                                                                                
REPRESENTATIVE GREEN  clarified that he  was in favor  of helping                                                               
[companies]  defer upfront  costs, but  didn't like  the pressure                                                               
tactics, with issues to be negotiated  after signing.  He said he                                                               
wouldn't buy  a car like that,  or life insurance.   He added, "I                                                               
always get concerned when somebody says, 'Do it now.'"                                                                          
                                                                                                                                
Number 2261                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  said he has  a different  approach, although                                                               
he respects  Representative Green's 37  years in the gas  and oil                                                               
business; he noted that he'd begun  in the same business as well.                                                               
He explained  his view  that in  business, timing  is everything.                                                               
Noting  that there  still  are negotiations  on  the U.S.  Senate                                                               
energy bill with  regard to the tax regime, he  said, "We've been                                                               
asked, by our congressional delegation,  to express ourselves ...                                                               
and our  interest in  getting our pipeline  through.   And that's                                                               
what we've been doing here."                                                                                                    
                                                                                                                                
REPRESENTATIVE FATE  said he also  is pressured, by  Alaskans who                                                               
want  a pipeline,  and isn't  willing to  gamble that  a pipeline                                                               
might not be  built in the near future "just  because some of the                                                               
'T's aren't crossed  and the 'I's aren't dotted."   He said he is                                                               
also disappointed that the economic  models haven't been provided                                                               
by the  producers, but believes  they wouldn't have gone  to such                                                               
lengths at  the federal level  if there weren't some  problems in                                                               
the economics.   Speaking of  the producers, he added,  "They are                                                               
asking both the  federal government and they're  asking the State                                                               
of  Alaska   to  provide  some   incentives  to   facilitate  the                                                               
construction of this pipeline at the earliest date."                                                                            
                                                                                                                                
REPRESENTATIVE FATE  related his view that  unless the permitting                                                               
process can  begin within about three  years, there may not  be a                                                               
pipeline.  "I am  not willing to take that risk,"  he stated.  He                                                               
offered his own  belief, "Simply, ... we need a  pipeline, and we                                                               
need it badly."  He suggested  members need to decide whether the                                                               
pipeline is needed as quickly as possibly.                                                                                      
                                                                                                                                
Number 2455                                                                                                                     
                                                                                                                                
CO-CHAIR SCALZI referred to  Representative Fate's comments about                                                               
expediting this,  but also acknowledged  the rapidity  with which                                                               
this is  moving.  He  said he'd  received the original  bill over                                                               
the weekend  and had prepared  amendments, no longer  relevant to                                                               
Version  O.   He added,  "It  specifically defers  taxes until  a                                                               
later  date  certain,  and  then  it also  ...  talks  about  the                                                               
recouping of those, and it also  has intent language that says we                                                               
can defer  the whole thing  if we wish, but  it puts it  down the                                                               
road.   It allows an incentive,  I think, for deferral  of taxes,                                                               
and  I think  that's  what  we're looking  for  here."   He  told                                                               
members:                                                                                                                        
                                                                                                                                
     The  problem I  have,  as  expressed by  Representative                                                                    
     Green,  is  that  we  will   be  doing  this,  at  this                                                                    
     particular  time, sight  unseen  of  any hard  evidence                                                                    
     that this  is justifiable.   Now,  it certainly  may be                                                                    
     justifiable,  but  unless we  have  ...  the data,  the                                                                    
     numbers   to  do   it  right   now,  then   I  feel   a                                                                    
     responsibility to the  State of Alaska before  I feel a                                                                    
     responsibility  of creating  this project  that we  are                                                                    
        talking about - conservative estimates, [a] $500                                                                        
     million deferment.                                                                                                         
                                                                                                                                
CO-CHAIR SCALZI  noted [Representative Kohring's] plan  that does                                                               
away  with  municipal  assistance   and  revenue  sharing,  which                                                               
certainly will be  affected by this tax break.   He said although                                                               
municipalities may say  they want the project to  go forward, the                                                               
money for  infrastructure will have  to come from somewhere.   He                                                               
said deferring  it upfront  with no  "promissory note"  for later                                                               
reimbursement concerns  him.  Co-Chair  Scalzi specified  that he                                                               
wasn't speaking in  opposition to the bill, but  wanted more time                                                               
to  consider it.    He said  Representative  Green's point  about                                                               
access  is a  new  issue to  him, for  example.   He  recommended                                                               
holding the bill over.                                                                                                          
                                                                                                                                
Number 2600                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING thanked the  committee for allowing him to                                                               
speak.   He  said he  feels strongly  about this  bill, which  he                                                               
believes  presents  a  great  opportunity.    He  concurred  with                                                               
Representative Fate that  there is a timing issue.   He requested                                                               
that the bill be moved forward.                                                                                                 
                                                                                                                                
Number 2650                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GREEN asked  that members  consider three  items.                                                               
First,  the committee  had  heard from  Mr.  Marushack that  this                                                               
isn't a  "deal killer" but is  one building block.   Second, U.S.                                                               
Senator  Stevens  had  discussed  the possibility  of  a  federal                                                               
"floor."   Representative Green said  there is no  assurance that                                                               
the gas-market  price will hold at  $3.00 or $3.50, which  is the                                                               
economic point  at which  there is more  exploration for  gas; he                                                               
indicated, however, that  one producer had turned  down the idea,                                                               
although  one had  not.   And third,  there was  discussion about                                                               
Russian gas and missing a window of opportunity.                                                                                
                                                                                                                                
REPRESENTATIVE  GREEN again  pointed out  that an  influx from  a                                                               
tidewater location  such as Sakhalin  Island, by way  of tankers,                                                               
could flood  the Midwest with gas  via an existing pipeline.   He                                                               
cautioned  that  it is  a  huge  issue  that [the  producers  and                                                               
investors] have to  worry about; he suggested if  they don't fear                                                               
it in the  future, they can't be  afraid of it in  the next week.                                                               
He urged further consideration of  the ramifications, for another                                                               
week or so.                                                                                                                     
                                                                                                                                
Number 2819                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE responded  that  except for  the timing,  he                                                               
wouldn't object  to delaying  this; however,  to his  belief, the                                                               
delay  may be  the "deal  killer."   He  referred to  SB 360  and                                                               
indicated  it may  be  moving  rapidly through  the  Senate.   He                                                               
inquired  about  a  meeting  of   the  House  Resources  Standing                                                               
Committee on Friday.                                                                                                            
                                                                                                                                
CO-CHAIR  MASEK said  there would  be  a meeting,  but this  bill                                                               
wouldn't be addressed.                                                                                                          
                                                                                                                                
REPRESENTATIVE  FATE suggested  if it  came up  two weeks  later,                                                               
he'd  consider it  "dead on  arrival"  because of  needing to  go                                                               
through the Senate.                                                                                                             
                                                                                                                                
Number 2902                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEVENS  expressed concern  about the  timing too.                                                               
He said  he'd be comfortable  having it  go to the  House Finance                                                               
Standing Committee.                                                                                                             
                                                                                                                                
Number 2917                                                                                                                     
                                                                                                                                
REPRESENTATIVE   CHENAULT   agreed   with   Representative   Fate                                                               
regarding timing.   He indicated  the legislature has  worked for                                                               
seven years on different programs, tax schemes, and agendas.                                                                    
                                                                                                                                
TAPE 02-35, SIDE B                                                                                                              
Number 2940                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CHENAULT said  it  should be  moved.   He  voiced                                                               
concern  that if  a pipeline  isn't  built, it  will cost  Alaska                                                               
considerably more money than "what we stand to lose here."                                                                      
                                                                                                                                
Number 2900                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked when the bill could be heard again.                                                                  
                                                                                                                                
CO-CHAIR MASEK  stated her  intention to  move it  from committee                                                               
that day.   She agreed there are questions,  but characterized it                                                               
as  one  more  piece  of   a  puzzle  that  strengthens  Alaska's                                                               
stakeholder  position in  developing  a pipeline.    She said  it                                                               
sends a  message to Congress that  the state is interested.   She                                                               
agreed  with the  need  to offer  incentives,  rather than  doing                                                               
nothing.  She offered that the  bill is "pretty fair."  Regarding                                                               
competition,  she  said  it  costs   less  to  develop  in  other                                                               
countries, and  this sends  a message that  "we are  prepared and                                                               
ready to do business in Alaska."   She acknowledged that the bill                                                               
may change along the way, but said  that is up to the sponsor and                                                               
those interested in following the bill.                                                                                         
                                                                                                                                
Number 2810                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE suggested  those  who  have concerns  can                                                               
work  on  it  before  it  gets  to  the  House  Finance  Standing                                                               
Committee.   She said  many people  have come  to her  office and                                                               
talked with her about it; she  said it has gone through more than                                                               
one draft,  and that there  has been a  lot of work  over several                                                               
months.  She  expressed confidence that any  serious concerns can                                                               
be worked on.                                                                                                                   
                                                                                                                                
Number 2762                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA  informed  members  that  Representative                                                               
Green had  covered the points of  concern to her.   She suggested                                                               
giving some  thought to the  definition of  "related facilities".                                                               
She added,  "We set the  law.  We define  terms.  We  don't leave                                                               
that  for  further  negotiation.   That  could  have  such  broad                                                               
implications if it's not defined in the statute."                                                                               
                                                                                                                                
REPRESENTATIVE  KERTTULA  said  she  has great  respect  for  the                                                               
industry  and wants  to  see this  go forward,  but  wants it  to                                                               
happen in  a way  that will "help  us all."   She added,  "I know                                                               
that there's  a commitment to  that, so  I'm hoping that  we will                                                               
take advantage,  to try to  make the  changes that can  make that                                                               
happen,  because  if we  don't,  I  think  we  could all  end  up                                                               
suffering.  So I can't support  it.  I understand the intentions.                                                               
And I hope that we make some changes."                                                                                          
                                                                                                                                
Number 2708                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE moved  to  report CSHB  519, version  22-                                                               
LS1651\O, Chenoweth,  4/22/02, out  of committee  with individual                                                               
recommendations and attached "zero" fiscal notes.                                                                               
                                                                                                                                
Number 2701                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN objected.                                                                                                  
                                                                                                                                
A roll  call vote was  taken.  Representatives  McGuire, Stevens,                                                               
Fate,  Chenault,  and  Masek  voted  to  move  CSHB  519  out  of                                                               
committee.  Representatives Green,  Kapsner, Kerttula, and Scalzi                                                               
voted against it.  Therefore, CSHB  519(RES) was moved out of the                                                               
House Resources Standing Committee by a vote of 5-4.                                                                            
                                                                                                                                
REPRESENTATIVE  KAPSNER   specified  she   was  voting   "no"  in                                                               
deference to Representative Green's concerns.                                                                                   
                                                                                                                                
CO-CHAIR MASEK announced that the meeting was adjourned.                                                                        
                                                                                                                                
[End of this tape.]                                                                                                             
                                                                                                                                
TAPE 02-36, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIR MASEK brought the meeting  back to order within a minute                                                               
or so.                                                                                                                          
                                                                                                                                
REPRESENTATIVE McGUIRE  moved to  rescind the  committee's action                                                               
in moving  CSHB 519(RES)  out of  committee with  attached "zero"                                                               
fiscal  notes.   There being  no  objection, Version  O was  back                                                               
before the committee.                                                                                                           
                                                                                                                                
Number 0056                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE moved  to  report CSHB  519 [version  22-                                                               
LS1651\O, Chenoweth,  4/22/02] out  of committee  with individual                                                               
recommendations and the attached fiscal notes.                                                                                  
                                                                                                                                
Number 0073                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN objected.                                                                                                  
                                                                                                                                
A roll  call vote was  taken.  Representatives  McGuire, Stevens,                                                               
Fate,  Chenault,  and  Masek  voted  to  move  CSHB  519  out  of                                                               
committee.  Representatives Green,  Kapsner, Kerttula, and Scalzi                                                               
voted against it.  Therefore, CSHB  519(RES) was moved out of the                                                               
House Resources Standing Committee by a vote of 5-4.                                                                            

Document Name Date/Time Subjects