Legislature(2003 - 2004)

02/28/2003 01:06 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB  16-STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                                
                                                                                                                                
CO-CHAIR FATE announced that the  next order of business would be                                                               
HOUSE BILL NO.  16, "An Act amending the  standards applicable to                                                               
determining  whether, for  purposes  of the  Alaska Stranded  Gas                                                               
Development  Act,   a  proposed  new  investment   constitutes  a                                                               
qualified project,  and repealing  the deadline  for applications                                                               
relating to the development of  contracts for payments in lieu of                                                               
taxes  and for  royalty  adjustments that  may  be submitted  for                                                               
consideration  under that  Act;  and providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
CO-CHAIR FATE  noted that before  the committee is  CSHB 16(O&G).                                                               
He then turned the gavel over to Vice Chair Masek.                                                                              
                                                                                                                                
Number 0696                                                                                                                     
                                                                                                                                
CO-CHAIR FATE, Alaska State Legislature,  speaking as the sponsor                                                               
of HB 16, informed the  committee that [CSHB 16(O&G)] encompasses                                                               
six  changes  to  the  [Stranded  Gas  Development  Act].    This                                                               
legislation  doesn't limit  the technology  to liquefied  natural                                                               
gas (LNG) as  was the case with the [current]  Act.  Furthermore,                                                               
this  legislation allows  a  value-added  perspective because  [a                                                               
qualified project is  expanded to include] other  markets as well                                                               
as those markets within the  state.  This legislation changes the                                                               
net worth  of a qualified  sponsor from  33 percent net  worth of                                                               
the  project to  15  percent, which  allows  and even  encourages                                                               
others  to do  exploration.   This legislation  also changes  the                                                               
date for submitting applications from  June 30, 2001, to June 30,                                                               
2004.  He informed the committee  that there will be an amendment                                                               
offered  to change  the aforementioned  date to  March 31,  2005,                                                               
because the  2004 date was determined  to be too soon.   He noted                                                               
that  this  was discussed  with  the  administration, who  is  in                                                               
agreement.   This legislation  changes the  "contractor" language                                                               
to the plural, "contractors", because  there is usually more than                                                               
one contractor  with which negotiations are  occurring.  Finally,                                                               
this  legislation  changed  language  relating to  a  $1  million                                                               
expense that's  rebated to the  state when expenses  are incurred                                                               
by the  contractors.  In the  House Special Committee on  Oil and                                                               
Gas  much time  was spent  working on  this language.   Today  an                                                               
amendment   will  be   offered   in  which   the  comma   between                                                               
"reasonable, nonredundant"  will be  deleted.  He  explained that                                                           
the language  has been in the  Act so that the  expenses incurred                                                               
by   the   contractors   are  reliable,   reasonable,   and   not                                                               
duplicative.                                                                                                                    
                                                                                                                                
Number 1144                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  inquired  as  to  the  definition  of                                                               
stranded gas.                                                                                                                   
                                                                                                                                
CO-CHAIR  FATE explained  that there  is  only one  place in  the                                                               
state that  has stranded gas,  the North Slope.   Therefore, when                                                               
one  refers to  stranded gas  they are  referring to  gas on  the                                                               
North Slope.   In further response  to Representative Guttenberg,                                                               
Co-Chair Fate  clarified that  "stranded" means  that the  gas is                                                               
going to market while "reinjection" does not go to market.                                                                      
                                                                                                                                
VICE  CHAIR MASEK  returned to  the  gavel to  Co-Chair Fate  and                                                               
testimony was taken.                                                                                                            
                                                                                                                                
Number 1272                                                                                                                     
                                                                                                                                
WENDY KING,  Gas Strategies,  ConocoPhillips, Alaska  North Slope                                                               
Development Team,  related ConocoPhillips support of  the passage                                                               
of HB 16.  She provided the following testimony:                                                                                
                                                                                                                                
     ConocoPhillips  has a  three-prong strategy  to make  a                                                                    
     gas  pipeline  through  Alaska and  Canada  a  reality.                                                                    
     First,   federal   legislation    to   streamline   the                                                                    
     permitting   process.       Second,    federal   fiscal                                                                    
     legislation which  provides insurance against  the risk                                                                    
     of  extreme   price  volatility.    And   third,  state                                                                    
     legislation    [reauthorizing]    the   Stranded    Gas                                                                    
     Development Act.   The Stranded Gas  Development Act is                                                                    
     currently in  statute and it  provides a  framework for                                                                    
     negotiations  and  reaching  an agreement  between  the                                                                    
     state  and other  parties  like  ConocoPhillips over  a                                                                    
     number of  issues.  House  Bill 16 is needed  to modify                                                                    
     the   Stranded  Gas   Development  Act;   the  existing                                                                    
     statute, as  currently written, applies only  to an LNG                                                                    
     project and  not to a  gas pipeline.  In  addition, the                                                                    
     Stranded Gas  Development Act has  a date of  June 30th                                                                    
     2001  by which  companies had  to file  an application.                                                                    
     If  it were  not for  these two  limitations, companies                                                                    
     that want to build a  gas pipeline could be negotiating                                                                    
     with the state today under  the Act and be further down                                                                    
     the  road toward  creating  jobs  and revenues  through                                                                    
     building  a gas  pipeline.   In conclusion,  we support                                                                    
     passage of HB 16 in as  clean a form as possible.  That                                                                    
     means making the  Stranded Gas Act applicable  to a gas                                                                    
     pipeline  and extending  or repealing  the date  of the                                                                    
     Act.   The  committee  substitute for  HB 16  addresses                                                                    
     these  two requirements  and we  urge the  committee to                                                                    
     pass the bill.                                                                                                             
                                                                                                                                
                                                                                                                                
Number 1441                                                                                                                     
                                                                                                                                
DAN DICKINSON, Director, Tax Division, Department of Revenue,                                                                   
provided the following testimony:                                                                                               
                                                                                                                                
     With me is Roger Marks,  a Petroleum Economist with the                                                                    
     Tax  Division,   who  will  speak  briefly   about  the                                                                    
     history,  intent, and  mechanics  of  the Stranded  Gas                                                                    
     Act.    But first  I  think  it  is very  important  to                                                                    
     introduce ourselves,  as the Department of  Revenue has                                                                    
     many responsibilities  under the Stranded Gas  Act, and                                                                    
     the  Tax   Division  has  considerable   expertise  and                                                                    
     experience in oil  and gas matters.  Five  years ago we                                                                    
     were three different divisions -  the Oil and Gas Audit                                                                    
     Division, the Income and Excise  Audit Division and the                                                                    
     Charitable Gaming Division. ... What  we do can be seen                                                                    
     from   the  fiscal   year  2002   Comprehensive  Annual                                                                    
     Financial  Report  for  the  State  of  Alaska.    [You                                                                    
     should] have a copy of  an excerpt from Table 1.13 ....                                                                    
     Of total government fund revenues of $3.5 billion:                                                                         
                                                                                                                                
             · ... $1.3 billion comes from the Feds                                                                             
             · Taxes are a another [$1] billion                                                                                 
             · Royalties are another $900 million                                                                               
             · Interest [and] investment income, plus all                                                                       
               the  other ways  the government  raises money                                                                    
               through  charges  for   services,  fines  and                                                                    
               forfeitures and "other",  is more than offset                                                                    
               by  the  investment  losses  in  the  state's                                                                    
               account.                                                                                                         
                                                                                                                                
     The Tax  Division administers  19 of  the 20  tax types                                                                    
     that  make  up the  $1  billion  tax  figure.   Of  the                                                                    
     billion  dollars in  taxes, all  but  a couple  hundred                                                                    
     million are  oil and  gas taxes.   The state's  oil and                                                                    
     gas take  is often characterized  as four bites  of the                                                                    
     apple, and we are experienced in all four bites.                                                                           
                                                                                                                                
     For  the  first  bite:  We are  charged  with  auditing                                                                    
     royalties  and net  profit share  leases,  and we  work                                                                    
     closely with  DNR on  those matters.   The  other three                                                                    
     bites  of  the apple  cover  the  three areas  that  we                                                                    
     anticipate will  be our focus  in any Stranded  Gas Act                                                                    
     negotiation.  The second bite  of that apple is the oil                                                                    
     and gas  property tax.   The 2003 tax roll  showing oil                                                                    
     and gas property valued at  just about $13.5 billion is                                                                    
     being mailed  out ... to  meet the March  1st deadline.                                                                    
     As petroleum economist Roger  Marks will explain later,                                                                    
     property taxes  play a unique  role in  determining any                                                                    
     natural gas project's profitability.   The next bite of                                                                    
     the  apple is  the oil  and gas  corporate income  tax.                                                                    
     Income taxes are  focused on taxing profits.   As Roger                                                                    
     will elaborate later  on - the more we  focus on taxing                                                                    
     profits,  the  more  progressive  our  system  becomes.                                                                    
     That is  one of  the stated goals  of the  Stranded Gas                                                                    
     Act.    We  have  a  large  experienced  group  in  our                                                                    
     division that works these issues  and we expect them to                                                                    
     be  critical.   The  last  bite  of  the apple  is  the                                                                    
     production  tax.    Like royalty,  the  production  tax                                                                    
     focuses on  the commodity value  of the resource  at or                                                                    
     near the wellhead.  We  have lots of experience in this                                                                    
     area   dealing  with   market  pricing,   inter-company                                                                    
     transfer   pricing,  how   markets  work,   how  energy                                                                    
     contracts work, business  practices, and cost analysis.                                                                    
     I would  like to  add a  personal observation,  but one                                                                    
     that I think  reflects what many of us  in the division                                                                    
     believe the  state should  be trying  to achieve  in an                                                                    
     Stranded Gas Act negotiation.                                                                                              
                                                                                                                                
                                                                                                                                
     Taxes  and the  government take  in general  ... should                                                                    
     not  distort commercial  realities.   The  government's                                                                    
     take should  not be what is  red-lighting this project.                                                                    
     As  Roger  will  explain,  our  current  fiscal  system                                                                    
     intensifies some  of the risks faced  by the producers.                                                                    
     Ironically,  not  only  the producers  but  [also]  the                                                                    
     state  could be  better off  changing these  aspects of                                                                    
     its fiscal  system.  The Stranded  Gas Act negotiations                                                                    
     should be about  risk sharing, and who  among the state                                                                    
     and the  commercial entities  involved can  best handle                                                                    
     what risks.  As soon as  HB 16 becomes law we can start                                                                    
     discussing how price risk will  be shared or how return                                                                    
     on the  investment in  the pipeline  will be  taxed, or                                                                    
     really figure  out what  each party  wants to  get from                                                                    
     this project  - aside from  "more."  There are  lots of                                                                    
     specifics that can be set  aside until it's clearer how                                                                    
     our gas will fit in  the market mechanisms that will be                                                                    
     in  place   when  we  are  finally   ready  to  market.                                                                    
     Fundamentally,  the  state's  role  should  not  be  to                                                                    
     increase the risks.  And  maybe we can make the project                                                                    
     fly by reducing risk.                                                                                                      
                                                                                                                                
Number 1716                                                                                                                     
                                                                                                                                
     On the other hand, we have  to make sure that the state                                                                    
     is not  naively underwriting a  risky project.   As the                                                                    
     only ones who  will still be around if  things go sour,                                                                    
     we don't want to be left  holding a bag we didn't quite                                                                    
     understand  the   dimensions  of.    That's   my  quick                                                                    
     overview  of the  Department of  Revenue Tax  Division.                                                                    
     The  administration  strongly  supports  the  committee                                                                    
     substitute for this bill.   We think it creates a great                                                                    
     mechanism to work these difficult  issues we face.  The                                                                    
     Tax Division  looks forward to  being able to  play our                                                                    
     part in that work.                                                                                                         
                                                                                                                                
Number 1756                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG turned the issue of risk sharing and                                                                  
asked how the risks are balanced.                                                                                               
                                                                                                                                
MR. DICKINSON answered that the state has to determine what it                                                                  
wants with regard to the stream of revenue it wants, the amount                                                                 
of built-in progressivism,  and the risk the state  is willing to                                                               
take.     Therefore,   this   requires   thoroughly  airing   and                                                               
investigating the issues.                                                                                                       
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether  HB 16 places  the state                                                               
out of  the way  by opening  the definition  of stranded  gas and                                                               
extending  the  expiration date.    He  also  asked if  there  is                                                               
anything else that the state can do to avoid being an obstacle.                                                                 
                                                                                                                                
MR.  DICKINSON related  his belief  that this  legislation starts                                                               
the  conversation  and  allows  the parties  to  know  where  the                                                               
conversation can  go.  Mr.  Dickinson said he believes  that it's                                                               
best to pass the bill with the amendments.                                                                                      
                                                                                                                                
CO-CHAIR FATE  asked if, after passage  of HB 16 in  both houses,                                                               
negotiations would begin to explore the aforementioned areas.                                                                   
                                                                                                                                
MR. DICKINSON  said that  he hoped  that would be  the case.   He                                                               
identified  the   first  piece  to  be   negotiations  for  large                                                               
contracts, which he said could start soon.                                                                                      
                                                                                                                                
Number 1951                                                                                                                     
                                                                                                                                
ROGER  MARKS, Petroleum  Economist, Tax  Division, Department  of                                                               
Revenue, provided the following testimony:                                                                                      
                                                                                                                                
     I worked on  the original Stranded Gas Act  in 1998 and                                                                    
     am familiar  with its  history, intent,  and mechanics.                                                                    
     And I  would like to  provide a very brief  overview of                                                                    
     the Act at AS 43.82.   A more detailed synopsis is with                                                                    
     the fiscal note.                                                                                                           
                                                                                                                                
     The   Act  originated   in  HB   250  in   1997,  which                                                                    
     established  a North  Slope Gas  Commercialization team                                                                    
     in  the   administration  to  research   and  recommend                                                                    
     changes to state law  to encourage commercialization of                                                                    
     North Slope gas.   The team concluded  that the project                                                                    
     faced  considerable risk,  namely  gas  price risk  and                                                                    
     cost overrun  risk, and that the  state's fiscal system                                                                    
     exacerbated  those   risks.    Two  of   the  risks  of                                                                    
     particular  concern  were  fiscal uncertainty  and  the                                                                    
     state's regressive tax system.                                                                                             
                                                                                                                                
     A brief  comment on the  price risk:   the cost  of the                                                                    
     project is very  large: $20 billion.  That is  a lot of                                                                    
     money to  any corporation.   If  this project  is built                                                                    
     and prices go  very low, the producers  face very large                                                                    
     losses which some of them  may not be able to tolerate.                                                                    
     That is  why the  price mechanism proposed  in Congress                                                                    
     may  be  a  very  necessary  linchpin  in  making  this                                                                    
     project a reality.   By fiscal uncertainty  we mean the                                                                    
     threat  of  changes  in   fiscal  provisions,  after  a                                                                    
     project  is  built,  that   may  change  the  project's                                                                    
     viability after  it is  too late  to do  anything about                                                                    
     it.  A project may be  feasible under one tax system if                                                                    
     it is  built under the  assumption that the  tax system                                                                    
     in place will  stay in place.  But [if]  the tax system                                                                    
     changes,  the  changes   could  cause  heavy  financial                                                                    
     losses.                                                                                                                    
                                                                                                                                
Number 2046                                                                                                                     
                                                                                                                                
     Second,  there  are  two significant  elements  of  the                                                                    
     state's  fiscal system  that make  it  regressive.   By                                                                    
     regressive  we mean  that the  state's take  is a  high                                                                    
     percentage  of   income  at  low  prices,   and  a  low                                                                    
     percentage at high prices.   First, the property tax is                                                                    
     based  on cost.   The  higher the  cost the  higher the                                                                    
     tax.   This  is  a  double whammy  to  an investor  who                                                                    
     incurs a cost  overrun.  Moreover, the  property tax is                                                                    
     payable   when   construction  begins,   years   before                                                                    
     revenues  start accruing.   On  a time  value of  money                                                                    
     basis  this   diminishes  the   rate  of   return,  and                                                                    
     increases the risk of not recovering the investment.                                                                       
                                                                                                                                
     The second  regressive elements  are the  severance tax                                                                    
     and royalty.  They are based  on the value at the point                                                                    
     where  the gas  comes  out of  the  ground, and  ignore                                                                    
     upstream  costs such  as capital  and operating  costs.                                                                    
     Thus  when  costs are  high  and  prices are  low,  the                                                                    
     state's  take  is  a high  percentage  of  low  income.                                                                    
     Again, this  intensifies the danger  of low prices.   I                                                                    
     might  add that  a  regressive system  also limits  the                                                                    
     state's  take at  high prices.   Fixing  that could  be                                                                    
     very important  to the state for  securing more revenue                                                                    
     when   prices  are   high,   without  threatening   the                                                                    
     viability of the project.                                                                                                  
                                                                                                                                
     The Stranded  Gas Act was  the result of trying  to fix                                                                    
     these shortcomings.   The law provided  a mechanism for                                                                    
     converting the  state's fiscal system from  a statutory                                                                    
     basis to a  contractual basis.  This  would provide for                                                                    
     greater fiscal  certainty.  The fiscal  system would be                                                                    
     negotiated between the state  and the project sponsors,                                                                    
     and approved by the  legislature, after a public review                                                                    
     period.   Payments to the  state would be  made in-lieu                                                                    
     of taxes.   And  per the Act  the contract  terms would                                                                    
     provide  for  a  more progressive  or  less  regressive                                                                    
     system.                                                                                                                    
                                                                                                                                
     Most of  the provisions subject to  negotiation are the                                                                    
     tax provisions.  Given that  the royalty represents the                                                                    
     state's  ownership share,  there  was  not interest  in                                                                    
     making the  royalty rate subject  to change.   The only                                                                    
     royalty provisions subject to  negotiation would be gas                                                                    
     valuation  method, and  the timing  of royalty  in-kind                                                                    
     and  in-value  notices.     The  commissioner  of  [the                                                                    
     Department of]  Revenue would be the  primary agent for                                                                    
     negotiating  and implementing  the  contact.   However,                                                                    
     the  commissioner   of  [the  Department   of]  Natural                                                                    
     Resources  is   also  responsible  for   reviewing  the                                                                    
     project  plan for  acceptability,  and for  negotiating                                                                    
     any changes in those royalty issues.                                                                                       
                                                                                                                                
     There  was  concern  by  local  municipalities  that  a                                                                    
     contract could compromise  their property tax revenues.                                                                    
     Accordingly,  the  Act  created  a  municipal  advisory                                                                    
     group to participate in  developing contract terms, and                                                                    
     the Act  requires that a  fair and reasonable  share of                                                                    
     the  payments  due  under  the   contract  be  paid  to                                                                    
     affected municipalities with due  regard to the size of                                                                    
     the tax  base that  may be  exempted, and  the economic                                                                    
     and   social  burdens   imposed  by   construction  and                                                                    
     operation.   The Act also  has provisions  for sponsors                                                                    
     to help  make gas available to  communities, to promote                                                                    
     local  hire,  to  deal  with  confidential  information                                                                    
     provided by  the sponsors, and  to reimburse  the state                                                                    
     for   contractors  it   may  use   to  assist   in  the                                                                    
     negotiation process.                                                                                                       
                                                                                                                                
     Finally,  there  were  some   questions  raised  as  to                                                                    
     whether  this  would  surrender or  contract  away  the                                                                    
     power to  tax, which is forbidden  by our constitution.                                                                    
     It was  the administration's  judgment that  this would                                                                    
     not  preclude future  legislatures from  imposing other                                                                    
     taxes,  but  this  contract would  represent  a  solemn                                                                    
     pledge, a moral commitment by  the state, and a message                                                                    
     to  future  legislatures that  once  it  agrees to  the                                                                    
     terms it will not change them.                                                                                             
                                                                                                                                
Number 2252                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  related the notion that  a gas project                                                               
will  occur when  the market  allows it  and inquired  as to  Mr.                                                               
Marks' opinion of that.                                                                                                         
                                                                                                                                
MR. MARKS highlighted that a  significant linchpin is what occurs                                                               
in Congress.   The price risk  here is very scary  for companies,                                                               
even those the size of ConocoPhillips.                                                                                          
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked if there  will be a conflict with                                                               
the commissioner of  the Department of Revenue  being the primary                                                               
negotiator   for  negotiation   and   implementation  since   the                                                               
commissioner  of DNR  is responsible  for  reviewing the  project                                                               
plan for acceptability.                                                                                                         
                                                                                                                                
MR.  MARKS  clarified  that both  commissioners  would  review  a                                                               
project  application for  suitability.   He expressed  confidence                                                               
that  both commissioners  will "land  on  the same  page in  that                                                               
judgment."                                                                                                                      
                                                                                                                                
CO-CHAIR  FATE interjected  that at  one point  the commissioners                                                               
were separated,  but that language  wasn't brought  forth because                                                               
it  was  determined that  was  an  internal  matter for  which  a                                                               
memorandum  of   understanding  would  be  written   between  the                                                               
departments.   This  is an  administrative  issue that  shouldn't                                                               
receive legislative interference.                                                                                               
                                                                                                                                
Number 2394                                                                                                                     
                                                                                                                                
REPRESENTATIVE   MASEK   highlighted   the  importance   of   Mr.                                                               
Dickinson's earlier statement:  "As soon  as HB 16 becomes law we                                                               
can start discussing how price risk  will be shared or how return                                                               
on  the investment  in  the  pipeline will  be  taxed, or  really                                                               
figure  out what  each party  wants to  get from  this project  -                                                               
aside from 'more.'"  She expressed  the need to expedite HB 16 in                                                               
order to begin working on an LNG or natural gas project.                                                                        
                                                                                                                                
MR. DICKINSON said that clearly there  are a gamut of issues that                                                               
would be addressed  and the earlier [discussions]  start the more                                                               
likely they will be productive.                                                                                                 
                                                                                                                                
CO-CHAIR  FATE, in  response to  Representative Masek,  clarified                                                               
that the proposed  date change that was  mentioned earlier refers                                                               
to the application deadline.   He reiterated that the date change                                                               
will be offered as an amendment.                                                                                                
                                                                                                                                
Number 2529                                                                                                                     
                                                                                                                                
KEN KONRAD, Senior Vice President, BP Exploration (Alaska) Inc.,                                                                
provided the following testimony:                                                                                               
                                                                                                                                
     Establishing   a   clear,   simple,   and   predictable                                                                    
     framework regarding  royalty and taxes is  essential if                                                                    
     the gas  pipeline project  is going  to advance  to the                                                                    
     next  phase  of activity.    Without  knowing what  the                                                                    
     rules are in advance, a  project of this magnitude will                                                                    
     not  be able  to attract  investment.   BP  has been  a                                                                    
     supporter   of  the   Stranded   Gas   Act  since   its                                                                    
     development  many years  ago and  we continue  to be  a                                                                    
     supporter.   And as  such we support  HB 16.   However,                                                                    
     ... we  would be prepared to  sit down at any  time and                                                                    
     begin  these  discussions  and don't  necessarily  feel                                                                    
     that  we  need   to  wait  too  long   to  begin  these                                                                    
     discussions  because we  are  concerned  that we  can't                                                                    
     finish the  discussions until  we begin  them.   So, we                                                                    
     are ready  at any time  to move  forward.  And  I would                                                                    
     echo what  Ms. King conveyed  earlier that as  the bill                                                                    
     passes through  the legislative process that  we ensure                                                                    
     that it remain a clean bill  and that you don't ... add                                                                    
     amendments  that could  inadvertently lead  to being  a                                                                    
     disincentive for the project.   But, as the bill stands                                                                    
     now, we are firmly in support.                                                                                             
                                                                                                                                
CO-CHAIR FATE, upon determining that no one else wished to                                                                      
testify, closed public testimony.  He then turned the gavel over                                                                
to Representative Masek.                                                                                                        
                                                                                                                                
The committee took an at-ease from 2:46 p.m. to 2:50 p.m.                                                                       
                                                                                                                                
Number 2666                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE moved that the committee adopt Amendment                                                                  
1, which reads:                                                                                                                 
                                                                                                                                
     Page 3 Line 6                                                                                                              
     Change date from June 30, 2004 to March 31, 2005                                                                           
                                                                                                                                
There being no objection, Amendment 1 was adopted.                                                                              
                                                                                                                                
Number 2689                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE moved that the committee adopt Amendment                                                                  
2, which reads:                                                                                                                 
                                                                                                                                
     Page 3 Line 12                                                                                                             
     Delete comma between reasonable and nonredundant                                                                           
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  objected  and  inquired  as  to  what                                                               
Amendment 2 would accomplish.                                                                                                   
                                                                                                                                
CO-CHAIR FATE explained that the  [deletion of the comma] ensures                                                               
that  there won't  be duplicate  billing.   This is  a protective                                                               
mechanism, he said.                                                                                                             
                                                                                                                                
REPRESENTATIVE GUTTENBERG withdrew his objection.                                                                               
                                                                                                                                
There being no objection, Amendment 2 was adopted.                                                                              
                                                                                                                                
Number 2839                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG turned to  AS 43.82.200 and referred to                                                               
the  following language:   "terms  regarding an  equity or  other                                                               
participating  interests in  a  project by  one  or more  Alaskan                                                               
based corporations  or business."   He  interpreted that  to mean                                                               
that   Alaskan-based  corporation   or  business   is  guaranteed                                                               
involvement.   Representative Guttenberg inquired as  to how that                                                               
would impact the negotiation.                                                                                                   
                                                                                                                                
MR. MARKS related his belief that  the process would be such that                                                               
a  sponsor  group  would  come  forward  to  the  state  with  an                                                               
application and  whoever is going  to have an equity  interest in                                                               
the project  would be part  of the sponsor group  approaching the                                                               
state for a stranded gas contract.   He said he didn't believe it                                                               
to be appropriate to bring  in further equity participants in the                                                               
contract development process.   Whoever is going to  be a sponsor                                                               
should  come  in at  the  beginning  to  negotiate as  one  body.                                                               
However, nothing  precludes multiple  sponsor groups  from coming                                                               
in to negotiate  contracts if there is more  than one possibility                                                               
available.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GUTTENBERG  expressed concern that an  oil and gas                                                               
field developer  will come in after  the fact and not  have a gas                                                               
line  to take  his/her product  to market.   In  that case,  what                                                               
would happen; would  that developer have access  to the pipeline,                                                               
he asked.                                                                                                                       
                                                                                                                                
MR.  MARKS   explained  that   at  the   time  the   pipeline  is                                                               
constructed, there  will be an open  season.  This is  due to the                                                               
Federal  Energy   Regulatory  Commission  (FERC)  law.     Anyone                                                               
anticipating  having gas  to ship  to the  pipeline at  that time                                                               
[during the  open season]  can secure capacity.   He  related the                                                               
[department's] judgment  that having the original  sponsors build                                                               
for capacity that might not be there is [inappropriate].                                                                        
                                                                                                                                
TAPE 03-8, SIDE B                                                                                                             
                                                                                                                                
MR. MARKS clarified that building  for capacity that might not be                                                               
there  would  add  additional  cost  and  risk  to  the  project.                                                               
Furthermore,  pipelines   could  be  constructed  to   have  some                                                               
expansion of capacity.                                                                                                          
                                                                                                                                
Number 2965                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural  Resources,   returned  to   Representative  Guttenberg's                                                               
question regarding contract development.   He said, "The contract                                                               
development part there  in three and four under  the Act, doesn't                                                               
address the issue  of access really."  However,  issues of access                                                               
could be  addressed under the  more general provisions  under the                                                               
other conditions.  Mr. Myers noted  that access is of concern for                                                               
all  parties  involved  with  the  gas  line.    He  related  his                                                               
interpretation  that access  could  be included  as  part of  the                                                               
negotiations,  although  it  isn't   implicit  in  the  Act  that                                                               
[access] would be negotiated.                                                                                                   
                                                                                                                                
Number 2895                                                                                                                     
                                                                                                                                
CO-CHAIR FATE  informed the committee  that last year  during the                                                               
discussion of  HB 519, two of  the most critical issues  were the                                                               
frequency of  open season  and access  to any  proposed pipeline.                                                               
The negotiators and  the industry are aware of these  issues.  As                                                               
has been  expressed by the  major producers,  we need and  want a                                                               
second level  mid-cap oil  industry.   Co-Chair Fate  related his                                                               
belief   that  the   legislature  could   still  weigh   in  with                                                               
legislation should [there  be the need].   However, Co-Chair Fate                                                               
mentioned   that  he   didn't  want   to  interfere   with  these                                                               
negotiations.  Co-Chair  Fate also mentioned that  he didn't have                                                               
a concern with regard to access and  open season as he did a year                                                               
ago and  thus he hoped  that this legislation could  be forwarded                                                               
to the House Finance Committee.                                                                                                 
                                                                                                                                
Number 2811                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE moved  to report  CSHB 16(O&G)  as amended                                                               
out  of   committee  with  individual  recommendations   and  the                                                               
accompanying  fiscal  notes.   There  being  no  objection,  CSHB                                                               
16(RES)   was  reported   from  the   House  Resources   Standing                                                               
Committee.                                                                                                                      

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