Legislature(2007 - 2008)BARNES 124

04/10/2007 01:00 PM RESOURCES

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01:02:51 PM Start
01:03:18 PM HB177
03:09:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
1:03:18 PM                                                                                                                    
CO-CHAIR GATTO  announced that the  only order of  business would                                                               
be HOUSE  BILL NO. 177,  "An Act  relating to the  Alaska Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."   [CSHB 177(O&G) was before the                                                               
1:05:08 PM                                                                                                                    
DON BULLOCK,  Attorney, Legislative Legal and  Research Services,                                                               
Legislative Affairs  Agency, Alaska  State Legislature,  began by                                                               
stating  that  he   is  nonpartisan  and  is   charged  with  the                                                               
responsibility  of drafting  the  legislation  and any  requested                                                               
amendments.  He  pointed out that the  legislation was originally                                                               
drafted  and introduced  at the  request  of the  administration.                                                               
However,  once  the  legislation   is  in  the  legislature,  the                                                               
Legislative  Legal  and  Research Services  Division  drafts  the                                                               
amendments  and  committee substitutes.    He  related that  CSHB
177(O&G)  incorporates  many   changes  that  the  administration                                                               
requested  as well  as  amendments requested  by  members of  the                                                               
House Special Committee on Oil and Gas.                                                                                         
1:06:27 PM                                                                                                                    
CO-CHAIR  GATTO  pointed out  that  the  committee packet  should                                                               
include a document from Governor  Sarah Palin to Senate President                                                               
Lyda  Green dated  March 2,  2007.   The committee  packet should                                                               
also include an executive summary dated March 5, 2006.                                                                          
1:06:55 PM                                                                                                                    
MR. BULLOCK  informed the committee that  questions regarding the                                                               
policy behind a  certain amendment or provision put  forth by the                                                               
administration would be best posed to the administration.                                                                       
1:07:31 PM                                                                                                                    
MR.  BULLOCK  then  proceeded  to   review  CSHB  177(O&G).    He                                                               
explained that Section  1 establishes a new chapter  to Title 43,                                                               
which  is the  revenue  and  taxation title.    This new  chapter                                                               
includes  provisions  that:  state  the  purpose  of  the  Alaska                                                               
Gasline  Inducement Act  (AGIA); address  the state's  inducement                                                               
for someone to  apply for and receive a license  for the project,                                                               
including the  cash incentive and  the expenditures to  which the                                                               
state  will contribute;  require  that the  commissioners of  the                                                               
Department  of  Natural Resources  (DNR)  and  the Department  of                                                               
Revenue  (DOR) act  together jointly  in  pursuing licensees  and                                                               
reviewing applications;  require the  commissioners to  start the                                                               
application  process  as  soon  as practical  after  the  Act  is                                                               
enacted;  provide a  list of  equipment and  information that  an                                                               
applicant must submit to the  state; establish the criteria which                                                               
the   commissioners  will   use   to  rank   and  evaluate   each                                                               
application;  and  allow  the  public  to  comment.    After  the                                                               
commissioners have  reviewed all  of the applications,  they will                                                               
reject  those that  weren't responsive  to the  request or  don't                                                               
meet the  statutory requirements.   Therefore,  the commissioners                                                               
will  narrow the  applicants down  to  a group  that satisfy  the                                                               
application requirements,  although they  may not  necessarily be                                                               
in the  best interest  of the state.   The  complete applications                                                               
are then placed before the  public, after which the commissioners                                                               
narrow the group to a single  applicant that it recommends to the                                                               
legislature  for  approval.   The  commissioners  also  have  the                                                               
option  to   determine  that  none  of   the  applications  offer                                                               
significant benefit for the state  to make the cash contribution.                                                               
In  the  aforementioned  situation, the  commissioners  have  the                                                               
ability  to   start  [a  new   application  process].     If  the                                                               
commissioners do  find a satisfactory application  that meets the                                                               
requirements and is in the best  interest of the state, notice is                                                               
sent to  the presiding  officers of  the House  and Senate.   The                                                               
Rules  Committee in  each house  will  introduce legislation  for                                                               
1:10:32 PM                                                                                                                    
MR.  BULLOCK  reminded  the  committee  that  HB  177  originally                                                               
provided 30  days to  disapprove a license.   If  the legislature                                                               
didn't disapprove  the license, the commissioners/state  would be                                                               
able  to  issue  the  license   and  begin  contributing  to  the                                                               
expenditures.   Now both CSHB  177(O&G) and its  Senate companion                                                               
require affirmative  approval by the legislature.   Therefore, if                                                               
the  legislature doesn't  take affirmative  action to  approve [a                                                               
license],  then it's  effectively  disapproved.   He  highlighted                                                               
that CSHB  177(O&G) requires a  bill for approval and  the Senate                                                               
companion  requires   the  introduction   of  a   resolution  for                                                               
approval.   Mr. Bullock opined  that requiring an  approving bill                                                               
is most  appropriate based on  the State v.  A.L.I.V.E. Voluntary                                                             
case.   When  the  legislature takes  actions  that impact  those                                                               
outside of its  body, it must be done through  a bill rather than                                                               
a  resolution.   Because a  bill [is  required], there  is timing                                                               
that  is built  into consideration  of a  bill.   He acknowledged                                                               
that  there have  been discussions  of  time limits,  which is  a                                                               
policy decision  for the committee  to consider.  He  pointed out                                                               
that if a  bill isn't passed, then a license  won't be issued and                                                               
thus  the  license fails.    In  such  a  case, there  would  the                                                               
opportunity for  the licensee to  raise the separation  of powers                                                               
argument.  The separation of  powers doctrine in the constitution                                                               
is  based  on Article  2,  Section  1  - Legislative  Powers  and                                                               
Article  3, Section  1 -  Executive Powers.   If  the legislature                                                               
doesn't act,  the license is  disapproved and the  licensee could                                                               
go to court,  under the executive branch's  separation of powers,                                                               
to obtain the license from the executive branch.                                                                                
1:14:48 PM                                                                                                                    
REPRESENTATIVE WILSON  asked whether including  language allowing                                                               
the legislature to vote [on  an application/license] anytime it's                                                               
called together for session would make a difference.                                                                            
MR. BULLOCK  answered that it  would.  However,  the requirements                                                               
of  three  readings,  referral  to  committee,  et  cetera  would                                                               
remain.  With  regard to the introduction of a  bill, Mr. Bullock                                                               
suggested that the  committee should think about  how much review                                                               
the  committee   wants  to  give   the  license  itself.     This                                                               
legislation   sets  up   a  lot   of  policy   and  directs   the                                                               
commissioners to review the net  present value of the future cash                                                               
flow to the  state and the likelihood of success  of the project.                                                               
Mr. Bullock acknowledged that the  committee does have the option                                                               
of  including  more  criteria  and policy  decision  in  the  Act                                                               
itself,  which  may reduce  the  amount  of  time that  would  be                                                               
necessary for the legislature to  make its own decision regarding                                                               
whether to issue a license.                                                                                                     
1:16:37 PM                                                                                                                    
REPRESENTATIVE SEATON asked  whether the bill is the  only way to                                                               
go,  and was  the original  tact of  disapproval disregarded  for                                                               
legal reasons.                                                                                                                  
MR. BULLOCK  answered that  he didn't  know.   When the  bill was                                                               
introduced it  was a little  more consistent with  the separation                                                               
of powers  doctrine in that  the legislature could review  it and                                                               
it was  an advisory request.   The issue would only  arise if the                                                               
legislature  disapproved a  license and  the argument  is whether                                                               
it's the  legislature's opinion  or is  binding on  the governor.                                                               
If  it's  binding on  the  governor,  then under  the  A.L.I.V.E.                                                             
Voluntary case it should probably be in the form of a bill.                                                                   
1:18:29 PM                                                                                                                    
CO-CHAIR  GATTO asked  whether it's  a  legal posture  to say  if                                                               
something isn't  disapproved by default,  it's approved.   Is the                                                               
legislative  approval   mandatory  and  does  it   count  if  the                                                               
legislature simply doesn't disapprove, he further asked.                                                                        
MR.   BULLOCK  specified   that  under   CSHB  177(O&G)   if  the                                                               
legislature  does nothing,  the  license dies.   The  legislation                                                               
requires the legislature  to take positive action  to approve the                                                               
license before  it can  be issued.   In  further response  to Co-                                                               
Chair  Gatto,  Mr. Bullock  said  that  the original  legislation                                                               
specified  that if  the legislature  did nothing,  that would  be                                                               
deemed to be approval.                                                                                                          
1:19:38 PM                                                                                                                    
MR. BULLOCK,  continuing discussion  of the separation  of powers                                                               
issue, pointed  out that CSHB 177(O&G)  establishes a coordinator                                                               
position in the  governor's office.  This  position would "grease                                                               
the  skids for  the licensee;  it's  supposed to  make sure  that                                                               
state agencies aren't  doing anything unnecessary to  hold up the                                                               
project  and  to expedite,  but  still  make  sure that  all  the                                                               
reviews are appropriate," he said.   This bill and the governor's                                                               
original  bill  required  that   the  person  appointed  to  this                                                               
position   be   approved  by   the   legislature.     There's   a                                                               
constitutional issue  because the constitution has  been narrowly                                                               
construed  to  limit  those   positions  subject  to  legislative                                                               
approval.   Mr. Bullock clarified that  this coordinator position                                                               
isn't the head of  any agency, it's a position that  has a job to                                                               
do.   When thinking of  a potential challenge, one  must identify                                                               
who  would challenge  the action.   Mr.  Bullock opined,  "If the                                                               
governor's  agreeing  to  this,  this was  the  position  of  the                                                               
governor's bill, you can expect  that [the legislature] will have                                                               
the  say  on  the  confirmation.   However,  there's  always  the                                                               
possibility  that  if   the  governor  were  to   feel  that  the                                                               
nomination  was unfairly  rejected, then  that would  present the                                                               
separation of powers issues."                                                                                                   
1:21:49 PM                                                                                                                    
MR. BULLOCK turned to another  constitutional issue, which arises                                                               
in  the  statute of  limitations  in  which  a challenge  to  the                                                               
constitutionality  of the  Act  must be  brought  within 90  days                                                               
after  the  license is  issued.    The question  becomes  whether                                                               
something  is  constitutional if  there's  a  challenge within  a                                                               
certain period of time.  He  said, "Generally, an issue like that                                                               
doesn't die and there's also  the Alaska Declaratory Judgment Act                                                               
in  AS 22.10.020(g)  ... requires  an actual  controversy."   The                                                               
courts,  he related,  have been  reluctant  to issue  declaratory                                                               
judgments unless there's  something in controversy.   In the case                                                               
of  a constitutional  challenge with  regard to  contracting away                                                               
the tax issue, there's the  possibility that the courts could say                                                               
that  since  the  taxes  haven't   been  increased  there  is  no                                                               
knowledge as to the actual  tax benefit "under that tax exemption                                                               
that the  state basically guarantees  that whatever the  tax rate                                                               
is  at the  beginning  of  the first  binding  open season,  that                                                               
that's going  to be the tax  rate that applies to  producers that                                                               
make  a commitment  to ship  through the  pipeline for  10 years.                                                               
So, the  courts say, 'Well, it's  not ripe yet; let's  see how it                                                               
works.'  and then  take  the case  ... would  be  outside the  90                                                               
days."   Although  there are  issues with  the 90-day  parameter,                                                               
it's a good idea because timing is important to this matter.                                                                    
1:23:33 PM                                                                                                                    
MR.  BULLOCK then  turned to  the severability  section that  the                                                               
administration requested be added.   He said that all legislation                                                               
the  legislature  enacts is  presumed  to  have the  severability                                                               
clause.  The  severability clause means that if  any provision in                                                               
an Act is found to be  unconstitutional, the remainder of the Act                                                               
survives.   However, at the  same time one  reviews severability,                                                               
one  must  consider  the  importance  of the  provision.    If  a                                                               
provision that's found to be  unconstitutional is critical to the                                                               
entire  project,  the  severability  clause isn't  of  much  help                                                               
because the project won't go forward.                                                                                           
1:24:19 PM                                                                                                                    
CO-CHAIR GATTO asked  then if Mr. Bullock is  suggesting that the                                                               
90-day provision  isn't necessary or  that it should  be included                                                               
with the hope that it isn't challenged.                                                                                         
MR. BULLOCK  answered, "You  don't decide  constitutional issues,                                                               
but  you  can  decide  risks."   With  regard  to  the  issue  of                                                               
contracting away  the tax, it has  been said many times  that the                                                               
Supreme   Court    will   be   the   final    arbiter   regarding                                                               
constitutionality.    However,  the  legislature  would  need  to                                                               
decide where to take the risk and the likelihood of success.                                                                    
1:25:00 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG related  his understanding  that those                                                               
who put in  a proposal that's considered have to  waive the right                                                               
to challenge.  He asked if  there's an ability to limit those who                                                               
don't put forth a proposal.                                                                                                     
MR. BULLOCK  directed the committee's  attention to page  3, line                                                               
25.   He pointed  out that  under the  proposed AS  43.90.130 the                                                               
license itself  is a  contract.  This  section also  includes the                                                               
commitment that the applicant won't  appeal if the application is                                                               
accepted or  if the commissioners  don't award an  application to                                                               
anyone.   The aforementioned is  a contractual  provision between                                                               
the  state and  the person  who submitted  the application.   Mr.                                                               
Bullock  noted  that  anybody  in   the  state  has  standing  to                                                               
challenge the  constitutionality of it  and aren't bound  by [the                                                               
aforementioned  contractual  provision].    Furthermore,  certain                                                               
issues  that are  a matter  of public  policy may  be challenged.                                                               
The provision not  to appeal only applies to  the licensee, which                                                               
is why something similar to  the statute of limitations provision                                                               
is  necessary to  limit the  period  in which  someone can  bring                                                               
forward a challenge, he said.                                                                                                   
1:27:32 PM                                                                                                                    
CO-CHAIR GATTO  posed a scenario in  which a licensee has  a side                                                               
agreement with  a subcontractor,  and asked if  that would  be an                                                               
adequate connection allowing  a subcontractor to sue  for loss of                                                               
revenue or profit.                                                                                                              
MR. BULLOCK  explained that when  the commissioners  evaluate the                                                               
applications they will review who  the applicant is going to rely                                                               
on to  carry the  application forward.   He  then noted  that the                                                               
commissioners can establish  additional requirements beyond those                                                               
specified in the legislation.                                                                                                   
1:28:23 PM                                                                                                                    
MR.  BULLOCK, returning  to  Representative Guttenberg's  earlier                                                               
comments,  pointed out  that the  ability to  waive the  right to                                                               
appeal the award to another applicant  is located on page 8, line                                                               
22.  At this point, the applicant  is committing to that.  If the                                                               
committee desires  to address  that directly,  as a  condition of                                                               
receiving the  license, the  licensee could  also be  required to                                                               
have  the  subcontractors make  the  same  waiver.   Mr.  Bullock                                                               
opined that  one must ensure  that the requirements  don't become                                                               
so  onerous that  no one  applies.   Therefore, there  must be  a                                                               
balance with regard to the number of requirements imposed.                                                                      
1:29:50 PM                                                                                                                    
REPRESENTATIVE   WILSON  inquired   as   to   how  involved   the                                                               
application is for the [state].                                                                                                 
MR.  BULLOCK explained  that the  plan in  the bill  is that  the                                                               
commissioners  will  issue  a request  for  applications.    That                                                               
request will  have certain requirements  that the  applicant will                                                               
have to  meet.   There are also  statutory requirements  that the                                                               
application must  meet, which must  be very complete.   After all                                                               
the  applications have  been received  by the  commissioners, the                                                               
applications are  reviewed per the requirements.   The applicants                                                               
that  don't   satisfy  the  requirements  are   rejected  by  the                                                               
commissioners.   Under  proposed  AS 43.90.140,  on  page 9,  the                                                               
statute  specifies  that  the   commissioners  can  request  more                                                               
information.     Once  those   applications  are   complete,  the                                                               
information and applications  are released to the  public.  After                                                               
public review, the applications are  evaluated and ranked as laid                                                               
out  on page  10,  proposed AS  43.90.170.   At  this point,  the                                                               
commissioners make  the decision  based on what  the applications                                                               
present.     During  this  time  the   commissioners  review  the                                                               
anticipated  cash flow  to the  state, the  net present  value of                                                               
anticipated  cash  flow   from  the  project,  as   well  as  the                                                               
likelihood of success.   At that point the information  has to be                                                               
very  complete.   In fact,  the  information probably  has to  be                                                               
completed prior to the notice  for public comment because at that                                                               
point the  applications that  will be  considered will  have been                                                               
1:33:23 PM                                                                                                                    
MR. BULLOCK  turned to  the net  present cash  flow.   He related                                                               
that the  state's greatest  interest in the  gasline will  be the                                                               
netback value on the North Slope.   The netback value starts with                                                               
the  price  of  the  gas  coming   out  of  the  pipe  minus  the                                                               
transportation costs,  which in  the case of  an over  land route                                                               
would be the  tariff while for a marine route  it would be tanker                                                               
costs, liquefaction,  the pipeline  to the  North Slope,  and the                                                               
cost of the gas treatment plant.   Mr. Bullock pointed out that a                                                               
project that looks  great for the pipeline  company, their tariff                                                               
will guarantee a rate of return.   However, there still may be no                                                               
wellhead value if  the tariff is so high that  it [surpasses] the                                                               
difference between what  the gas sells for  after subtracting the                                                               
transportation costs.  The aforementioned  is why so much of this                                                               
bill is  aimed at  keeping the  tariff down.   One intent  of the                                                               
bill is  that the $500  million contributed  by the state  not be                                                               
included  in   the  base  that  the   Federal  Energy  Regulatory                                                               
Commission (FERC)  or the Regulatory  Commission of  Alaska (RCA)                                                               
will review when  determining the tariff.  He  explained that the                                                               
pipeline owner  is going to  receive a certain return  on his/her                                                               
costs, and  therefore keeping  the $500  million out  will reduce                                                               
the  costs  and  keep  the  tariff  down.    He  noted  that  the                                                               
commissioners  will  also  review   the  ability  of  whoever  is                                                               
carrying the project forward to  minimize cost overruns.  Anytime                                                               
there are  costs, one must keep  in mind the effect  it will have                                                               
on the  tariff.  Provisions  in CSHB  177(O&G) relate to  the gas                                                               
treatment plant on  the North Slope, which is part  of the tariff                                                               
and thus  there are additional  requirements put in place  by the                                                               
committee that  request more information  related to  the netback                                                               
value.   The  netback value,  he  highlighted, is  the basis  for                                                               
determining  the value  of the  royalty.   Furthermore, with  the                                                               
petroleum production profits tax  (PPT) that's the starting point                                                               
for determining the taxable value of gas.                                                                                       
1:35:49 PM                                                                                                                    
CO-CHAIR JOHNSON  asked if by  merely submitting  an application,                                                               
an entity gives up its right to appeal.                                                                                         
MR. BULLOCK responded,  "That's the condition of  this, that they                                                               
have to make that commitment in the application."                                                                               
CO-CHAIR JOHNSON asked if people can be deprived of due process.                                                                
MR. BULLOCK opined that the courts  will have to decide that.  He                                                               
pointed  out that  the courts  will take  into consideration  the                                                               
fact that the legislature has said  that it is a final action and                                                               
not subject to  further approval.  However, he  mentioned that in                                                               
the K&L Distributors case the courts  said that if there is a due                                                             
process  violation,  it  will  be  reviewed  because  a  person's                                                               
constitutional rights  are separate from a  legislative enactment                                                               
that  doesn't allow  an appeal.   At  the same  time, there  is a                                                               
presumption that  what the legislature passes  is constitutional.                                                               
Therefore,  the  courts  will  review  and  strictly  construe  a                                                               
provision  to uphold  its constitutionality  while a  due process                                                               
challenge may trump a legislative prohibition.                                                                                  
1:37:12 PM                                                                                                                    
CO-CHAIR JOHNSON said  he envisions a situation  in which someone                                                               
submits  an  application  that  is  rejected.    He  related  his                                                               
understanding that between the time  the legislature [receives an                                                               
application]  and approves  a contract,  all the  applicants that                                                               
weren't awarded could go to  court before the legislature has the                                                               
opportunity to make the award.                                                                                                  
MR. BULLOCK specified that the  application is the commitment not                                                               
to protest,  and therefore would  apply to anyone who  submits an                                                               
application.   The commissioners have  a lot of  discretion along                                                               
with  some  guidance.   When  the  court  reviews  administrative                                                               
determinations, it  will defer  on factual  decisions made  by an                                                               
agency, the  commissioners, so long  as they are reasonable.   If                                                               
there's a flaw  in the process, such as a  due process issue, and                                                               
the consideration  of the applications does  violate due process,                                                               
then that  becomes a legal  issue that the courts  must evaluate.                                                               
He  mentioned  that there  would  be  constitutional issues  that                                                               
override.     Basically,  if  the  legislature   does  everything                                                               
reasonably  and  follows the  procedures  to  which everyone  has                                                               
notice, there won't be much basis for appeal.                                                                                   
1:39:10 PM                                                                                                                    
CO-CHAIR  JOHNSON expressed  concern that  the legislature  is in                                                               
court  before  reaching  the  process  or  anyone  submitting  an                                                               
application based on denial of due process.                                                                                     
MR. BULLOCK  said this is one  of those issues on  which one must                                                               
speculate.  He asked if  including a provision in the application                                                               
requirements would discourage someone  from even taking the risk.                                                               
There may  be those who are  willing to take the  risk and submit                                                               
an application,  while retaining the  ability to appeal  based on                                                               
the  constitutional right  to due  process.   Mr. Bullock  opined                                                               
that  if more  than one  application is  received, litigation  of                                                               
various issues in HB 177 should be expected.                                                                                    
1:40:26 PM                                                                                                                    
CO-CHAIR  GATTO  posed a  scenario  in  which there's  a  winning                                                               
bidder and a  license is issued, and asked if  the winning bidder                                                               
could back out at that point.                                                                                                   
MR.  BULLOCK  pointed  out  that  the  legislation  includes  two                                                               
provisions  that  provide  for  revoking a  license  once  it  is                                                               
issued.  One  such provision is the  abandonment provision, which                                                               
is based on  whether the project is uneconomic.   The other issue                                                               
in  which  the  license  could  be terminated  is  if  there's  a                                                               
violation  of the  license agreement.   He  noted that  the state                                                               
makes assurances that  benefits to a competing  pipeline won't be                                                               
given.  If the aforementioned  is violated, there's a requirement                                                               
that the state pay treble damages,  which are based on the amount                                                               
of  qualified expenses  the licensee  spent.   The license  could                                                               
also be  revoked if there  has been a  violation of the  terms of                                                               
the license  by the licensee.   The commissioners  will determine                                                               
whether the violation has been  cured, at which point the parties                                                               
can continue the  project.  The bill includes  provisions for the                                                               
case  of a  revoked  license such  that  permits and  information                                                               
generated during the project will be transferred to the state.                                                                  
1:42:02 PM                                                                                                                    
REPRESENTATIVE SEATON  commented that there's  a lot of  case law                                                               
regarding  nonresponsive bids  being  thrown out.    He asked  if                                                               
that's the point at which the state would be in court.                                                                          
MR. BULLOCK  replied no.   By  regulation, the  commissioners are                                                               
required to  set up informal  appeal rights as specified  on page                                                               
3, line 21, as follows:                                                                                                         
     (c)  The  provisions  of  AS  36.30  do  not  apply  to                                                                    
     requests for  applications under this chapter,  but the                                                                    
     commissioners  shall  adopt  regulations  that  provide                                                                    
     protest   and  appeal   procedures   relating  to   the                                                                    
     solicitation  of  the  applications   and  award  of  a                                                                    
     license   that  are   substantially   similar  to   the                                                                    
     provisions of AS 36.30.550 - 36.30.699.                                                                                    
MR. BULLOCK  opined that the aforementioned  provision along with                                                               
the  commitment  not  to appeal  would  preserve  the  applicants                                                               
administrative appeal  rights before the commissioners,  but that                                                               
they wouldn't take it to court  after that.  That, he said, could                                                               
be made clear in the bill.                                                                                                      
1:43:37 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG inquired as  to the timeline, and asked                                                               
if the procedures have to be  written in regulations prior to the                                                               
issuance of request for proposals (RFP).                                                                                        
MR.  BULLOCK answered  that  it could  happen  concurrently.   He                                                               
noted  that there  are several  places in  the bill  that require                                                               
regulations.   The administration  can provide  a better  idea of                                                               
the  timeframe  to  do  so.   He  recalled  testimony  [from  the                                                               
administration] that  the hope is  that there will be  a licensee                                                               
in the  next session.   He then noted  that there is  a provision                                                               
for emergency regulations, which  shortens the time period during                                                               
which  regulations would  be adopted.   The  PPT bill  includes a                                                               
provision  specifying that  the  agencies  can adopt  regulations                                                               
that are retroactive  to the start date of the  effective date of                                                               
the  Act, provided  that's  specified.   Therefore,  some of  the                                                               
regulations may not be complete  at the time the applications are                                                               
received,  but the  regulations could  apply later.   Of  course,                                                               
there will be a timing issue, he acknowledged.                                                                                  
1:45:27 PM                                                                                                                    
REPRESENTATIVE ROSES  recalled that Mr. Bullock  said there would                                                               
be several issues that would probably end up being litigated.                                                                   
MR. BULLOCK  replied yes, adding  that it depends upon  where the                                                               
interest lays.   He identified the following  issues:  separation                                                               
of  powers  issues,  legislative  approval of  [the  license]  or                                                               
nominee   to    the   coordinator,   statute    of   limitations,                                                               
constitutionality of  locking the  tax benefit  by contract.   In                                                               
further  response to  Representative Roses,  Mr. Bullock  related                                                               
that there  are a number of  provisions in the bill  that address                                                               
possible  litigation.   He  related  his  understanding that  the                                                               
administration offered  a bill  that tried  to eliminate  as many                                                               
possibilities  of  litigation as  possible.    However, one  must                                                               
realize that  there are  parties that  are directly  connected to                                                               
the bill, the applicants, and  their constitutional rights to due                                                               
process and fair consideration of  the applicant.  There are also                                                               
those  who  will  simply  have  political  differences  with  the                                                               
process.  Mr. Bullock emphasized  his belief that it's impossible                                                               
to stop  litigation on a  project this big.   He opined  that the                                                               
bill  does as  good  a job  as possible  to  avoid litigation  or                                                               
lessen  the  issues   that  could  be  litigated.     Giving  the                                                               
commissioners discretion is helpful so  that the action they take                                                               
can't be struck  down so long as they acted  reasonably and there                                                               
was a  reasonable basis  of what they  reviewed to  support their                                                               
REPRESENTATIVE  ROSES  commented that  he  found  comfort in  Mr.                                                               
Bullock's comments.                                                                                                             
1:49:34 PM                                                                                                                    
MR. BULLOCK  opined that CSHB  177(O&G) contains  some structural                                                               
improvements.   For example, originally the  coordinator position                                                               
and  the intent  that agencies  expedite the  review of  anything                                                               
related to the license were moved  into Article 2 since they were                                                               
directly related to the licensee.   Another structural change was                                                               
to move the earlier mentioned  abandonment section of the bill to                                                               
the end  of Article 2.   The public review and  comment was moved                                                               
ahead of the ranking and  evaluation section by the commissioners                                                               
in order  that the structure of  the bill is consistent  with the                                                               
intent  for the  public  to  review all  the  applications.   Mr.                                                               
Bullock pointed out that CSHB  177(O&G) includes a requirement of                                                               
an applicant for  a gas utility revolving loan  fund, which means                                                               
that  the applicant  must have  five take-off  points within  the                                                               
state  to provide  gas to  the state.   The  aforementioned would                                                               
provide at  least one option  for financing a utility  to install                                                               
gas lines for home delivery.                                                                                                    
1:52:14 PM                                                                                                                    
CO-CHAIR GATTO asked if the  location of the five take-off points                                                               
are defined.                                                                                                                    
MR.  BULLOCK  said  that the  committee  [could  craft  language]                                                               
specifying the  location of the  take-off points.  He  noted that                                                               
the  bill  includes  references  that  as  more  gas  fields  are                                                               
developed that there be in-take points along the line.                                                                          
1:52:57 PM                                                                                                                    
CO-CHAIR GATTO  related his understanding that  an off-take point                                                               
is  nothing more  than a  place  where a  valve is  and asked  if                                                               
that's correct.                                                                                                                 
MR. BULLOCK deferred to DNR staff.                                                                                              
1:53:10 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  pointed out  that a provision  of FERC                                                               
Order  2005 includes  an  in-state needs  study.   The  provision                                                               
specifies that any prospective applicant  must conduct or adopt a                                                               
study  of  gas  consumption  needs   and  prospective  points  of                                                               
delivery within the  state.  He asked if Mr.  Bullock is aware of                                                               
MR. BULLOCK said  that he was aware of it.   Furthermore, many of                                                               
the  requirements  that  are  required to  be  submitted  to  the                                                               
commissioner are similar to those  in FERC's regulations relating                                                               
to an  open season.   This  Act is  written so  that it  could be                                                               
applied to  either a project  that is eventually offered  to FERC                                                               
or that  would be presented  to the RCA.   He pointed out  that a                                                               
license is a contract and  thus regardless of the in-state study,                                                               
there would be five take-off  points allowing people in the state                                                               
access to the gas.                                                                                                              
1:54:53 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG questioned  whether it's an appropriate                                                               
section to have in AGIA as well as the FERC study.                                                                              
MR.  BULLOCK  acknowledged  that   the  committee  could  do  the                                                               
aforementioned.   He pointed  out that  the committee  could also                                                               
make  someone  else  make  the  determination.    Again,  it's  a                                                               
balancing  act  in which  the  state  provides $500  million  and                                                               
places requirements [on  the licensee].  The question  is at what                                                               
point  would  a  potential  applicant decide  not  to  submit  an                                                               
application because of the requirements.                                                                                        
1:56:12 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  opined,  "The sooner  something  like                                                               
this is  in consideration, the better  off we would be  as far as                                                               
the study."                                                                                                                     
1:56:27 PM                                                                                                                    
MR. BULLOCK,  returning to  the issue of  whether the  project is                                                               
uneconomic or not,  pointed out that one of  the changes embodied                                                               
in CSHB 177(O&G) is that an  arbitration panel will be used.  The                                                               
governor's  bill  was  originally   introduced  such  that  in  a                                                               
situation in  which the  commissioners believe  a project  is not                                                               
uneconomic and the licensee believes  it is, the licensee and the                                                               
commissioners would  agree on a  third party to make  a decision.                                                               
He recalled that  at the request of the  administration, the bill                                                               
was changed  such that the  aforementioned situation would  go to                                                               
an  arbitration  panel  selected   by  the  American  Arbitration                                                               
Association.  The decision of that  panel would be filed in court                                                               
and be the  decision that's acted upon.  He  noted that there are                                                               
provisions if the project is found to be uneconomic.                                                                            
CO-CHAIR GATTO related his  understanding that the aforementioned                                                               
situation  is when  each side  picks  an arbitrator  and the  two                                                               
sides pick a third arbitrator to make the decision.                                                                             
MR. BULLOCK  said he believes  that's the  case.  He  pointed out                                                               
that the  abandonment of  a project is  addressed in  proposed AS                                                               
43.90.240 on  page 16, line  24, in  which subsection (b)  is the                                                               
arbitration provision.                                                                                                          
1:58:28 PM                                                                                                                    
CO-CHAIR  GATTO   highlighted  that  the  bill   doesn't  address                                                               
environmental  considerations.   He  posed a  situation in  which                                                               
there is  a charge that  the polar bears  will suffer due  to the                                                               
construction of  the pipeline,  which causes  the pipeline  to be                                                               
stopped halfway.   In such a situation, do  the pipeline builders                                                               
take  all  of   the  costs  or  does  the  state   share  in  the                                                               
MR.  BULLOCK  opined that  this  bill  is,  in some  ways,  quite                                                               
narrow.  This bill, he  explained, solicits someone that wants to                                                               
develop the  project, obtain  the financing, and  live up  to the                                                               
requirements and commitments  made in the application.   The bill                                                               
includes a  provision that if  there is a state  agency reviewing                                                               
an environmental  issue, it's  to be done  fairly and  quickly in                                                               
order not  to unreasonably hold  up the  project.  He  noted that                                                               
since  it's  a  pipeline  project, there  will  be  environmental                                                               
impact  statements  associated with  it  and  addressed by  other                                                               
environmental  and state  laws.   The  risk  associated with  any                                                               
project that  could result in  an environmental  challenge aren't                                                               
addressed in  this bill, which he  said he didn't believe  is the                                                               
place to address it.                                                                                                            
2:00:26 PM                                                                                                                    
CO-CHAIR GATTO  inquired as  to what happens  the day  after this                                                               
bill is passed.                                                                                                                 
MR.  BULLOCK highlighted  that the  effective date  is an  issue.                                                               
Section  6  of  the  Act  says   that  it's  the  intent  of  the                                                               
legislature that  the request for  applications be  issued within                                                               
90 days.   He suggested that the administration be  asked if it's                                                               
working on that aspect already.   In further response to Co-Chair                                                               
Gatto, Mr.  Bullock related  his understanding  that the  60 days                                                               
for review comes after the  applications have been received.  The                                                               
time  that  isn't   addressed  in  the  bill  is   the  time  the                                                               
commissioners will  set for  the applications  to be  returned to                                                               
them.    The requirements,  he  pointed  out,  seem to  be  quite                                                               
2:03:00 PM                                                                                                                    
CO-CHAIR GATTO surmised  then that in the worst  case scenario 90                                                               
days is necessary  to get it out, an undetermined  amount of time                                                               
for the applicants to be returned, and a 60-day review period.                                                                  
MR. BULLOCK  clarified that the  60-day period for  public review                                                               
is  after   the  commissioners  have  determined   that  all  the                                                               
applications  are complete.   The  initial application  review by                                                               
the commissioners prior  to [the 60-day public  review period] is                                                               
in proposed  AS 43.90.140 on  page 9  and doesn't specify  a time                                                               
period.  Therefore, that period is flexible.                                                                                    
2:04:24 PM                                                                                                                    
CO-CHAIR  GATTO  posed  a scenario  in  which  the  commissioners                                                               
reject an application  on the basis that  it's nonconforming, but                                                               
a winner  hasn't been selected.   In  such a situation,  is there                                                               
any   reason   that   an  applicant   couldn't   modify   his/her                                                               
MR. BULLOCK pointed out that  those applicants that don't respond                                                               
adequately are  "out."  As  long as  an applicant has  a complete                                                               
application, that applicant will  move forward.  Those applicants                                                               
without a complete  application have an option  to reconsider and                                                               
start the process over again.                                                                                                   
2:05:15 PM                                                                                                                    
REPRESENTATIVE   GUTTENBERG  drew   attention   to  proposed   AS                                                               
43.90.140, on page 9, line 19,  and inquired as to the definition                                                               
of "timely".                                                                                                                    
MR. BULLOCK explained that when  commissioners send out notice of                                                               
the  need for  additional  information, it  specifies a  response                                                               
time.    Therefore, "timely"  would  be  established by  the  two                                                               
2:05:50 PM                                                                                                                    
CO-CHAIR  GATTO   inquired  as  to   what  happens  if   the  two                                                               
commissioners disagree.                                                                                                         
MR.  BULLOCK  related  his  assumption   that  the  boss  of  the                                                               
commissioners  [the  governor]  would  break the  tie.    He  did                                                               
mention  that  by the  time  this  goes  forward there  could  be                                                               
another governor.   He  then noted that  there are  provisions of                                                               
the  license that  continue after  the license  has been  issued.                                                               
Mr. Bullock  opined that  at some point,  perhaps after  10 years                                                               
when the project  has commenced operation, the  license and terms                                                               
would probably just run out.                                                                                                    
2:07:09 PM                                                                                                                    
REPRESENTATIVE  SEATON posed  a  scenario in  which  there is  an                                                               
uneconomic  decision or  an arbitration  panel.   He related  his                                                               
understanding that the  language on page 17, line  22, means that                                                               
a  licensee  can't  pull  the  license but  is  required  by  the                                                               
contract to deliver the license if the state agrees to pay.                                                                     
MR. BULLOCK noted his agreement  that the licensee is required to                                                               
give  that information  and  the reimbursement  is  based on  the                                                               
qualified expenditures  described in proposed AS  43.90.110.  The                                                               
qualified  expenditures are  what the  state money  has gone  to.                                                               
Mr.  Bullock  then related  his  belief  that  there could  be  a                                                               
determination that  the project  is uneconomic, which  means that                                                               
the state isn't involved, but  the project itself could continue.                                                               
The  legislation   doesn't  say  that  the   pipeline  itself  is                                                               
uneconomic, rather it's  whether it's uneconomic to  the state to                                                               
keep paying  money or  for the project  applicant to  continue to                                                               
have  to meet  the requirements  imposed  as a  condition of  the                                                               
license.    He  noted  that  there's  the  possibility  that  the                                                               
pipeline would continue without the restrictions of the license.                                                                
2:08:56 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  if the  legislation should  include                                                               
language to preclude such a  scenario and that a determination is                                                               
made regarding whether the state wants to do that.                                                                              
MR.  BULLOCK  acknowledged  that  it could  be  addressed.    The                                                               
Senate's  companion bill  includes  a  statement specifying  that                                                               
AGIA  doesn't preclude  someone  else from  building a  pipeline.                                                               
Within  CSHB 177(O&G),  if the  inducements offered  in AGIA  are                                                               
offered to a  competing pipeline, then this license  ends and the                                                               
state  has violated  its assurance.    This bill,  he opined,  is                                                               
about inducements that draw someone to put a project together.                                                                  
2:10:37 PM                                                                                                                    
CO-CHAIR  GATTO  opined that  he  didn't  foresee anyone  lending                                                               
money  [for  a  pipeline]  without  a  firm  transportation  (FT)                                                               
commitment.   Therefore,  he surmised  that until  transportation                                                               
commitments are obtained, there is no pipeline.                                                                                 
MR. BULLOCK deferred to DNR  and the Department of Revenue (DOR).                                                               
However, he  related his understanding  that FT  commitments mean                                                               
that  "they" are  committing to  the  capacity and  even if  they                                                               
aren't shipping  gas, they are  still going  to pay money  to the                                                               
2:12:23 PM                                                                                                                    
CO-CHAIR  JOHNSON  asked  if  the  Senate  companion  legislation                                                               
allows for a competing pipeline by removing the treble damages.                                                                 
MR. BULLOCK  emphasized that this  Act is to offer state money as                                                               
an encouragement for someone to  move forward with a pipeline and                                                               
in return for  the state's money there is the  desire for certain                                                               
assurances that the [applicant] makes  in the application.  There                                                               
would  still be  gas on  the  North Slope  and the  need for  the                                                               
pipeline  to be  developed, he  opined.   As  written, this  bill                                                               
doesn't preclude another pipeline from going forward.                                                                           
2:13:44 PM                                                                                                                    
CO-CHAIR JOHNSON asked if another  pipeline would receive the tax                                                               
MR. BULLOCK  replied no, those  are the commitments to  a project                                                               
licensed under  AGIA.  In  further response to  Co-Chair Johnson,                                                               
Mr.  Bullock said  he didn't  believe there  is anything  in AGIA                                                               
that prevents  a private entrepreneur  from going forward  with a                                                               
2:14:16 PM                                                                                                                    
CO-CHAIR JOHNSON recalled that in  the original bill the pipeline                                                               
[coordinator]  couldn't utilize  state agencies  to assist  other                                                               
pipelines, which  is no  longer in  CSHB 177(O&G).   He  asked if                                                               
anything  in CSHB  177(O&G)  prohibits the  pipeline  or a  state                                                               
agency from lending its assistance in forwarding a venture.                                                                     
MR. BULLOCK pointed out that  the assurances that the state makes                                                               
under AGIA are on page 23,  line 13.  He highlighted the language                                                               
on page 23, lines 16-21, which read:                                                                                            
     If, before  the commencement of  commercial operations,                                                                    
     the  state  extends   to  another  person  preferential                                                                    
     royalty, tax, or monetary treatment  for the purpose of                                                                    
     facilitating  the construction  of a  competing natural                                                                    
     gas pipeline project in this  state and if the licensee                                                                    
     is in  compliance with the requirements  of the license                                                                    
     and  with   the  requirements  of  state   and  federal                                                                    
     statutes and  regulations relevant to the  project, the                                                                    
     licensee is entitled to payment from the state ...                                                                         
2:16:08 PM                                                                                                                    
CO-CHAIR JOHNSON  posed a hypothetical  situation in  which three                                                               
or four years from now  the legislature decides it should revisit                                                               
the PPT and pass a law.   He asked if the aforementioned would be                                                               
construed,  under AGIA,  as  an economic  inducement  to build  a                                                               
pipeline and the [state] would be forced to treble damages.                                                                     
MR. BULLOCK answered that it could  be.  He pointed out that with                                                               
monetary  treatment  one must  review  what  is being  given  and                                                               
whether it's for  the purpose of the construction  of a competing                                                               
pipeline.  He characterized it as a judgment call.                                                                              
2:17:08 PM                                                                                                                    
CO-CHAIR JOHNSON  asked if  by attempting to  stay out  of court,                                                               
the state  is giving up  its ability to  change any taxes  on the                                                               
North Slope  for the  next 10-15  years or  when the  pipeline is                                                               
MR.  BULLOCK said  that if  something the  state does  monetarily                                                               
could  be construed  to  violate the  assurance,  then the  state                                                               
would  have to  pay damages  under this  section.   If it  were a                                                               
general  law,  then  arguably  it   wasn't  for  the  purpose  of                                                               
facilitating another pipeline.  With  regard to whether the state                                                               
is locking  taxes, the only provision  that attempts to do  so is                                                               
the  tax inducement  that's  offered to  shippers.   Mr.  Bullock                                                               
opined  that he  didn't believe  what's being  proposed could  be                                                               
viewed  as  prohibiting the  legislature  from  changing the  tax                                                               
2:18:35 PM                                                                                                                    
REPRESENTATIVE SEATON,  referring to page  23, line 17,  asked if                                                               
the language  "the state extends  to another  person preferential                                                               
royalty, tax,  or monetary treatment"  would mean that  the state                                                               
would be  giving an  inducement to a  company or  pipeline entity                                                               
solely as a  preference.  If the state decided  to change its tax                                                               
or  royalty   treatment,  he  opined   that  it  wouldn't   be  a                                                               
preferential tax.                                                                                                               
2:19:17 PM                                                                                                                    
CO-CHAIR  JOHNSON posed  a scenario  in  which "Craig's  Pipeline                                                               
Company" obtains the pipeline contract  and the producers receive                                                               
a tax  break even  though they're not  involved in  the pipeline.                                                               
He  asked if  that is  preferential  treatment to  allow them  to                                                               
construct  a  pipeline.    As   "Craig's  Pipeline  Company",  he                                                               
contended   that  the   aforementioned   would  be   preferential                                                               
treatment and would result in the company going to court.                                                                       
REPRESENTATIVE  SEATON said  that would  be  the case  if it's  a                                                               
preferential tax for  a pipeline.  However, if  it's referring to                                                               
the PPT or an  oil tax change that impacts the  entire state or a                                                               
region, that wouldn't be a preferential tax.                                                                                    
MR. BULLOCK  said the aforementioned  are good questions  for the                                                               
administration.   He  then posed  a scenario  in which  the route                                                               
that's selected  is the in-state  route with the  liquefaction of                                                               
natural gas and  water-borne delivery.  At some  point, the state                                                               
may decide  to pass a bill  similar to AGIA that  offers the same                                                               
benefits.  He opined that is what this [provision] is aimed at.                                                                 
2:20:43 PM                                                                                                                    
CO-CHAIR GATTO,  referring to  page 23, line  16, inquired  as to                                                               
the meaning of "commercial operations."                                                                                         
MR. BULLOCK  said that the  term refers  to sending gas  down the                                                               
line, which is specified in  the definitions section of the bill.                                                               
He pointed out  that the definition refers to the  gas that would                                                               
be subject to the tariff, not test gas.                                                                                         
2:21:19 PM                                                                                                                    
CO-CHAIR  GATTO related  his assumption  that  there's much  work                                                               
that  can be  done  prior  to commercial  operations.   In  fact,                                                               
during  that time  is when  there's  the secondary  builder.   He                                                               
asked  if it's  possible to  simultaneously have  a 48-inch  line                                                               
going down the highway and a 16-inch line going to Valdez.                                                                      
MR. BULLOCK responded  that he didn't know.   However, he pointed                                                               
out that  one of  the restrictions  in the  assurances is  that a                                                               
competing natural gas project has to  be capable of more than 500                                                               
million  cubic feet  (mcf)  and it  has to  be  North Slope  gas.                                                               
Therefore, it depends upon the  size and throughput of the source                                                               
of gas.                                                                                                                         
2:22:17 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG related  his understanding that nothing                                                               
in  AGIA addresses  property  taxes and  the  waiver of  property                                                               
taxes during  construction.   He asked  if the  aforementioned is                                                               
assumed  to  be   excluded  from  this  and   that  an  applicant                                                               
interested in such would need to  include such a provision in the                                                               
MR. BULLOCK pointed  out that the state does have  a 20 mills tax                                                               
on oil and gas property as specified  in AS 43.56.  This would be                                                               
a good question for the administration.                                                                                         
REPRESENTATIVE  GUTTENBERG  recalled   that  under  the  previous                                                               
administration's  plan there  was  a  study identifying  pipeline                                                               
impacts, which amounted to about $180 million.                                                                                  
2:23:45 PM                                                                                                                    
CO-CHAIR  GATTO  mentioned  that  the state  has  had  plenty  of                                                               
experience with  the impact of  the Trans-Alaska  Pipeline System                                                               
(TAPS)  on  communities.   However,  the  impact  to  communities                                                               
occurs even before construction, although there's no revenue.                                                                   
2:24:15 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  recalled that under TAPS  there was an                                                               
exemption during  construction, but impact aide  was available to                                                               
the state.                                                                                                                      
MR. BULLOCK highlighted that one  interesting provision in HB 177                                                               
is  the provision  that provides  that a  project licensee  would                                                               
benefit from a state training  program.  That inducement has been                                                               
changed in CSHB  177(O&G) by including a  provision that requires                                                               
the  commissioner   of  the  Department  of   Labor  &  Workforce                                                               
Development  (DLWD) to  develop a  state training  program, which                                                               
could be construction  jobs or jobs to operate  the pipeline upon                                                               
its construction.                                                                                                               
2:25:25 PM                                                                                                                    
CO-CHAIR GATTO  surmised then that  there's no explanation  as to                                                               
what is  expected to happen,  just that the DLWD  commissioner is                                                               
charged with that ability.                                                                                                      
MR. BULLOCK noted his agreement,  and pointed out the language on                                                               
page 24, line 21, proposed AS 43.90.470, which read:                                                                            
     The  commissioner of  labor  and workforce  development                                                                    
     shall develop a job  training program that will provide                                                                    
     training   for  Alaskans   in   gas  pipeline   project                                                                    
     management, construction,  operations, maintenance, and                                                                    
     other gas pipeline-related positions.                                                                                      
2:25:54 PM                                                                                                                    
CO-CHAIR GATTO  asked if  the funding  to do  so would  come from                                                               
general fund (GF) monies or would a funding bill be required.                                                                   
MR. BULLOCK  indicated that the aforementioned  language could be                                                               
the  basis  for  another  bill.     However,  there  are  already                                                               
institutions  and other  vocational schools  that may  design the                                                               
curriculum, but there would be funding involved at some point.                                                                  
CO-CHAIR GATTO  surmised that  there probably  would be  a fiscal                                                               
note  submitted  by  the Department  of  Commerce,  Community,  &                                                               
Economic Development (DCCED) with regard to its part of this.                                                                   
MR. BULLOCK said he isn't sure.                                                                                                 
2:26:46 PM                                                                                                                    
REPRESENTATIVE WILSON related her  understanding that the federal                                                               
government has  committed to helping  Alaska with money  for that                                                               
when the time comes.                                                                                                            
CO-CHAIR GATTO asked if there is a way to verify that statement.                                                                
MR. BULLOCK said that he would ask the commissioner of DLWD.                                                                    
2:27:37 PM                                                                                                                    
CO-CHAIR JOHNSON asked if anything  in this legislation keeps the                                                               
$500  million  or   the  matching  funds  from   being  used  for                                                               
vocational education.                                                                                                           
MR. BULLOCK pointed  out that in the proposed  AS 43.90.110 there                                                               
are descriptions  of the qualified  expenses for which  the state                                                               
will pay.   He  directed attention  to the  provision on  page 2,                                                               
starting  on line  30.   He  related his  understanding that  the                                                               
language means  to do  those things necessary  to go  through the                                                               
first binding  open season.   He  opined that  the aforementioned                                                               
section would directly include that.                                                                                            
2:28:39 PM                                                                                                                    
CO-CHAIR GATTO surmised then that  one could arguably say that it                                                               
isn't necessary  to select  Alaskans to  help build  the pipeline                                                               
and that it wouldn't be a necessary component of the bill.                                                                      
MR. BULLOCK  referred to page  8, line 18, paragraph  (15), which                                                               
specifies that the applicant must  commit to hire qualified state                                                               
residents for pipeline-related positions  to the extent permitted                                                               
by law.                                                                                                                         
CO-CHAIR GATTO highlighted the word  "qualified", and inquired as                                                               
to whether  it's statutorily determined  or is determined  by the                                                               
person hiring the individual.                                                                                                   
MR. BULLOCK expressed the need to  train people in the skills the                                                               
employer needs.                                                                                                                 
2:30:32 PM                                                                                                                    
REPRESENTATIVE WILSON related her  understanding that some of the                                                               
universities  and  technical schools  in  the  state are  already                                                               
ramping up and extending their programs to offer certification.                                                                 
2:31:53 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG,  referring to  page 8 and  the section                                                               
on local  hire, pointed  out that  line 20  addresses businesses.                                                               
He  asked  if  there  are  similar  local  hire  restrictions  on                                                               
MR. BULLOCK said that he  would expect similar scrutiny, although                                                               
it's generally subject to a lower equal protection analysis.                                                                    
2:32:44 PM                                                                                                                    
REPRESENTATIVE WILSON  opined that there  would be times  when it                                                               
would be  more costly to  deal with  a business in  Alaska rather                                                               
than a  business from somewhere  else.  Therefore,  she suggested                                                               
that be  given some  thought if  there is an  effort to  keep the                                                               
pipeline costs down in order to keep the tariff low.                                                                            
2:33:18 PM                                                                                                                    
CO-CHAIR GATTO related his understanding  that the people who are                                                               
hired have to:  1) have a skill  set; 2) pass a drug test;  3) be                                                               
available to work during hunting and fishing season.                                                                            
2:34:21 PM                                                                                                                    
MR.  BULLOCK, in  response  to  Representative Seaton,  specified                                                               
that on  pages 2  and 3, proposed  AS 43.90.110(1)-(3)  are three                                                               
inducements  offered by  the  state.   In  further response,  Mr.                                                               
Bullock clarified that  the structure of the  proposed statute is                                                               
that (1)-(3) are paragraphs within subsection (a).                                                                              
2:35:47 PM                                                                                                                    
CO-CHAIR  GATTO then  turned attention  to  page 3,  line 3,  and                                                               
inquired as to the jurisdiction of FERC and the RCA.                                                                            
MR.  BULLOCK pointed  out that  there are  in-state tariffs  that                                                               
would fall under  the RCA and interstate tariffs  that fall under                                                               
FERC.    He  related  his  impression that  the  RCA  would  have                                                               
jurisdiction over  the gas  produced on  the North  Slope through                                                               
the in-state delivery points.                                                                                                   
2:37:08 PM                                                                                                                    
REPRESENTATIVE  EDGMON returned  to the  vocational opportunities                                                               
and other  benefits that would  accrue to Alaskans, and  asked if                                                               
this  bill speaks  to opportunities  along  the entire  pipeline,                                                               
including areas outside of Alaska as well.                                                                                      
MR. BULLOCK answered  that it isn't based on location  so much as                                                               
the  project  itself.    If the  selected  project  goes  through                                                               
Canada,  it would  be subject  to another  nation's jurisdiction,                                                               
which is  a matter  the commissioners will  review.   Mr. Bullock                                                               
clarified that  it's focused  on project work  and to  hire, when                                                               
possible,  residents who  are qualified  to work  on the  project                                                               
without  identifying from  where they  would come  or where  they                                                               
would  actually  perform  the  work.    In  further  response  to                                                               
Representative Edgmon,  Mr. Bullock  said that the  commitment to                                                               
hire qualified state  residents, as related on  page 8, describes                                                               
qualified state residents and the  positions for which they would                                                               
be hired without specifying a location.                                                                                         
2:39:25 PM                                                                                                                    
CO-CHAIR  GATTO related  his  belief that  the  pipeline will  be                                                               
constructed  at  four  different locations  simultaneously.    In                                                               
which case, one  segment could be located entirely  in Alaska and                                                               
another segment could  be located entirely in  Canada and another                                                               
segment could cross  the border.  The  aforementioned will create                                                               
a bigger  demand for  labor, quicker use  of materials,  and more                                                               
need for equipment.   However, that's a  minor inconvenience when                                                               
considering that time is money.                                                                                                 
REPRESENTATIVE GUTTENBERG noted his  agreement that there will be                                                               
many segments of the pipeline going on simultaneously.                                                                          
MR. BULLOCK pointed out that  the criteria the commissioners will                                                               
use relates to  the likelihood of success.   Furthermore, the net                                                               
present value  evaluation criteria will  also relate to  how soon                                                               
the pipeline will be built.                                                                                                     
CO-CHAIR  GATTO opined  that within  the  four separate  sections                                                               
there can be 12 separate sections depending upon the terrain.                                                                   
MR. BULLOCK reminded the committee that  the focus of the bill is                                                               
one project and the sections would be left to the licensee.                                                                     
2:41:37 PM                                                                                                                    
MR. BULLOCK, speaking as the  drafter, suggested that he can best                                                               
and  most expediently  serve the  committee with  amendments that                                                               
are marked up  clearly with regard to the concept  on the working                                                               
document.  He said that  statutory language isn't necessary as he                                                               
[and the other attorneys] would do their best in that realm.                                                                    
2:43:27 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  inquired as  to how the  chair intends                                                               
to proceed with HB 177.                                                                                                         
2:43:35 PM                                                                                                                    
CO-CHAIR GATTO  announced that  there's a  schedule in  which the                                                               
administration will offer the next  presentation.  Co-Chair Gatto                                                               
pointed  out that  much  has already  been done  on  HB 177,  and                                                               
therefore the  committee has the  opportunity to markup  the bill                                                               
and  pen  questions  for  the  administration.    Co-Chair  Gatto                                                               
announced his  goal to  try to  get HB 177  to the  House Finance                                                               
Committee by the  end of the following week.   He then sought any                                                               
committee  discussion regarding  the information  brought forward                                                               
2:45:01 PM                                                                                                                    
REPRESENTATIVE  SEATON expressed  concern with  the structure  of                                                               
the bill in which a bill is required to approve the contract.                                                                   
2:47:04 PM                                                                                                                    
PATRICK  GALVIN, Commissioner,  Department of  Revenue, explained                                                               
that   with   the   original  legislation,   the   administration                                                               
envisioned that the legislative process  would be a safety valve.                                                               
The legislative  process provides  the legislature  the assurance                                                               
that  if the  commissioner has  made  a decision  with which  the                                                               
legislature  doesn't  agree,  the   legislature  would  have  the                                                               
opportunity  to "put  the  breaks on  it."   Commissioner  Galvin                                                               
said, "We felt  that it was a reasonable response  to the concern                                                               
to  move  the   project  through  that  process,   to  allow  the                                                               
legislature  the opportunity  to act  to stop  the decision,  but                                                               
also  to allow  the legislature  to  let it  go if  there was  no                                                               
opposition.  And  we wouldn't have to go through  the exercise of                                                               
convening  the  body  and  going through  the  formal  steps,  if                                                               
everybody was in agreement that the decision was proper."                                                                       
2:48:09 PM                                                                                                                    
CO-CHAIR GATTO  inquired as to how  much time is consumed  in the                                                               
process in which the legislature doesn't do anything.                                                                           
COMMISSIONER  GALVIN answered,  "There's  30 days."   In  further                                                               
response to  Co-Chair Gatto, Commissioner  Galvin agreed  that if                                                               
the legislature  meets on a date  certain for only three  days to                                                               
make  the  decision, it's  ahead  of  everything.   The  question                                                               
becomes what  is the more  likely area of delay.   If there  is a                                                               
license  that  isn't likely  to  be  opposed,  then the  30  days                                                               
probably won't slow  down the process.  The concern  is that even                                                               
if there's a  60-day deadline to approve the  licensee, it merely                                                               
means that  the commissioners can  start the entire  process over                                                               
again if  it doesn't  happen within  60 days.   "Clearly,  if the                                                               
legislature is  basically trying  to get to  a decision,  that 60                                                               
days is  just going to  pass and we're  going to keep  working to                                                               
try to  get to a  decision.  We're not  going to start  the whole                                                               
process  over again,  if  we're  basically trying  to  work to  a                                                               
resolution."   Therefore, he  opined that  by switching  from the                                                               
structure of the legislature acting  if it chooses to reject [the                                                               
licensee] to require  the legislature to act in  order to approve                                                               
the [licensee], the timeframe doesn't  matter because the step of                                                               
legislative approval,  no matter how  long it takes,  must occur.                                                               
To some extent,  the matter is in regard to  what the appropriate                                                               
role  of the  legislature is  in the  decision-making process  at                                                               
that point.   Commissioner Galvin said  this is an area  ripe for                                                               
2:51:53 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  related his understanding that  if the                                                               
legislature passes  AGIA, then the  administration goes  out with                                                               
an RFP.  Once the RFPs  return, the commissioners make a decision                                                               
on the  licensee and the first  open season begins.   He inquired                                                               
as  to what  occurs  in the  time between  when  the licensee  is                                                               
designated and  the first open  season.   He inquired as  to what                                                               
inducements would occur and for what reason.                                                                                    
COMMISSIONER GALVIN  stated that  the qualified  expenditures are                                                               
those that move [the licensee]  to certification from the FERC or                                                               
the RCA.  As the engineering,  field work, and cost estimates are                                                               
being done, there  will be the determination  that there's enough                                                               
information  to  have the  first  open  season.   He  noted  that                                                               
different  companies  will  draw  the line  in  different  places                                                               
depending  upon  how  much  certainty is  desired  prior  to  the                                                               
initial open season.   Within AGIA, the companies  are allowed to                                                               
propose  that.   He recalled  previous testimony  on the  bill in                                                               
which some  companies have  said they could  have an  open season                                                               
within months after  expending tens of millions  of dollars, half                                                               
of  which  would  be  state  dollars.    However,  ConocoPhillips                                                               
Alaska,  Inc.  said  it  would  take  them  a  couple  years  and                                                               
approximately $400  million in order  to reach that  initial open                                                               
season.  Commissioner Galvin said:                                                                                              
     All of  it is  the same  type of  work ...  involved in                                                                    
     moving from  a project  on paper to  ground-truthing it                                                                    
     and making sure that you  actually have a good sense of                                                                    
     what your  costs are  going to  be.   But, it's  just a                                                                    
     matter of how far the  company's come already, in terms                                                                    
     of  work  they've  already done  before  they  get  the                                                                    
     license, how much  work they feel they need  to do, and                                                                    
     how fine  of a  target they're willing  to put  on that                                                                    
     open  season.   And all  that is  subject to  their own                                                                    
     discretion and it's part of the proposal process.                                                                          
2:54:54 PM                                                                                                                    
CO-CHAIR GATTO  noted that he has  been asked how each  of the 20                                                               
requirements would be weighed.                                                                                                  
COMMISSIONER GALVIN  clarified that  the 20 requirements  are the                                                               
requirements to  be considered for  evaluation.  In  the previous                                                               
committees, there was refinement  of the evaluation criteria such                                                               
that  it  has been  narrowed  down  to  the following  two  major                                                               
criteria:    net  present  value  to  the  state,  likelihood  of                                                               
success.   Within  those  two criteria,  there's  a breakdown  of                                                               
criteria in  order to provide  the more objective number  for net                                                               
present  value.   The  projects  will  be  ranked based  on  that                                                               
number,  which will  be weighted  on the  likelihood of  success.                                                               
Within  the  likelihood  of success  there  are  many  variables,                                                               
including work  plans, permits, participants  in an  open season,                                                               
and when  the open season is  held.  All of  those variables will                                                               
be weighed  against the  net present value  estimate in  order to                                                               
rank [the  projects].  Commissioner  Galvin opined  that although                                                               
the way it has been  re-structured will provide more clarity with                                                               
regard to  how the analysis will  be done, it will  be a judgment                                                               
call  on the  factors.   Therefore, there  will be  a substantial                                                               
written finding  associated with  explaining how the  decision is                                                               
2:58:20 PM                                                                                                                    
CO-CHAIR GATTO inquired as to what is the tariff and the tax.                                                                   
COMMISSIONER  GALVIN  said  that  the  answer  is  that  AGIA  is                                                               
established to  create an opportunity for  the various commercial                                                               
players who  want to participate  to provide the answer  to those                                                               
questions.   The administration anticipates  that it is  going to                                                               
receive  a reflection  of the  view of  various companies  on the                                                               
various  aspects of  the two  different types  of projects.   The                                                               
administration,  he related,  recognizes  the need  to get  those                                                               
numbers out  on the table  in order  to review the  range between                                                               
the  different choices  and the  factors going  into the  various                                                               
estimates and  how much  confidence can  be had  in any  of those                                                               
estimates.    Through  AGIA,  a project  will  be  selected  that                                                               
provides  the best  balance  in order  to end  up  with the  best                                                               
possible tariff structure.                                                                                                      
3:01:09 PM                                                                                                                    
COMMISSIONER GALVIN  then turned to  the tax, which is  known and                                                               
specified  in  statute.   The  appropriate  question  is  whether                                                               
that's  the appropriate  tax,  which can't  be  answered at  this                                                               
point   as   information   is  still   being   gathered.      The                                                               
administration recognizes, he  said, that within AGIA  a point in                                                               
time has  to be  chosen in order  to provide  that predictability                                                               
and durability on the tax  side.  Commissioner Galvin related his                                                               
belief that  the state nor  the producers  want to lock  into the                                                               
current tax, knowing that there's  work to be done on determining                                                               
whether it's the  appropriate tax.  Therefore, the  bill locks in                                                               
a rate  that's in existence  at the  time of the  commitment that                                                               
the Act  tries to induce,  which will be the  tax at the  time of                                                               
the open  season.  In  summary, Commissioner Galvin said  that he                                                               
doesn't know  what the tax  and tariff  will be, but  pointed out                                                               
that AGIA will move to the point of obtaining those answers.                                                                    
3:03:11 PM                                                                                                                    
REPRESENTATIVE   SEATON  asked   if   the  intent   is  for   the                                                               
administration  to set  the  tax rate  at the  time  of the  open                                                               
COMMISSIONER GALVIN  said that the point  of the bill is  that at                                                               
the time of  open season there will be a  tax rate established by                                                               
the legislature  on the books.   That tax  rate will then  be the                                                               
basis for  the aforementioned durability.   However, he mentioned                                                               
that there's no commitment or  expectation in the bill that there                                                               
will  be a  change to  the  tax rate  between now  and the  [open                                                               
3:04:19 PM                                                                                                                    
REPRESENTATIVE  SEATON  surmised  then  that the  intent  of  the                                                               
legislation is  that the legislature will  set the tax rate.   He                                                               
then inquired as to the royalty rate.                                                                                           
COMMISSIONER GALVIN specified  that the royalty rate  is the rate                                                               
that's  established in  the leases,  which isn't  changed by  the                                                               
bill.  The  royalty rate is a contractual right  that the company                                                               
will have in place from existing  leases or will have from leases                                                               
that  are obtained.    The  bill doesn't  attempt  to change  the                                                               
royalty rate, although  there are changes offered  with regard to                                                               
the  treatment of  royalty valuation  that's alternate  from what                                                               
exists in current  leases.  He noted that  there's another option                                                               
to  change the  way  that royalty  in-kind  and royalty  in-value                                                               
switching  can be  done  by  the state.    Other  than those  two                                                               
potential changes in the lease,  there's no other proposed change                                                               
in the royalty structure.                                                                                                       
3:05:47 PM                                                                                                                    
REPRESENTATIVE  SEATON expressed  concern that  the criteria  and                                                               
the valuation criteria don't include  environmental criteria.  He                                                               
requested that the aforementioned  be addressed tomorrow in light                                                               
of the  recent Supreme  Court decision.   He also  requested that                                                               
tomorrow  there   be  discussion  regarding   retaining  fugitive                                                               
methane and other green house gas.                                                                                              
3:07:25 PM                                                                                                                    
CO-CHAIR GATTO said  he expects that the  federal government will                                                               
have  a carbon  tax  and carbon  caps in  place  long before  the                                                               
pipeline is  built.   He suggested  that the  aforementioned will                                                               
change the tariff and the netback.                                                                                              
3:08:20 PM                                                                                                                    
COMMISSIONER GALVIN said that [the  administration] is working on                                                               
the best way to instill those  concerns and values in the bill to                                                               
make the  project as  environmentally friendly  as possible.   In                                                               
the end,  the biggest selling point  for this project is  that it                                                               
provides a  source of  fuel that will  hopefully be  available to                                                               
replace other  sources currently  being used and  will ultimately                                                               
be recognized as a solution to some of the concerns raised.                                                                     
[HB 177 was held over.]                                                                                                         

Document Name Date/Time Subjects