Legislature(2007 - 2008)

04/24/2007 02:11 PM RES


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02:11:29 PM Start
02:11:41 PM HB177
11:02:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 177 - NATURAL GAS PIPELINE PROJECT                                                                                         
                                                                                                                                
[Contains discussion of SB 104, companion bill to HB 177.]                                                                      
                                                                                                                                
2:11:41 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."   [Before  the committee  was                                                               
CSHB 177(O&G).]                                                                                                                 
                                                                                                                                
2:11:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   JOHNSON  moved   to  adopt   the  proposed   committee                                                               
substitute  (CS)  for  HB   177,  Version  25-GH1060\K,  Bullock,                                                               
4/24/07, as the work draft.   There being no objection, Version K                                                               
was before the committee.                                                                                                       
                                                                                                                                
CO-CHAIR  GATTO   explained  that  Version  K   incorporates  the                                                               
committee members' amendments to  CSHB 177(O&G) that were adopted                                                               
on  4/23/07,  as  well  as   certain  of  the  [administration's]                                                               
suggested   amendments  that   were  deferred   because  of   the                                                               
difficulty  in  deciphering  them  separately.   He  stated  that                                                               
Marcia Davis will review Version  K for the committee and explain                                                               
the substantive changes.                                                                                                        
                                                                                                                                
2:13:31 PM                                                                                                                    
                                                                                                                                
MARCIA DAVIS,  Deputy Commissioner, Department of  Revenue (DOR),                                                               
explained  that many  of the  administration's suggested  changes                                                               
were intended to  make the House and Senate versions  of the bill                                                               
more similar, minus  key policy or substantive  differences.  She                                                               
relayed  that  the  drafter  favors the  language  in  the  House                                                               
version  of  the   bill,  and  that  he   did  not  automatically                                                               
incorporate each  of the  administration's   suggested amendments                                                               
into Version K.                                                                                                                 
                                                                                                                                
MS. DAVIS  then explained that the  title of Version K  no longer                                                               
contains  the clause,  "establishing  the  gas utility  revolving                                                             
loan fund;".                                                                                                                  
                                                                                                                                
[Following  was a  brief discussion  regarding how  the committee                                                               
would be proceeding.]                                                                                                           
                                                                                                                                
2:18:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON moved to adopt a proposed amendment as follows:                                                                
                                                                                                                                
     Page 1, line 4, after "coordinator;"                                                                                       
      Insert "establishing the gas utility revolving loan                                                                       
     fund;"                                                                                                                     
                                                                                                                                
CO-CHAIR GATTO objected.                                                                                                        
                                                                                                                                
CO-CHAIR JOHNSON argued  that it is appropriate to  leave the gas                                                               
utility revolving loan fund in the bill.                                                                                        
                                                                                                                                
MS. DAVIS, in  response to a question, said that  the gas utility                                                               
revolving loan fund is addressed  in CSHB 177(O&G), from page 28,                                                               
line 28, to page 30, line 15.                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI,  in  response to  a  further  question,                                                               
explained  that  the  gas  utility revolving  loan  fund  was  an                                                               
amendment added  in the  House Special Committee  on Oil  and Gas                                                               
and that the fund would fall under the Alaska Energy Authority.                                                                 
                                                                                                                                
CO-CHAIR  GATTO said  that he  disagrees with  Co-Chair Johnson's                                                               
proposed  amendment because  the  Alaska  Gasline Inducement  Act                                                               
should remain solely  that; the concept of a  revolving loan fund                                                               
could instead be offered by someone as a separate bill.                                                                         
                                                                                                                                
REPRESENTATIVE SEATON concurred.                                                                                                
                                                                                                                                
REPRESENTATIVE GUTTENBERG said he  opposes the proposed amendment                                                               
because  he is  looking for  a  way to  draw people  back to  the                                                               
table,  after the  Alaska Gasline  Inducement Act  (AGIA) passes,                                                               
for  the  purpose of  creating  an  opportunity for  Alaskans  to                                                               
benefit from the gas line.                                                                                                      
                                                                                                                                
CO-CHAIR GATTO maintained his objection.                                                                                        
                                                                                                                                
REPRESENTATIVE  EDGMON  concurred  that  the  subject  should  be                                                               
addressed via a stand-alone piece  of legislation, adding that he                                                               
would  be  interested  in  looking at  such  legislation  in  the                                                               
future.                                                                                                                         
                                                                                                                                
CO-CHAIR JOHNSON withdrew his proposed amendment.                                                                               
                                                                                                                                
2:25:31 PM                                                                                                                    
                                                                                                                                
MS. DAVIS explained that proposed AS  43.90.100 - found on page 2                                                               
now contains a  new subsection (b) which states,  "(b) Nothing in                                                               
this  chapter precludes  a  person from  pursing  a gas  pipeline                                                               
project independently  from this chapter."; and  that proposed AS                                                               
43.90.110(a)(1)  - found  on page  2 -  now contains  the clause,                                                               
"the  payment  period  may  be extended  under  an  amendment  or                                                               
modification  under AS  43.90.210;".   In response  to questions,                                                               
she relayed  that proposed  AS 43.90.210 is  located on  page 15,                                                               
lines  19-29, of  Version K.    Under that  provision, she  said,                                                               
there are  now three situations  in which  a project plan  can be                                                               
modified:    it improves  the  net  present  value (NPV)  of  the                                                               
project to the state; it is  necessary because of an order issued                                                               
by the  Alaska Oil  and Gas  Conservation Commission  (AOGCC); or                                                               
the  change is  needed because  of changed  circumstances outside                                                               
the licensee's control and not reasonably foreseeable.                                                                          
                                                                                                                                
2:27:55 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  then drew  attention to  language on  page 3,  line 5,                                                               
"certificate  of  public  convenience", and  requested  that  the                                                               
words,   "or    amended   certificate"   be    inserted   between                                                               
"certificate" and "of".  This  way, she said, [a particular cost]                                                               
could be  considered a  qualified expenditure  should TransCanada                                                               
Pipeline Limited be  a successful applicant.   She explained that                                                               
[the existing]  language occurs in  three places in the  bill and                                                               
that the additional  language was added in the  other two places,                                                               
but was inadvertently  overlooked here.  She said  it is language                                                               
that was recommended by the administration.                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON moved to adopt [Amendment 18] as follows:                                                                 
                                                                                                                                
     Page 3, line 5, after "certificate"                                                                                        
     Insert "or amended certificate"                                                                                            
                                                                                                                                
There being no objection, [Amendment 18] was adopted.                                                                           
                                                                                                                                
2:29:25 PM                                                                                                                    
                                                                                                                                
MS. DAVIS turned attention to paragraph  (3) on page 3, lines 13-                                                               
15.   She said this  relates to the  benefits of a  qualified job                                                               
training  program  and is  the  third  inducement to  a  pipeline                                                               
applicant.   However, she explained, this  particular section was                                                               
removed in the  Senate version of the bill because  the state did                                                               
not want  it to be construed  that job trainees can  only work on                                                               
the   AGIA  pipeline   and   not  any   other   pipeline.     The                                                               
administration  recommends deletion  of this  particular section,                                                               
she  said.    Language  regarding  the  job  training  program  -                                                               
proposed AS  43.90.470 - is  located on  page 28, lines  8-11, of                                                               
Version K.                                                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON moved [Amendment 19] as follows:                                                                          
                                                                                                                                
     Page 3, lines 13-15                                                                                                        
     Delete all of paragraph (3)                                                                                                
                                                                                                                                
There being no objection, [Amendment 19] was adopted.                                                                           
                                                                                                                                
2:31:49 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  then relayed that  the substantive change  to proposed                                                               
AS  43.90.120  was the  deletion  of  the  clause:   ",  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".   She                                                               
pointed out that proposed AS  43.90.130(2) now contains - on page                                                               
4, lines  1-3 - the  words:   "which may include  multiple design                                                               
proposals, including different proposals  for pipe diameter, wall                                                               
thickness,   and  transportation   capacity,   and  which   shall                                                               
include".   Furthermore,  subparagraph (A),  via the  deletion of                                                               
the  words,  ", which  may  not  be  the  route described  in  AS                                                               
38.35.017(b)", no  longer disallows  an "over-the-top  route" for                                                               
the pipeline.                                                                                                                   
                                                                                                                                
CO-CHAIR GATTO  indicated that  the latter  change is  of concern                                                               
because although  an "over-the-top"  pipeline route  is currently                                                               
prohibited by federal law, that could change.                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  moved Amendment  20, which  read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Page 4, line 4: After "pipeline"                                                                                           
        Insert ",which may not be the route described in                                                                        
     AS 38.35.017(b)"                                                                                                           
                                                                                                                                
There being no objection, Amendment 20 was adopted.                                                                             
                                                                                                                                
2:35:13 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS mentioned  that proposed  AS 43.90.130(2)(B)  requires                                                               
applicants  to  provide  the location  of  receipt  and  delivery                                                               
points,  and their  size and  design capacity,  except that  this                                                               
information is  not required for  in-state delivery points.   The                                                               
reason  for  this exception,  she  explained,  is that  the  five                                                               
"offtakes"  will be  difficult  to identify  with  any degree  of                                                               
specificity  because negotiations  in this  regard will  not have                                                               
occurred prior  to the filing  of applications.  However,  it was                                                               
later realized that  an application for an  in-state pipeline may                                                               
be received wherein the applicant's  in-state delivery points are                                                               
known and  quantifiable, and so the  state would want to  look at                                                               
that in the application.   The Senate bill currently provides for                                                               
this  scenario by  including a  clause that  states, "unless  the                                                               
application  proposes specific  in-state delivery  points".   Ms.                                                               
Davis proposed the  addition of this clause to  the House version                                                               
of the bill.                                                                                                                    
                                                                                                                                
2:38:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG moved Amendment 21 as follows:                                                                        
                                                                                                                                
     page 4, line 8, after "points"                                                                                             
      insert: "unless the application proposes specific in-                                                                     
     state delivery points"                                                                                                     
                                                                                                                                
There being no objection, Amendment 21 was adopted.                                                                             
                                                                                                                                
2:38:45 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  noted  that  proposed  AS  43.90.130(2)(D)  now  also                                                               
contain the  language, ", implementing practices  for controlling                                                               
carbon emissions from  natural gas systems as  established by the                                                               
United  States Environmental  Protection  Agency".   Furthermore,                                                               
proposed  AS 43.90.130(2)(D)(ii)  no longer  contains the  words:                                                               
"pipeline  route, system,  and capacity  proposed to  bring North                                                               
Slope gas  to tidewater, including  a description of".   She said                                                               
this  wording  was removed  because  it  was duplicative  of  the                                                               
pipeline  route requirements  outlined within  subparagraphs (A),                                                               
(B), and (C).                                                                                                                   
                                                                                                                                
2:40:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  voiced his  concern that there  is nothing                                                               
that  specifically  requires  the pipeline  section  tariffs  and                                                               
rates to be outlined.                                                                                                           
                                                                                                                                
REPRESENTATIVE SEATON  moved Conceptual Amendment 22,  which read                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Page 4, line 28, after "gas,"                                                                                              
         Insert "a detailed description of all pipeline                                                                         
        access and tariff terms that the applicant would                                                                        
     propose to offer,"                                                                                                         
                                                                                                                                
MS. DAVIS suggested that the  amendment instead be inserted under                                                               
subparagraph  (C) after  the word  "project"  on line  10.   This                                                               
would best  address Representative  Seaton's concern  of ensuring                                                               
that  all  projects  are  captured,  she  advised,  because  sub-                                                               
subparagraph (ii)  could be interpreted  as being only  a project                                                               
that goes  into or through  Canada, as  well as only  a liquefied                                                               
natural  gas (LNG)  project, and  sub-subparagraph  (i) would  be                                                               
only  a Canadian  "through-put  project."   She  said that  there                                                               
could conceivably  be another project  that might not  be covered                                                               
under either sub-subparagraph.                                                                                                  
                                                                                                                                
[This  suggestion was  treated  and adopted  as  an amendment  to                                                               
Conceptual Amendment 22.]                                                                                                       
                                                                                                                                
REPRESENTATIVE  ROSES  pointed  out   that  similar  language  is                                                               
already located on  page 4, lines 24-26, and  suggested that this                                                               
duplicative language should be deleted from that location.                                                                      
                                                                                                                                
[This suggestion was  treated and adopted as  a further amendment                                                               
to Conceptual Amendment 22, as amended.]                                                                                        
                                                                                                                                
CO-CHAIR  GATTO  asked  whether  there  were  any  objections  to                                                               
Conceptual  Amendment   22,  as  amended.     There  being  none,                                                               
Conceptual Amendment 22, as amended, was adopted.                                                                               
                                                                                                                                
2:45:57 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  explained that the  language, "for  the transportation                                                               
of liquefied natural gas in  interstate commerce if United States                                                               
markets  are  proposed"  -  found  on page  5,  lines  11-12,  in                                                               
proposed  AS   43.90.130(2)(D)(ii)  -   was  added   for  clarity                                                               
regarding  the  jurisdiction  of the  Federal  Energy  Regulatory                                                               
Commission (FERC) in LNG situations.                                                                                            
                                                                                                                                
CO-CHAIR  JOHNSON inquired  as to  which  agency, the  Regulatory                                                               
Commission of Alaska  (RCA) or the FERC,  would have jurisdiction                                                               
if  the pipeline  traverse an  all-Alaska  route and  the gas  is                                                               
exported to a foreign country.                                                                                                  
                                                                                                                                
MS. DAVIS said she believed there  was testimony from the FERC to                                                               
one  of  the  committees  that  it would  be  the  agency  having                                                               
jurisdiction over the LNG portion.                                                                                              
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked if  this means that  someone who                                                               
brings  and sells  gas to  an LNG  plant in  Valdez is  regulated                                                               
under the  FERC if the LNG  plant then sells it  elsewhere in the                                                               
[United States] market.                                                                                                         
                                                                                                                                
MS. DAVIS  explained that  "foreign" commerce  is not  within the                                                               
purview  of the  FERC, but  "interstate" commerce  is.   She said                                                               
that   the    qualification   of   "interstate    commerce"   for                                                               
transportation of LNG is the basic premise of FERC jurisdiction.                                                                
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked  if this would still  be the case                                                               
if someone sells the gas in-state to somebody else.                                                                             
                                                                                                                                
CO-CHAIR GATTO surmised  that any oil, for example,  taken out of                                                               
the pipeline and used in-state is  regulated by the RCA, and that                                                               
any oil put onboard a tanker is regulated by the FERC.                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  argued that  that is  only correct  if the                                                               
gas on the tanker goes to the United States and not overseas.                                                                   
                                                                                                                                
CO-CHAIR GATTO clarified that he was referring to oil.                                                                          
                                                                                                                                
REPRESENTATIVE GUTTENBERG  surmised that  one reason why  the oil                                                               
might  be  considered  "interstate"  is  that  it  is  vertically                                                               
integrated with the shippers, so  it is all basically one process                                                               
to  get it  to the  West Coast,  and so  the FERC  clearly covers                                                               
that.                                                                                                                           
                                                                                                                                
REPRESENTATIVE SEATON  stated that  there are export  controls on                                                               
oil, not  on natural  gas.  According  to previous  testimony, he                                                               
said, the control on natural gas  applies if someone uses the $18                                                               
billion loan guarantee,  and that that is when it  needs to be in                                                               
the United States; however, if  the $18 billion loan guarantee is                                                               
not used, then the gas could be exported to some other market.                                                                  
                                                                                                                                
MS. DAVIS,  in response to  a question,  said that the  Kenai LNG                                                               
plant is under  FERC jurisdiction and that  there are limitations                                                               
on what can and cannot be  exported.  She offered her belief that                                                               
there is extensive control on LNG export through the FERC.                                                                      
                                                                                                                                
2:50:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON moved Amendment 23 as follows:                                                                            
                                                                                                                                
     Page 5, line 12, after "commerce"                                                                                          
     Delete "if United States markets are proposed"                                                                             
                                                                                                                                
MS.  DAVIS  explained  that  that  language  clarifies  when  the                                                               
provision would apply.                                                                                                          
                                                                                                                                
REPRESENTATIVE WILSON withdrew Amendment 23.                                                                                    
                                                                                                                                
MS.  DAVIS remarked  that she  is  not a  FERC expert  and so  is                                                               
hesitant  to say  that something  is necessary  when the  experts                                                               
have proposed certain language.   She then noted that proposed AS                                                               
43.90.130(3)(B)-(C) -  located on page  5, lines 20-27 -  are the                                                               
two sections that  require the applicant to  initiate action with                                                               
the FERC regarding the certificate or amended certificate.                                                                      
                                                                                                                                
2:52:56 PM                                                                                                                    
                                                                                                                                
MS. DAVIS referred to proposed  AS 43.90.130(7) - located on page                                                               
6, line  22, through  page 8,  line 8 -  and said  that extensive                                                               
revisions   and  additions   were  made   to  these   provisions.                                                               
Paragraph  (7) pertains  to the  commitment by  the applicant  to                                                               
propose and support  the handling of expansion costs  in front of                                                               
FERC, she explained.                                                                                                            
                                                                                                                                
CO-CHAIR  GATTO  commented  that  the important  words  in  those                                                               
provisions    are    "expansions",   "rolled-in    rates",    and                                                               
"incremental".                                                                                                                  
                                                                                                                                
MS. DAVIS pointed out that one  key change was intended to ensure                                                               
that "expansion cost" included "fuel  cost", and that another key                                                               
change was  dividing the  cap on the  maximum recourse  rate into                                                               
three categories.   Regarding  the use of  "115" percent  in sub-                                                               
subparagraph  (iii)  versus  the  use of  "15"  percent  in  sub-                                                               
subparagraphs (i)  and (ii), she  explained that it  involves the                                                               
way 115 percent works with the weighted average.                                                                                
                                                                                                                                
CO-CHAIR GATTO  commented that  the committee  can live  with the                                                               
percentages  as they  are because  it  is just  a question  about                                                               
continuity.  Since  it involves a volume weighted  average of all                                                               
rates collected,  it seems like  it is a  mathematical expression                                                               
that demands a total rather than a percent above, he surmised.                                                                  
                                                                                                                                
The House Resources Standing Committee  was recessed at 2:57 p.m.                                                               
to a call of the chair.                                                                                                         
                                                                                                                                
CO-CHAIR  GATTO called  the meeting  back to  order at  5:36 p.m.                                                               
Present at  the call  back to  order were  Representatives Gatto,                                                               
Johnson, Wilson, Roses, Seaton, Edgmon, and Guttenberg.                                                                         
                                                                                                                                
REPRESENTATIVE ROSES,  in response  to a comment,  suggested that                                                               
there  is no  need to  change  the percentages  outlined in  sub-                                                               
subparagraphs  (i)-(iii) of  proposed AS  43.90.130(7)(B) because                                                               
both percentages mean  the same thing.  The reason  that they are                                                               
using 115  percent of the  volume-weighted average,  he surmised,                                                               
is because there  is a mathematical formula by  which one weights                                                               
something, he said, and opined  that it makes no difference which                                                               
percentages are used, the result is the same.                                                                                   
                                                                                                                                
5:40:01 PM                                                                                                                    
                                                                                                                                
ANTONY  SCOTT, Commercial  Analyst,  Commercial Section,  Central                                                               
Office, Division  of Oil &  Gas, Department of  Natural Resources                                                               
(DNR),  referred  to  the  questions  raised  earlier  about  the                                                               
language  on  page  5,  lines  11-12 -  which  states,  "for  the                                                               
transportation of  liquefied natural  gas in  interstate commerce                                                               
if United States  markets are proposed" - and  explained that gas                                                               
which moves  in interstate  commerce is  "economically" regulated                                                               
by the  FERC.  He gave  a hypothetical example of  a project that                                                               
transports gas by  pipeline to Valdez where it  is liquefied, put                                                               
on tankers,  and then  shipped to  Mexico.  He  said that  such a                                                               
project  would almost  certainly be  "economically" regulated  by                                                               
the FERC because, at the end of  the day, that gas is involved in                                                               
interstate  commerce  -  it  would  flow  northwards  into  North                                                               
America.                                                                                                                        
                                                                                                                                
MR. SCOTT  then gave a  second hypothetical example of  gas being                                                               
liquefied  at Valdez  and shipped  to  Japan.   That project,  he                                                               
advised,  would   require  an   export  license  from   the  U.S.                                                               
Department of  Energy (DOE), but  it would not  be "economically"                                                               
regulated by  the DOE.  In  this case, the pipeline  itself would                                                               
be "economically" regulated by the RCA.   However, he said he did                                                               
not think that  the RCA has jurisdiction over  rates for tankers,                                                               
given  provisions  of the  state  pipeline  Act, and  added  that                                                               
liquefaction facilities  raise a new  question.  He said  the RCA                                                               
does not  regulate the receiving  terminal in Cook  Inlet because                                                               
it  is not  an  "economically" regulated  facility.   He  defined                                                               
"economic"  regulation  as meaning  that  the  rates charged  are                                                               
subject to regulatory approval.                                                                                                 
                                                                                                                                
CO-CHAIR JOHNSON referred to  previous discussions about vouchers                                                               
and someone buying  gas at the wellhead and  transferring it down                                                               
the  gas line.   He  inquired whether  it would  be possible  for                                                               
someone to  purchase gas  at Valdez  and then  do what  they want                                                               
with it.                                                                                                                        
                                                                                                                                
MR. SCOTT replied yes.                                                                                                          
                                                                                                                                
CO-CHAIR JOHNSON asked who would regulate that.                                                                                 
                                                                                                                                
MR.  SCOTT responded  that it  depends.   He reiterated  that the                                                               
pipeline would  be "economically"  regulated by  the FERC  if the                                                               
gas was  purchased in Valdez,  tankered out, and  then eventually                                                               
transported into North American markets.                                                                                        
                                                                                                                                
CO-CHAIR JOHNSON  asked if  North America  also means  Canada and                                                               
Mexico.                                                                                                                         
                                                                                                                                
MR.  SCOTT answered  yes.   He  explained that  it  is an  inter-                                                               
connected grid  and that he  thinks the FERC's position  would be                                                               
that once molecules  hit that inter-connected grid,  they flow on                                                               
interstate commerce.   He pointed out  that on the TAPS,  the RCA                                                               
has jurisdiction  for "intra"-state  movements of oil.   However,                                                               
on  a gas  pipeline,  moving even  a single  molecule  of gas  in                                                               
"inter"-state  commerce makes  the whole  facility entirely  FERC                                                               
regulated.   He advised that  the FERC's  regulatory jurisdiction                                                               
preempts  the state's  economic regulatory  jurisdiction; so,  in                                                               
this case, the  RCA would essentially have no  regulatory role to                                                               
play.                                                                                                                           
                                                                                                                                
5:44:17 PM                                                                                                                    
                                                                                                                                
PATRICK  GALVIN,  Commissioner,   Department  of  Revenue  (DOR),                                                               
informed  the  committee  that  the regulation  of  LNG  is  just                                                               
developing in  the U.S.  and is therefore  in a  transition mode.                                                               
One of the  advantages of LNG, he  said, is that once it  is on a                                                               
tanker  leaving  Valdez, it  can  go  anywhere that  the  shipper                                                               
wants.   However, there are  some unknowns.   If, for  example, a                                                               
project's initial plan  is to export gas to the  Asian market, it                                                               
will receive  a DOE export  license and the primary  regulator of                                                               
the pipeline will  be the RCA.   Should there be a  change in the                                                               
market at  a later  date which results  in the  project's tankers                                                               
instead sailing  to the West Coast  of the U.S., it  is currently                                                               
unknown  whether  the FERC  would  preempt  the RCA's  regulatory                                                               
control of the  pipeline.  He relayed that at  this time even the                                                               
FERC cannot say what it will  do.  Therefore, the state is trying                                                               
to  capture both  scenarios in  the bill  because an  applicant's                                                               
project will  have to  be for  one or  the other  at the  time of                                                               
application.     The  regulatory  agencies  will   then  need  to                                                               
determine their respective authorities, he said.                                                                                
                                                                                                                                
COMMISSIONER GALVIN,  in response to  a question, said  the state                                                               
cannot address this  issue because it is basically  a question of                                                               
whether  the  FERC is  going  to  exercise jurisdiction  or  not.                                                               
Federal authority  would theoretically  preempt the  state unless                                                               
the  federal  agency  is  deemed to  have  exceeded  its  federal                                                               
constitutional  interstate  authority.   What  the  state can  do                                                               
within the context  of the bill is to require  the licensee to do                                                               
certain things  in exchange for  values received from  the state.                                                               
Those things are tied to  the licensee's certificate, either from                                                               
the FERC or  from the RCA.  The licensee  will determine which it                                                               
will seek based upon its initial  project design.  The state does                                                               
not  control,  nor could  it  try  to  control, which  agency  is                                                               
ultimately  going to  regulate the  project.  However, he  added,                                                               
that is  not the issue being  addressed in the bill;  instead the                                                               
issue is  that the  licensee must  seek control  from one  or the                                                               
other  and  the  state  must  have  the  controls  in  place  for                                                               
requiring the licensee do so in a timely manner.                                                                                
                                                                                                                                
CO-CHAIR  JOHNSON  asked  whether  the  licensee  needs  to  seek                                                               
control from both if it is  an all-Alaska pipeline, given that it                                                               
is uncertain where the market is going to be.                                                                                   
                                                                                                                                
COMMISSIONER  GALVIN responded  that the  licensee will  submit a                                                               
project design  based on the market  that it plans to  target and                                                               
so what the chosen market is  will determine whether the FERC has                                                               
jurisdiction.   He  acknowledged that  there is  a potential  for                                                               
"gaming" the  regulatory program by submitting  an export project                                                               
and then switching later.  However,  he said, such a tactic would                                                               
entail  going  through  a  huge regulatory  hurdle  just  as  the                                                               
project is  about to  get to  market and  after the  licensee has                                                               
already invested a lot of money.                                                                                                
                                                                                                                                
REPRESENTATIVE  WILSON  surmised  that proposed  AS  43.90.130(3)                                                               
outlines  what an  applicant must  do if  he/she is  going to  be                                                               
regulated  by  the  FERC,  and   that  proposed  AS  43.90.130(4)                                                               
outlines what  the applicant  must do  if he/she  is going  to be                                                               
regulated by the RCA.                                                                                                           
                                                                                                                                
COMMISSIONER GALVIN concurred.                                                                                                  
                                                                                                                                
REPRESENTATIVE  ROSES  returned   attention  to  the  percentages                                                               
outlined  in proposed  AS 43.90.130(7)(B),  and opined  that they                                                               
cannot  be changed  because the  15 percent  relates to  the rate                                                               
increase and the 115 percent relates to the capacity.                                                                           
                                                                                                                                
5:50:34 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  drew  attention to  proposed  AS  43.90.130(15),  and                                                               
explained  that the  substantive changes  in [subparagraphs  (A)-                                                               
(D)] add more details regarding  an Alaska hire commitment, using                                                               
Alaska   businesses,  establishing   or  using   in-state  hiring                                                               
facilities,   and  the   Department   of   Labor  and   Workforce                                                               
Development (DLWD)  program.  There  have also been  additions to                                                               
proposed  AS 43.90.130(17)  regarding a  project labor  agreement                                                               
(PLA), she said.                                                                                                                
                                                                                                                                
5:51:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  moved Conceptual Amendment 24,  which read                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Page 9, line 16 After "use,"                                                                                               
          Insert "for jobs not filled under subsection                                                                          
     (17)"                                                                                                                      
                                                                                                                                
CO-CHAIR  GATTO objected,  saying  he had  other questions  about                                                               
paragraph (17).                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  explained  that Conceptual  Amendment  24                                                               
establishes the  PLA as  the default.   For  any jobs  not filled                                                               
under the  PLA, he said, then  the term, "as far  as practicable"                                                               
in  paragraph  (15)(D)   will  apply  to  the   job  centers  and                                                               
associated  services of  the DLWD.   He  said that  during public                                                               
testimony it  was pointed out  that under the current  language a                                                               
job applicant  does not have to  be a state resident  at the time                                                               
of application  and will be treated  the same as someone  who has                                                               
been here for 30 days.   [Conceptual Amendment 24], he indicated,                                                               
would allow paragraph (17) to supersede paragraph (15).                                                                         
                                                                                                                                
5:53:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked   for  clarification  regarding  the                                                               
intent of Conceptual Amendment 24.   He presented an example of a                                                               
pipe fitter's  union member in the  Lower 48.  He  said the union                                                               
member, by  virtue of belonging  to an affiliate of  the national                                                               
pipe fitter's union, can pick up his  or her book and bring it to                                                               
an [Alaska] union  and be preferentially hired  over somebody who                                                               
has  been  in  the state  for  30  days.    That person  will  be                                                               
considered a member of that  particular [Alaska] local the minute                                                               
his or her  book is entered into the ledgers  at that union hall,                                                               
he said.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  SEATON said  that his  understanding from  public                                                               
testimony is that the priority of  the PLA terms is that a worker                                                               
must be a  one-year resident.  To have priority  under the PLA, a                                                               
worker must be a resident at the time of application.                                                                           
                                                                                                                                
CO-CHAIR  JOHNSON  said  he  thought   that  that  was  partially                                                               
accurate.  From his conversations  with union members, he said he                                                               
thought  the   one-year  residency  requirement   varied  between                                                               
unions.  He  said his understanding is that if  a person signs up                                                               
from out of  state and then all  of the people on  the list ahead                                                               
of him  or her are  hired, that person will  be next on  the list                                                               
regardless of whether  he/she has been in the state  a year or 30                                                               
days, as long as he/she brings his/her book.                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  offered his understanding  regarding a                                                               
qualified pipe  welder; [the  union] would  first go  through all                                                               
the current members who are residents.   Then, after that list is                                                               
exhausted, a qualified  welder who is a resident would  be at the                                                               
top of the list even if he/she is not a member of the union.                                                                    
                                                                                                                                
CO-CHAIR GATTO  surmised that a  nonresident could be  hired even                                                               
if he/she  has been in the  state one day provided  that everyone                                                               
on the list ahead of him/her has been hired.                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG concurred.                                                                                            
                                                                                                                                
CO-CHAIR  GATTO  then  directed  attention  to  the  language  in                                                               
proposed  AS  43.90.130(17),  "by   qualified  residents  of  the                                                               
state",  and asked  how this  requirement would  be satisfied  if                                                               
there is  a licensed person  who has been  in the state  only one                                                               
day.                                                                                                                            
                                                                                                                                
REPRESENTATIVE   GUTTENBERG  replied   that   the  state   cannot                                                               
differentiate;  that is  why project  labor agreements  are being                                                               
set up.                                                                                                                         
                                                                                                                                
5:57:50 PM                                                                                                                    
                                                                                                                                
JOE  BALASH, Special  Staff Assistant,  Office  of the  Governor,                                                               
relayed  that  the  commissioner  of the  DLWD  does  not  oppose                                                               
Conceptual Amendment  24.  He  said the  use of DLWD  job centers                                                               
and an  Internet-based labor exchange  system will be  a function                                                               
of  the   terms  of  the   PLA  contract  between   the  parties.                                                               
Negotiations between the licensee  and labor representatives will                                                               
determine whether there is one mega-PLA  or a series of PLAs with                                                               
the  different trades  and crafts.    "We do  not want  to see  a                                                               
tension,  which   I  think  is  what   Representative  Seaton  is                                                               
concerned about, between  the use of the job centers  and any PLA                                                               
that  might be  entered  into," said  Mr. Balash.    He said  his                                                               
understanding is  that the job  centers can be used  as referrals                                                               
through a  union hall if  the PLA requires  that all the  jobs be                                                               
filled  through the  halls.   He  relayed  that the  commissioner                                                               
checked with staff to make sure that this amendment would work.                                                                 
                                                                                                                                
CO-CHAIR  JOHNSON asked  whether the  commissioner has  a problem                                                               
with  leaving the  language of  proposed AS  43.90.130(15)(D) the                                                               
way it is.                                                                                                                      
                                                                                                                                
MR. BALASH replied that he did not know.                                                                                        
                                                                                                                                
CO-CHAIR JOHNSON  inquired whether the administration  favors the                                                               
current language of proposed AS 43.90.130(15)(D).                                                                               
                                                                                                                                
MS.  DAVIS answered  yes, and  pointed out  that the  language of                                                               
paragraphs  (15) and  (17) was  submitted by  the administration.                                                               
In response to  a question, she relayed that  in discussions with                                                               
the commissioner  of the  DLWD and others,  she learned  that the                                                               
aspiration  of having  only  Alaskans  work on  the  gas line  is                                                               
actually not  desirable.  The  lesson learned from  the workforce                                                               
buildup  for  the  Trans-Alaska Pipeline  System  (TAPS)  was  to                                                               
develop  a core  of resident,  skilled, craft  laborers who  will                                                               
have sustained employment over the  course of the construction as                                                               
well  as  the expansions  and  the  process,  and the  peaks  are                                                               
staffed with nonresident laborers.   This way, she said, resident                                                               
laborers are not put in the  situation of a brief moment of great                                                               
hire that is  suddenly followed by no work and  then being forced                                                               
to leave  the state  to pursue their  livelihoods.   Therefore, a                                                               
good  workforce plan  actually envisions  a component  of out-of-                                                               
state  hire along  with an  in-state hire  component in  order to                                                               
manage economic stability for Alaskans.                                                                                         
                                                                                                                                
REPRESENTATIVE WILSON  surmised that what  is being said  is that                                                               
only as many  Alaskans as there are permanent jobs  will be hired                                                               
and the rest will not get any jobs.                                                                                             
                                                                                                                                
MR. BALASH responded, "Speaking for the governor - 'No!'"                                                                       
                                                                                                                                
MS. DAVIS clarified that the goal  is to employ every Alaskan who                                                               
wants a  job, but that  there cannot  be a commitment  that every                                                               
one of the jobs filled by an Alaskan will be a life-long job.                                                                   
                                                                                                                                
REPRESENTATIVE WILSON  posited that  there are  numerous Alaskans                                                               
who will  only want the shorter  term jobs so that  they can make                                                               
their money and then return to their homes.                                                                                     
                                                                                                                                
6:03:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  opined  that there  was  no  coordination                                                               
between  the PLA  and  the expansion  to use  job  centers.   The                                                               
intent  of   Conceptual  Amendment   24  is  to   coordinate  the                                                               
provisions of paragraphs  (15) and (17).  It would  make the PLA,                                                               
which  everyone  agrees  is necessary  for  a  mega-project,  the                                                               
overriding  thing  to  ensure  that  the  jobs  go  to  qualified                                                               
residents of  the state.   If the jobs  are not filled  this way,                                                               
then hiring will go through the DLWD "as far as practicable".                                                                   
                                                                                                                                
REPRESENTATIVE  EDGMON relayed  that he  went to  one of  the PLA                                                               
presentations   and  got   the  impression   that  positions   in                                                               
engineering and management would  not necessarily be the function                                                               
of  the PLA.    If  that is  true,  then Representative  Seaton's                                                               
proposed  language  simply  clarifies   the  clause  "as  far  as                                                               
practicable".                                                                                                                   
                                                                                                                                
CO-CHAIR GATTO withdrew his objection.                                                                                          
                                                                                                                                
CO-CHAIR  JOHNSON  objected.   He  inquired  whether  a  Canadian                                                               
member  of the  union is  protected  by the  North American  Free                                                               
Trade Agreement (NAFTA) and given somewhat of a resident status.                                                                
                                                                                                                                
COMMISSIONER GALVIN replied  that he did not have  an answer, but                                                               
would research that  issue further.  He stated  that the language                                                               
under  paragraph  (15)(D),  "use,  as  far  as  practicable,"  is                                                               
conditional, and  the language under  paragraph (17),  "commit to                                                               
negotiate ...  a project  labor agreement"  is mandated.   Adding                                                               
the amended  language, he  opined, takes the  job centers  out of                                                               
being potentially used  with the PLAs.  He said  he believes that                                                               
a  PLA  can   be  crafted  to  include  a   provision,  and  [the                                                               
administration] would support this, that  the job centers be used                                                               
as  much   as  practicable.     He  relayed  that   although  the                                                               
commissioner of  the DLWD said  Conceptual Amendment 24  is okay,                                                               
the current language is also fine.                                                                                              
                                                                                                                                
COMMISSIONER GALVIN stated that  he believes Conceptual Amendment                                                               
24 would make  PLAs and job centers exclusive of  each other even                                                               
though that  is not necessarily the  intent.  He said  it is [the                                                               
administration's] intent  that the PLA requirement  is number one                                                               
and the  job center requirement  is supplemental, and so  that is                                                               
why "as far as practicable" has been set as a limitation.                                                                       
                                                                                                                                
REPRESENTATIVE  ROSES expressed  his concern  with tying  the two                                                               
together  and said  he  thinks  they need  to  stand  alone.   He                                                               
reported from  personal experience that  when a union  has placed                                                               
all of  its in-state workers  on jobs, it  will reach out  to the                                                               
unions in other  states.  He said  that he does not  want a union                                                               
member  from the  Lower  48  to have  priority  over a  non-union                                                               
Alaskan, and  expressed his fear  that [Conceptual  Amendment 24]                                                               
might possibly allow this to happen.                                                                                            
                                                                                                                                
6:12:08 PM                                                                                                                    
                                                                                                                                
A roll  call vote was  taken.  Representatives Seaton  and Edgmon                                                               
voted  in  favor of  Conceptual  Amendment  24.   Representatives                                                               
Wilson,  Roses, Kawasaki,  Guttenberg, Johnson,  and Gatto  voted                                                               
against it.  Therefore, Conceptual  Amendment 24 failed by a vote                                                               
of 2-6.                                                                                                                         
                                                                                                                                
MS.  DAVIS turned  attention to  proposed  AS 43.90.130(19),  and                                                               
noted that  it no longer contains  the words:  ";  the affiliates                                                               
of the  applicant; all  partners, members  of a  joint venture,".                                                               
She  then directed  attention to  proposed  AS 43.90.150(c),  and                                                               
noted  that  a question  has  arisen  regarding to  whether  this                                                               
subsection  is  needed  given that  the  applicant's  ability  to                                                               
challenge an award has been eliminated.                                                                                         
                                                                                                                                
6:14:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON offered Amendment  25, which read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Page 11, lines 2 - 5                                                                                                       
     Delete subsection (c)                                                                                                      
                                                                                                                                
REPRESENTATIVE WILSON  objected and asked Commissioner  Galvin to                                                               
reiterate what he said about this subsection the previous day.                                                                  
                                                                                                                                
COMMISSIONER GALVIN  stated that  the language in  subsection (c)                                                               
is moot given that the  ability to challenge has been eliminated.                                                               
An area of  concern, however, is whether,  during the legislative                                                               
approval  phase, an  unsuccessful applicant  lobbies to  have the                                                               
successful application  rejected.  He  said it doesn't  seem fair                                                               
that the  unsuccessful applicant's confidential  information does                                                               
not  have  to  disclosed  as  is  the  case  for  the  successful                                                               
applicant.  But, he said, he could  not think of a way to address                                                               
this problem.   In  response to a  question from  Co-Chair Gatto,                                                               
Commissioner Galvin stated that he agrees with Amendment 25.                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG opined that  if someone was challenging                                                               
the successful  applicant, their confidential  information should                                                               
also be made available as a matter of public policy.                                                                            
                                                                                                                                
COMMISSIONER GALVIN  responded that Representative  Guttenberg is                                                               
correct and  this is why  subsection (c)  was added in  the first                                                               
place.   However,  language  was added  to  a separate  provision                                                               
which says that  in order to apply, an applicant  must commit not                                                               
to  challenge; therefore  subsection (c)  is no  longer relevant.                                                               
He said a lobbying effort is  not a legal challenge and cannot be                                                               
regulated, therefore  it will be  incumbent upon  the legislators                                                               
being lobbied to ask for that confidential information.                                                                         
                                                                                                                                
CO-CHAIR JOHNSON inquired as to  what the "hammer" is for keeping                                                               
unsuccessful applicants from challenging.                                                                                       
                                                                                                                                
MS. DAVIS replied that one of  the criteria in the application is                                                               
that  the applicants  agree to  waive their  right to  contest or                                                               
challenge.   Thus,  submission of  an  application is  akin to  a                                                               
contractual provision.                                                                                                          
                                                                                                                                
CO-CHAIR  GATTO  surmised that  this  is  why subsection  (c)  is                                                               
superfluous.                                                                                                                    
                                                                                                                                
MS. DAVIS concurred.                                                                                                            
                                                                                                                                
REPRESENTATIVE WILSON withdrew her objection.                                                                                   
                                                                                                                                
CO-CHAIR GATTO  asked whether there were  any further objections.                                                               
There being none, Amendment 25 was adopted.                                                                                     
                                                                                                                                
6:19:15 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS turned  attention to  proposed AS  43.90.170(a), which                                                               
now contains the clause "consider  public comments received under                                                               
AS  43.90.160(a),"  thereby  making   it  explicit,  rather  than                                                               
implicit, that the commissioners shall consider public comment.                                                                 
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether anything was  changed in                                                               
proposed AS 43.90.160(c).                                                                                                       
                                                                                                                                
COMMISSIONER   GALVIN  instead   explained   that  through   [the                                                               
applicants']  signing of  the confidentiality  agreements, access                                                               
is granted  to the  legislative auditor,  the fiscal  analyst who                                                               
serves as  head of the  legislative finance division,  agents and                                                               
contractors of  the legislative auditor  and the  fiscal analyst,                                                               
and  members of  the  legislature.   It  is the  administration's                                                               
interpretation   that  this   provision  also   applies  to   the                                                               
applications that are rejected by  the commissioners.  Therefore,                                                               
he   said,  the   confidential   information   included  in   the                                                               
applications would also be  available through the confidentiality                                                               
agreements to the  legislature when this process moves  on to the                                                               
legislative  round.   In  response  to  a statement  by  Co-Chair                                                               
Gatto, Commissioner Galvin agreed  that nothing in subsection (c)                                                               
allows confidential information to be released to the public.                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  referred to proposed AS  43.90.150(b), and                                                               
asked  why   the  commissioners  would  be   required  to  return                                                               
information that is not proprietary or a trade secret.                                                                          
                                                                                                                                
COMMISSIONER  GALVIN  explained  that  if  an  applicant  submits                                                               
information  that  he/she  claims  is  a  trade  secret  but  the                                                               
commissioners  disagree,   the  applicant   will  be   given  the                                                               
opportunity to  decide whether  to keep  this information  in its                                                               
application for consideration by  the commissioners.  Information                                                               
that  is  deemed  nonconfidential,  but   still  a  part  of  the                                                               
application, will be released as  public information.  Therefore,                                                               
this  provision   allows  the  applicant  to   request  that  the                                                               
information  be returned  and not  be considered  as part  of its                                                               
proposal.                                                                                                                       
                                                                                                                                
6:23:09 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS then  pointed out  that  a conforming  change to  make                                                               
Version  K similar  to the  Senate version  of the  bill now  has                                                               
proposed AS  43.90.170(b) providing  discount rates of  two, six,                                                               
and eight percent.                                                                                                              
                                                                                                                                
REPRESENTATIVE  SEATON  said  he  thought  he  heard  in  earlier                                                               
testimony  that  "five"  was  the  percentage  used  in  previous                                                               
analyses and  that "five" was inserted  so that there could  be a                                                               
comparison between previous analyses.                                                                                           
                                                                                                                                
MS. DAVIS  concurred, and  said the DNR  runs its  analyses using                                                               
models built  around five percent,  but the Senate said  it would                                                               
like models using six percent to be run as well.                                                                                
                                                                                                                                
COMMISSIONER GALVIN  stated that  previous economic  reports done                                                               
on the  "stranded gas  contract" ran the  number at  six percent.                                                               
He relayed  that the administration prefers  five percent because                                                               
it is the  number that the administration provided  in its slides                                                               
and  it is  the number  recommended as  the appropriate  discount                                                               
rate from  a governmental standpoint  for looking at  cash flows.                                                               
While the  administration recognizes that  there may be  a desire                                                               
to  have  additional  percentages  thrown in  and  will  look  at                                                               
running those additional numbers, he  opined that five percent is                                                               
the appropriate rate.                                                                                                           
                                                                                                                                
CO-CHAIR  GATTO commented  that  five percent  makes  for a  nice                                                               
linear comparison.                                                                                                              
                                                                                                                                
6:25:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON moved Amendment 26 as follows:                                                                            
                                                                                                                                
     Page 12, line 6                                                                                                            
     Delete "six"                                                                                                               
     Insert "five"                                                                                                              
                                                                                                                                
There being no objection, Amendment 26 was adopted.                                                                             
                                                                                                                                
REPRESENTATIVE GUTTENBERG  stated that  if there is  a conference                                                               
committee, both bodies will have a chance to debate this number.                                                                
                                                                                                                                
6:26:53 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS mentioned  that proposed  AS 43.90.170(b)(2)  now uses                                                               
the  term  "net  back"  instead of  "wellhead".    For  financial                                                               
reasons, "net back"  is a more precise term  that clarifies where                                                               
the value  stops because  then the  various deductions  that vary                                                               
lease by  lease do  not have  to be  considered; this  change was                                                               
recommended by the DNR.                                                                                                         
                                                                                                                                
CO-CHAIR GATTO  commented that this  was the underpinning  of the                                                               
whole AGIA bill - net back value and the likelihood of success.                                                                 
                                                                                                                                
MS.  DAVIS  offered that  proposed  AS  43.90.170(b)(2) now  also                                                               
includes  the  words  "and  treatment";  this  captures  the  gas                                                               
treatment valuation  as well  as transportation  [valuation], and                                                               
so is more thorough.                                                                                                            
                                                                                                                                
6:28:12 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  pointed  out that  proposed  AS  43.90.170(b)(5)  now                                                               
reflects the change that resulted  from the adoption of Amendment                                                               
[11a] and reads:   "(5) other factors found  by the commissioners                                                               
to be relevant to the evaluation  of the net present value of the                                                               
anticipated cash flow to the  state, including the value of state                                                               
income tax or equivalent payment  in lieu of tax and supplemental                                                               
profit-sharing  to the  state if  contractually stipulated."   In                                                               
response to comments, she indicated  that this change addresses a                                                               
perception issue regarding the state's matching contribution.                                                                   
                                                                                                                                
REPRESENTATIVE GUTTENBERG  referred to proposed  AS 43.90.170(c),                                                               
and  asked whether  there  was any  change made  to  the way  the                                                               
commissioners will be evaluating the likelihood of success.                                                                     
                                                                                                                                
MS. DAVIS stated that no  substantive change was made to proposed                                                               
AS 43.90.170(c).                                                                                                                
                                                                                                                                
COMMISSIONER GALVIN,  in response to questions,  replied that the                                                               
administration  does not  oppose reinserting  the language,  "the                                                               
amount   of   the   contribution    by   the   state   under   AS                                                               
43.90.110(a)(1)(A)  and (B)  proposed by  the applicant  under AS                                                               
43.90.1230(9)" - from CSHB  177(O&G), proposed AS 43.90.170(b)(5)                                                               
-  back  in as  an  explicit  consideration.   However,  if  that                                                               
language is left out, the  contribution will be factored in under                                                               
the "catch-all provision."                                                                                                      
                                                                                                                                
CO-CHAIR JOHNSON  expressed concern  that Version  K is  merely a                                                               
Senate committee substitute.                                                                                                    
                                                                                                                                
MS.  DAVIS  offered  that  65-70  percent of  Version  K  is  not                                                               
reflected in the  Senate's version of the bill,  though Version K                                                               
does contain some drafting changes.                                                                                             
                                                                                                                                
6:35:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  moved Conceptual Amendment 27,  to insert a                                                               
new  paragraph in  proposed AS  43.90.170(b) that  would reinsert                                                               
the language:                                                                                                                   
                                                                                                                                
      the amount of the contribution by the state under AS                                                                      
      43.90.110(a)(1)(A) and (B) proposed by the applicant                                                                      
     under AS 43.90.130(9);                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON objected for discussion purposes.                                                                         
                                                                                                                                
REPRESENTATIVE ROSES  said he is making  the amendment conceptual                                                               
because of the references to title  numbers that may no longer be                                                               
applicable.    The legislature  has  been  very prescriptive  and                                                               
consistent  in   outlining  the  20  "must   haves",  he  stated;                                                               
therefore, it  is inconsistent to  leave up to  the commissioners                                                               
what will be considered.                                                                                                        
                                                                                                                                
REPRESENTATIVE WILSON withdrew her objection.                                                                                   
                                                                                                                                
CO-CHAIR GATTO  asked whether there were  any further objections.                                                               
There being none, Conceptual Amendment 27 was adopted.                                                                          
                                                                                                                                
6:38:06 PM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN,  in response to comments,  explained that he                                                               
and Ms.  Davis are  identifying all  of the  changes incorporated                                                               
into Version  K from the Senate  that were not in  CSHB 177(O&G).                                                               
He said  there are two  types of  Senate changes:   those changes                                                               
that  were recommended  by the  administration and  those changes                                                               
that the  administration is uncomfortable  with.  He  assured the                                                               
committee  that  he  and  Ms.  Davis will  make  it  clear  which                                                               
category a change falls into; he  said the committee will be made                                                               
aware of  all of the changes  in the Version K  that deviate from                                                               
CSHB 177(O&G).                                                                                                                  
                                                                                                                                
MS. DAVIS,  referring to proposed AS  43.90.170(c)(1), noted that                                                               
it  no longer  contains  the  clause, "the  degree  to which  the                                                               
applicant intends  to" was  deleted; also,  the words,  "the plan                                                               
for encouraging"  were replaced with  the word, "encourage".   In                                                               
response to a question, she  reiterated that she did not consider                                                               
this  to  be a  substantive  change.    She then  mentioned  that                                                               
proposed  AS  43.90.180(a) has  been  rewritten  to clarify  that                                                               
consideration  of  public  comments  is   to  be  done  prior  to                                                               
evaluating completed  applications, and that a  license refers to                                                               
a license issued under this chapter.                                                                                            
                                                                                                                                
6:41:37 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  then relayed  that  proposed  AS 43.90.180(a)(2)  now                                                               
reads, "publish  notice of intent  to issue a license  under this                                                               
chapter  with  written  findings  addressing the  basis  for  the                                                               
determination;  and"; that  proposed AS  43.90.180(b) now  reads,                                                               
"If,  after  the evaluation  of  complete  applications under  AS                                                               
43.90.170,  the  commissioners   determine  that  no  application                                                               
sufficiently maximizes the  benefits to the people  of this state                                                               
and  merits  issuance  of  a  license  under  this  chapter,  the                                                               
commissioners shall  issue a written  finding that  addresses the                                                               
basis of that determination."; and  that proposed AS 43.90.180(c)                                                               
no  longer contains  the words,  "for purposes  of appeal  to the                                                               
superior court".                                                                                                                
                                                                                                                                
MS. DAVIS  then mentioned  that proposed  AS 43.90.180  no longer                                                               
contains the language, "(d) Within  90 days after a determination                                                               
under  (b) of  this section,  the commissioners  may issue  a new                                                               
request  for applications  for a  license  under AS  43.90.120.",                                                               
adding  that  this  provision  is  picked up,  in  part,  in  the                                                               
legislative review  process wherein the commissioners,  without a                                                               
set  time  limit, are  authorized  to  issue  a new  request  for                                                               
applications if there is a denial of the application.                                                                           
                                                                                                                                
COMMISSIONER GALVIN  clarified that  if the commissioners  do not                                                               
receive any qualifying applications,  or reject all applications,                                                               
or  choose not  to  issue a  license  after receiving  qualifying                                                               
applications, they are  not authorized to start  the process over                                                               
again  unless  the  legislature   fails  to  approve  a  selected                                                               
licensee.                                                                                                                       
                                                                                                                                
CO-CHAIR   GATTO  said   it  was   his  understanding   that  the                                                               
commissioners could not "fix the structure."                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN   responded  that   such  would   require  a                                                               
legislative  change  wherein  everything  would have  to  be  re-                                                               
addressed.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GUTTENBERG inquired  whether  deleting the  words                                                               
"for purposes  of appeal  to the superior  court" changes  any of                                                               
the legal actions that can be taken.                                                                                            
                                                                                                                                
MS. DAVIS replied  that that language referred to  an appeal that                                                               
no longer exists.                                                                                                               
                                                                                                                                
6:45:21 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  relayed  that  changes   were  made  to  proposed  AS                                                               
43.90.190 for the purpose of  conforming to Senate language so as                                                               
to   address  procedural   concerns  regarding   the  legislative                                                               
approval  process.     Specifically,  subsection  (b)   now  also                                                               
included  the language,  "passes the  legislature within  90 days                                                               
after the last date a  presiding officer receives a determination                                                               
by the  commissioners under  AS 43.90.180,", and  there is  a new                                                               
subsection (c) in tended to  address the administration's concern                                                               
regarding  the legislative  rule that  prevents bills  from being                                                               
carried forward for  more than 30 days during  a special session.                                                               
Furthermore,  what is  now subsection  (d)  reads:   "(d) If  the                                                               
legislature fails  to approve  the issuance  of the  license, the                                                               
commissioners (1) may not issue  the license that the legislature                                                               
failed to  approve; and  (2) may request  new applications  for a                                                               
license under  AS 43.90.120."  The  purpose of this change  is to                                                               
make it explicit, rather than  implicit, that the legislature has                                                               
the right to  preclude the executive branch from  entering into a                                                               
contract that the  legislature has disapproved of.   This doesn't                                                               
raise  any   constitutional  issues,  she  said,   because  if  a                                                               
provision  is  ruled  unconstitutional,  it  is  unconstitutional                                                               
whether it is stated explicitly or implicitly.                                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON characterized  90 days  as a  lot of  time                                                               
spent in special session.                                                                                                       
                                                                                                                                
MS. DAVIS clarified that the Senate  bill has a 60-day limit, and                                                               
that the  House Special Committee on  Oil and Gas had  approved a                                                               
90-day limit but it did not get included in CSHB 177(O&G).                                                                      
                                                                                                                                
6:49:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON moved Amendment 28 as follows:                                                                            
                                                                                                                                
     Page 14, line 5, before "days"                                                                                             
     Delete "90"                                                                                                                
     Insert "60"                                                                                                                
                                                                                                                                
     Page 14, line 12, after "the"                                                                                              
     Delete "90"                                                                                                                
     Insert "60"                                                                                                                
                                                                                                                                
CO-CHAIR GATTO  objected saying  that [such  a change]  would not                                                               
add any information or help.                                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN stated  that the  original structure  of the                                                               
bill was basically the equivalent  of a legislative veto that had                                                               
to be  exercised in  30 days otherwise  the license  would become                                                               
effective.   The  bill was  then changed  to an  approval process                                                               
under  a timeframe  to be  chosen  by the  legislature, thus  the                                                               
administration   cannot  move   forward  until   the  legislature                                                               
approves the bill  that approves the license.   He commented that                                                               
deadlines often drive  the timeline for making a  decision; if it                                                               
is a 60-day timeline then it will  likely take 60 days to reach a                                                               
decision.   He  relayed  that the  administration  would be  more                                                               
comfortable  with 60  days  than 90  days,  and more  comfortable                                                               
still with 30 days than 60 days.                                                                                                
                                                                                                                                
CO-CHAIR GATTO said  he is thinking of a 30-day,  or perhaps even                                                               
a 45-day limit.                                                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON submitted that 60  days allows a bill to be                                                               
carried over from  one special session to  another without having                                                               
to re-introduce  it, but  a bill  cannot be  carried over  to the                                                               
first  regular session  of a  legislature.   He  opined that  two                                                               
special sessions should be enough.                                                                                              
                                                                                                                                
REPRESENTATIVE ROSES agreed.                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  pointed  out  that it  took  two  special                                                               
seasons to address the production profits tax (PPT) legislation.                                                                
                                                                                                                                
6:53:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON  noted that a  bill currently  being considered,                                                               
[HB 117],  would require the  governor to give the  legislature a                                                               
30-day  notice prior  to calling  a  special session.   He  asked                                                               
whether the  time limit would begin  at the time of  notice or at                                                               
the start of special session should this bill become law.                                                                       
                                                                                                                                
COMMISSIONER GALVIN explained that the  clock would start as soon                                                               
as the  notice is received  by the presiding  officer, regardless                                                               
of whether the  legislature is already in session or  needs to be                                                               
called into special session.                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON surmised  that [under  a 60-day  timeframe] the                                                               
legislature would only  have 30 days to act  following the 30-day                                                               
notice.                                                                                                                         
                                                                                                                                
COMMISSIONER GALVIN concurred.                                                                                                  
                                                                                                                                
CO-CHAIR GATTO pointed out that a  30 day timeframe would mean no                                                               
time for the legislature to act.                                                                                                
                                                                                                                                
COMMISSIONER GALVIN said  that if [HB 117] passes,  that would be                                                               
the case.                                                                                                                       
                                                                                                                                
CO-CHAIR  JOHNSON stated  that he  thinks 90  days should  be the                                                               
number until it  is known whether that  other legislation passes.                                                               
He objected to Amendment 28.                                                                                                    
                                                                                                                                
6:56:53 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.  Representatives  Seaton, Roses, and                                                               
Gatto voted  in favor of  Amendment 28.   Representatives Edgmon,                                                               
Kawasaki,  Wilson,  Guttenberg,  and Johnson  voted  against  it.                                                               
Therefore, Amendment 28 failed by a vote of 3-5.                                                                                
                                                                                                                                
MS. DAVIS  drew attention  to proposed  AS 43.90.200(a)  and (f),                                                               
which now  refers to  an administrative  appeal, and  stated that                                                               
this is an important change  because it restricts the time period                                                               
within   which  the   applicant  must   move  forward   with  the                                                               
certificate.    Once  administrative appeals,  which  would  come                                                               
before  the FERC,  have been  exhausted, a  court process  cannot                                                               
then be undertaken.                                                                                                             
                                                                                                                                
REPRESENTATIVE SEATON  asked whether there  is a need to  have an                                                               
"amended certificate" addressed in this section.                                                                                
                                                                                                                                
MS. DAVIS  responded that such  would be a good  clarification to                                                               
include.                                                                                                                        
                                                                                                                                
6:59:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON moved Amendment 29 as follows:                                                                            
                                                                                                                                
     Page 14, line 22, after "certificate"                                                                                      
     Insert "or amended certificate"                                                                                            
                                                                                                                                
REPRESENTATIVE  ROSES  asked  that  Amendment  29  be  considered                                                               
conceptual  in  order  that  the   additional  wording  could  be                                                               
inserted wherever appropriate throughout the document.                                                                          
                                                                                                                                
REPRESENTATIVE SEATON agreed.                                                                                                   
                                                                                                                                
MS.  DAVIS  also  agreed  that  this  would  be  helpful  because                                                               
Conceptual Amendment 29  would apply to subsections  (b) and (c),                                                               
as well.                                                                                                                        
                                                                                                                                
CO-CHAIR  GATTO  asked  whether  there  were  any  objections  to                                                               
Conceptual Amendment 29.  There  being none, Conceptual Amendment                                                               
29 was adopted.                                                                                                                 
                                                                                                                                
7:01:56 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  mentioned that  proposed AS  43.90.200(b) and  (c) now                                                               
contain the caveat, ", at  the time the certificate is awarded,",                                                               
and  surmised that  it  was  merely added  by  the  drafter as  a                                                               
clarifier.   However, she said,  this additional  language causes                                                               
the administration  concern because  subsections (b) and  (c) are                                                               
both  requirements for  an  applicant.   The  licensee must  move                                                               
forward to project sanction once  a FERC certificate is received.                                                               
Subsection  (b) states  that the  licensee must  move forward  to                                                               
project sanction  within a year  after the effective date  of the                                                               
certificate once the  licensee has credit support.   She said she                                                               
believes that  the drafter  was trying to  identify the  point in                                                               
time at which credit support is obtained.                                                                                       
                                                                                                                                
MS.  DAVIS said  that the  administration has  even more  concern                                                               
about  the change  to subsection  (c)  because "at  the time  the                                                               
certificate is awarded" means that  a licensee that does not have                                                               
credit  support  has  five  years   within  which  to  ultimately                                                               
sanction  the project.   She  relayed  that the  administration's                                                               
view of that provision had been  that it will take the licensee a                                                               
period of  time to  get credit support,  for example,  two months                                                               
after being issued  the certificate, at which  point the licensee                                                               
would  then  be  expected  to  move forward  to  sanction.    The                                                               
administration  saw this  as a  fluid timeline,  she argued,  and                                                               
inserting "at the time the  certificate is awarded" changes it to                                                               
an absolute timeline.                                                                                                           
                                                                                                                                
CO-CHAIR  GATTO inquired  whether  the aforementioned  additional                                                               
language needs  to come  out subsection (c),  but be  retained in                                                               
subsection (b).                                                                                                                 
                                                                                                                                
MS.  DAVIS  stated  that  it  definitely needs  to  come  out  of                                                               
subsection (c).                                                                                                                 
                                                                                                                                
COMMISSIONER GALVIN advised that the  clause needs to come out of                                                               
both subsection (b) and  (c).  He said that it  needs to be clear                                                               
that if the  licensee has credit support, he/she gets  a year; if                                                               
he/she doesn't have  credit support, he/she gets  five years from                                                               
the  time   the  license  is   issued.    He  relayed   that  the                                                               
administration believes  this clause  creates a  different intent                                                               
than originally envisioned.                                                                                                     
                                                                                                                                
CO-CHAIR GATTO  surmised that identifying the  timeframe when the                                                               
licensee has credit support is unnecessary.                                                                                     
                                                                                                                                
COMMISSIONER GALVIN  concurred; the  licensee will  obtain credit                                                               
support  either before  or after  receiving the  certificate, and                                                               
the administration wants  the one-year time period to  kick in at                                                               
that point.   In response to  a question, he recommended  that on                                                               
page 14,  lines 24 and  30, following "If",  the words ",  at the                                                               
time the certificate is awarded," should be deleted.                                                                            
                                                                                                                                
7:07:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES moved Amendment 30 as follows:                                                                             
                                                                                                                                
     Page 14, line 24                                                                                                           
     Delete ", at the time the certificate is awarded,"                                                                         
                                                                                                                                
     Page 14, line 30                                                                                                           
     Delete ", at the time the certificate is awarded,"                                                                         
                                                                                                                                
There being no objection, Amendment 30 was adopted.                                                                             
                                                                                                                                
REPRESENTATIVE   WILSON    drew   attention   to    proposed   AS                                                               
43.90.200(f), which  defines the  term, "time the  certificate is                                                               
awarded", and asked whether this definition was still needed.                                                                   
                                                                                                                                
MS.  DAVIS indicated  that subsection  (f) should  instead define                                                               
the phrase,  "the effective  date of  the certificate",  which is                                                               
used in subsection (b) and (c) of proposed AS 43.90.200.                                                                        
                                                                                                                                
REPRESENTATIVE WILSON moved Amendment 31 as follows:                                                                            
                                                                                                                                
     Page 15, line 17, after "section,"                                                                                         
     Delete "time the certificate is awarded"                                                                                   
     Insert ""the effective date of the certificate"                                                                            
                                                                                                                                
There being no objection, Amendment 31 was adopted.                                                                             
                                                                                                                                
7:10:13 PM                                                                                                                    
                                                                                                                                
MS. DAVIS referred to proposed  AS 43.90.200(d)(1), and noted the                                                               
insertion  of  the words,  "from  the  Federal Energy  Regulatory                                                               
Commission   or  the   Regulatory   Commission   of  Alaska,   as                                                               
applicable,", and that the words,  "and transfer the certificate"                                                               
were inadvertently omitted.                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON moved Amendment 32 as follows:                                                                            
                                                                                                                                
Page 15, line 8, after "abandon"                                                                                                
Insert "and transfer the certificate"                                                                                           
                                                                                                                                
There being no objection, Amendment 32 was adopted.                                                                             
                                                                                                                                
7:12:22 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  pointed  out that  proposed  AS  43.90.200(d)(2)  now                                                               
reads:   "(2) assign  to the  state or  the state's  designee all                                                               
project data, engineering designs,  contracts, permits, and other                                                               
data related  to the  project that are  acquired by  the licensee                                                               
during  the  term   of  the  license  before  the   date  of  the                                                               
abandonment  or transfer."   She  then relayed  that proposed  AS                                                               
43.90.200(e)  remains  unchanged.    It states  that  failure  to                                                               
accept  a certificate  that is  final, or  failure to  sanction a                                                               
project  after a  year following  receipt of  credit support,  or                                                               
failure to sanction  a project within five years  if the licensee                                                               
did not  have credit support,  will be at  no cost to  the state.                                                               
However,  in  the  administration's   version  of  the  bill,  an                                                               
exception was  made for the  last category wherein  the applicant                                                               
proceeded and worked  hard, but through no fault  of his/her own,                                                               
did not receive the credit support  to proceed further.  For this                                                               
scenario,  she  said, the  administration  had  allowed for  that                                                               
transfer to be at the licensee's  net cost.  She relayed that the                                                               
Senate's  version   of  that  language   was  the  same   as  the                                                               
administration's version.                                                                                                       
                                                                                                                                
COMMISSIONER  GALVIN submitted  that it  is the  administration's                                                               
belief  that  changing  this  language  is  a  more  commercially                                                               
reasonable offer.                                                                                                               
                                                                                                                                
MS.  DAVIS proposed  that the  committee  consider the  following                                                               
amendment:   on page 15, line  15, insert "or" between  "(a)" and                                                               
"(b)", and  delete ",  or (c)"; on  page 15, line  16, add  a new                                                               
sentence stating,  "A transfer  under (c) of  this section  is at                                                               
the licensee's net cost."                                                                                                       
                                                                                                                                
7:15:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON moved  Conceptual Amendment  33:   on page                                                               
15, line 15,  insert "or" between "(a)" and "(b)",  and delete ",                                                               
or  (c)",  and on  page  15,  line 16,  add  a  new sentence,  "A                                                               
transfer  under (c)  of this  section  is at  the licensee's  net                                                               
cost."                                                                                                                          
                                                                                                                                
REPRESENTATIVE  GUTTENBERG objected  and asked  how the  net cost                                                               
would be  established and  who would establish  it, as  this cost                                                               
could be hundreds of millions of dollars.                                                                                       
                                                                                                                                
COMMISSIONER GALVIN  responded that the  net cost is  intended to                                                               
capture  the   expenditures  of  the  licensee   less  the  state                                                               
contribution  that  was  received.   In  response  to  a  further                                                               
question, he  said the cost  could be  $500 million or  more, but                                                               
the state contribution is capped at $500 million.                                                                               
                                                                                                                                
MS. DAVIS  noted that what the  state would be paying  for is the                                                               
assignment  under  subsection(d)(2)  for  the  data,  engineering                                                               
designs, contracts,  permits, and  other project data  which will                                                               
have clear invoices and costs.                                                                                                  
                                                                                                                                
REPRESENTATIVE GUTTENBERG withdrew his objection.                                                                               
                                                                                                                                
REPRESENTATIVE ROSES  objected and stated that  his understanding                                                               
of what  is being talked  about in [proposed AS  43.90.200(c)] is                                                               
force majeure,  an act of God.   He said  he did not see  how the                                                               
failure to get financial backing was an act of God.                                                                             
                                                                                                                                
COMMISSIONER GALVIN  responded that  the administration  does not                                                               
consider to  this to be a  force majeure issue.   He relayed that                                                               
if the  licensee goes  through the effort  to get  financing, but                                                               
fails to get  credit support and cannot move  the project forward                                                               
by the  end of the  full five years,  then this is  the situation                                                               
described in  [proposed AS 43.90.200(c)].   The question  in this                                                               
instance, he said, is whether the  state should be able to obtain                                                               
all of  the work product for  free.  The House  Special Committee                                                               
on  Oil and  Gas  believed  that the  state  should; however,  he                                                               
stated, the  administration does not  think it represents  a fair                                                               
offer.                                                                                                                          
                                                                                                                                
REPRESENTATIVE ROSES  argued that applicants will  have committed                                                               
to  the 20  "must  haves" regarding  financial stability,  credit                                                               
lines,  and financing  plans, therefore  they should  not be  let                                                               
"off the hook for free".                                                                                                        
                                                                                                                                
COMMISSIONER  GALVIN  acknowledged  that  the  aforementioned  is                                                               
true.   However, he contended,  there is the  potential situation                                                               
of  an  applicant's financing  being  contingent  on getting  gas                                                               
commitments  that  then don't  materialize.    The question  then                                                               
becomes  whether the  state  should be  able to  get  all of  the                                                               
licensee's data for free or reimburse those costs.                                                                              
                                                                                                                                
7:21:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  noted that there  is a clause  elsewhere in                                                               
the bill  that says if  a licensee abandons the  project, his/her                                                               
data must  be given  to the  state.  The  ability to  finance the                                                               
project  and the  kind of  credit backing  that an  applicant has                                                               
should be the key criteria, he opined.                                                                                          
                                                                                                                                
COMMISSIONER  GALVIN  clarified  that the  abandonment  provision                                                               
provides that the state will receive  the data at net cost should                                                               
the  commissioner   and  licensee  agree  that   the  project  is                                                               
uneconomic.   He reiterated the  administration's belief  that it                                                               
is reasonable for the state to  acquire the data and move forward                                                               
on its  own should  the licensee  be unable  to make  the project                                                               
happen after a  period of time.  However, he  said, one must also                                                               
look at it  from the applicants' point of view.   When applicants                                                               
are  considering the  risks  and the  investment  of hundreds  of                                                               
millions of their  own dollars in the [project],  the state could                                                               
be  viewed   as  being  overreaching.     The  administration  is                                                               
concerned this might deter someone from applying, he related.                                                                   
                                                                                                                                
CO-CHAIR GATTO said that was also his thought.                                                                                  
                                                                                                                                
REPRESENTATIVE WILSON said she agrees  that it might keep someone                                                               
from  applying  because of  the  prospect  of the  producers  not                                                               
showing up for the  open season as a way to  force the project to                                                               
start over again.                                                                                                               
                                                                                                                                
REPRESENTATIVE SEATON  submitted that  there are  two situations.                                                               
The first  one is where the  project is uneconomic and  the state                                                               
would  buy the  data.   The second  one is  where the  project is                                                               
economic but  still doesn't happen  for some reason, such  as the                                                               
producers  not committing  gas at  open season.   In  this second                                                               
case, the state  is left with no project, no  certificate, and no                                                               
data.   There  needs  to  be some  kind  of  future leverage  and                                                               
liability if  it is an  economic project, he contended,  and this                                                               
seems reasonable, from a commercial  standpoint, for the state to                                                               
get applicants to the table.                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  argued that the  bill references a  lack of                                                               
credit  support, not  a lack  of an  FT commitment.   One  of the                                                               
"must haves" is the financial  viability to complete this project                                                               
and [Conceptual Amendment 33] would make it a "might have".                                                                     
                                                                                                                                
COMMISSIONER GALVIN  read aloud from  subsection (c).  It  is all                                                               
tied  together,  he maintained,  because  FT  commitments may  be                                                               
relied upon  in full or  in part as  a basis for  credit support.                                                               
He explained  that FT  commitments are only  one of  the building                                                               
blocks upon  which financing might be  based.  "It is  the nature                                                               
of the  offer that the state  is making," he said,  as to whether                                                               
the  state gets  the  information  for free  or  buys  it at  the                                                               
licensee's  cost should  the licensee  become unable  to get  the                                                               
necessary credit support.                                                                                                       
                                                                                                                                
7:29:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  asked  if  it  would be  possible  to  have  a                                                               
scenario wherein a licensee spends  the [state's] $500 million on                                                               
something else  and spends  his/her own money  on "this"  so that                                                               
the state  must pay back  the licensee  in addition to  being out                                                               
the $500 million.                                                                                                               
                                                                                                                                
COMMISSIONER GALVIN responded  that the $500 million  can only be                                                               
spent on  those activities that bring  the licensee to a  FERC or                                                               
RCA certificate.                                                                                                                
                                                                                                                                
CO-CHAIR GATTO surmised that if  half of the licensee's money and                                                               
half of the  state's money have gone into the  project up to that                                                               
point, then  the licensee's net  costs would exclude  the portion                                                               
put up by the state.                                                                                                            
                                                                                                                                
COMMISSIONER GALVIN concurred.                                                                                                  
                                                                                                                                
REPRESENTATIVE  ROSES inquired  whether  Commissioner Galvin  saw                                                               
this as compromising or contradicting  any of the "must haves" in                                                               
the application process.                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN responded no.                                                                                               
                                                                                                                                
REPRESENTATIVE ROSES withdrew his objection.                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON objected.                                                                                                      
                                                                                                                                
A roll call vote was  taken.  Representatives Seaton, Guttenberg,                                                               
Edgmon, Wilson, and Gatto voted  in favor of Conceptual Amendment                                                               
33.   Representatives Roses, Kawasaki, and  Johnson voted against                                                               
it.  Therefore, Conceptual Amendment 33  was adopted by a vote of                                                               
5-3.                                                                                                                            
                                                                                                                                
The House Resources Standing Committee  was recessed at 7:35 p.m.                                                               
to be continued at approximately 7:45 p.m.                                                                                      
                                                                                                                                
CO-CHAIR GATTO  called the meeting  back to order at  7:52:38 PM.                                                             
Representatives  Gatto,   Johnson,  Roses,   Guttenberg,  Edgmon,                                                               
Wilson, Kawasaki, and Seaton were present at the call to order.                                                                 
                                                                                                                                
[Following  was  discussion   regarding  rescinding  a  committee                                                               
action.]                                                                                                                        
                                                                                                                                
The committee took an at-ease from 7:53 p.m. to 7:54 p.m.                                                                       
                                                                                                                                
REPRESENTATIVE ROSES moved to rescind  [the committee's action in                                                               
adopting] Conceptual Amendment 33.                                                                                              
                                                                                                                                
CO-CHAIR GATTO objected.                                                                                                        
                                                                                                                                
REPRESENTATIVE  ROSES   pointed  out   that  under   the  current                                                               
provisions of the  bill, there is a 50/50 match  for the licensee                                                               
up to the open  season, and after the open season  it is an 80/20                                                               
split up and through the  certification process.  If the licensee                                                               
spends $200  million to get  to the  open season, then  the state                                                               
and  the licensee  will each  have spent  $100 million  under the                                                               
50/50 split provision.  If  the licensee then spends $500 million                                                               
for the next phase, the state's  share under the 80/20 split will                                                               
be $400  million and the  licensee's share will be  $100 million.                                                               
The total cost is now $500  million to the state and $200 million                                                               
to the licensee.  If, at  this point, the licensee loses the full                                                               
credit  support that  it  had  at the  time  of its  application,                                                               
[Conceptual Amendment 33] allows for  the licensee to now get out                                                               
of  the  contract  and  be  reimbursed  by  the  state  for  that                                                               
information -  resulting in a cost  of $700 million to  the state                                                               
and zero  to the licensee.   Is this really what  the state wants                                                               
to do, he asked.                                                                                                                
                                                                                                                                
CO-CHAIR GATTO inquired  whether it is possible for  the state to                                                               
expend more money than the licensee.                                                                                            
                                                                                                                                
COMMISSIONER GALVIN  indicated that such  could be the case.   At                                                               
the  time  of  application,  the   applicant  does  not  have  to                                                               
demonstrate that it has the  credit secured to finance the entire                                                               
project.   Rather, the  applicant is  providing a  financial plan                                                               
that is conditional upon certain  things occurring in the future,                                                               
such  as FT  commitments  or government  support.   It  is not  a                                                               
question of the  credit support vanishing, he  stated, but rather                                                               
that it didn't ever materialize.                                                                                                
                                                                                                                                
COMMISSIONER   GALVIN   said  that   while   he   is  swayed   by                                                               
Representative  Roses's scenario,  from  the  perspective of  the                                                               
applicant, should  the credit  support that  is being  planned on                                                               
not materialize,  then the applicant  is left with nothing.   The                                                               
biggest risk,  he said,  is creating a  framework that  is deemed                                                               
too much  of a commercial  risk by potential  applicants, thereby                                                               
scaring off the very people that  the state is trying to attract.                                                               
In trying  to strike a  balance, the  question is, which  risk is                                                               
the state willing to take.   At this particular point in time, he                                                               
stated,  the  administration  feels  it is  more  appropriate  to                                                               
create  an   attractive  situation  without   impediments,  while                                                               
recognizing  that  it  could  put  the state  in  a  position  of                                                               
spending additional monies to get the product.                                                                                  
                                                                                                                                
8:03:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES acknowledged  that  point,  but noted  that                                                               
witnesses have stated  several times that the best  work and best                                                               
analysis must  be done prior to  getting to the open  season.  He                                                               
expressed his  concern that a  situation is being set  up whereby                                                               
applicants are being  encouraged to invest as  little as possible                                                               
and do  the least  amount of analysis  possible because  there is                                                               
little risk  since they would  be able  to get their  money back.                                                               
He stressed his belief that having  something at risk going in is                                                               
what  ensures that  the applicants  will  do their  best work  up                                                               
front.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  ROSES explained  that  his intent  in asking  the                                                               
committee to rescind its action  in adopting Conceptual Amendment                                                               
33 is to re-offer it with a  change:  instead of the state paying                                                               
100 percent of the licensee's net  cost, the buy back would be at                                                               
50  percent of  the licensee's  net cost.   This  would strike  a                                                               
happy medium, he said, because this  way a licensee would have to                                                               
expend at least $100 million of its own money.                                                                                  
                                                                                                                                
REPRESENTATIVE  WILSON noted  that  during  the discussions  with                                                               
producers and pipeline  companies, both had said  that there were                                                               
times when  no applications  were received  for the  open season.                                                               
Both  said that  this then  resulted in  negotiating a  different                                                               
rate.   Therefore,  she  asked,  at what  point  is the  licensee                                                               
abandoning the project and working toward another open season.                                                                  
                                                                                                                                
COMMISSIONER  GALVIN  advised  that after  an  unsuccessful  open                                                               
season under  AGIA, the  licensee would  be required  to continue                                                               
moving and  making expenditures towards getting  the certificate.                                                               
During that  period of time, the  licensee would be free  to hold                                                               
additional open seasons to try  to obtain the needed commitments.                                                               
At some  point the certificate  will be received and  then, under                                                               
the section being discussed, the  clock will start.  Upon receipt                                                               
of FT commitments  and credit support, the licensee  has one year                                                               
to sanction the project and begin  to move.  However, if the open                                                               
seasons continue to be unsuccessful,  the licensee has five years                                                               
to  continue  holding  open  seasons,  refine  the  project,  and                                                               
negotiate ways  to get  those commitments.   If during  this time                                                               
the licensee gives  up, then a different section  of AGIA applies                                                               
and the state  obtains the information through  that other means,                                                               
he explained.   If  it goes  all the way  through that  five year                                                               
period,  it  becomes  the scenario  described  by  Representative                                                               
Roses.   Under  Conceptual Amendment  33, he  said, the  question                                                               
becomes  whether  the  licensee  must forfeit  all  of  the  work                                                               
product to the state for free or receive payment for net costs.                                                                 
                                                                                                                                
REPRESENTATIVE  ROSES   withdrew  his   motion  to   rescind  the                                                               
committee's action in adopting Conceptual Amendment 33.                                                                         
                                                                                                                                
8:10:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES moved  Conceptual Amendment  34, to  change                                                               
the  new sentence  added  to  page 15,  line  16, via  Conceptual                                                               
Amendment 33 to  read:  "A transfer under (c)  of this section is                                                               
at  50 percent  of  the licensee's  net cost."    There being  no                                                               
objection, Conceptual Amendment 34 was adopted.                                                                                 
                                                                                                                                
COMMISSIONER GALVIN  stated his  support or  Conceptual Amendment                                                               
34, but noted that it causes  a potential conflict if the section                                                               
on abandonment is not similarly amended.                                                                                        
                                                                                                                                
MS. DAVIS  drew attention  to proposed  AS 43.90.210  wherein two                                                               
additional  conditions were  added -  on page  15, lines  21-23 -                                                               
that would  justify a modification  to the project plan;  the new                                                               
language reads, "improve the net  present value of the project to                                                               
the  state, are  necessary  because  of an  order  issued by  the                                                               
Alaska Oil  and Gas  Conservation Commission,".   She  noted that                                                               
language on page 15, lines  25-29, now provides that an amendment                                                               
or modification  may not  diminish the net  present value  to the                                                               
state  of  the project  or  the  likelihood  of success  for  the                                                               
project unless the amendment or  modification was required by the                                                               
AOGCC.                                                                                                                          
                                                                                                                                
COMMISSIONER  GALVIN pointed  out a  typographical error  on page                                                               
15, line 27, wherein the word "Conservation" was omitted.                                                                       
                                                                                                                                
8:14:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON moved Amendment 35 as follows:                                                                            
                                                                                                                                
     Page 15, line 27, between "Gas" and "Commission"                                                                           
     Insert "Conservation"                                                                                                      
                                                                                                                                
There being no objection, Amendment 35 was adopted.                                                                             
                                                                                                                                
MS. DAVIS referred to proposed  AS 43.90.220(b) wherein the words                                                               
", books,  and files" was  added to  expand what may  be audited.                                                               
The  remaining  portion  of  subsection   (b)  was  rephrased  to                                                               
accommodate a  change in language  throughout the bill  where the                                                               
word  "contribution"  was  changed  to either  "state  money"  or                                                               
"money".   She noted that  proposed AS 43.90.220(c) of  Version K                                                               
now contains  the language found in  proposed AS 43.90.220(b)(2)-                                                               
(3) of CSHB 177(O&G).                                                                                                           
                                                                                                                                
MS. DAVIS  said that proposed  AS 43.90.220(d) gives the  state a                                                               
seat  at the  table in  perpetuity.   However,  she pointed  out,                                                               
under the  administration's version  of the bill,  that authority                                                               
would have ended with commencement  of commercial operations; the                                                               
administration believes it  is unnecessary to have a  seat at the                                                               
table  once   the  pipeline   commences  operation   because  the                                                               
administration's primary  concern is related  to the  period from                                                               
issuance of the  license until financing of the  construction.  A                                                               
seat at the  table in perpetuity would create  difficulty for the                                                               
state regarding  how to  assign someone  these duties  and ensure                                                               
that  he/she  does  not  communicate  inappropriately  to  others                                                               
within  the state.   Therefore,  she advised,  the administration                                                               
recommends  returning to  the  language,  "until commencement  of                                                               
commercial operations";  this language would be  inserted on page                                                               
16, line 11, in place of the words,  "so long as the terms of the                                                               
license continue to apply".                                                                                                     
                                                                                                                                
CO-CHAIR GATTO  noted that language  on line 12 only  states that                                                               
the  licensee "shall  allow the  commissioners", and,  therefore,                                                               
there  is  no  necessity  for the  commissioners  to  attend  any                                                               
meeting.                                                                                                                        
                                                                                                                                
MS.  DAVIS  responded  that  having   a  right  usually  presumes                                                               
exercise of  that right in  some fashion.  She  acknowledged that                                                               
Co-Chair  Gatto is  correct, but  that the  state's legal  rights                                                               
could be  compromised somewhere  down the road  if the  state has                                                               
objections  or concerns  about  actions that  were  taken by  the                                                               
pipeline company.   The  pipeline company  could then  argue that                                                               
the state had  a right to be  at the table but  waived its rights                                                               
to object by choosing not to attend.                                                                                            
                                                                                                                                
REPRESENTATIVE  GUTTENBERG   asked  whether   the  administration                                                               
considers that  the terms of the  license no longer apply  at the                                                               
point of commercial operation.                                                                                                  
                                                                                                                                
MS. DAVIS  answered no, the  administration believes  the license                                                               
would continue to apply so long as the pipeline is operating.                                                                   
                                                                                                                                
8:20:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON moved Amendment 36 as follows:                                                                            
                                                                                                                                
     Page 16, line 11, after "and"                                                                                              
      Delete "so long as the terms of the license continue                                                                      
     to apply"                                                                                                                  
     Insert "until commencement of commercial operations"                                                                       
                                                                                                                                
CO-CHAIR   GATTO  asked   for  the   definition  of   "commercial                                                               
operations".                                                                                                                    
                                                                                                                                
MS.  DAVIS  said  language  on  page  28,  lines  20-21,  defines                                                               
"commencement of  commercial operations" to mean  "the first flow                                                               
of gas in the project that generates revenue to the owners".                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES objected  to  Amendment 36.   Although  not                                                               
exercising a right  could put the state in  a cumbersome position                                                               
in the  event of adjudication, would  the state not also  be in a                                                               
difficult position if it was a  member of the board and the state                                                               
chose to adjudicate, he asked.                                                                                                  
                                                                                                                                
MS. DAVIS responded that being on  a board with the power to sway                                                               
votes and influence the outcome of  meetings would put a party in                                                               
the position of  being bound by not acting.   Having the right of                                                               
observation puts a party in the  situation wherein it is aware of                                                               
information so that  a failure to act could be  argued as being a                                                               
waiver.   However,  in  terms of  the state  being  bound by  the                                                               
actions being taken,  she said she did not believe  that would be                                                               
an issue  here because  of the observation  rights as  opposed to                                                               
the ability to influence votes.                                                                                                 
                                                                                                                                
REPRESENTATIVE ROSES inquired whether  there could be a situation                                                               
at a  meeting wherein  the information  is deemed  proprietary by                                                               
the licensee  and therefore [the  state representative]  would be                                                               
unable to  share the information,  thus defeating the  purpose of                                                               
the state being at the table.                                                                                                   
                                                                                                                                
MS. DAVIS explained that part of  having this right of access and                                                               
right to information is what brings  the state within the veil of                                                               
any argument  that that information  is proprietary.   By essence                                                               
of this being law, the licensee  has waived any argument that the                                                               
state cannot access the information.                                                                                            
                                                                                                                                
REPRESENTATIVE ROSES withdrew his objection.                                                                                    
                                                                                                                                
CO-CHAIR asked whether there were  any further objections.  There                                                               
being none, Amendment 36 was adopted.                                                                                           
                                                                                                                                
8:23:53 PM                                                                                                                    
                                                                                                                                
MS. DAVIS relayed  that proposed AS 43.90.220(e)  now reads, "(e)                                                               
A licensee shall maintain the  records and reports required under                                                               
this section for seven years  from the date the licensee receives                                                               
state  money   under  this  chapter.",   and  that   proposed  AS                                                               
43.90.230(a)-(d) now reads:                                                                                                     
                                                                                                                                
     (a) A  licensee is in  violation of the license  if the                                                                    
     commissioners determine that the licensee has                                                                              
          (1) committed money received from the state under                                                                     
     this  chapter   for  an  expenditure  that   is  not  a                                                                    
     qualified expenditure under AS 43.90.110;                                                                                  
          (2)     substantially     departed    from     the                                                                    
     specifications  set  out  in  the  application  without                                                                    
     state  approval   of  a   project  plan   amendment  or                                                                    
     modification under AS 43.90.210;                                                                                           
          (3) violated any provision of this chapter or any                                                                     
     other  provision of  state or  federal law  material to                                                                    
     the license; or                                                                                                            
          (4) otherwise violated a material term of the                                                                         
     license.                                                                                                                   
     (b) The  commissioners shall provide written  notice to                                                                    
     the  licensee identifying  a  license  violation.   The                                                                    
     commissioners and  the licensee have 90  days after the                                                                    
     date  the notice  is issued  to  resolve the  violation                                                                    
     informally.                                                                                                                
     (c)  The  commissioners  may  suspend  disbursement  of                                                                    
     state matching contributions  to the licensee beginning                                                                    
     on the date  that the notice of  violation issued under                                                                    
     (b)  of this  section is  sent  to the  licensee.   The                                                                    
     commissioners may resume disbursement  on the date that                                                                    
     the  commissioners  determine  that  the  violation  is                                                                    
     cured.                                                                                                                     
     (d) If  the commissioners  and the licensee  are unable                                                                    
     to resolve  the violation within the  time specified in                                                                    
     (b) of  this section,  the commissioners  shall provide                                                                    
     the  licensee with  notice that  the violation  has not                                                                    
     been  cured   and  provide  the  opportunity   for  the                                                                    
     licensee to be heard.   If after notice and hearing the                                                                    
     commissioners  determine  that  the violation  has  not                                                                    
     been  cured, the  commissioners shall  issue a  written                                                                    
     decision  that is  a  final  administrative action  for                                                                    
     purposes of appeal to the superior court in the state.                                                                     
                                                                                                                                
MS.  DAVIS  noted  that  one   of  the  changes  to  proposed  AS                                                               
43.90.230(d) ensures  that the State of  Alaska has jurisdiction.                                                               
She  also  mentioned  that proposed  AS  43.90.230(e)(1)-(4)  now                                                               
reads:                                                                                                                          
                                                                                                                                
     (e)  If  the determination  issued  under  (d) of  this                                                                    
     section    finds   an    unresolved   violation,    the                                                                    
     commissioners may  impose one or more  of the following                                                                    
     remedies:                                                                                                                  
          (1)    discontinuation     of    state    matching                                                                    
     contributions under this chapter;                                                                                          
          (2) recoupment of state money that the licensee                                                                       
     has  received   under  this   chapter  to   date,  with                                                                    
     interest,  regardless  of   whether  the  licensee  has                                                                    
     expended or committed that money;                                                                                          
          (3) license revocation;                                                                                               
          (4) assignment to the state or the state's                                                                            
     designee  of  all  project data,  engineering  designs,                                                                    
     contracts,  permits, and  other  data  relating to  the                                                                    
     project that  are acquired by  the licensee  during the                                                                    
     term of the license; and                                                                                                   
                                                                                                                                
MS.  DAVIS  recommended  that   proposed  AS  43.90.230(f)(2)  be                                                               
amended by inserting the words  "or the state's designee" between                                                               
"state" and  "all".  This  wording is needed throughout  the bill                                                               
because there  may be instances  where it is appropriate  for the                                                               
product, or material, to be in the hands of a designee.                                                                         
                                                                                                                                
8:27:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES moved  Conceptual Amendment  37, to  insert                                                               
the words, "or state's designee"  after the word, "state" on page                                                               
17, line  31, and to add  this wording throughout the  bill where                                                               
needed.                                                                                                                         
                                                                                                                                
REPRESENTATIVE GUTTENBERG  objected to express disfavor  with the                                                               
entirety of subsection (f).                                                                                                     
                                                                                                                                
CO-CHAIR  GATTO   asked  whether   there  were  there   were  any                                                               
objections  to  Conceptual  Amendment  37.    There  being  none,                                                               
Conceptual Amendment 37 was adopted.                                                                                            
                                                                                                                                
REPRESENTATIVE  GUTTENBERG, referring  to  subsection (f),  asked                                                               
how that provision relates to enforcement.                                                                                      
                                                                                                                                
COMMISSIONER GALVIN referred to  subsection (e), which provides a                                                               
list  of remedies  available to  the commissioners  should it  be                                                               
determined that  a violation  has occurred.   That  list includes                                                               
license revocation and assignment of  the data.  He conveyed that                                                               
the  House Special  Committee on  Oil and  Gas wanted  to specify                                                               
that  if  license  revocation  is  chosen  as  the  remedy,  then                                                               
assignment of  the data is  required, and subsection  (f) ensures                                                               
that  this occurs.    In response  to a  question,  he said  that                                                               
should it  be determined that  a violation has occurred  that has                                                               
not  been resolved,  then the  commissioners can  determine which                                                               
remedy is  appropriate or  if all  of them  are appropriate.   In                                                               
regard to  whether subsection  (f) is necessary,  it is  simply a                                                               
matter   of  whether   a  revocation   of   the  license   should                                                               
automatically be  tied to a  requirement of assigning all  of the                                                               
data.                                                                                                                           
                                                                                                                                
8:31:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GUTTENBERG  inquired   whether  subsection   (f)                                                               
provides the authority  to have everything that has  been done by                                                               
the licensee assigned to the state.                                                                                             
                                                                                                                                
COMMISSIONER GALVIN indicated that it  did; the state already has                                                               
that  authority under  the current  language  in subsection  (e),                                                               
and, again,  subsection (f) simply eliminates  the commissioners'                                                               
discretion  to  revoke the  license  and  choose not  to  require                                                               
assignment  of   all  of   the  data.     He  relayed   that  the                                                               
administration  opposed   this  change   by  the   House  Special                                                               
Committee on Oil  and Gas, and would therefore not  be opposed to                                                               
deletion of subsection (f).                                                                                                     
                                                                                                                                
CO-CHAIR JOHNSON  asked whether  the definition of  "matching" on                                                               
page 17, line 6, would also encompass the "80/20."                                                                              
                                                                                                                                
MS.  DAVIS said  it applies  regardless of  whether the  ratio is                                                               
50/50 or 80/20.                                                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON commented that  subsection (f) prevents re-                                                               
application by the licensee as well as assigns the data.                                                                        
                                                                                                                                
COMMISSIONER  GALVIN concurred.    He acknowledged  that this  is                                                               
potentially troubling because there could  be a scenario in which                                                               
events  occur  that  would preclude  the  commissioners  and  the                                                               
licensee from modifying  the project plan because  doing so would                                                               
reduce the NPV  of the project.  This could  force a violation to                                                               
occur even  if the  licensee acted  in good  faith and  the state                                                               
wanted to  allow the licensee to  compete in the next  phase with                                                               
new  information   becoming  available.    Having   the  licensee                                                               
precluded may  potentially run  counter to what  would be  in the                                                               
state's interests at that particular time, he argued.                                                                           
                                                                                                                                
COMMISSIONER  GALVIN,  in response  to  a  question, presented  a                                                               
scenario in  which an applicant  comes in with a  certain project                                                               
design but is  forced to request a modification  because it turns                                                               
out  that the  gas  isn't  there or  something  else affects  the                                                               
licensee's ability  to deliver that type  of a project.   Even if                                                               
the commissioners support the proposed  modification, they do not                                                               
have the  authority to  authorize it if  it lowers  the project's                                                               
NPV.  The  project may still be economic, but  cannot be modified                                                               
and the licensee now cannot  fulfill the application.  This would                                                               
result  in having  to  go through  the  violation and  revocation                                                               
provision or result in a  voluntary relinquishment on the part of                                                               
the applicant.                                                                                                                  
                                                                                                                                
8:36:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES remarked that  he cannot understand how that                                                               
scenario could occur  because after the open  season the criteria                                                               
allows  the licensee  to  modify  the project  to  fit that  open                                                               
season.                                                                                                                         
                                                                                                                                
COMMISSIONER  GALVIN  responded  that  this  applies  only  if  a                                                               
contingency  clause  was  included  in  the  licensee's  original                                                               
proposal.    If  there  is  no such  contingency  clause  in  the                                                               
original  proposal, then  only those  changes  allowed under  the                                                               
modification provision  can be undertaken and  they cannot reduce                                                               
the NPV of the project.                                                                                                         
                                                                                                                                
REPRESENTATIVE ROSES stated  that was one of the  reasons for his                                                               
amendment  that  allowed an  applicant  to  propose various  pipe                                                               
capacities in  order to make adjustments  for possible variations                                                               
in the FT at the open season.   Given this parameter, why allow a                                                               
licensee  to  re-bid on  a  project  that  should have  been  bid                                                               
properly in the first place, he asked.                                                                                          
                                                                                                                                
COMMISSIONER  GALVIN replied  that it  is  a matter  of when  the                                                               
state  goes back  out for  applications.   Should  a licensee  be                                                               
automatically precluded from  submitting a new bid  or allowed to                                                               
compete  with  a  new  proposal  based  upon  what  will  be  new                                                               
information, he asked.                                                                                                          
                                                                                                                                
8:37:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  argued that  the  licensee  should not  be                                                               
allowed to  re-bid because the  other bidders are not  allowed to                                                               
participate  once they  are  rejected.   He  contended that  this                                                               
allows the licensee who bid  incorrectly to compete with a bidder                                                               
who may have  had the correct proposal to start  with but was not                                                               
chosen.                                                                                                                         
                                                                                                                                
MS. DAVIS reminded the committee  that in the evaluation criteria                                                               
there  is   a  specific  provision  relating   to  track  record,                                                               
experience, business  integrity, and  other elements that  can be                                                               
scrutinized.  She commented that  should a subsequent application                                                               
be  received from  a  previous licensee,  it  will receive  close                                                               
scrutiny as  opposed to an  application that was right  the first                                                               
time.                                                                                                                           
                                                                                                                                
MS. DAVIS  said the licensee is  going to be a  named entity, and                                                               
in  all  likelihood   it  will  be  a   large  limited  liability                                                               
corporation consisting  of multiple parties.   She predicted that                                                               
it would be  difficult to form a new entity  for submitting a bid                                                               
the next time  around, or that there would be  a different mix of                                                               
players.    It would  be  problematic  for  the state  to  assess                                                               
whether  or   not  the   same  licensee   is  submitting   a  new                                                               
application, she  opined, because there  would be no  guidance as                                                               
to whether being the same means  more than 50 percent of the same                                                               
ownership.   The state could find  itself in a very  bad position                                                               
trying   to  administer   this  provision,   she  argued.     The                                                               
administration's  belief  is  that subsection  (f)  creates  more                                                               
difficulty than it solves, she  relayed, particularly since there                                                               
is  another  mechanism  in  place  to  solve  the  aforementioned                                                               
problem.                                                                                                                        
                                                                                                                                
CO-CHAIR GATTO commented  that the part of the  project plan that                                                               
caused the licensee  to default would probably be  changed in the                                                               
new application.                                                                                                                
                                                                                                                                
REPRESENTATIVE WILSON inquired  whether the administration wished                                                               
to remove subsection (f).                                                                                                       
                                                                                                                                
MS. DAVIS said just paragraph (1)  of subsection (f) needed to be                                                               
removed.                                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN  clarified that  he would prefer  the removal                                                               
of all of subsection (f).                                                                                                       
                                                                                                                                
MS.  DAVIS,  in   response  to  a  comment,   clarified  that  if                                                               
subsection (f)(1) is  removed, the state still has  a means under                                                               
the application evaluation criteria  to identify whether the same                                                               
licensee is  coming back through  the second round.   She further                                                               
stated that she  did not believe subsection  (f)(2) was necessary                                                               
given  that subsection  (e) provides  that the  commissioners may                                                               
apply  "one or  more  of the  following  remedies" which  include                                                               
license revocation and assignment of the data.                                                                                  
                                                                                                                                
8:42:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  moved Amendment 38, to  delete proposed AS                                                               
43.90.230 (f).                                                                                                                  
                                                                                                                                
[The  committee decided  that the  change proposed  by Conceptual                                                               
Amendment 37  would still apply  throughout the remainder  of the                                                               
bill.]                                                                                                                          
                                                                                                                                
CO-CHAIR  GATTO  asked  whether  there  were  any  objections  to                                                               
Amendment 38.  There being none, Amendment 38 was adopted.                                                                      
                                                                                                                                
8:43:31 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  directed attention to proposed  AS 43.90.240(a), which                                                               
now   uses  the   word,  "inducement"   rather  than   the  word,                                                               
"entitlement".    Proposed  AS 43.90.240(b)  no  longer  contains                                                               
references to  the Commercial Arbitration  Rules of  the American                                                               
Arbitration  Association; inserted  in  its place  is the  clause                                                               
"under the substantive  and procedural laws of this  state".  She                                                               
said this  change was made  to the  Senate's version of  the bill                                                               
because   there  was   concern  that   reference  to   Commercial                                                               
Arbitration Rules  would be confusing given  Alaska's adoption of                                                               
the  Uniform  Arbitration  Act.     Furthermore,  subsection  (b)                                                               
specifies that a judgment may  be entered in the state's superior                                                               
court.                                                                                                                          
                                                                                                                                
MS. DAVIS,  in response  to a question,  explained that  the word                                                               
"entered" as used in subsection (b)  is a legal term meaning that                                                               
an arbitration award  has the same force and power  as a superior                                                               
court decision.   In response  to further questions,  she relayed                                                               
that once  an arbitration award is  entered as a judgment  in the                                                               
State of  Alaska, it can  then be  enforced in other  states, and                                                               
that  an arbitration  award can  be enforced  in other  countries                                                               
provided  the United  States' treaty  with  a particular  country                                                               
recognizes enforceability of judgment agreements.                                                                               
                                                                                                                                
MS. DAVIS  mentioned that subsection  (b) now clarifies  that all                                                               
arbitrators  shall  be  selected from  the  American  Arbitration                                                               
Association's National  Roster.   In response  to comments  and a                                                               
question,  she  said  that  the   administration  is  not  "forum                                                               
shopping"  relative  to choice  of  law;  the administration  has                                                               
decided to abide by state law.                                                                                                  
                                                                                                                                
MS. DAVIS,  in response to  another question, explained  that the                                                               
words  in subsection  (a),  "under  (f) of  this  section and  AS                                                               
43.90.220" refers to subsection (f)  of proposed AS 43.90.240 and                                                               
to  the  entirety of  proposed  AS  43.90.220.   She  noted  that                                                               
proposed  AS  43.90.240(b)(1)  now  longer  contains  the  words,                                                               
"project  shall  be  abandoned"  because  the  administration  is                                                               
trying to get away from  having project abandonment be a decision                                                               
point  and  instead  stay  focused  on  whether  the  project  is                                                               
economic.                                                                                                                       
                                                                                                                                
8:51:00 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS relayed  that proposed  AS 43.90.240(b)(2)  now reads,                                                               
"(2)  not uneconomic,  the obligations  of the  licensee and  the                                                               
state continue as provided under  this chapter and the license.",                                                               
and that proposed subsection (c)  is essentially a new subsection                                                               
defining the term, "uneconomic" so  as to provide guidance to the                                                               
arbitrators regarding whether a project is uneconomic.                                                                          
                                                                                                                                
CO-CHAIR GATTO  surmised that "preponderance of  the evidence" is                                                               
a lower bar than "clear and convincing".                                                                                        
                                                                                                                                
MS.  DAVIS concurred;  the state  could be  the party  seeking to                                                               
prove something is uneconomic and,  thus, this standard will keep                                                               
things  fair.    She  then   explained  that  the  definition  of                                                               
"uneconomic"  has   two  prongs.    The   first  prong,  proposed                                                               
subsection (c)(1), states that either  the applicant or the state                                                               
would need to demonstrate that  the "project does not have credit                                                               
support sufficient to finance construction  of the project".  She                                                               
pointed out that ownership and  control of gas resources does not                                                               
qualify  as  credit   support.    This  is   because  a  producer                                                               
affiliate-owned pipeline  would be unable to  demonstrate that it                                                               
had  no control  of gas,  therefore this  type of  pipeline owner                                                               
would  be  precluded   from  ever  showing  that   a  project  is                                                               
uneconomic.  A producer  affiliate-owned pipeline could certainly                                                               
have a  situation, she  offered, where  a project  was uneconomic                                                               
due to such things as  commodity pricing of the gas, construction                                                               
material, and market conditions.                                                                                                
                                                                                                                                
8:53:04 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS referred  to the  second  prong of  the definition  of                                                               
"uneconomic" - proposed subsection (c)(2)  - and relayed that the                                                               
gas  team  had  extensive  discussions  as  to  what  constitutes                                                               
uneconomic, and  determined that an  objective test would  be for                                                               
the  arbitrator  to  look  at whether  there  would  be  shippers                                                               
willing  to  ship   gas  on  the  pipeline   under  the  economic                                                               
assumptions  of a  fully loaded  pipeline and  the market  prices                                                               
predicted for the  time that the gas would be  brought on.  Thus,                                                               
paragraph (1) is  a subjective standard, she  said, and paragraph                                                               
(2) is an objective standard.                                                                                                   
                                                                                                                                
CO-CHAIR  GATTO   commented  that   the  words   "typically"  and                                                               
"prudent"  as   used  in  paragraph  (2)   could  be  interpreted                                                               
differently depending on which side of the fence a person is on.                                                                
                                                                                                                                
MS. DAVIS  stated that  proposed AS  43.90.240(d) relates  to the                                                               
burden of proof.  However,  she reported, this language creates a                                                               
problem because under Alaska law,  the burden of proof is already                                                               
adequately  dealt with  through  the statutory  structure of  the                                                               
Uniform  Arbitration Act.   Therefore,  the administration  would                                                               
not  oppose  deletion  of  this  subsection  in  order  to  avoid                                                               
confusion.                                                                                                                      
                                                                                                                                
8:55:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  moved Amendment  39, to  delete subsection                                                               
(d)  from page  19,  lines  3-4, and  renumber  the  rest of  the                                                               
subsections accordingly.  There  being no objection, Amendment 39                                                               
was adopted.                                                                                                                    
                                                                                                                                
MS. DAVIS noted that proposed AS 43.90.240(f) now reads:                                                                        
                                                                                                                                
     (f) If  the commissioners  and the licensee  agree that                                                                    
     the  project  is  uneconomic or  an  arbitration  panel                                                                    
     makes  a  final  determination   that  the  project  is                                                                    
     uneconomic, the licensee shall deliver  to the state or                                                                    
     the   state's   designee   all   engineering   designs,                                                                    
     contracts,  permits, and  other  data  relating to  the                                                                    
     project that  are acquired by  the licensee  during the                                                                    
     term of the license upon  reimbursement by the state of                                                                    
     the  net amount  of expenditures  incurred and  paid by                                                                    
     the licensee  that are  qualified expenditures  for the                                                                    
     purposes of AS 43.90.110.                                                                                                  
                                                                                                                                
MS. DAVIS  said that this  language is consistent  throughout the                                                               
rest of  the bill and clarifies  that the data being  turned over                                                               
is data and information acquired during the term of the license.                                                                
                                                                                                                                
MS.  DAVIS  next directed  attention  to  proposed AS  43.90.250,                                                               
regarding  the Alaska  Gasline Inducement  Act coordinator.   She                                                               
relayed  that much  of the  debate on  this issue  is focused  on                                                               
language   in  subsection   (b),   regarding  the   coordinator's                                                               
appointment  being subject  to confirmation  by the  legislature.                                                               
She said  that according to  the drafter, this position  does not                                                               
fit within the list of  positions that require confirmation under                                                               
the Alaska State Constitution.                                                                                                  
                                                                                                                                
8:57:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON  moved Amendment  40, which  read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
Page 19, lines 26-29:                                                                                                           
                                                                                                                                
Delete:  "The  initial appointment is subject  to confirmation by                                                               
the legislature  and an appointment is  subject to reconfirmation                                                               
by the  legislature during the first  regular legislative session                                                               
after a general election at which a governor is elected."                                                                       
                                                                                                                                
CO-CHAIR JOHNSON objected for the purpose of discussion.                                                                        
                                                                                                                                
CO-CHAIR  JOHNSON  inquired  whether  there  is  a  way  for  the                                                               
legislature to  appoint the coordinator  without him/her  being a                                                               
commissioner.  He voiced his  opinion that the legislature should                                                               
have a say in who is appointed.                                                                                                 
                                                                                                                                
COMMISSIONER  GALVIN conveyed  that  the  drafter has  identified                                                               
this as being a constitutional issue,  and that there had been an                                                               
amendment to  overcome that by  making it a  commissioner-type of                                                               
position.  He  said the administration has  no recommendations as                                                               
to  how to  overcome the  legal issue.   He  relayed that  he was                                                               
previously  the   director  of   the  Division   of  Governmental                                                               
Coordination  within the  governor's office  and was  responsible                                                               
for  coordinating  the  policy  decisions  amongst  the  resource                                                               
agencies.    It   was  very  similar  to  the   function  of  the                                                               
coordinator  position  described  in  HB  177  as  far  as  being                                                               
responsible  for working  with all  the departments  and ensuring                                                               
that  the regulatory  programs are  operating  as efficiently  as                                                               
possible,  as  well as  using  the  influence of  the  governor's                                                               
office  to  establish what  the  decision  should be  within  the                                                               
bounds of each  agency's respective authority.   His position was                                                               
appointed  by the  governor,  he  said, and  was  not subject  to                                                               
confirmation  by  the  legislature.   Therefore,  it  is  not  an                                                               
unprecedented type of  authority or position, he  argued, and the                                                               
question  becomes  whether   the  legislature  feels  comfortable                                                               
creating  such a  position under  the constitutional  limitations                                                               
pointed out by the drafter.                                                                                                     
                                                                                                                                
9:02:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON remarked that  he, too, was skeptical until                                                               
hearing the  description from the commissioner  and learning that                                                               
the position  is mostly that of  a facilitator and does  not have                                                               
fiduciary  responsibilities like  commissioners  do.   This is  a                                                               
clear line  in the  sand, he said,  regarding whether  the person                                                               
holding this position  should be confirmed by  the legislature or                                                               
be selected by the governor.                                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN  added  that  the  position's  authority  is                                                               
extremely limited  since the coordinator does  not have authority                                                               
to adopt regulations, and has no  oversight of a budget or staff.                                                               
The  coordinator's role  is  only that  which  is established  in                                                               
subsections  (b)  and   (c)  of  proposed  AS   43.90.250.    The                                                               
coordinator is  subject to  support by  the governor's  office as                                                               
well as removal for any cause, he stated.                                                                                       
                                                                                                                                
CO-CHAIR GATTO commented that the  word "coordinator" sounds like                                                               
a liaison position.                                                                                                             
                                                                                                                                
COMMISSIONER  GALVIN  agreed.   He  said  the coordinator's  most                                                               
significant  role  will  be  acting  as  an  information  liaison                                                               
between   state   agencies,   federal  agencies,   and   pipeline                                                               
proponents.                                                                                                                     
                                                                                                                                
CO-CHAIR  GATTO  stated that  given  there  is  no staff,  he  is                                                               
reluctant to establish the position at a commissioner level.                                                                    
                                                                                                                                
REPRESENTATIVE ROSES  observed that  a previous amendment  of his                                                               
that failed  was not advocating for  adding another commissioner,                                                               
but for simply having the  opportunity for a confirmation process                                                               
if that  was so chosen.   Amendment 40, he  said, is a  matter of                                                               
whether to  risk running into  a constitutional issue  by leaving                                                               
the  language in  or  to  avoid that  possibility  by taking  the                                                               
language out.                                                                                                                   
                                                                                                                                
CO-CHAIR JOHNSON  withdrew his objection, but  said that approval                                                               
of the coordinator is something that he would like to pursue.                                                                   
                                                                                                                                
CO-CHAIR GATTO  asked whether there were  any further objections.                                                               
There being none, Amendment 40 was adopted.                                                                                     
                                                                                                                                
The committee took an at-ease from 9:06 p.m. to 9:15 p.m.                                                                       
                                                                                                                                
REPRESENTATIVE  EDGMON moved  Amendment 41,  to delete  the word,                                                               
"typically" from  page 18,  line 31.   There being  no objection,                                                               
Amendment 41 was adopted.                                                                                                       
                                                                                                                                
9:16:38 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  mentioned that proposed  AS 43.90.250(b), on  page 19,                                                               
line  29,  the  word,  "person"  was  replaced  with  the  words,                                                               
"individual  serving   as  the  Alaska  Gasline   Inducement  Act                                                               
coordinator"  and  that  no  changes were  made  to  proposed  AS                                                               
43.90.250(c)-(d) or proposed AS  43.90.260.  Furthermore, what is                                                               
now proposed  AS 43.90.300(a) no  longer contains a  reference to                                                               
the tax exemption in AS  43.90.320 and changing the inducement to                                                               
being contractual.   She said this change was made  in the Senate                                                               
version  of the  bill and  relates  to the  debate regarding  the                                                               
constitutionality of  the tax exemption  provision.   Proposed AS                                                               
43.90.300(b), beginning on  page 21, line 3, is  a new subsection                                                               
relating to a new voucher,  and language establishing the voucher                                                               
can be found in proposed AS 43.90.330.                                                                                          
                                                                                                                                
COMMISSIONER  GALVIN   returned  the  committee's   attention  to                                                               
proposed  AS 43.90.240(f),  and  recommended  that the  committee                                                               
consider adding  a "50  percent" limitation  similar to  what was                                                               
added via Conceptual Amendment 34 to proposed AS 43.90.200(e).                                                                  
                                                                                                                                
REPRESENTATIVE ROSES moved Amendment 42 as follows:                                                                             
                                                                                                                                
     Page 19, line 17, after the second "of"                                                                                    
     Insert "50 percent of"                                                                                                     
                                                                                                                                
REPRESENTATIVE ROSES stated that  he had intended for [Conceptual                                                               
Amendment 34] to apply throughout the entire bill.                                                                              
                                                                                                                                
COMMISSIONER  GALVIN  suggested  that   such  a  change  be  done                                                               
separately  throughout the  bill, rather  than globally,  because                                                               
there  are  different  justifications  each  time  for  what  the                                                               
distribution of the costs might be.                                                                                             
                                                                                                                                
CO-CHAIR  GATTO  asked  whether  there  were  any  objections  to                                                               
Amendment 42.  There being none, Amendment 42 was adopted.                                                                      
                                                                                                                                
9:22:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG, referring  to  page 21,  lines 1-2  -                                                               
proposed AS  43.90.300(a) - requested further  explanation of the                                                               
inducement in proposed AS 43.90.310 being contractual.                                                                          
                                                                                                                                
MS. DAVIS explained  that when HB 177  was originally introduced,                                                               
it had  two provisions  for inducements for  resource owners  - a                                                               
royalty provision  and a  tax exemption  provision.   The royalty                                                               
provision clearly needed to be  contractual, she said, because it                                                               
affects the royalty terms in  the lease.  The administration also                                                               
originally  wrote the  tax exemption  as  contractual because  it                                                               
called for  a tax  certificate to be  signed by  the commissioner                                                               
and the resource owner.  Under  terms of the tax certificate, the                                                               
state  would  provide  the  tax exemption  in  exchange  for  the                                                               
resource  owner committing  gas at  the initial  open season  and                                                               
agreeing  to  the rolled-in  rate  treatments  that the  pipeline                                                               
company was bound by.                                                                                                           
                                                                                                                                
MS. DAVIS relayed  that the administration believes this  to be a                                                               
superior  approach because  it  considers  AGIA to  be  a law  of                                                               
general  application and,  because the  constitution states  that                                                               
the  taxing  power  may  be   contracted  away,  the  contractual                                                               
structure  did  not  conflict with  constitutional  requirements.                                                               
However, she  said, the  Senate believes  that this  exemption is                                                               
granted by  contract and not  by general law, and  therefore [the                                                               
Senate]  stripped  out  the  contractual  underpinnings  for  the                                                               
exemption.  So,  she stated, it becomes a debate  of whether AGIA                                                               
is a  law of general application  that then allows a  contract to                                                               
be  entered into  versus does  it  just provide  a tax  exemption                                                               
because of the contract.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  offered  his understanding  that  the                                                               
Senate thought  having it as  a law of general  applicability was                                                               
stronger constitutionally than contractually.                                                                                   
                                                                                                                                
MS.  DAVIS offered  her  belief that  the Senate  felt  it was  a                                                               
stronger  exemption,  she  said,   as  no  contractual  provision                                                               
preserves  the ability  of future  legislatures to  make changes.                                                               
She  pointed  out  that  under the  Constitution  of  the  United                                                               
States,  future   legislatures  are  prohibited   from  impairing                                                               
contracts  authorized by  earlier  legislatures,  provided it  is                                                               
expressly  stated that  that original  contract  was intended  by                                                               
that legislature to be treated as a contractual commitment.                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  opined that  one legislature  does not                                                               
have the authority to bind  future legislatures, but acknowledged                                                               
the administration has a different position.                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES said  the state is going to  offer a license                                                               
to someone  for years  to come  and if  the next  legislature can                                                               
decide to undo it, then no one  will ever want to bid on anything                                                               
the state is going to do, he opined.                                                                                            
                                                                                                                                
REPRESENTATIVE GUTTENBERG  submitted that  for the bidders  it is                                                               
an uncertainty that has to be  overcome.  He stated that he wants                                                               
to make sure that if that law  is struck down it cannot be locked                                                               
in and  that it doesn't  become an  excuse for [the  licensee] to                                                               
stop the contract.                                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON observed that  proposed AS 43.90.310 is the                                                               
royalty  inducement,  not the  tax  inducement.   Since  the  tax                                                               
inducement  is not  specifically cited  as being  contractual, it                                                               
can be presumed  that it is not contractual.   Under general law,                                                               
he said, tax and royalty are treated separately.                                                                                
                                                                                                                                
COMMISSIONER GALVIN  suggested that further discussion  in regard                                                               
to  contractual   issues  be  postponed  until   the  actual  tax                                                               
provisions are reviewed in later sections of the bill.                                                                          
                                                                                                                                
9:30:02 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  went on  to explain  that proposed  AS43.90.300(b) was                                                               
inserted  to address  the  situation wherein  a  gas producer  is                                                               
receiving a voucher, which is a  mechanism whereby a buyer of gas                                                               
can purchase gas  on the North Slope and acquire  capacity in the                                                               
pipeline even though  the buyer is not a producer,  and the buyer                                                               
can then  ship gas  down the  pipeline.   This ensures  that AGIA                                                               
incentivizes  not   only  gas   producers  to   acquire  pipeline                                                               
capacity,  but also  buyers of  gas.   She  relayed that  utility                                                               
companies and other  gas buyers wanted to receive  the benefit of                                                               
the resource  inducements.  The  voucher allows the gas  buyer to                                                               
transfer royalty and  tax benefits to the producer  in return for                                                               
a lower gas  purchase price.  She said that  currently on the oil                                                               
side,  buyers typically  buy  at a  flat rate  plus  the tax  and                                                               
royalty because the  producers do not want to take  the risk that                                                               
tax and  royalty might vary  over time.   Vouchers will  enable a                                                               
producer  to  establish a  price  and  then  get the  benefit  of                                                               
reduced royalty and tax.                                                                                                        
                                                                                                                                
REPRESENTATIVE SEATON  asked about the time  period referenced in                                                               
proposed AS 43.90.330(b).                                                                                                       
                                                                                                                                
MS. DAVIS  referred to  the clause  in proposed  AS 43.90.330(b),                                                               
which  states,  "entitles  the  holder  of  the  voucher  to  the                                                               
resource  inducements in  AS 43.90.310  and AS  43.90.320".   She                                                               
explained that the  inducements in AS 43.90.310  and AS 43.90.320                                                               
are tied to the duration of  the capacity commitment, so it is an                                                               
indirect  reference  to  that  period.    Separately,  she  said,                                                               
proposed AS 43.90330(c)  provides that once a  buyer delivers the                                                               
voucher to  the producer, the  voucher's duration is  the earlier                                                               
of the  duration of the  buyer's gas purchase agreement  with the                                                               
producer  or the  expiration of  the inducement  by operation  of                                                               
law.   Thus  the expiration  of the  inducement ties  back to  AS                                                               
43.90.310 and AS 43.90.320.  The  tax is 10 years and the royalty                                                               
is the  duration of the  FT commitment; they are  different which                                                               
is why there are references to operation of law.                                                                                
                                                                                                                                
REPRESENTATIVE SEATON  asked whether  it makes a  difference that                                                               
one is contractual and the other is operation of law.                                                                           
                                                                                                                                
MS. DAVIS replied no.                                                                                                           
                                                                                                                                
9:35:21 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  turned  attention  to   proposed  AS  43.90.310(a)  -                                                               
specifically the  language that  says, ""or  shipped in  the firm                                                               
transportation capacity  described in  a voucher received  by the                                                               
gas  producer under  AS 43.90.330;  this new  language references                                                               
the royalty  inducement and ties  in the voucher provision.   She                                                               
then noted  a typographical correction  that was made to  the end                                                               
of proposed AS  43.90.310(a)(2)(D):  insertion of  the word "and"                                                               
after the semicolon.                                                                                                            
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether "the  royalty settlement                                                               
agreement" was in court.                                                                                                        
                                                                                                                                
COMMISSIONER  GALVIN responded  that a  settlement agreement  was                                                               
reached; the  1980 royalty settlement  agreement for  Prudhoe Bay                                                               
permitted  certain deductions,  so "this"  is just  acknowledging                                                               
"those."                                                                                                                        
                                                                                                                                
MS.  DAVIS  mentioned  that  proposed  AS  43.90.310(a)(3)(A)  no                                                               
longer references  a "qualified  person", but rather  just "other                                                               
person".    She  explained  that the  word,  "qualified"  was  an                                                               
artifact from  earlier draft when  the intention was to  define a                                                               
qualified person, and that the  voucher essentially embodies that                                                               
concept.    She pointed  out  that  the  wording in  proposed  AS                                                               
43.90.310(a)(3)(B) has  simply been reordered.   She  referred to                                                               
proposed AS 43.90.310(b)(1)  wherein there is a  reference to the                                                               
requirement  that   the  initial   regulations  enacted   by  the                                                               
commissioner of  the DNR could be  contractually incorporated and                                                               
amended and put  into the lease.  Every two  years thereafter the                                                               
commissioner of the  DNR is to review the  regulations and revise                                                               
them if  they were not  producing the benefits promised  by AGIA,                                                               
and  there  could  be  a  second  election  by  the  producer  to                                                               
incorporate the  revised regulations.   The drafter  placed these                                                               
two concepts  into two subparagraphs, she  said; subparagraph (A)                                                               
references  the   incorporation  of  the  new   regulations,  and                                                               
subparagraph  (B) references  the election  and incorporation  of                                                               
revised  regulations.     Ms.  Davis   noted  that   proposed  AS                                                               
43.90.310(b)(2)  now contains  subparagraphs (A)  and (B)  due to                                                               
the adoption of an amendment on 4/23/07.                                                                                        
                                                                                                                                
9:39:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  moved Amendment  43, which  read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Page 22, line 26 After "notice"                                                                                            
          Insert "to two years"                                                                                                 
                                                                                                                                
REPRESENTATIVE KAWASAKI objected.                                                                                               
                                                                                                                                
COMMISSIONER GALVIN  said that while the  administration has been                                                               
thinking of two years with  regard to altering the current 90-day                                                               
notice  provision,  it  has  not  done  any  evaluations  and  is                                                               
therefore envisioning that these  provisions would be established                                                               
through  regulations, which  would  allow for  comments from  the                                                               
parties  that   the  state  is   trying  to  attract   into  this                                                               
inducement.  He said that at  this point he is uncomfortable with                                                               
establishing  a fixed  time.   The bill  makes a  clear statement                                                               
that the  intent is to  provide an inducement that  is attractive                                                               
and meets  the lessees'  commercial concerns,  and the  length of                                                               
the notice period and the  remainder of the commercial risk taken                                                               
on by the state will have to be addressed via regulations.                                                                      
                                                                                                                                
REPRESENTATIVE ROSES  surmised, then, that the  administration is                                                               
asking for some flexibility.                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN said  he is suggesting that it may  not be in                                                               
the  state's best  interest  to  specify a  number  at this  time                                                               
because the  information upon  which to make  such a  decision is                                                               
not available.                                                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON inquired whether  the 90-day limitation for                                                               
switching  between [royalty  in-value (RIV)  and royalty  in-kind                                                               
(RIK)] is established in regulation or in the lease terms.                                                                      
                                                                                                                                
COMMISSIONER GALVIN  stated that it  is established in  the lease                                                               
terms,  though not  in  all leases.    He said  90  days is  used                                                               
because  it is  the  most common  timeframe.   In  response to  a                                                               
question, he  said that  contractual terms  are offered  during a                                                               
particular  lease sale,  and are  at  the discretion  of the  DNR                                                               
commissioner within a certain statutory framework.                                                                              
                                                                                                                                
REPRESENTATIVE SEATON  noted that  a term of  two years  has been                                                               
used throughout  many discussions.   He requested that  in future                                                               
presentations it  be made clear  that a negotiated  timeframe may                                                               
be longer than two years.                                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON withdrew Amendment 43.                                                                                    
                                                                                                                                
COMMISSIONER GALVIN clarified that  the details of the inducement                                                               
provision would be  established via regulations and  would be set                                                               
prior  to  the   open  season  and  not   subject  to  individual                                                               
negotiations;  after regulatory  development  and public  comment                                                               
period, the  DNR would  decide what  the notice  timeframe should                                                               
be.   He  said he  is only  suggesting that  there is  not enough                                                               
information at  this point  to establish  that timeframe,  but it                                                               
will be established sometime before open season.                                                                                
                                                                                                                                
9:46:41 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS noted  a  typographical  error on  line  15, page  22,                                                               
wherein  the words,  "incorporate  into the  lease  terms of  the                                                               
relevant  regulation  as  fixed   contract  terms"  ought  to  be                                                               
replaced  with the  words, "incorporate  as fixed  contract terms                                                               
the relevant revised regulatory provisions".                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES moved Amendment 44 as follows:                                                                             
                                                                                                                                
     Page 22, line 15, after "and"                                                                                              
        Delete "incorporate into the lease terms of the                                                                         
     relevant regulation as fixed contract terms"                                                                               
        Insert "incorporate as fixed contract terms the                                                                         
     relevant revised regulatory provisions"                                                                                    
                                                                                                                                
There being no objection, Amendment 44 adopted.                                                                                 
                                                                                                                                
9:49:04 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  pointed out  the addition of  the words,  "lessee's or                                                               
person's",  on  page 23,  line  15  - proposed  AS  43.90.310(c);                                                               
subsection (c),  furthermore, no  longer contains the  words, "if                                                               
the Federal Energy  Regulatory Commission does not  have a policy                                                               
in  effect  that  presumes  that rolled-in  rates  apply  to  the                                                               
recovery of expansion costs for the project;".                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON  moved Amendment  45, which  read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Page 23, line 17 After "AS 43.90.130(7)"                                                                                   
          Delete "."                                                                                                            
          Insert   "if   the   Federal   Energy   Regulatory                                                                    
     Commission  does  not  have a  policy  in  effect  that                                                                    
     presumes that rolled in rates  apply to the recovery of                                                                    
     expansion costs for the project;"                                                                                          
                                                                                                                                
REPRESENTATIVE KAWASAKI objected.                                                                                               
                                                                                                                                
A  roll call  vote was  taken.   Representatives Wilson,  Seaton,                                                               
Roses, Edgmon,  Gatto, and  Johnson voted  in favor  of Amendment                                                               
45.   Representatives Guttenberg  and Kawasaki voted  against it.                                                               
Therefore, Amendment 45 was adopted by a vote of 6-2.                                                                           
                                                                                                                                
9:52:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  moved Amendment  46, which  read [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Page 24, line 18 After "AS 43.90.130(7)"                                                                                   
          Delete ";"                                                                                                            
          Insert   "if   the   Federal   Energy   Regulatory                                                                    
     Commission  does  not  have a  policy  in  effect  that                                                                    
     presumes that rolled in rates  apply to the recovery of                                                                    
     expansion costs for the project;"                                                                                          
                                                                                                                                
The committee took an at-ease from 9:53 p.m. to 9:57 p.m.                                                                       
                                                                                                                                
REPRESENTATIVE GUTTENBERG and WILSON objected to Amendment 46.                                                                  
                                                                                                                                
REPRESENTATIVE SEATON  stated his opinion that  the House Special                                                               
Committee on  Oil and Gas struck  a very good balance  because if                                                               
the FERC  has the  presumption of  rolled-in rates,  the pipeline                                                               
entity must  propose and support  rolled-in rates.   Amendment 46                                                               
says shippers  only get the  inducement if the FERC  is presuming                                                               
rolled-in rates  and then  the shippers  can argue  whatever they                                                               
want;  if the  FERC  changes and  eliminates  the presumption  of                                                               
rolled-in  rates,  then  the shippers  are  required  to  support                                                               
rolled-in  rates.     This  affords  some   balance  between  the                                                               
inducement and  the requirement for  rolled-in rates,  he opined,                                                               
because rolled-in rates  are what [the legislature]  is trying to                                                               
get to ensure exploration.                                                                                                      
                                                                                                                                
COMMISSIONER GALVIN  conveyed the administration's  opposition to                                                               
Amendment 46.   He  indicated that the  language being  added via                                                               
Amendment 46 is not the  language that the administration started                                                               
with.  The administration believes that  if a company is going to                                                               
obtain the  value of  the upstream  royalty and  tax inducements,                                                               
then it  should not be  able to  counter the state's  interest on                                                               
the rolled-in rates.  The  state fought for the FERC presumption,                                                               
he said,  because rolled-in rates  are so valuable to  the state.                                                               
The  administration prefers  keeping  the  existing language,  he                                                               
advised, to preclude a company from making such a challenge.                                                                    
                                                                                                                                
A roll call  vote was taken.  Representatives  Seaton, Roses, and                                                               
Johnson voted in favor of  Amendment 46.  Representatives Wilson,                                                               
Guttenberg,  Edgmon,  Kawasaki,  and   Gatto  voted  against  it.                                                               
Therefore, Amendment 46 failed by a vote of 3-5.                                                                                
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  moved   to  rescind  the  committee's                                                               
action in adopting action on Amendment 45.                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON objected.                                                                                                 
                                                                                                                                
A roll call vote was  taken.  Representatives Guttenberg, Edgmon,                                                               
Kawasaki,  Wilson, and  Gatto voted  in favor  of rescinding  the                                                               
committee's action.   Representatives Seaton, Roses,  and Johnson                                                               
voted against it.  Therefore,  the committee's action in adopting                                                               
Amendment 45 was rescinded by a vote of 5-3.                                                                                    
                                                                                                                                
10:05:21 PM                                                                                                                   
                                                                                                                                
MS.  DAVIS referred  to proposed  AS 43.90.320(b),  and explained                                                               
that  it  no   longer  references  the  execution   of  a  signed                                                               
certificate; this  change removes  a contractual element  for the                                                               
tax exemption.   Subsection (b) now references  the inducement in                                                               
connection   with  the   voucher   for  buyers.     Proposed   AS                                                               
43.90.320(c) now uses the words,  "person claiming the exemption"                                                               
in  place of  the words,  "exemption issued";  the words,  "shall                                                               
agree"  replaces the  reference to  a contractual  agreement; and                                                               
the rebuttal presumption is no longer included.                                                                                 
                                                                                                                                
COMMISSIONER  GALVIN explained  that eliminating  the contractual                                                               
aspect   eliminates    durability,   thereby    eliminating   the                                                               
expectation  on the  part  of  the party  that  is receiving  the                                                               
inducement to know that it will  have the value of the tax freeze                                                               
for the entire  10 years.  As written, the  intent of this change                                                               
was  to promise  an  exemption  in an  amount  equivalent to  the                                                               
change in the  tax rate, but the exemption can  be removed at any                                                               
time by the legislature.   The aforementioned was not included in                                                               
the  original legislation  and was  not  an intended  inducement.                                                               
Throughout,  the administration  has acknowledged  that what  was                                                               
proposed   would   be   subject   to  a   court   challenge   and                                                               
constitutional  challenge.   Furthermore, no  assurance was  made                                                               
that it would be proven  constitutional.  The language in Version                                                               
K basically eliminates the concern  of a constitutional challenge                                                               
because there is  no binding effect on a  future legislature, and                                                               
thus the question  is whether it is of much  value to the parties                                                               
that  AGIA looks  to  induce.   Mr.  Galvin noted  that  it is  a                                                               
significant change, which he characterized  as a lessening of the                                                               
potential perceived value.                                                                                                      
                                                                                                                                
10:10:18 PM                                                                                                                   
                                                                                                                                
MS. DAVIS, in response to  a question, explained that this change                                                               
was not part  of CSHB 177(O&G); it was  incorporated into Version                                                               
K by  the drafter because  it was a  change made in  the Senate's                                                               
version of AGIA.                                                                                                                
                                                                                                                                
REPRESENTATIVE WILSON surmised that  this change means there will                                                               
no longer be a 10-year period of certainty.                                                                                     
                                                                                                                                
MS. DAVIS responded  that it takes away the language  that was in                                                               
the tax exemption  that established the exemption as  a matter of                                                               
contract, so that makes it  changeable.  In further response, she                                                               
said that it  could be fixed through a  conceptual amendment that                                                               
restores the  language to what  was in  CSHB 177(O&G).   She said                                                               
the conceptual amendment would apply  to subsections (b) and (c),                                                               
[lines 9 and 15, respectively,] as well as to page 21, line 1.                                                                  
                                                                                                                                
CO-CHAIR GATTO asked what happens  if the difference is less than                                                               
zero.                                                                                                                           
                                                                                                                                
MS.  DAVIS answered  that the  focus  is not  whether the  number                                                               
would be  zero, but whether it  would be a negative  number.  The                                                               
goal is  to ensure  that the  individual does not  end up  with a                                                               
credit that  is carried forward.   The issue  is the tax  rate in                                                               
effect at open season versus a future  tax rate.  If the tax rate                                                               
went down  in the future as  compared to what it  was during open                                                               
season, this  would prevent the difference  from being considered                                                               
a tax  credit that could  be carried  forward.  Such  language is                                                               
embodied in other tax statutes, she remarked.                                                                                   
                                                                                                                                
10:14:11 PM                                                                                                                   
                                                                                                                                
COMMISSIONER GALVIN, in response  to questions, clarified that it                                                               
is the  tax rate in effect  "at the time"  of open season.   If a                                                               
22.5 percent  tax rate was  reduced to  20 percent just  prior to                                                               
open season,  then the effective  tax rate reference  point would                                                               
be 20 percent.   If a 22.5  percent tax rate was  increased to 25                                                               
percent just  prior to open  season, then the effective  tax rate                                                               
reference point would be 25 percent.                                                                                            
                                                                                                                                
MS.  DAVIS further  stated that  it doesn't  matter what  the tax                                                               
rate is "before"  open season, only what it is  "at" open season.                                                               
The tax rate  "at" open season is the reference  point.  Whatever                                                               
the tax  rate is "at"  open season is what  can be banked  on and                                                               
used in the licensee's commercial models.                                                                                       
                                                                                                                                
COMMISSIONER GALVIN gave the following  example:  If the tax rate                                                               
is 25  percent "at" open season  and it goes down  to 20 percent,                                                               
the licensee  then pays 20  percent.  If the  rate goes up  to 23                                                               
percent, then  the licensee pays 23  percent.  But if  it is goes                                                               
up to 26 percent, the licensee will receive a 1 percent credit.                                                                 
                                                                                                                                
REPRESENTATIVE ROSES inquired whether  this locked-in rate is for                                                               
a successful open season or just an open season.                                                                                
                                                                                                                                
COMMISSIONER  GALVIN answered  that it  is for  the initial  open                                                               
season for the licensed project.                                                                                                
                                                                                                                                
MS. DAVIS  further stated that it  is the initial open  season at                                                               
which that producer commits its gas.                                                                                            
                                                                                                                                
COMMISSIONER GALVIN explained that it  is the initial open season                                                               
for the licensed  project - whatever gas is committed  there.  If                                                               
there is a  subsequent open season and someone  commits gas, even                                                               
if it is the first time  that he/she commits gas, he/she does not                                                               
get the  credit.  An  initial open  season will be  identified in                                                               
the  license and  will  be  clearly designated  as  the one  that                                                               
receives [the locked in rate], he said.                                                                                         
                                                                                                                                
REPRESENTATIVE ROSES  expressed concern that if  [the state] goes                                                               
to open season and no one commits  and [the state then] goes to a                                                               
second open season, it only counts at time of commitment.                                                                       
                                                                                                                                
COMMISSIONER  GALVIN, in  response  to  another question,  stated                                                               
that a  commitment made at a  second open season will  receive no                                                               
inducement  whatsoever.    For  example, if  a  party  commits  a                                                               
certain amount of gas during the  first open season at a tax rate                                                               
of 20 percent  and then the same party commits  another amount of                                                               
gas at a  second open season at  which the tax rate  has risen to                                                               
25 percent,  only the amount of  gas committed at the  first open                                                               
season will  receive the inducement  of using the 20  percent tax                                                               
rate as the point of reference.                                                                                                 
                                                                                                                                
REPRESENTATIVE ROSES  presented a  scenario of no  one committing                                                               
gas in the first open season  and then three years later there is                                                               
a second  open season.   Does this mean  no one will  receive the                                                               
10-year fixed rate, he asked.                                                                                                   
                                                                                                                                
COMMISSIONER GALVIN replied yes.                                                                                                
                                                                                                                                
10:19:49 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  surmised that  the policy call  is whether                                                               
to  say that  taxes  will  be contractually  obligated  or be  by                                                               
general law.                                                                                                                    
                                                                                                                                
MS.  DAVIS  responded  that the  administration  is  creating  an                                                               
exemption by  general law which  is AGIA, and the  direction from                                                               
the legislature is  to implement that general  law by instructing                                                               
the  commissioners to  enter into  contracts  for those  specific                                                               
provisions.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROSES remarked  that this  is the  result of  the                                                               
committee's request  to have the  administration's stack  of [54]                                                               
amendments put  into a CS  for the committee's  consideration and                                                               
now the committee is dealing with  having to take things out that                                                               
it  might never  have put  in had  the amendments  been addressed                                                               
individually.   The question  is whether to  have the  CS conform                                                               
with the  Senate Judiciary Standing Committee's  language on this                                                               
issue or  with what came  out of  the House Special  Committee on                                                               
Oil and Gas.                                                                                                                    
                                                                                                                                
10:21:50 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ROSES  moved Conceptual  Amendment 47,  to replace                                                               
the   language  in   proposed  AS   43.90.320(b)-(c)  with   "the                                                               
appropriate language" from CSHB 177(O&G).                                                                                       
                                                                                                                                
CO-CHAIR GATTO objected.                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN clarified that  Conceptual Amendment 47 would                                                               
not include the  oil and gas section that was  the subject of the                                                               
previous motion on the FERC presumption language.                                                                               
                                                                                                                                
MS. DAVIS  pointed out  that Conceptual  Amendment 47  would also                                                               
not include the voucher language  currently on page 24, lines 12-                                                               
14.                                                                                                                             
                                                                                                                                
REPRESENTATIVE ROSES concurred.                                                                                                 
                                                                                                                                
MS. DAVIS  inquired whether Representative  Roses wished  to also                                                               
include  within Conceptual  Amendment 47  the language  from page                                                               
21,  line 1,  which  says,  "The inducement  in  AS 43.90.310  is                                                               
contractual".                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ROSES  clarified  that  Conceptual  Amendment  47                                                               
provides  that the  language  on page  24, lines  9-21  is to  be                                                               
replaced with  the "appropriate" language from  CSHB 177(O&G) and                                                               
the change  would need to  be carried throughout  the legislation                                                               
to include the referenced points.                                                                                               
                                                                                                                                
REPRESENTATIVE GUTTENBERG  objected.   He commented that  in many                                                               
ways this  is just an argument  regarding how to get  to the same                                                               
place  in the  safest way.   The  administration has  the opinion                                                               
that this can be  done while others say that it  cannot.  He said                                                               
he would stick  with the language currently in  Version K because                                                               
there was a lot of work done to make other people feel secure.                                                                  
                                                                                                                                
REPRESENTATIVE SEATON posited that  the Senate Judiciary Standing                                                               
Committee  developed the  Senate's language  as the  safest legal                                                               
way to implement the 10-year tax exemption.                                                                                     
                                                                                                                                
CO-CHAIR GATTO expressed his confidence  in those who purport the                                                               
constitutionality of a 10-year fixed rate.                                                                                      
                                                                                                                                
10:26:25 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   ROSES  relayed   his   understanding  that   the                                                               
administration  believes  the language  in  Version  K would  not                                                               
actually lock in the rates for 10 years.                                                                                        
                                                                                                                                
MS.  DAVIS replied  that  this  is correct  with  respect to  the                                                               
changes that are  currently in Version K  because the contractual                                                               
underpinnings have been  stripped out and because  the purpose of                                                               
stripping out  that language  is to ensure  no durability  for 10                                                               
years.  She relayed that  what the administration is hearing from                                                               
the producers is  that they are making a huge  investment and can                                                               
assume the risks  associated with the costs of  materials and the                                                               
costs of the  commodity, but that they do not  want to assume the                                                               
risk that the  fiscal regime can be changed.   She said she could                                                               
not speak to whether they would be happy with 10 years.                                                                         
                                                                                                                                
REPRESENTATIVE  ROSES voiced  his  concern that  taking away  the                                                               
inducement  language and  turning it  into a  potential incentive                                                               
diminishes the effectiveness of its intent.                                                                                     
                                                                                                                                
10:29:59 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GUTTENBERG  argued that  with Version  K's current                                                               
language there  won't be a  constitutional challenge  because the                                                               
grounds for a  challenge have been removed,  whereas the language                                                               
in  CSHB 177(O&G)  guarantees a  constitutional  challenge.   The                                                               
intent is to not have the bill be constitutionally challenged.                                                                  
                                                                                                                                
COMMISSIONER GALVIN  opined that offering the  inducement gives a                                                               
potential  gas  committer the  ability  to  make a  determination                                                               
regarding  what  the  inducement's  value  is.    One  factor  in                                                               
determining  the value  relates to  the  chance of  the tax  rate                                                               
increasing  during the  10-year  period.   The  second factor  in                                                               
determining the value relates to  how much the legislature can be                                                               
relied upon to  keep that aspect of the promise.   Supporting the                                                               
amendment, he said, adds another  factor relating to whether this                                                               
can  be  counted  on  as  being constitutional  so  that  if  the                                                               
legislature  does  change  its mind,  there  will  be  protection                                                               
provided  by  the  court.   This  amendment  provides  that  last                                                               
stopgap.                                                                                                                        
                                                                                                                                
CO-CHAIR GATTO stated that if he  were a bidder he would consider                                                               
the existing language as an addition to his NPV.                                                                                
                                                                                                                                
REPRESENTATIVE GUTTENBERG  advised that  the industry  knows both                                                               
the  people and  the geology  of the  state very  well.   In 2002                                                               
there was an  8.+ earthquake and the  Trans-Alaska Pipeline moved                                                               
about 80  feet, which  was right  within the  industry's disaster                                                               
planning parameters.   The industry also knows  the parameters of                                                               
how the  state's people  operate -  since 1975  the tax  rate has                                                               
gone down.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROSES  inquired  whether,   in  the  event  of  a                                                               
"political earthquake"  causing a  "shift", a  future legislature                                                               
could undo this language and choose  to have the fixed rate apply                                                               
for 30 years.                                                                                                                   
                                                                                                                                
COMMISSIONER GALVIN replied yes.                                                                                                
                                                                                                                                
REPRESENTATIVE  ROSES asked  whether [future]  legislatures could                                                               
extend  the tax  rate  to 30  years under  the  language in  CSHB                                                               
177(O&G).                                                                                                                       
                                                                                                                                
COMMISSIONER GALVIN answered yes,  primarily because the party is                                                               
going to accept it as a contractual provision.                                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON referred  to  testimony  presented by  the                                                               
producers  wherein they  indicated  that they  do  not trust  the                                                               
state  and  that unless  the  state  also  fixes their  oil  tax,                                                               
corporate income tax,  property tax, and other  things, they have                                                               
no security  in the 10  years of  the contract because  the state                                                               
could just  raise one of  the other taxes.   He said it  seems to                                                               
him  that   the  law  of   general  applicability   provides  the                                                               
assurance.                                                                                                                      
                                                                                                                                
A roll call  vote was taken.  Representatives  Roses, Wilson, and                                                               
Johnson   voted   in   favor    of   Conceptual   Amendment   47.                                                               
Representatives Guttenberg,  Edgmon, Kawasaki, Seaton,  and Gatto                                                               
voted against it.   Therefore, Conceptual Amendment  47 failed by                                                               
a vote of 3-5.                                                                                                                  
                                                                                                                                
10:37:50 PM                                                                                                                   
                                                                                                                                
MS. DAVIS pointed out that  proposed AS 43.90.330 pertains to the                                                               
previously described  inducement vouchers, which give  gas buyers                                                               
the ability to indirectly partake  in the resource inducements by                                                               
trading  the vouchers  to producers.   Referring  to proposed  AS                                                               
43.90.400,  she  relayed that  it  now  uses the  term  "matching                                                               
contributions" on page 25, lines 14,  24, and 26.  In response to                                                               
a question,  she noted that the  Senate's version of the  bill no                                                               
longer contains  the sentence beginning  on line 15  that states,                                                               
"Money appropriated to the fund may  be spent for the purposes of                                                               
the  fund  without  further   appropriation.",  or  the  sentence                                                               
beginning on  line 18  that states,  "Nothing in  this subsection                                                               
creates a dedicated fund."                                                                                                      
                                                                                                                                
MS.  DAVIS  offered  that  proposed AS  43.90.420  now  uses  the                                                               
phrase,  "court of  the  state of  competent  jurisdiction" as  a                                                               
clarification of jurisdiction.   Proposed AS 43.90.440, regarding                                                               
licensed project  assurances, deals  with payment of  300 percent                                                               
of  the  costs if  the  state  gives  preference to  a  competing                                                               
project.  She noted that subsection  (a) no longer uses the term,                                                               
"monetary  treatment" because  there was  concern that  this term                                                               
was too vague;  subsection (a) now just  refers to, "preferential                                                               
royalty or tax  treatment or grant of state money".   On line 19,                                                               
she noted  the insertion of a  comma after the word,  "state" and                                                               
the addition  of a  new sentence  on lines  25-26:   "The payment                                                               
under this subsection is subject to appropriation."                                                                             
                                                                                                                                
CO-CHAIR   GATTO   inquired   whether   failure   to   make   the                                                               
appropriation would be a contract violation.                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES responded yes.                                                                                             
                                                                                                                                
MS. DAVIS  remarked that the party  could sue and get  more money                                                               
than the first 300 percent of qualified expenditures.                                                                           
                                                                                                                                
COMMISSIONER  GALVIN  clarified  that   this  only  kicks  in  if                                                               
preferential treatment  is given  to a  separate project,  not if                                                               
there is a failure to appropriate.                                                                                              
                                                                                                                                
10:41:34 PM                                                                                                                   
                                                                                                                                
MS.  DAVIS  mentioned  that  the last  sentence  of  proposed  AS                                                               
43.90.440(a) now refers to,  "all engineering designs, contracts,                                                               
permits, and other data related  to the project", adding that the                                                               
drafter  will be  making conforming  changes throughout  the bill                                                               
where necessary.   She further  noted that this last  sentence no                                                               
longer uses  the words,  "are owned or";  this ensures  that what                                                               
the state is  receiving is data and materials  that were acquired                                                               
from the date the state issued the license and forward.                                                                         
                                                                                                                                
MS. DAVIS reported that proposed AS 43.90.440(b) now reads:                                                                     
                                                                                                                                
     (b) In this section,                                                                                                       
          (1) "competing natural gas pipeline project"                                                                          
     means a  project designed to accommodate  throughput of                                                                    
     more than 500,000,000  cubic feet a day  of North Slope                                                                    
     gas to market;                                                                                                             
          (2) "preferential royalty or tax treatment" does                                                                      
     not include                                                                                                                
               (A) the state's exercise of its right to                                                                         
     resolve disputes involving royalties and taxes;                                                                            
               (B) the state's exercise of its right to                                                                         
     modify royalties as authorized by  law in effect on the                                                                    
     effective date of this section; or                                                                                         
           (C) the benefits of a large project permit                                                                           
        coordinator authorized by a law in effect on the                                                                        
     effective date of this section.                                                                                            
                                                                                                                                
MS. DAVIS  offered that the  language in paragraph  (1) clarifies                                                               
that the  project is delivering gas  to market and is  not just a                                                               
recycling  project that  keeps the  gas on  the North  Slope, and                                                               
that the  language in paragraph  (2) clarifies  what preferential                                                               
royalty  or  tax  treatment  does   not  include.    This  latter                                                               
clarification  was  made  at the  administration's  request,  she                                                               
said, because  of concerns  expressed by  the industry  that this                                                               
provision  sets up  an exclusivity  situation;  the new  language                                                               
makes  it clear  that the  state does  not give  up its  right to                                                               
resolve  disputes  involving  royalties   and  tax.    Ms.  Davis                                                               
explained  that  paragraph  (2)(B) excludes  the  DNR's  existing                                                               
authority  under  statutes  to  make  changes  to  royalty  rates                                                               
regarding  field terminations  and other  challenging situations,                                                               
and that this  is based on laws  in effect as of the  date of the                                                               
Act.   She said that  paragraph (2)(C) references  DNR's existing                                                               
authority to provide large project coordination.                                                                                
                                                                                                                                
MS.  DAVIS relayed  that proposed  AS 43.90.450(a)  now reads  in                                                               
part:  "(a)  A licensee may transfer all or  part of the license,                                                               
including the  rights and obligations arising  under the license,                                                               
if, after  publishing notice of the  proposed transfer, providing                                                               
notice  to   the  presiding   officer  of   each  house   of  the                                                               
legislature, and  providing a  period not less  than 30  days for                                                               
public review and comment,"   This language addresses the concern                                                               
that  there should  be  public and  legislative  notice when  the                                                               
license  is  being  assigned.    She said  that  in  proposed  AS                                                               
43.90.450(b),  on line  23, the  word,  "regarding" was  inserted                                                               
after "AS 43.90.220".   Proposed AS 43.90.450 now  contains a new                                                               
subsection (d)  that deals with  the assignment of  vouchers, and                                                               
puts voucher  assignment on par  with the assignment rights  of a                                                               
resource  owner  having  the   resource  inducements,  she  said.                                                               
Vouchers  can only  be  assigned with  transfer  of the  complete                                                               
capacity that was  acquired by that buyer at  the initial binding                                                               
open season.                                                                                                                    
                                                                                                                                
10:46:45 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GUTTENBERG moved  Conceptual Amendment  48, which                                                               
read [original punctuation provided]:                                                                                           
                                                                                                                                
     Page 28, line 12                                                                                                           
     add                                                                                                                        
     Sec. 43.90.480                                                                                                           
     The Alaska Oil and  Gas Conservation Commission and the                                                                    
     Department of  Revenue shall  jointly develop  a report                                                                    
     that analyzes the oil production  and state oil revenue                                                                    
     impacts  of  increasing the  gas  off  take rates  from                                                                    
     North Slope fields.                                                                                                        
                                                                                                                                
         The report shall be delivered to the presiding                                                                         
     officers of each house of the legislature by March 1,                                                                      
     2008.                                                                                                                      
                                                                                                                                
CO-CHAIR JOHNSON objected.                                                                                                      
                                                                                                                                
REPRESENTATIVE GUTTENBERG  said Conceptual Amendment 48  asks the                                                               
AOGCC  and  the  DOR  for   a  report  analyzing  the  impact  of                                                               
increasing gas  off-take rates on  oil production.  He  said that                                                               
the AOGCC already does a  British Thermal Unit (BTU) analysis and                                                               
this amendment asks  the AOGCC to also do an  analysis on revenue                                                               
in  order to  get a  better understanding  of what  the state  is                                                               
looking at in  value for the off-takes.  The  March 1, 2008, date                                                               
is arbitrary.  It is important  to have a better understanding of                                                               
what  is happening  on the  North Slope  as far  as value  of the                                                               
product, he opined.   The AOGCC will not do  an off-take analysis                                                               
without  a request  and it  cannot  do the  analysis without  the                                                               
assistance of the DOR.                                                                                                          
                                                                                                                                
10:49:11 PM                                                                                                                   
                                                                                                                                
COMMISSIONER  GALVIN  remarked that  the  issue  of oil  off-take                                                               
impact  is  highly  complex.   It  is  primarily  an  engineering                                                               
question  about  the   impacts  to  the  reservoir   when  it  is                                                               
depressurized by taking off the  gas and the ultimate impact that                                                               
this will  have on long-term  oil recovery.   Within the  DOR, he                                                               
said, there  is no expertise  that would allow such  an analysis.                                                               
What is  being attempted  here is to  make a  distinction between                                                               
what  the  AOGCC  evaluates  when   it  exercises  its  statutory                                                               
obligations to prevent physical waste.   The goal of the AOGCC is                                                               
to ensure  that the maximum  number of molecules gets  pulled out                                                               
of the ground,  regardless of how much those  molecules are worth                                                               
and whether  it will ultimately  result in less value  coming out                                                               
of the  ground.  It  is recognized, he  said, that the  state may                                                               
reach a point  where this analysis needs to  include the economic                                                               
value of  the resource when the  decision is made as  to how much                                                               
gas can  be taken  off.  But,  he emphasized, it  is not  the DOR                                                               
that will  be making that  evaluation.  The administration  is in                                                               
discussions with  the AOGCC as to  the proper way to  request the                                                               
AOGCC to  move forward with  an analysis of the  appropriate off-                                                               
take  point.   Conceptual Amendment  48 will  not drive  that any                                                               
further  along,  he opined,  nor  will  it address  the  economic                                                               
issues that  may ultimately need  to be  dealt with once  more is                                                               
known.                                                                                                                          
                                                                                                                                
COMMISSIONER  GALVIN, in  further  response,  clarified that  the                                                               
AOGCC  may have  the expertise  to  do the  analysis of  economic                                                               
value, but it does not have the authority to do so.                                                                             
                                                                                                                                
REPRESENTATIVE GUTTENBERG withdrew Amendment 48.                                                                                
                                                                                                                                
CO-CHAIR GATTO  inquired what  enabling legislation  is necessary                                                               
to obtain a report.                                                                                                             
                                                                                                                                
COMMISSIONER GALVIN reiterated that  the administration is in the                                                               
process of evaluating that.  The  first step, he said, is to have                                                               
the AOGCC  look at the  physical waste  in order to  know whether                                                               
the next  step of an  economic analysis is necessary  because the                                                               
physical  evaluation  may be  sufficient  enough.   The  economic                                                               
expertise may  be within the  DNR because,  as it relates  to the                                                               
state's oil  and gas resources, the  department conducts analyses                                                               
regarding management  of the economic  value of  those resources.                                                               
He  noted that  there may  be authorities  within the  DNR's unit                                                               
management  prerogatives that  would allow  the department  to do                                                               
this type of analysis as it  pertains to particular units and the                                                               
treatment of the gas/oil relationship.                                                                                          
                                                                                                                                
CO-CHAIR GATTO commented that the  state does not want to destroy                                                               
the field and wants to ensure  the longest field life and maximum                                                               
withdrawal of product.                                                                                                          
                                                                                                                                
10:56:52 PM                                                                                                                   
                                                                                                                                
MS. DAVIS  directed attention to  proposed AS  43.90.900(15), and                                                               
noted  that  the definition  for  open  season was  modified  and                                                               
tightened by referencing the specific  standard that applies, and                                                               
defines what an  open season has to be for  an Alaska natural gas                                                               
pipeline; paragraph (15) reads:                                                                                                 
                                                                                                                                
       (15) "open season" means the process that complies                                                                       
      with 18 C.F.R. Part 157, Subpart B (Open Seasons for                                                                      
     Alaska Natural Gas Transportation Projects);                                                                               
                                                                                                                                
MS. DAVIS  referred to Section  2, proposed  AS 36.30.850(b)(45),                                                               
and noted that the words,  "whether a project is uneconomic" were                                                               
inserted   in  order   to  track   the  arbitration   provisions.                                                               
Referring to  Section 5 of Version  K, she explained that  it now                                                               
pertains to the  first request for applications  for the license.                                                               
Section  6 of  Version K  relates to  expedited consideration  of                                                               
court  cases, and  passage of  this court  rule change  provision                                                               
requires  a  two-thirds  vote  of  the  House  and  Senate;  this                                                               
provision   requests  the   court   system   to  give   expedited                                                               
consideration to cases arising under proposed AS 43.90.                                                                         
                                                                                                                                
CO-CHAIR  GATTO  inquired whether  the  courts  would ignore  the                                                               
legislature despite a two-thirds vote.                                                                                          
                                                                                                                                
COMMISSIONER GALVIN replied that this  language is taken from the                                                               
redistricting statutes and  that the court responded  to the most                                                               
recent  redistricting in  a  timely  manner.   He  said that  the                                                               
administration  believes  that  this  provision  does  add  value                                                               
because it  makes it  clear that  this is  an issue  of paramount                                                               
importance to the state, adding that  he did not think there will                                                               
be a problem.                                                                                                                   
                                                                                                                                
MS. DAVIS, after noting that  Section 7 - the severability clause                                                               
- remains  unchanged, relayed that  Version K no  longer contains                                                               
provisions  pertaining to  the gas  utility revolving  loan fund.                                                               
Section 8 of Version K is the immediate effective date clause.                                                                  
                                                                                                                                
11:02:22 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WILSON  moved  to  report  the  proposed  CS  for                                                               
HB 177, Version  25-GH1060\K, Bullock,  4/24/07, as  amended, out                                                               
of   committee   with    individual   recommendations   and   the                                                               
accompanying  fiscal  notes.   There  being  no  objection,  CSHB                                                               
177(RES)  was   reported  from   the  House   Resources  Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROSES commented  that the  amendments he  offered                                                               
that  did  not  pass  were  meant  to  provide  flexibility,  and                                                               
expressed  his  hope  that  the  administration  is  100  percent                                                               
correct  in  its   belief  that  the  bill   already  offers  the                                                               
flexibility that is needed.                                                                                                     
                                                                                                                                
[CSHB 177(RES) was reported from committee.]                                                                                    

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