Legislature(2013 - 2014)BARNES 124

04/05/2014 10:00 AM RESOURCES


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10:09:03 AM Start
10:09:16 AM SB138
04:44:19 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed at 4:45 p.m. to 1:00 p.m. 4/6/14 --
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                     
                                                                                                                                
10:09:16 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR  SENATE  BILL  NO.  138(FIN)  am, "An  Act  relating  to  the                                                               
purposes, powers,  and duties of  the Alaska  Gasline Development                                                               
Corporation;  relating to  an in-state  natural gas  pipeline, an                                                               
Alaska  liquefied  natural  gas project,  and  associated  funds;                                                               
requiring state  agencies and other entities  to expedite reviews                                                               
and  actions  related  to natural  gas  pipelines  and  projects;                                                               
relating to  the authorities  and duties  of the  commissioner of                                                               
natural resources relating to a  North Slope natural gas project,                                                               
oil and  gas and gas only  leases, and royalty gas  and other gas                                                               
received by the  state including gas received as  payment for the                                                               
production  tax on  gas;  relating  to the  tax  on  oil and  gas                                                               
production, on  oil production, and  on gas  production; relating                                                               
to the duties of the commissioner  of revenue relating to a North                                                               
Slope natural  gas project and  gas received as payment  for tax;                                                               
relating to confidential information  and public record status of                                                               
information provided  to or in  the custody of the  Department of                                                               
Natural  Resources and  the Department  of  Revenue; relating  to                                                               
apportionment factors of the Alaska  Net Income Tax Act; amending                                                               
the definition  of gross value  at the 'point of  production' for                                                               
gas for  purposes of the  oil and gas production  tax; clarifying                                                               
that the  exploration incentive credit,  the oil or  gas producer                                                               
education credit, and  the film production tax credit  may not be                                                               
taken against  the gas  production tax paid  in gas;  relating to                                                               
the  oil  or  gas  producer   education  credit;  requesting  the                                                               
governor to  establish an  interim advisory  board to  advise the                                                               
governor on  municipal involvement in  a North Slope  natural gas                                                               
project;  relating to  the development  of a  plan by  the Alaska                                                               
Energy  Authority   for  developing  infrastructure   to  deliver                                                               
affordable  energy to  areas  of  the state  that  will not  have                                                               
direct  access  to a  North  Slope  natural  gas pipeline  and  a                                                               
recommendation  of a  funding  source  for energy  infrastructure                                                               
development;  establishing  the  Alaska affordable  energy  fund;                                                               
requiring  the commissioner  of  revenue to  develop  a plan  and                                                               
suggest  legislation for  municipalities, regional  corporations,                                                               
and residents  of the state  to acquire ownership interests  in a                                                               
North  Slope  natural  gas pipeline  project;  making  conforming                                                               
amendments; and providing for an effective date."                                                                               
                                                                                                                              
10:09:18 AM                                                                                                                   
                                                                                                                              
CO-CHAIR FEIGE  resumed the  committee's discussion  of Amendment                                                               
7,  labeled  28-GS2806\I.A.46,  Bullock,  4/2/14.    He  reminded                                                               
members  that yesterday,  April  4, 2014,  Amendment  7 had  been                                                               
moved, objected to, and the committee was in discussion.                                                                        
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
10:10:42 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE set  aside Amendment  7.   He announced  that the                                                               
committee  would   now  look  at   amendments  proposed   by  the                                                               
administration  that have  come back  from Legislative  Legal and                                                               
Research Services.                                                                                                              
                                                                                                                                
10:11:16 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt   Amendment  8,   labeled  28-                                                               
GS2806\I.A.67, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 4, following line 24:                                                                                                 
     Insert new bill sections to read:                                                                                          
        "* Sec. 4.  AS 31.25.050 is amended to read:                                                                        
          Sec. 31.25.050. Legal counsel. Except as provided                                                                 
     in  (b) of  this section,  the [THE]  corporation shall                                                                
     retain  legal  counsel  to advise  the  corporation  in                                                                    
     legal matters and represent it in litigation.                                                                              
        * Sec. 5.  AS 31.25.050  is amended by  adding a new                                                                
     subsection to read:                                                                                                        
          (b)  The attorney general shall                                                                                       
               (1)  be the legal counsel for the                                                                                
     corporation   for  legal   services   related  to   the                                                                    
     development   of  contracts   and  agreements   by  the                                                                    
     corporation that relate to  an Alaska liquefied natural                                                                    
     gas project; and                                                                                                           
               (2)  consult with the corporation when                                                                           
     procuring  outside counsel  for legal  services related                                                                    
     to an Alaska liquefied natural gas project."                                                                               
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 14, line 3:                                                                                                           
          Delete "sec. 14"                                                                                                      
          Insert "sec. 16"                                                                                                      
                                                                                                                                
     Page 17, line 24:                                                                                                          
          Delete "sec. 17"                                                                                                      
          Insert "sec. 19"                                                                                                      
                                                                                                                                
     Page 21, line 16:                                                                                                          
          Delete "sec. 27"                                                                                                      
          Insert "sec. 29"                                                                                                      
                                                                                                                                
     Page 25, line 9:                                                                                                           
          Delete "sec. 30"                                                                                                      
          Insert "sec. 32"                                                                                                      
                                                                                                                                
     Page 31, line 18:                                                                                                          
          Delete "sec. 37"                                                                                                      
          Insert "sec. 39"                                                                                                      
                                                                                                                                
     Page 53, lines 24 - 25:                                                                                                    
          Delete "sec. 23"                                                                                                      
          Insert "sec. 25"                                                                                                      
                                                                                                                                
     Page 54, line 25:                                                                                                          
          Delete "sec. 14"                                                                                                      
          Insert "sec. 16"                                                                                                      
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "Sections 1 - 14, 16, 17, 23 - 27, 29, 30,                                                                     
     37, 39, and 55 - 61"                                                                                                       
          Insert "Sections 1 - 16, 18, 19, 25 - 29, 31, 32,                                                                     
     39, 41, and 57 - 63"                                                                                                       
                                                                                                                                
     Page 56, line 8:                                                                                                           
          Delete "sec. 38"                                                                                                      
          Insert "sec. 40"                                                                                                      
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 64 and 65"                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER objected for discussion purposes.                                                                         
                                                                                                                                
CO-CHAIR FEIGE explained Amendment 8 addresses the status of                                                                    
legal counsel for the Alaska Gasline Development Corporation                                                                    
(AGDC).  He requested the administration speak to the amendment.                                                                
                                                                                                                                
10:12:04 AM                                                                                                                   
                                                                                                                                
MICHAEL   PAWLOWSKI,   Deputy   Commissioner,   Office   of   the                                                               
Commissioner, Department of Revenue  (DOR), explained Amendment 8                                                               
represents a  considerable amount  of work  trying to  define the                                                               
roles and  relationship between  the state  agencies, as  done in                                                               
other portions  of the bill.   To date, discussion  has primarily                                                               
been  in regard  to the  Department of  Natural Resources  (DNR),                                                               
DOR,  and  the  Alaska Gasline  Development  Corporation  (AGDC).                                                               
However, the Department  of Law (DOL) has been left  out in a lot                                                               
of the  discussion.   He noted that  DOL provides  legal services                                                               
and  procures outside  counsel on  behalf of  the agencies.   The                                                               
intent of  Amendment 8 is to  clarify that the legal  counsel for                                                               
AGDC, in  its work  related to the  development of  contracts and                                                               
agreements for  the Alaska Liquefied  Natural Gas  (LNG) Project,                                                               
will be the  attorney general.  The idea is  to present a unified                                                               
legal voice  and ultimate responsibility despite  that there will                                                               
be outside counsel.  The  administration believes it important to                                                               
ultimately have one voice in  the state responsible for all three                                                               
of  the major  state  entities involved  in  moving this  project                                                               
forward.  A key point is page  1, line 9, which provides that the                                                               
attorney general shall  be the legal counsel  for the corporation                                                               
in the  development of  these contracts;  AGDC will  maintain its                                                               
corporate  counsel,  but   will  also  be  the   client  in  this                                                               
relationship to  the Department of  Law.  An  important potential                                                               
amendment to  Amendment 8, Mr.  Pawlowski suggested, would  be to                                                               
add similar language to page 1,  line 13, so it would read "legal                                                               
services  for  the corporation  related  to  an Alaska  liquefied                                                               
natural gas  project."   This would  make it  clear that  in both                                                               
instances it  is AGDC that  is actually  the client.   He thanked                                                               
DOL for its  work in support of the administration  in moving the                                                               
gasline forward.                                                                                                                
                                                                                                                                
REPRESENTATIVE P.  WILSON understood  paragraph (2), line  12, of                                                               
Amendment 8 clarifies "exactly what the status between them is."                                                                
                                                                                                                                
MR. PAWLOWSKI said  his suggestion for additional  language is to                                                               
do exactly that, to clarify the relationship.                                                                                   
                                                                                                                                
10:15:03 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE P. WILSON moved to  adopt [Conceptual] Amendment 1                                                               
to  Amendment 8  to "be  a  conforming amendment  to clarify  the                                                               
relationship  there   between  the   attorney  general   and  the                                                               
corporation" so that it is exactly clear what that is.                                                                          
                                                                                                                                
REPRESENTATIVE  P.   WILSON,  after  discussion   with  committee                                                               
members, withdrew Amendment 1 to Amendment 8.                                                                                   
                                                                                                                                
10:16:45 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER moved to adopt Amendment 2 to Amendment 8:                                                                
                                                                                                                                
     Page 1, line 13, after "services":                                                                                         
          Insert "for the corporation"                                                                                          
                                                                                                                                
Thus,  page 1,  line  13,  would read,  "legal  services for  the                                                               
corporation related to an Alaska  liquefied natural gas project."                                                               
There  being  no  objection,  Amendment  2  to  Amendment  8  was                                                               
adopted.                                                                                                                        
                                                                                                                                
10:17:51 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  understood the language in  Amendment 8 on                                                               
page 1,  lines 4-5, which  reads, "Except  as provided in  (b) of                                                           
this section,  the [THE] corporation  shall retain  legal counsel                                                           
to advise the corporation in  legal matters", means within AGDC's                                                               
corporate  structure.    But, paragraph  (b)  with  the  attorney                                                               
general provides  that if AGDC  is doing anything  with contracts                                                               
or hiring  legal counsel,  AGDC would  consult with  the attorney                                                               
general.                                                                                                                        
                                                                                                                                
MR. PAWLOWSKI replied  correct and added the intent  is that AGDC                                                               
retain its internal corporate counsel  for all of the broad range                                                               
of activities that  AGDC on an individual basis  does.  Paragraph                                                               
(b) is  saying that when  AGDC is  engaged in the  development of                                                               
contracts for the Alaska LNG  Project, the attorney general shall                                                               
be the legal counsel for the  corporation.  Secondly, it will not                                                               
always be  DOL attorneys,  but rather  outside counsel  hired and                                                               
supervised by  DOL.  The Department  of Law does a  panel in that                                                               
procurement  process;  AGDC would  be  consulted  on the  outside                                                               
counsel and  that outside  counsel would be  for AGDC  during the                                                               
development  of  those contracts.    The  intent is  to  narrowly                                                               
tailor the engagement of DOL within  AGDC, which will, under HB 4                                                               
and CSSB  138(FIN) am, have a  much broader mission on  behalf of                                                               
the State of Alaska beyond the Alaska LNG Project.                                                                              
                                                                                                                                
10:19:32 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SEATON   noted  Amendment   8  says   an  "Alaska                                                               
liquefied natural gas  project" which is the  Alaska LNG Project.                                                               
Another term that has been  used throughout amendments is an "in-                                                               
state gasline  project."  He  inquired whether Amendment  8 means                                                               
that this  only applies  to this  consortium partnership  that is                                                               
going  forward and  otherwise  AGDC will  be  using its  internal                                                               
counsel.                                                                                                                        
                                                                                                                                
MR. PAWLOWSKI confirmed the aforementioned is correct.                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER  added that the  purpose of Amendment  2 to                                                               
Amendment  8  is  to  make  it very  clear  throughout  that  the                                                               
attorney general's client in this process is AGDC.                                                                              
                                                                                                                                
10:20:35 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE asked whether AGDC agrees with Amendment 8.                                                                      
                                                                                                                                
DAN   FAUSKE,   President,   Executive   Team,   Alaska   Gasline                                                               
Development   Corporation   (AGDC),   Department   of   Commerce,                                                               
Community & Economic Development  (DCCED), responded AGDC is very                                                               
pleased and satisfied with Amendment 8.                                                                                         
                                                                                                                                
10:21:05 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR  inquired  what   it  is  that  Amendment  8                                                               
accomplishes in terms of advancing the project.                                                                                 
                                                                                                                                
MR. FAUSKE  responded some issues have  come up in the  past that                                                               
have  been  regarding who  is  actually  the  client and  who  is                                                               
representing who.   Amendment 8  gives a much  clearer definition                                                               
so that when  AGDC is engaged with the attorney  general, AGDC is                                                               
the attorney general's client as  well; but, as AGDC gets outside                                                               
counsel, it  is clear  that AGDC  is also  the client  to outside                                                               
counsel.   This clears up  the conflict  that that creates  as to                                                               
who  is  representing  who  to  where  there  is  a  much  better                                                               
direction and  a much cleaner  relationship to help  expedite the                                                               
project and not get hung  up into legal issues involving lawyers.                                                               
He deferred to Mr. Ken Vassar for further comment.                                                                              
                                                                                                                                
KEN  VASSAR,  General  Counsel,  AGDC,  Department  of  Commerce,                                                               
Community & Economic Development  (DCCED), confirmed Mr. Fauske's                                                               
comment is correct.  The language  in Amendment 8, along with the                                                               
helpful amendment to the amendment,  makes it very clear that the                                                               
attorney  general,  in  providing  legal  counsel,  is  providing                                                               
counsel to AGDC as the  client and therefore owes attorney-client                                                               
responsibilities and  duties to  AGDC.  So,  Amendment 8  is very                                                               
helpful.                                                                                                                        
                                                                                                                                
10:23:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI asked  whether the  attorney general  is                                                               
legal  counsel  for  the   Alaska  Railroad  Corporation,  Alaska                                                               
Aerospace Corporation, and other public corporations.                                                                           
                                                                                                                                
MR. PAWLOWSKI deferred to Mr. Poag of the Department of Law.                                                                    
                                                                                                                                
CHRISTOPHER  POAG, Assistant  Attorney General,  Labor and  State                                                               
Affairs Section,  Civil Division, Department of  Law, replied the                                                               
Alaska  Railroad Corporation  has its  own counsel.   He  did not                                                               
have an  answer for  the Alaska  Aerospace Corporation,  he said.                                                               
The   Alaska  Permanent   Fund  Corporation,   Alaska  Industrial                                                               
Development  and  Export  Authority (AIDEA),  and  Alaska  Energy                                                               
Authority (AEA)  are represented  by DOL.   The vast  majority of                                                               
public corporations are represented by  the Department of Law, he                                                               
noted, but there are some exceptions, including AGDC.                                                                           
                                                                                                                                
10:24:30 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE moved to adopt Amendment 3 to Amendment 8:                                                                       
                                                                                                                                
     Page 1, line 4, after "counsel.":                                                                                        
          Insert "(a)"                                                                                                          
                                                                                                                                
There  being  no  objection,  Amendment  3  to  Amendment  8  was                                                               
adopted.                                                                                                                        
                                                                                                                                
10:25:28 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER  removed  his objection  to  Amendment  8.                                                               
There being  no further objection,  Amendment 8, as  amended, was                                                               
adopted.                                                                                                                        
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
10:27:49 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt   Amendment  9,   labeled  28-                                                               
GS2806\I.A.68, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 30, lines 19 - 20:                                                                                                    
          Delete "upstream of the point of production of                                                                        
     gas"                                                                                                                       
          Insert "and, under AS 43.55.020(e), considered as                                                                     
     gas produced from a lease or property for the purpose                                                                      
     of AS 43.55.011 - 43.55.180"                                                                                               
                                                                                                                                
     Page 30, line 21:                                                                                                          
          Delete "for"                                                                                                          
          Insert "in"                                                                                                           
                                                                                                                                
     Page 30, line 22:                                                                                                          
          Delete "a reservoir"                                                                                                  
          Insert "and, under AS 43.55.020(e), considered as                                                                     
     gas produced from a lease or property for the purpose                                                                      
     of AS 43.55.011 - 43.55.180"                                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER objected for discussion purposes.                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER  explained Amendment 9 was  brought to [his                                                               
and Co-Chair Feige's]  attention by producers in  the Cook Inlet.                                                               
He  said the  amendment provides  very eloquent  clarification to                                                               
avoid ambiguities  over the point  of production  and essentially                                                               
links the exemptions for flared  gas or gas used to re-pressurize                                                               
reservoirs  to  existing  definitions and  exemptions  under  the                                                               
payment of production tax statute.   Amendment 9 has a great deal                                                               
of complexity  that has  been worked  out in  cooperation between                                                               
his and the co-chair's offices and the state agencies.                                                                          
                                                                                                                                
MR. PAWLOWSKI noted Amendment 9 is  in Section 36, page 30, lines                                                               
18-23, of CSSB  138(FIN) am.  He said there  are normal instances                                                               
in the state  where the production tax does not  apply to gas and                                                               
certain activities around gas.   These include when gas is flared                                                               
or released or  allowed to escape and when used  in the operation                                                               
of the  lease or property.   The language in Section  36 links it                                                               
to the  upstream of  the point  of production.   The  language in                                                               
Amendment 9 would  link it to the specific areas  of statute.  He                                                               
requested  Ms.  Pollard  of  the Department  of  Law  to  provide                                                               
further details.                                                                                                                
                                                                                                                                
10:30:08 AM                                                                                                                   
                                                                                                                                
SUSAN  POLLARD, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section, Civil  Division, Department of Law,  explained the point                                                               
of Amendment 9  or this particular subsection in the  bill, is to                                                               
get clear  in the statute that  in the initial instance  that gas                                                               
would  be  flared in  excess  of  what  the  Alaska Oil  and  Gas                                                               
Conservation Commission  (AOGCC) would approve of,  that it would                                                               
not be considered tax gas, because  that is the section that this                                                               
is in.   This particular  provision only  applies to the  oil and                                                               
gas  production  tax;  it  does  not have  anything  to  do  with                                                               
royalty.   Oil  and  gas  severed from  the  state is  considered                                                               
produced unless  it meets  the circumstances  in AS 43.55.020(e),                                                               
which  is typically  gas  used in  the operation  of  a lease  or                                                               
property  for  repressuring  or  gas  that is  flared.    Gas  is                                                               
continuously flared throughout production  operations; as long as                                                               
it is within  AOGCC limits, that gas is  not considered produced.                                                               
Amendment  9  is  to  make  all   of  that  very  clear  and  the                                                               
relationship between the general  statute for "AK 55.020(e)" very                                                               
specific  with  respect   to  the  tax  gas   statute,  which  is                                                               
AS 43.55.014.                                                                                                                   
                                                                                                                                
10:31:50 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON inquired whether  this means there would be                                                               
no tax  on the  gas that  is flared above  the limits  allowed by                                                               
AOGCC and  no tax on the  gas discharged from a  gas conditioning                                                               
plant, which is downstream of the point of production.                                                                          
                                                                                                                                
MS. POLLARD  answered this  would not  change existing  and long-                                                               
standing law in  the oil and gas production tax  relating to what                                                               
is considered produced  or not produced upstream of  the point of                                                               
production.   Gas  flared  in  excess of  AOGCC  limits would  be                                                               
considered produced, as it would be  in current law, and it would                                                               
be taxed under the general 13  percent of gross value at point of                                                               
production, which  is AS 43.55.011(e).   Qualifying that  she has                                                               
not  been the  DOL counsel  for AOGCC,  Ms. Pollard  said she  is                                                               
unaware  of  a circumstance  where  there  has actually  been  an                                                               
excess flare that  AOGCC has not approved.  Amendment  9 does not                                                               
address  downstream of  the point  of production,  it only  deals                                                               
with  what   would  be  happening   upstream  of  the   point  of                                                               
production.   Point of production  is actually the  more accurate                                                               
way to say it, she added.                                                                                                       
                                                                                                                                
10:33:58 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   SEATON  understood,   then,  that   the  statute                                                               
sections that would  replace the terms "upstream of  the point of                                                               
production of gas" would determine that same point.                                                                             
                                                                                                                                
MS. POLLARD  responded the reason  for removing "upstream  of the                                                               
point of production" is it  causes confusion because it creates a                                                               
question as to why  all of a sudden a phrase  is being added that                                                               
sort of refers to AS 43.55.020(e)  but not exactly.  This section                                                               
only relates to  the tax gas.  Under Amendment  9, page 30, lines                                                               
[18-20], of  the bill would read:   "This section does  not apply                                                               
to  gas flared,  released, or  allowed  to escape  and, under  AS                                                               
43.55.020(e),  as considered  as  gas produced  from  a lease  or                                                               
property."  It  just makes clear that the tax  gas provision does                                                               
not  apply to  gas that  would  be considered  produced under  AS                                                               
43.55.020(e), which is gas flared to excess.                                                                                    
                                                                                                                                
10:35:47 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON said he thinks  the problem is that members                                                               
have not seen this before and he  wants to be clear as to whether                                                               
this is moving  the point at which gas can  be flared and/or lost                                                               
and not be taxed, or whether it  is just a change in reference to                                                               
the status.                                                                                                                     
                                                                                                                                
MR. PAWLOWSKI replied  it is a change in reference  that does not                                                               
change anything  in existing practice  and is more  specific than                                                               
the term that  was in the legislation as drafted.   It is linking                                                               
back to that  specific instance in AS 43.55.020(e),  so DOR views                                                               
it as clarifying, not substantive.                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON,  in regard to  the definition of  point of                                                               
production  or where  this point  is on  the Alaska  LNG Project,                                                               
understood that  Amendment 9  does not  change anything  that was                                                               
proposed, it just defines the place by using the statute.                                                                       
                                                                                                                                
MR. PAWLOWSKI answered correct.                                                                                                 
                                                                                                                                
10:37:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER removed  his  objection.   There being  no                                                               
further objection, Amendment 9 was adopted.                                                                                     
                                                                                                                                
The committee took an at-ease from 10:37 a.m. to 10:43 a.m.                                                                     
                                                                                                                                
10:43:23 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   10,  labeled  28-                                                               
GS2806\I.A. 71, Bullock, 4/4/14, which read:                                                                                    
                                                                                                                                
     Page 30, lines 12 - 17:                                                                                                    
          Delete all material and insert:                                                                                       
          "(d) An assessment under AS 43.05.245 against a                                                                       
     producer for  an underpayment of  a tax levied  by this                                                                    
     section may be made in terms  of an amount of gas or an                                                                    
     amount  of  money,   as  determined  under  regulations                                                                    
     adopted by  the department.  If the assessment  is made                                                                    
     in  terms  of   money,  the  amount  for   a  month  of                                                                    
     production  for an  oil  and gas  lease  subject to  an                                                                    
     effective  election under  (a) of  this section  is the                                                                    
     product  of the  number of  units of  gas by  which the                                                                    
     producer's  delivery to  the state  was  less than  the                                                                    
     amount required  by (b) of this  section, multiplied by                                                                    
     the gross  value at  the point  of production  for each                                                                    
     unit of the gas other than  gas that was not subject to                                                                    
     tax or  gas that was  delivered to the state  under (b)                                                                    
     of this section.  The department may allow  a credit or                                                                    
     refund under  AS 43.05.275 for an overpayment  of a tax                                                                    
     levied by this  section that may be issued  in the form                                                                    
     of  gas  or  money,  as  determined  under  regulations                                                                    
     adopted by the department. If  the refund is allowed in                                                                    
     terms of money, the amount  of the credit or refund for                                                                    
     a month of production for  an oil and gas lease subject                                                                    
     to an effective  election under (a) of  this section is                                                                    
     the product of the number of  units of gas by which the                                                                    
     producer's  delivery to  the state  was  more than  the                                                                    
     amount required  under (b) of this  section, multiplied                                                                    
     by the gross value at  the point of production for each                                                                    
     unit of the gas other than  gas that was not subject to                                                                    
     tax or  gas that was  delivered to the state  under (b)                                                                    
     of  this  section. Interest  that  is  determined as  a                                                                    
     percentage  of  the amount  of  a  tax underpayment  or                                                                    
     overpayment and a  penalty that is a  percentage of the                                                                    
     amount  of  a  tax  underpayment are  calculated  as  a                                                                    
     percentage of  the amount of  money determined  in this                                                                    
     subsection. An  amount of  gas that  was less  than the                                                                    
     amount required to be delivered  to the state under (b)                                                                    
     of this section or an amount  of gas that was more than                                                                    
     the amount required to be  delivered to the state under                                                                    
     (b) of this  section that is adjusted as  provided by a                                                                    
     gas balancing agreement  to which the state  is a party                                                                    
     under AS 38.05.020(b)(11) is  not subject to assessment                                                                    
     under  AS 43.05.245   or  a  credit  or   refund  under                                                                    
     AS 43.05.275. In  this subsection, "unit" means  a unit                                                                    
     of  measurement for  gas identified  by the  department                                                                    
     under regulations adopted by  the department and may be                                                                    
     expressed  as  1,000   cubic  feet,  1,000,000  British                                                                    
     thermal   units,  or   another   appropriate  unit   of                                                                    
     measurement   specified   by   the   department   under                                                                    
     regulations adopted by the department."                                                                                    
                                                                                                                                
CO-CHAIR SADDLER objected.                                                                                                      
                                                                                                                                
CO-CHAIR FEIGE explained Amendment 10 is an amendment of the                                                                    
administration and is a product of many weeks work on the part                                                                  
of tax attorneys.                                                                                                               
                                                                                                                                
10:44:22 AM                                                                                                                   
                                                                                                                                
MR. PAWLOWSKI, to provide a history in regard to Amendment 10,                                                                  
drew attention to CSSB 138(FIN) am, page 30, lines 12-17,                                                                       
subsection  (d),  saying  that   when  the  departments  and  the                                                               
administration  considered the  opportunity of  taking production                                                               
tax as molecules, thought was  given to unforeseen circumstances.                                                               
When  a  tax  is  levied  on a  taxpayer  there  are,  at  times,                                                               
deficiencies  --  the  department  may  determine  there  was  an                                                               
underpayment or overpayment  of the tax.  Moving into  a world of                                                               
taking production  tax as  gas, it  was recognized  that guidance                                                               
needed  to be  provided to  taxpayers about  what happens  in the                                                               
event there  is a deficiency.   The department sees  a deficiency                                                               
as  much less  likely  coming  through a  meter  in a  production                                                               
situation than  in the standard  form of  a taxpayer doing  a tax                                                               
return  and missing  a  deduction  or claiming  too  little of  a                                                               
deduction.   Under subsection (d),  the words "a deficiency  in a                                                               
tax levied by this section" relate  to the production tax as gas.                                                               
The words "if  a provision of this title  providing for interest"                                                               
relate  to  the  interest  calculation   on  the  overpayment  or                                                               
underpayment of tax.  For  an overpayment the state owes interest                                                               
to the  taxpayer and  for an underpayment  the taxpayer  owes the                                                               
state interest.   These are often not  malicious; sometimes these                                                               
are just  the natural order  of doing  complex tax returns.   The                                                               
words "the amount  of the deficiency and the tax  amount on which                                                               
the interest  or penalty percentage  is calculated" relate  to as                                                               
if the  tax was  levied under  AS 43.55.011(e).   If there  is an                                                               
underpayment or  overpayment, calculating  the interest  based on                                                               
molecules may  be cumbersome, so  the department wanted to  do it                                                               
based  on  the value.    However,  that "opened  some  unforeseen                                                               
consequences  where in  the future  there is  a potential  for an                                                               
auditor  to  take  an  in-value  calculation,  back  calculate  a                                                               
dispute  over  the  actual  volumes that  were  produced."    The                                                               
department did  not want to  open that  type of lack  of clarity,                                                               
for  both  the department  and  the  taxpayer, so  DOR  developed                                                               
Amendment [10] by working with taxpayers.                                                                                       
                                                                                                                                
10:47:24 AM                                                                                                                   
                                                                                                                                
MR. PAWLOWSKI addressed Amendment  10 itself, stating it provides                                                               
a methodical  clarity to  both the  taxpayers and  the department                                                               
about  how,   in  principle,  the  department   will  handle  the                                                               
potential  for  underpayments  or  overpayments of  gas.    Under                                                               
Amendment 10, an  underpayment could be done either in  gas or in                                                               
money, so the  amendment is setting out two  alternatives.  Under                                                               
the production tax, the state  receives installment payments on a                                                               
monthly basis,  with true-up  typically occurring  at the  end of                                                               
the  year.   There will  be  balancing agreements  and the  state                                                               
would  like  the  opportunity,  under  regulations  and  under  a                                                               
process, to be  able to take in  additional gas or in  money.  An                                                               
underpayment or overpayment  is based on the gas  produced by the                                                               
producer  during the  month.    Amendment 10,  page  1, line  10,                                                               
changes that to "the gas" and he  wants to be clear on the record                                                               
that the  gas being described is  the gas produced by  a producer                                                               
during the month.   The value laid out in  Amendment 10 relies on                                                               
the standard gross value at  the point of production calculation.                                                               
The  other  values,  seen  on  page 2,  lines  5-9,  will,  under                                                               
regulation by  the department, be  expressed as  either [thousand                                                               
cubic feet]  or million British  thermal units.   While specific,                                                               
this provides  for additional specifics because  when calculating                                                               
value there may  be the need to use British  thermal units, given                                                               
that contracts for  LNG are often done in  heating content value,                                                               
whereas in-kind would look at actual volumes produced.                                                                          
                                                                                                                                
10:50:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI requested  clarification  on what  would                                                               
happen in an overpayment situation.                                                                                             
                                                                                                                                
MR. PAWLOWSKI  responded that in  an overpayment  situation under                                                               
current  law, the  state refunds  with  interest due.   Were  the                                                               
state  taking  tax  as  gas,  DOR would  work  with  DNR  in  the                                                               
balancing agreements  to determine whether  it is in  the state's                                                               
interest to  give molecules back  to the taxpayer during  a later                                                               
month or  to actually do a  refund payment as the  state would do                                                               
when in-value is taken.                                                                                                         
                                                                                                                                
REPRESENTATIVE  KAWASAKI   remarked  he  cannot  conceive   of  a                                                               
situation in which this would happen.                                                                                           
                                                                                                                                
MR. PAWLOWSKI concurred that an  underpayment or overpayment in a                                                               
molecule-driven payment  is unlikely.   However, the  state needs                                                               
to  be prepared  for  an  instance in  which  a  meter breaks  or                                                               
becomes out  of caliber.  A  principle in the Heads  of Agreement                                                               
is  to  avoid valuation  disputes  and  part  of the  purpose  of                                                               
Amendment 10 is  to avoid a dispute about  the methodology around                                                               
which such an unlikelihood would be resolved.                                                                                   
                                                                                                                                
CO-CHAIR FEIGE commented it is better  to have the rules in place                                                               
ahead of time.                                                                                                                  
                                                                                                                                
10:52:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI  said he  cannot envision a  situation in                                                               
which the producers would want to take gas instead of cash.                                                                     
                                                                                                                                
MR. PAWLOWSKI  replied this is  something a producer  might often                                                               
prefer, particularly within  a tax year.  Making  up the movement                                                               
of  molecules between  partners  and producers  is what  actually                                                               
goes into  the balancing  agreement.  As  he understands  it, the                                                               
preference,  generally  speaking,  would   be  to  actually  take                                                               
molecules to  make up with each  other and within that  there may                                                               
be  capacity  arrangements  to provide  the  capacity  for  those                                                               
makeup molecules.   He  deferred to  the commissioner  of natural                                                               
resources for further comment.                                                                                                  
                                                                                                                                
JOE  BALASH,  Commissioner,   Department  of  Natural  Resources,                                                               
responded the balancing agreements  from a royalty perspective or                                                               
a  field management  perspective  allow for  true-up on  whatever                                                               
basis or  term the  parties agree to  in the  specific agreement.                                                               
That  is something  that is  not uncommon  and is  something that                                                               
should be fairly straightforward as  the royalty issues are dealt                                                               
with.  However,  because tax is different - it  is not a property                                                               
right  per se  -  this particular  set of  tools  will allow  for                                                               
management in the  balancing agreements of these  sorts of things                                                               
that could happen.  In the  royalty context, ability is needed to                                                               
make   adjustments  in   those   agreements  in   the  event   of                                                               
underproduction  or overproduction.    That is  what a  balancing                                                               
agreement  is;   it  allows  for  relatively   small  amounts  of                                                               
underlifting or overlifting, depending  upon the commercial needs                                                               
of the individual  player.  Because so much of  the state's share                                                               
in this  arrangement is  going to  be comprised  of tax  gas, the                                                               
ability   to   use   underpayments  or   overpayments   and   the                                                               
satisfaction of  those obligations,  either of  the state  or the                                                               
other parties, would  be enhanced.  Otherwise, it is  going to be                                                               
difficult trying  to do this all  on the back of  royalty and not                                                               
both royalty and tax.                                                                                                           
                                                                                                                                
10:55:03 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR  recalled that  this  was  presented in  the                                                               
opposite way during the overview of  the bill.  She inquired what                                                               
new  information   helped  it   be  understood   that  additional                                                               
flexibility was needed for how to deal with this.                                                                               
                                                                                                                                
COMMISSIONER BALASH replied it goes  to further thought about the                                                               
balancing  agreements and  thinking through  the kinds  of things                                                               
that  are  going  to  be  done in  this  phase  of  Pre-Front-End                                                               
Engineering and Design  (Pre-FEED).  More thought  has been given                                                               
to what  those balancing agreements  might need to look  like and                                                               
ensuring there  are tools for  dealing not just with  the royalty                                                               
side but also the tax side.                                                                                                     
                                                                                                                                
MR. PAWLOWSKI  added there is a  fair point that in  tax there is                                                               
both  deficiencies and  overpayments  that  happen regularly  and                                                               
[the administration]  focused on  the state's  side, which  was a                                                               
deficiency.   However, there is  the question of what  happens in                                                               
the other  direction and  that is also  part of  the conversation                                                               
that led to this discussion.                                                                                                    
                                                                                                                                
10:56:30 AM                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER removed  his objection.  There  being no further                                                               
objection, Amendment 10 was adopted.                                                                                            
                                                                                                                                
10:56:57 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   11,  labeled  28-                                                               
GS2806\I.A.72, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 47, line 23:                                                                                                          
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
     Page 48, line 1:                                                                                                           
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
     Page 48, lines 2 - 3:                                                                                                      
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
     Page 48, lines 8 - 9:                                                                                                      
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
     Page 48, line 17:                                                                                                          
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
     Page 48, line 18:                                                                                                          
          Delete "oil or gas"                                                                                                   
          Insert "oil and gas"                                                                                                  
                                                                                                                                
Objection  was  voiced  by Co-Chair  Saddler  and  Representative                                                               
Tarr.                                                                                                                           
                                                                                                                                
10:57:25 AM                                                                                                                   
                                                                                                                                
MR.  PAWLOWSKI  stated  the  administration  has  made  it  clear                                                               
throughout the  committee's consideration  of this bill  that the                                                               
bill's intent is to allow  lease expenditures, whether for oil or                                                               
gas, to be  deductible against the oil production tax.   This has                                                               
been clearly  stated on the record  from the moment the  bill was                                                               
introduced  and is  actually a  term in  the Heads  of Agreement.                                                               
Amendment  11 is  intended  to make  a  conforming or  clarifying                                                               
amendment  within  Section 50,  which  is  the lease  expenditure                                                               
section.   Current  language uses  the  term "oil  or gas"  which                                                               
could,  despite the  record, potentially  be deemed  as exclusive                                                               
and the  change to  "oil and  gas" is  intended to  be inclusive.                                                               
There is oil,  there is gas, there  is oil and gas,  and there is                                                               
lease expenditures,  and consistent with  the intent of  the bill                                                               
to  be deductible.    [The administration]  does  not believe  it                                                               
makes any change to the intent or  substance of the bill and is a                                                               
clarifying amendment.                                                                                                           
                                                                                                                                
10:58:52 AM                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER removed his objection.                                                                                         
                                                                                                                                
REPRESENTATIVE KAWASAKI objected, saying this  is the part of the                                                               
bill that  concerns him  quite a  bit.   The potential  costs for                                                               
Point Thomson could be $4  billion and the lease expenditures are                                                               
deductible under  the bill.   He said he  does not think  it gets                                                               
the state to a gas pipeline  and could potentially cost the state                                                               
a  couple  billion  dollars next  year  in  unrealized  earnings.                                                               
Another amendment  will be  introduced shortly  to undo  this, he                                                               
said.  He opposed the clarifying language.                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER said  the purpose  behind Amendment  11 is                                                               
simply  dealing with  the syntax  of the  word "or,"  which in  a                                                               
logical operation  of the  English language  can be  taken either                                                               
inclusively or  exclusively.  The  only thing about  Amendment 11                                                               
is  to  make   certain  that  it  is  viewed   in  the  inclusive                                                               
interpretation.    It  is nothing  more  than  clarification  and                                                               
conformity with legislative drafting standards.                                                                                 
                                                                                                                                
REPRESENTATIVE  KAWASAKI   removed  his  objection,   saying  the                                                               
committee will have this debate later.                                                                                          
                                                                                                                                
11:01:06 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TARR maintained her objection.                                                                                   
                                                                                                                                
A roll  call vote was  taken.  Representatives Olson,  Seaton, P.                                                               
Wilson, Hawker,  Saddler, and Feige  voted in favor  of Amendment                                                               
11.    Representatives  Tarr  and   Kawasaki  voted  against  it.                                                               
Therefore, Amendment 11 was adopted by a vote of 6-2.                                                                           
                                                                                                                                
11:02:11 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   12,  labeled  28-                                                               
GS2806\I.A.73, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 52, line 15, following "transporting":                                                                            
          Insert "the"                                                                                                      
                                                                                                                                
     Page 52, line 19, following "gas":                                                                                     
          Insert    "after    completion    of    mechanical                                                                
     separation"                                                                                                            
                                                                                                                                
     Page 52, line 21:                                                                                                          
          Delete "gas"                                                                                                      
          Insert "the gas after mechanical separation"                                                                      
                                                                                                                                
     Page 52, line 24:                                                                                                          
          Following "the":                                                                                                      
          Insert "gas processing"                                                                                           
          Following "pipeline":                                                                                             
          Insert "downstream of the gas processing plant"                                                                   
                                                                                                                                
     Page 52, line 25, following "system":                                                                                  
          Insert "downstream of the gas processing plant"                                                                   
                                                                                                                                
     Page 52, line 26, following "transporting":                                                                            
          Insert "the"                                                                                                      
                                                                                                                                
Objection for discussion purposes  was voiced by Co-Chair Saddler                                                               
and Representative Hawker.                                                                                                      
                                                                                                                                
11:02:26 AM                                                                                                                   
                                                                                                                                
MR. PAWLOWSKI  explained Amendment 12 adds  additional clarifying                                                               
language to the definition of  the point of production in Section                                                               
53 of  CSSB 138(FIN)  am.   The exact point  of production  is an                                                               
important piece of  statute in that expenditures  above the point                                                               
of  production   towards  the  well   are  deductible   as  lease                                                               
expenditures under Alaska tax  statutes.  Expenditures downstream                                                               
of the  point of production are  recovered in tariffs or  fees in                                                               
the  transportation  charges  that are  deductible  against  both                                                               
royalty and  production tax.   It is  important to  remember that                                                               
costs are  recovered; it  is just  in what  manner and  over what                                                               
time period and against which tax.   The development of the point                                                               
of production  in this legislation  was specifically  intended to                                                               
move the  point of production  clearly to places that  conform to                                                               
the  definition of  the Alaska  LNG Project.   For  Point Thomson                                                               
that is the entrance to  the transmission line that would deliver                                                               
gas  to the  gas treatment  plant, and,  while the  gas treatment                                                               
plant itself may  be within the Prudhoe Bay  unit, guarantee that                                                               
the point of  production is from the  gasline leaving potentially                                                               
the central  gas facility to  the treatment plant;  so, including                                                               
those downstream of the point  of production and the language was                                                               
done to  demarcate that.   As the  bill moved  through committee,                                                               
concern  was heard  from producers  in other  parts of  the state                                                               
that that change could have  adverse impacts on the determination                                                               
of  the  point of  production,  particularly  in the  Cook  Inlet                                                               
region where there  may not be the same  processing or separation                                                               
that occurs  on a  platform but  rather the  product is  moved to                                                               
shore.  It  is not the intent  of the department, nor  was it the                                                               
intent of the department, to change  the point of production in a                                                               
way  that  would  drive  further  towards  the  well  before  the                                                               
completion of mechanical separation.   Amendment 12, page 1, line                                                               
5, is conforming  language that clarifies it  is after completion                                                               
of   mechanical  separation.      This   protects  the   existing                                                               
interpretation  of point  of production  while providing  clarity                                                               
for  the North  Slope  Alaska  LNG Project  about  that point  to                                                               
ensure  that  the  transmission  line and  portions  of  the  gas                                                               
treatment  plant  are  not  included upstream  of  the  point  of                                                               
production.                                                                                                                     
                                                                                                                                
11:05:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER   supported  Amendment  12,   stating  the                                                               
amendment is  to ensure  that the change  in point  of production                                                               
definition  does not  adversely affect  Cook Inlet  operations or                                                               
gas as  piped from offshore  platforms to the shore  before being                                                               
separated and thus  produced.  Without this change  there is some                                                               
risk that the definition could  be interpreted as to disallow the                                                               
pipes  and  mechanical  separation  systems  onshore  from  being                                                               
qualifying  expenditures for  the purposes  of tax  credits under                                                               
AS 43.55.023.                                                                                                                   
                                                                                                                                
11:08:05 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER removed his objection to Amendment 12.                                                                    
                                                                                                                                
CO-CHAIR SADDLER  removed his objection  to Amendment 12.   There                                                               
being no further objection, Amendment 12 was adopted.                                                                           
                                                                                                                                
11:08:50 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   13,  labeled  28-                                                               
GS2806\I.A.74, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 13, line 28, following "confidential":                                                                            
          Insert "and must be made available to the public                                                                  
     at  least 90  days before  the proposed  effective date                                                                
     for the terms"                                                                                                         
                                                                                                                                
     Page 13, following line 31:                                                                                                
          Insert a new paragraph to read:                                                                                       
               "(13)  consult with the Alaska Gasline                                                                       
     Development   Corporation   in   the   development   of                                                                
     agreements  or contracts  under  (10) or  (11) of  this                                                                
     subsection  for  project  services  related  to  a  gas                                                                
     treatment   plant,  pipeline,   liquefaction  facility,                                                                
     marine  terminal,  or  marine  transportation  services                                                                
     necessary to transport natural gas to market;"                                                                         
                                                                                                                                
     Renumber the following paragraph accordingly.                                                                              
                                                                                                                                
     Page 15, line 22, following "confidential":                                                                                
          Insert "and must be made available to the public                                                                      
     at  least 90  days before  the proposed  effective date                                                                    
     for the terms"                                                                                                             
                                                                                                                                
     Page 15, following line 25:                                                                                                
          Insert a new paragraph to read:                                                                                       
               "(13)  consult with the Alaska Gasline                                                                           
     Development   Corporation   in   the   development   of                                                                    
     agreements  or contracts  under  (10) or  (11) of  this                                                                    
     subsection  for  project  services  related  to  a  gas                                                                    
     treatment   plant,  pipeline,   liquefaction  facility,                                                                    
     marine  terminal,  or  marine  transportation  services                                                                    
     necessary to transport natural gas to market;"                                                                             
                                                                                                                                
     Renumber the following paragraphs accordingly.                                                                             
                                                                                                                                
     Page 30, line 10:                                                                                                          
          Delete "AS 38.05.020(b)(13)"                                                                                          
          Insert "AS 38.05.023(b)(14)"                                                                                          
                                                                                                                                
CO-CHAIR SADDLER objected.                                                                                                      
                                                                                                                                
11:09:16 AM                                                                                                                   
                                                                                                                                
COMMISSIONER   BALASH  explained   Amendment  13   addresses  two                                                               
matters.  The first, on page 1,  lines 1-3, is the amount of time                                                               
which the  public, and consequently  the legislature,  might have                                                               
to see  and review any  proposed contracts  that come out  of the                                                               
process  that  the  administration  is asking  the  authority  to                                                               
initiate here.   For  any contract  that is  proposed to  have an                                                               
effective or start  date, this provides that  the contract itself                                                               
must be  made public  at least  90 days  before that  start date.                                                               
Before  such a  contract could  be executed,  there is  still the                                                               
requirement that the  legislature would have to approve  it if it                                                               
is for  longer than  two years.   This is  intended to  provide a                                                               
window for the public in  particular because the administration's                                                               
plan  going  forward  is  to  keep  the  legislature  briefed  in                                                               
executive  session and  under  confidential  agreements (CAs)  up                                                               
until  the point  the contracts  are concluded  and made  public.                                                               
This will give  the public a window of opportunity  to be engaged                                                               
in whatever process it is the legislature uses thereafter.                                                                      
                                                                                                                                
CO-CHAIR FEIGE  thanked the  administration for  bringing forward                                                               
this  particular  point in  the  amendment,  saying it  addresses                                                               
several  members' concerns  regarding  the  time the  legislature                                                               
would  have  to  consider  some of  these  contracts,  which  are                                                               
expected to  be far more  complicated than this legislation.   He                                                               
said  this  provision  adequately  addresses  his  concerns  with                                                               
having sufficient time.                                                                                                         
                                                                                                                                
11:11:22 AM                                                                                                                   
                                                                                                                                
COMMISSIONER BALASH, continuing his  explanation of Amendment 13,                                                               
said the second matter addressed  by the amendment relates to the                                                               
powers and  duties of  the commissioner  of natural  resources in                                                               
the development of contracts.   Similar to [Amendment 5] that was                                                               
tentatively  discussed on  April  4, 2014,  this provision  would                                                               
make the  consultation between the agencies  and AGDC reciprocal.                                                               
More narrowly crafted than what members  saw on April 4, 2014, it                                                               
speaks   specifically   to    contracts   associated   with   the                                                               
infrastructure.   It may be  that DNR actually will  consult with                                                               
AGDC  more than  that and  beyond that  particular scope,  but in                                                               
these instances  it makes sense for  DNR to be in  discussion and                                                               
consultation  with  AGDC  regarding  these  types  of  contracts,                                                               
ensuring DNR knows what "they can  and cannot provide to us as an                                                               
alternative, perhaps,  to those  services we might  be discussing                                                               
with somebody else."                                                                                                            
                                                                                                                                
11:12:41 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   KAWASAKI  offered   his  appreciation   for  the                                                               
amendment  and inquired  what agreements  and contracts  would be                                                               
made public under the amendment.                                                                                                
                                                                                                                                
COMMISSIONER BALASH  responded the  specific contracts  that will                                                               
be  brought forward  will  depend upon  the  completion of  those                                                               
contracts, so there may be many  in [2015] and later there may be                                                               
more,  depending  upon  what  is needed  to  complete  the  total                                                               
package.   The anticipation is  it will be  balancing agreements,                                                               
marketing agreements, or disposition.   The offtake and balancing                                                               
agreements are  going to be the  key contracts next year  as they                                                               
relate to  the overall commercial  structure and the  agency role                                                               
in that structure,  vis-a-vis the other parties that  will be the                                                               
equity  parties.   The important  point  here is  that these  are                                                               
contracts  which have  duration of  more  than two  years and  so                                                               
these  will be  the long-term  contracts that  really enable  the                                                               
project to go forward.                                                                                                          
                                                                                                                                
MR. PAWLOWSKI added  that those sections also  reference the firm                                                               
transportation  services agreement  with  TransCanada or  another                                                               
transporter like  AGDC and  the liquefaction  services agreements                                                               
for  gas and  capacity within  the LNG  plant.   These agreements                                                               
would also be brought back  within that timeframe for legislative                                                               
consideration.    The  Memorandum of  Understanding  (MOU)  [with                                                               
TransCanada] calls  out certain dates on  the firm transportation                                                               
services agreement; so,  90 days prior to that  effective gives a                                                               
window  on  a  deadline  for the  administration  to  deliver  an                                                               
agreement.                                                                                                                      
                                                                                                                                
11:16:08 AM                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER removed  his objection.  There  being no further                                                               
objection, Amendment 13 was adopted.                                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON brought  attention  to  CSSB 138(FIN)  am,                                                               
page 13, lines 29-31.  He  inquired whether the word "or" on line                                                               
31 is intended  to be an "and/or" so information  could be shared                                                               
in executive session and with  confidentiality agreements or with                                                               
individuals  with confidentiality  agreements.    He offered  his                                                               
opinion that  the way  it is  currently written,  it could  be an                                                               
executive session  and not  have confidentiality  agreements once                                                               
that session is over.                                                                                                           
                                                                                                                                
CO-CHAIR FEIGE said the next amendment addresses this issue.                                                                    
                                                                                                                                
11:17:52 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   14,  labeled  28-                                                               
GS2806\I.A.80, Nauman/Bullock, 4/4/14, which read:                                                                              
                                                                                                                                
     Page 13, line 30:                                                                                                          
          Delete "the legislature only"                                                                                     
          Insert   "members   of   the   legislature   under                                                                
     confidentiality agreements, either"                                                                                    
                                                                                                                                
     Page 13, line 31:                                                                                                          
          Delete "under confidentiality agreements":                                                                        
          Insert "with any member of the legislature                                                                        
     individually"                                                                                                          
                                                                                                                                
     Page 15, line 24:                                                                                                          
          Delete "the legislature only"                                                                                         
          Insert   "members   of   the   legislature   under                                                                    
     confidentiality agreements, either"                                                                                        
                                                                                                                                
     Page 15, line 25:                                                                                                          
          Delete "under confidentiality agreements":                                                                            
           Insert "with any member of the legislature                                                                           
     individually"                                                                                                              
                                                                                                                                
CO-CHAIR SADDLER objected.                                                                                                      
                                                                                                                                
CO-CHAIR  FEIGE explained  Amendment  14  addresses exactly  what                                                               
Representative Seaton  pointed out.   The amendment  broadens the                                                               
conditions  under which  confidentiality agreements  are required                                                               
for  members of  the legislature  when members  are in  executive                                                               
session and  in individual  meetings with any  of the  parties or                                                               
the departments.   Confidentiality  agreements will need  to have                                                               
been signed for confidential information to be conveyed.                                                                        
                                                                                                                                
11:19:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI offered  his  appreciation for  Co-Chair                                                               
Feige's willingness  to clarify this  particular issue.   He drew                                                               
attention  to the  bill,  page  13, line  29,  which states  "the                                                               
commissioner 'may'" saying  he does not think this  issue has yet                                                               
been addressed.   Further, he noted,  in previous confidentiality                                                               
agreement processes  within this  legislature, key  staff members                                                               
have sometimes been  a party; he asked whether  this is something                                                               
that is necessary to address.                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  responded that right  now the bill  says strictly                                                               
members of  the legislature  and inquired  whether Representative                                                               
Kawasaki is advocating pros or cons for staff members.                                                                          
                                                                                                                                
REPRESENTATIVE KAWASAKI said he is just throwing out the issue.                                                                 
                                                                                                                                
11:20:54 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER noted  he has a similar  concern [in regard                                                               
to legislative staff].   Regarding the bill's  language that "the                                                               
commissioner  'may'  share  confidential information"  he  opined                                                               
that it  is important it  be permissive.   This is not  a blanket                                                               
discharge of information between  the very important confidential                                                               
negotiating  information  from  the   agency  to  anyone  in  the                                                               
legislature that wants  to sign a confidential  agreement.  Going                                                               
forward, it is  important that key legislative  staff be involved                                                               
in these  conversations, especially  as the project  develops and                                                               
the forthcoming agreements are looked  at.  It is potentially not                                                               
only key  staff but also  legislative consultants who  might need                                                               
to   be  brought   into  the   appropriate  discussion   under  a                                                               
confidentiality agreement.   He  reiterated it is  permissive and                                                               
is  not  mandating  that  the   agency  give  that  authority  to                                                               
consultants  or  to legislative  staff  or  to legislators.    He                                                               
inquired whether the  sponsor would be receptive  to a conceptual                                                               
amendment  to  Amendment 14  that  would  allow  it to  apply  to                                                               
legislative staff and legislative consultants.                                                                                  
                                                                                                                                
11:22:41 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE replied  there would be some concerns  on the part                                                               
of the administration, but allowed it  is a legitimate point.  He                                                               
requested the administration's comments.                                                                                        
                                                                                                                                
COMMISSIONER BALASH  said that  as a former  staff person  to the                                                               
Legislative  Budget and  Audit Committee,  he can  assure members                                                               
that the  legislature's ability  to keep  up and  be able  to act                                                               
swiftly upon  completion of  the negotiations  and to  review the                                                               
contracts would be enhanced by  having that kind of participation                                                               
during the confidential period.   On behalf of the administration                                                               
he requested  the word "may" be  kept in the language  because if                                                               
[the   administration]   is    constantly   briefing   individual                                                               
legislators, their  staff, and their consultants,  there would be                                                               
little  time to  do  the negotiations.   There  needs  to be  the                                                               
ability to manage that in a way that works for all the parties.                                                                 
                                                                                                                                
CO-CHAIR  FEIGE concurred  with keeping  "may" and  said part  of                                                               
what  is involved  in all  parties  moving forward  is a  certain                                                               
amount of trust and confidential  information is confidential for                                                               
whatever  reason.   It is  important that  that information  stay                                                               
confidential  because  if the  trusts  are  violated, whether  by                                                               
members or  staff, it will  hurt the process and  everyone moving                                                               
forward.   The commissioner should have  the discretion depending                                                               
on who  he is talking to  and as long  as that level of  trust is                                                               
maintained, may be allowed to  share the confidential information                                                               
and not mandated  to share it.  Regarding  a conceptual amendment                                                               
to Amendment 14, he suggested taking  a brief at-ease to work out                                                               
specific  language.    He  inquired   whether  there  is  further                                                               
discussion on the amendment before taking the at-ease.                                                                          
                                                                                                                                
11:25:32 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR expressed  her concern  regarding "may"  and                                                               
"shall", and  said this issue is  in a later amendment  she plans                                                               
to offer.   Her concern  is that  members have been  assured they                                                               
will  know what  is going  on  by getting  the briefings  through                                                               
confidential  agreements.   Leaving "may"  in the  language feels                                                               
like there  could be  a time  when members are  left out  of that                                                               
conversation, which is the intent  of her [later] amendment.  She                                                               
appreciated  the statements  about  the need  for  some level  of                                                               
trust,  but said  if that  is  the only  opportunity for  getting                                                               
information  she   wants  to  ensure   members  can   get  enough                                                               
information to  be able to  make those  decisions.  She  said she                                                               
will not  move the  amendment she had  planned to  move, [labeled                                                               
28-GS2806\I.A.45, Nauman/Bullock, 4/2/14].                                                                                      
                                                                                                                                
11:26:35 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER appreciated  Commissioner Balash's response                                                               
of  recounting  his  experience  as   staff.    However,  as  the                                                               
committee works  on an  amendment to Amendment  14, there  was no                                                               
clarification as  to whether  it would  also be  appropriate that                                                               
that  it  would  include  the legislature's  consultants  at  the                                                               
discretion of the commissioner.                                                                                                 
                                                                                                                                
MR. PAWLOWSKI  encouraged members to consider  including language                                                               
for legislative  consultants.  There  may be different  levels of                                                               
confidentiality agreements, he  said.  For example,  DOR has very                                                               
strict   statutory   confidentiality    and   the   legislature's                                                               
consultants  may  be  able  to   engage  in  a  higher  level  of                                                               
confidentiality  to get  the appropriate  numbers.   Saying  that                                                               
similar things  have been done  in the past, he  again encouraged                                                               
members  to support  the  concept because  it  would promote  the                                                               
efficient  movement forward  of  the project  by the  consultants                                                               
being able to see the numbers and more detailed modeling.                                                                       
                                                                                                                                
11:28:03 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SEATON  said he  appreciates  this  because if  a                                                               
contract comes back for which there  is worry about the terms, it                                                               
will be  a much more messy  process than if legislators  can have                                                               
input up front.                                                                                                                 
                                                                                                                                
CO-CHAIR  FEIGE  reiterated  that  the issue  of  trust  and  the                                                               
sharing  of  confidential  information  depends on  how  that  is                                                               
followed.   Recalling  the saying  "loose lips  sink ships"  from                                                               
World  War II,  he  said  "loose lips  can  sink agreements"  and                                                               
prevent projects  from moving  forward.   This is  something that                                                               
will be very closely monitored.                                                                                                 
                                                                                                                                
The committee took an at-ease from 11:29 a.m. to 11:45 a.m.                                                                     
                                                                                                                                
11:45:02 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER  moved to  adopt Conceptual Amendment  1 to                                                               
Amendment 14 as follows:                                                                                                        
                                                                                                                                
     Page 1, line 3, after "legislature":                                                                                       
       Insert   "and   their    respective   agents   and                                                                       
     contractors on request"                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  added that his motion  directs Legislative                                                               
Legal  and   Research  Services  to  conform   the  remainder  of                                                               
Amendment 14 to that language.                                                                                                  
                                                                                                                                
CO-CHAIR FEIGE  understood the inserted  language would  apply to                                                               
members  of the  legislature and  to  staff in  meetings held  in                                                               
executive session  as well as  meetings held as  individuals, all                                                               
under confidentiality agreements.                                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER  replied yes,  and added  that "individuals                                                               
might mean  a group  of individual or  individuals that  may, for                                                               
whatever reason, be being briefed at the same time."                                                                            
                                                                                                                                
11:47:35 AM                                                                                                                   
                                                                                                                                
There being no objection, Conceptual  Amendment 1 to Amendment 14                                                               
was adopted.                                                                                                                    
                                                                                                                                
11:47:43 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER emphasized  the importance and significance                                                               
of  a  confidentiality agreement  and  the  bond under  which  it                                                               
places someone  executing that  agreement.   As the  process goes                                                               
forward and  as agents are  nominated and brought into  levels of                                                               
confidentiality,  legislators may  want to  have the  Legislative                                                               
Budget  and  Audit  Committee   or  legislative  counsel  provide                                                               
training and guidance  to ensure that both  legislators and staff                                                               
understand  the   obligations  under   which  they   are  placing                                                               
themselves when executing a confidentiality agreement.                                                                          
                                                                                                                                
11:49:09 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  queried whether  the administration  has anything                                                               
to add regarding Amendment 14.                                                                                                  
                                                                                                                                
COMMISSIONER BALASH replied  the only question he  has relates to                                                               
the  conceptual language  of "on  request"  that was  added.   He                                                               
asked whether that language is  intended to help [DNR] understand                                                               
who should or should not be  talked to, or is this language meant                                                               
to obviate or interfere with the word "may" on line 29.                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER   explained  this  language   mirrors  the                                                               
language  that  exists  in  the  Alaska  Gasline  Inducement  Act                                                               
statutes today.   It  was chosen  for consistency,  but it  is to                                                               
make certain that  it is on request to the  [DNR] commissioner to                                                               
allow a legislator, or the  legislator's agent or contractors, to                                                               
participate  under a  confidentiality agreement.   As  the entire                                                               
paragraph in the statute operates,  it is requesting a permissive                                                               
action from the [DNR] commissioner.                                                                                             
                                                                                                                                
11:50:34 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  requested clarification that  the requests                                                               
are made  by a  legislator, not  by staff,  or the  contractor or                                                               
agents.                                                                                                                         
                                                                                                                                
CO-CHAIR  FEIGE   said  his  intent   is  that  members   of  the                                                               
legislature would be  the ones designating who  those agents are.                                                               
Whether  they are  staff members  or  contractors employed  under                                                               
contract  by   the  legislature,   those  individuals   would  be                                                               
specifically  designated by  members of  the legislature  and the                                                               
request made to the [DNR] commissioner.                                                                                         
                                                                                                                                
11:51:32 AM                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER  removed his objection  to Amendment 14.   There                                                               
being  no  further  objection,  Amendment  14,  as  amended,  was                                                               
adopted.                                                                                                                        
                                                                                                                                
11:52:26 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   15,  labeled  28-                                                               
GS2806\I.A.81, Nauman/Bullock, 4/4/14, which read:                                                                              
                                                                                                                                
     Page 53, line 18, following "BOARD.":                                                                                      
          Insert "(a)"                                                                                                          
                                                                                                                                
     Page 53, line 20, following "project.":                                                                                    
          Insert   "The   board   shall   review   available                                                                    
     information, hold  public meetings, and provide  to the                                                                    
     governor  by December 15  of each  year annual  reports                                                                    
     that                                                                                                                       
               (1)  review the potential effects and                                                                            
     benefits of new infrastructure  for North Slope natural                                                                    
     gas  development, whether  designed to  provide natural                                                                    
     gas  for  in-state sale  or  for  export, or  both,  on                                                                    
     communities  in the  state, including  consideration of                                                                    
     tax   structure  under   AS 29.45  and   AS 43.56,  and                                                                    
     consideration of other  payments before construction of                                                                    
     new infrastructure associated  with North Slope natural                                                                    
     gas development;                                                                                                           
               (2)  provide recommendations for changes to                                                                      
     the oil  and gas exploration, production,  and pipeline                                                                    
     transportation  property taxes  under AS 43.56  related                                                                    
     to infrastructure for  commercialization of natural gas                                                                    
     that would  facilitate development  of a  major natural                                                                    
     gas   project  and   mitigate   financial  effects   on                                                                    
     communities from  development of a North  Slope natural                                                                    
     gas project;                                                                                                               
               (3)  provide recommendations for changes to                                                                      
     AS 29.45.080  related   to  the   commercialization  of                                                                    
     natural  gas that  would  facilitate  development of  a                                                                    
     North Slope natural gas  project and mitigate financial                                                                    
     effects on  communities from a North  Slope natural gas                                                                    
     project;                                                                                                                   
               (4)  provide recommendations for legislative                                                                     
     or other  options to minimize the  financial effects on                                                                    
     communities  in proximity  to North  Slope natural  gas                                                                    
     project   infrastructure  during   construction  of   a                                                                    
     natural  gas  pipeline and  associated  infrastructure;                                                                    
     and                                                                                                                        
               (5)  provide recommendations on the effects                                                                      
     on and  benefits to communities  not in proximity  to a                                                                    
     North Slope natural gas project.                                                                                           
          (b)"                                                                                                                  
                                                                                                                                
CO-CHAIR SADDLER objected for discussion purposes.                                                                              
                                                                                                                                
11:52:52 AM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  explained Amendment 15  applies to Section  58 of                                                               
the bill where the governor  is requested to establish an interim                                                               
advisory board.  The governor,  anticipating passage of the bill,                                                               
last  week issued  Administrative  Order  269, which  establishes                                                               
that board.  Amendment 15  inserts into statute the language from                                                               
page 2 of the administrative  order that is within paragraphs 1-5                                                               
under the caption "Duties and Responsibilities".                                                                                
                                                                                                                                
The committee took an at-ease from 11:55 a.m. to 12:06 p.m.                                                                     
                                                                                                                                
12:06:37 PM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  pointed out that  there are  systemic differences                                                               
between  the  language  in  Amendment  15  and  the  language  in                                                               
Administrative Order  269.  He  requested the  amendment drafter,                                                               
Emily Nauman,  to explain these  differences because  the request                                                               
was that  the language in  the amendment  be exactly the  same as                                                               
that of  the administrative  order.  For  example, he  noted, the                                                               
word "impact" in all five  paragraphs of the administrative order                                                               
has been changed to "effects" in  Amendment 15; and in the second                                                               
and third  paragraphs of the  order, the words "affected  by" are                                                               
replaced by "from" in the amendment.                                                                                            
                                                                                                                                
EMILY  NAUMAN, Attorney,  Legislative Legal  Counsel, Legislative                                                               
Legal and Research Services,  Alaska State Legislature, explained                                                               
she viewed the  changes as purely stylistic and that  she did not                                                               
think they would make any impact on the intent of the request.                                                                  
                                                                                                                                
12:08:43 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   HAWKER  proposed   Conceptual  Amendment   1  to                                                               
Amendment 15  to make the  entirety of Amendment 15  conform with                                                               
the entire  section in Administrative Order  269 entitled "Duties                                                               
and  Responsibilities"  [on  page  2  of  the  order],  with  one                                                               
exception to make this work  properly.  That exception relates to                                                               
the  proper  noun that  identifies  the  "Municipal Advisory  Gas                                                               
Project Review  Board."   In the statute,  the committee  is only                                                               
requesting the  governor to establish an  interim advisory board.                                                               
So,   to  conform   statute  to   the   language  identified   in                                                               
Administrative  Order 269,  Representative  Hawker suggested  the                                                               
conforming  language should  begin  without the  proper noun  and                                                               
instead  simply  refer to  "'the  board'  shall review  available                                                               
information, hold public meetings ...."                                                                                         
                                                                                                                                
REPRESENTATIVE P.  WILSON objected [for purposes  of discussion].                                                               
She inquired whether "the board" needs to be defined.                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER replied no.                                                                                               
                                                                                                                                
12:11:13 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE P. WILSON  removed her objection.   There being no                                                               
further objections,  Conceptual Amendment  1 to Amendment  15 was                                                               
adopted.                                                                                                                        
                                                                                                                                
12:11:31 PM                                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE moved discussion to Amendment 15 itself.                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON brought  attention  to the  third to  last                                                               
paragraph on  page 3  of Administrative  Order 269  which states,                                                               
"Records of the  Municipal Advisory Gas Project  Review Board are                                                               
subject  to  inspection  and  copying  as  public  records  under                                                               
AS 40.25.110 -  40.25.220."  He  inquired whether this  means the                                                               
board will not  be considered part of a  deliberative process and                                                               
therefore confidential.                                                                                                         
                                                                                                                                
MR. PAWLOWSKI  understood the intent in  the administrative order                                                               
is to  create a  very transparent public  process to  involve the                                                               
communities in the recommendations that  will come forward to the                                                               
legislature so that  both the public and the  legislature can see                                                               
the "consensus  recommendations" that will come  back for changes                                                               
to the property tax.                                                                                                            
                                                                                                                                
12:13:27 PM                                                                                                                   
                                                                                                                                
CO-CHAIR  SADDLER drew  attention to  paragraph (5)  of Amendment                                                               
15, page 2,  lines 1-2, which state,  "provide recommendations on                                                               
the effects on and benefits to  communities not in proximity to a                                                               
North  Slope natural  gas project."   Remarking  that this  seems                                                               
pretty broad, he inquired as to  how broadly this provision is to                                                               
be construed  in terms  of proximity  and terms  of the  reach of                                                               
effects and benefits.                                                                                                           
                                                                                                                                
MR. PAWLOWSKI responded  the key to Administrative  Order 269, in                                                               
thinking about the  impact and benefits of an  Alaska LNG project                                                               
on the  state, was  the recognition that  all communities  in the                                                               
state have an  indirect interest in this project.   A substantial                                                               
portion of the  property tax derives to the  state government and                                                               
that  is an  interest  of other  communities potentially  through                                                               
revenue sharing  and funding  for schools.   For  example, Seward                                                               
may not  be considered  in direct  proximity, but  it has  a rail                                                               
line and could  be an important place to bring  pipe through.  As                                                               
was heard  in the committee's  discussion with the  Department of                                                               
Transportation &  Public Facilities, the  needs of ports  must be                                                               
considered for moving material into  support of the project.  So,                                                               
there  may be  impacts throughout  the state  to which  attention                                                               
must be  paid.  Given  the board contains members  of communities                                                               
that are not directly along  the route, the administration thinks                                                               
it important  to provide  the broadest  latitude to  consider the                                                               
impacts across the state.                                                                                                       
                                                                                                                                
12:15:08 PM                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER  said the aforementioned  indicates a  report on                                                               
the effects  and benefits is  being requested, but  the amendment                                                               
language says  recommendations shall be provided  on the effects.                                                               
He  said  he  does  not  understand  how  the  effects  would  be                                                               
recommended.                                                                                                                    
                                                                                                                                
MR. PAWLOWSKI  replied he is  considering it with  the conceptual                                                               
amendment, so it  is recommendations on the impact.   There would                                                               
be  impacts  to  communities  outside of  the  proximity  to  the                                                               
project.                                                                                                                        
                                                                                                                                
CO-CHAIR  SADDLER, regarding  the  language, "recommendations  on                                                               
the impact," said  the board would not recommend  impacts.  Thus,                                                               
he understands  a report on  the impacts but  not recommendations                                                               
on impacts.                                                                                                                     
                                                                                                                                
COMMISSIONER BALASH  offered his belief the  co-chair is touching                                                               
on something that might be caught  up in shorthand.  He explained                                                               
that  impacts,  generally,  are going  to  be  addressed  through                                                               
impact payments and the schedule  of impact payments that will be                                                               
received throughout the state by  communities, depending upon the                                                               
level  of  impact  the communities  are  expected  to  experience                                                               
during  construction.     In  addition  to   the  impacts  during                                                               
construction  are  the  benefits,  which  the  administration  is                                                               
expecting will be a component of  the overall payments in lieu of                                                               
taxes (PILT) agreement itself, in  terms of how that property tax                                                               
revenue  will  be shared  among  the  communities throughout  the                                                               
state  and not  just  those  that have  portions  of the  project                                                               
running in or through their borders.                                                                                            
                                                                                                                                
12:17:16 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE P. WILSON observed  that Administrative Order 269,                                                               
page 2,  points 5  and 6  under the  heading of  "Composition and                                                               
Chair  of Board",  state  that there  will be  one  member of  an                                                               
organization representing  the interest of municipalities  in the                                                               
state and two  members of the public who do  not reside [in areas                                                               
directly impacted].   She offered  her belief that  those members                                                               
will bring  in their  concerns so  that the state  as a  whole is                                                               
looked at and those members will  take part in the debate when it                                                               
takes place.                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  brought attention to  Administrative Order                                                               
269, page  2, "Duties and  Responsibilities", and noted  that the                                                               
lead-in paragraph  states "provide annual reports  by December 15                                                               
of each  year to the Governor  that include" the items  listed in                                                               
the following five  paragraphs.  Continuing, he  pointed out that                                                               
paragraph  (4) talks  about  recommendations  for communities  in                                                               
proximity to  North Slope natural gas  project infrastructure and                                                               
paragraph  (5)  talks about  recommendations  on  the impact  and                                                               
benefits  to  communities  not  in proximity  to  a  North  Slope                                                               
natural gas project.  Thus, paragraph  (5) is an extension of (4)                                                               
and cannot be looked at in isolation from its context in (4).                                                                   
                                                                                                                                
12:19:35 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI  observed Amendment  15, page 2,  line 3,                                                               
includes  "(b)" which  deals  with the  members  of the  advisory                                                               
board.  He  recalled the governor "took a drumming  ... after the                                                               
letter came out from the mayors"  and said this is an appropriate                                                               
response  in  this administrative  order.    The members  of  the                                                               
advisory   board   in   the   bill   are   representatives   from                                                               
municipalities,  DNR,  DOR, oil  and  gas  lessees on  the  North                                                               
Slope, and others.   He said he likes  the administrative order's                                                               
language better in regard to the 12-member board.                                                                               
                                                                                                                                
CO-CHAIR FEIGE pointed out that this is not in Amendment 15.                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI responded that is  what he is saying.  He                                                               
said he prefers  the language in Administrative Order  269 to the                                                               
language in  Section 58 of the  bill, because the order  sets out                                                               
who will be on the board  and which municipalities will be on the                                                               
board.  He said he thinks subsection (b) should be changed.                                                                     
                                                                                                                                
CO-CHAIR FEIGE  suggested that either  an amendment  to Amendment                                                               
15  be  made   or  that  a  separate  amendment   be  drafted  by                                                               
Representative Kawasaki.                                                                                                        
                                                                                                                                
REPRESENTATIVE P. WILSON said "it does  not take the rest of that                                                               
out."                                                                                                                           
                                                                                                                                
REPRESENTATIVE KAWASAKI  noted that the  bill language puts  in a                                                               
municipal advisory board that has  a different set of people than                                                               
the administrative order.  He said  he likes the language for the                                                               
composition  of the  board that  is in  Administrative Order  269                                                               
better than what [is in the current version of the bill].                                                                       
                                                                                                                                
CO-CHAIR FEIGE  replied he does not  disagree with Representative                                                               
Kawasaki's point, but suggests bringing back another amendment.                                                                 
                                                                                                                                
REPRESENTATIVE TARR  observed that page  53, lines 18-19,  of the                                                               
bill state,  "The legislature requests the  governor to establish                                                               
an interim advisory  board under AS 44.19.028 ...."   She queried                                                               
whether  there is  any conflict  in statutory  references between                                                               
the bill and the order.                                                                                                         
                                                                                                                                
12:23:29 PM                                                                                                                   
                                                                                                                                
The committee took an at-ease from 12:23 p.m. to 12:27 p.m.                                                                     
                                                                                                                                
CO-CHAIR FEIGE announced  the committee is trying  to get answers                                                               
to the aforementioned concerns from the Department of Law.                                                                      
                                                                                                                                
The committee took another at-ease from 12:27 p.m. to 1:39 p.m.                                                                 
                                                                                                                                
1:39:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE resumed discussion of Amendment 15.                                                                              
                                                                                                                                
CO-CHAIR  SADDLER said  he  would like  to  address his  concerns                                                               
about providing  recommendations on the  "effects of."   He moved                                                               
to adopt Conceptual Amendment 2 to Amendment 15:                                                                                
                                                                                                                                
     Page 2, line 1 after "recommendations":                                                                                    
          Delete "on"                                                                                                           
          Insert "to address"                                                                                                   
                                                                                                                                
Thus, page 2, lines 1-2,  would read "(5) provide recommendations                                                               
to  address the  effects on  and benefits  to communities  not in                                                               
proximity to a North Slope natural gas project."                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER objected.                                                                                                 
                                                                                                                                
CO-CHAIR  SADDLER  explained  he  is  making  this  a  conceptual                                                               
amendment  to provide  latitude to  the drafters  to conform  the                                                               
amendment   to  the   language  in   Administrative  Order   269.                                                               
Conceptual   Amendment   2   will   provide   clarity   for   the                                                               
recommendations  to   address  the  effects,  he   said,  because                                                               
"recommendations on the effects of" does not make sense to him.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER  maintained  his objection  to  Conceptual                                                               
Amendment 2,  saying the  core intent behind  Amendment 15  is to                                                               
mirror the  duties and responsibilities  that are  established in                                                               
Administrative  Order  269  and  to  ensure  that  there  are  no                                                               
ambiguities  between   statute  and  what  are   the  duties  and                                                               
responsibilities  of the  Municipal Advisory  Gas Project  Review                                                               
Board.   Taken in context,  paragraph (5) is quite  clear without                                                               
trying to  wordsmith one  small difference  into it,  which could                                                               
potentially  allow for  the  entire duration  of  this board  the                                                               
perpetuation of that ambiguity.                                                                                                 
                                                                                                                                
1:42:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  reiterated that  the language  is not  clear to                                                               
him.   He requested clarification  from the administration  as to                                                               
the actual intent of paragraph (5) in the administrative order.                                                                 
                                                                                                                                
COMMISSIONER BALASH answered that  the interpretation and reading                                                               
provided by Representative Hawker is  consistent with that of the                                                               
administration.   Under the  duties of  this particular  board, a                                                               
report would be provided to  the legislature and the broader body                                                               
politic and  public.   The recommendations  in paragraph  (5) are                                                               
consistent with those  in paragraph (4).  It is  going to be some                                                               
combination of  legislation, a structuring  of the  PILT payments                                                               
themselves, and/or  impact payments.   The desire to be  an exact                                                               
mirror  of Administrative  Order 269  is helpful.   He  suggested                                                               
that just the  committee's discussion is perhaps  adequate if the                                                               
concern identified by  Co-Chair Saddler is one  that nobody wants                                                               
to  leave in  question, but  otherwise a  statement of  intent of                                                               
some sort or a letter of intent might do the trick.                                                                             
                                                                                                                                
1:45:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  requested Commissioner  Balash to  provide more                                                               
interpretation as  how that report might  include recommendations                                                               
on the impact and benefits.                                                                                                     
                                                                                                                                
COMMISSIONER  BALASH brought  attention  to  paragraph (4)  which                                                               
states,  "Recommendations for  legislative  or  other options  to                                                               
minimize the  ... impact ...."   He  said this is  the consistent                                                               
reading  and it  is taken  from paragraph  (4) down  to paragraph                                                               
(5).  Minimizing the impacts  and maximizing the benefits is what                                                               
is wanted.  The administration  expects there will be benefits to                                                               
virtually every community  in the state.  The question  is how to                                                               
ensure that.                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  understood  the  intention  of  Administrative                                                               
Order  269 is  to  have this  report  include recommendations  to                                                               
minimize  the impacts  and maximize  the benefits  to communities                                                               
not in proximity  to a natural gas project.   Having declared the                                                               
intent  on   record,  he  withdrew  Conceptual   Amendment  2  to                                                               
Amendment 15.                                                                                                                   
                                                                                                                                
COMMISSIONER BALASH stated  that, as a member  of this particular                                                               
board,  he  will  be  happy  to  carry  that  interpretation  and                                                               
expectation to the board.                                                                                                       
                                                                                                                                
1:47:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  referenced AS 44.19.028 and  suggested there                                                               
may be  a structural  problem because  an interim  advisory board                                                               
[as  established in  the bill]  would  be short  in duration  and                                                               
would potentially  be statutorily dissolved before  the time that                                                               
the work  anticipated by Administrative  Order 269  is completed.                                                               
The  administrative order  sets up  a review  board and  includes                                                               
other statutory references to such  things as per diem and public                                                               
records.  Thus,  there may now be a structural  problem where the                                                               
interim advisory  board is different than  the Municipal Advisory                                                               
Gas Project Review  Board in time of duration and  what the board                                                               
members are potentially  entitled to.  For example,  per diem and                                                               
travel  expenses would  not  be available  to  individuals on  an                                                               
interim advisory board  in the same that they are  on this review                                                               
board.   She reported  that the  Department of  Law was  going to                                                               
look  into this  during the  time  the committee  was at-ease  to                                                               
determine whether changes to that language are needed.                                                                          
                                                                                                                                
MR.  PAWLOWSKI  responded  the  guidance  he  received  from  the                                                               
Department of Law is that  either through a separate amendment or                                                               
an amendment  to Amendment 15,  the reference to AS  44.19.028 on                                                               
page 53 of  the bill, line 19, which is  not amended by Amendment                                                               
15, would be  replaced with the reference of  AS 44.19.145(c) for                                                               
consistency.                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE suggested  Representative Tarr bring this  up as a                                                               
separate amendment.                                                                                                             
                                                                                                                                
REPRESENTATIVE TARR replied she could  do that or do an amendment                                                               
to the amendment.  She said  this would be the only amendment she                                                               
has on this matter.                                                                                                             
                                                                                                                                
CO-CHAIR  FEIGE  requested  it  be brought  back  as  a  separate                                                               
amendment from Legislative Legal  and Research Services to ensure                                                               
everyone is on board with  exactly what it is that Representative                                                               
Tarr is trying to do.                                                                                                           
                                                                                                                                
REPRESENTATIVE TARR agreed to do so.                                                                                            
                                                                                                                                
1:50:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  removed his objection  to Amendment 15.   There                                                               
being  no  further  objection,  Amendment  15,  as  amended,  was                                                               
adopted.                                                                                                                        
                                                                                                                                
1:51:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE   moved  to  adopt  Amendment   16,  labeled  28-                                                               
GS2806\I.A.86, Nauman/Bullock, 4/4/14, which read:                                                                              
                                                                                                                                
     Page 4, line 21:                                                                                                           
          Delete "shall"                                                                                                        
          Insert "may"                                                                                                          
                                                                                                                                
     Page 4, line 22, following "The":                                                                                          
          Insert "board may appoint a separate program                                                                          
     director  for  an  in-state  natural  gas  pipeline  as                                                                    
     described in  the July 1,  2011, project  plan prepared                                                                    
     under former AS 38.34.040  and defined in AS 31.25.390.                                                                    
     A"                                                                                                                         
                                                                                                                                
     Page 4, line 24:                                                                                                           
          Delete "the board and"                                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER objected for discussion purposes.                                                                         
                                                                                                                                
CO-CHAIR FEIGE explained the purpose  of Amendment 16 is to allow                                                               
the  Alaska Gasline  Development  Corporation  (AGDC) to  appoint                                                               
separate  program  directors for  the  in-state  project and  the                                                               
Alaska LNG Project.                                                                                                             
                                                                                                                                
1:52:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  said the  issue on  deck is  regarding the                                                               
authority  of the  board of  directors to  manage the  affairs of                                                               
AGDC and  not violate  an appropriate  chain of  business command                                                               
within  the same  organization.   There is  "double-breasting" of                                                               
AGDC to  work on  both the  in-state Alaska  Stand-Alone Pipeline                                                               
(ASAP) and the Alaska LNG Project.   Amendment 16 allows the AGDC                                                               
board, within  its existing corporate authority,  the latitude to                                                               
appoint a separate program director  for the in-state natural gas                                                               
pipeline,  as well  as  a  program director  for  the Alaska  LNG                                                               
Project.    Amendment 16  is  a  clarifying amendment  to  ensure                                                               
nothing  is cross-wired  within AGDC  and to  give the  board the                                                               
latitude it  needs to have  the best  and the most  qualified and                                                               
most appropriate  personnel dedicated to each  individual project                                                               
while  respecting  the  corporate  organization  that  the  board                                                               
establishes for AGDC as a whole.                                                                                                
                                                                                                                                
1:54:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI asked  how it  will work  on the  ground                                                               
level  with  two different  program  directors  dealing with  two                                                               
separate activities  for a  board that has  direction to  do both                                                               
projects.                                                                                                                       
                                                                                                                                
MR. PAWLOWSKI  answered that Representative  Hawker appropriately                                                               
described the  separation that is  attempted for  the corporation                                                               
to  take on  both of  these efforts;  it is  up to  the board  to                                                               
maintain  the   appropriate  separation.    Amendment   16  gives                                                               
permissive ability for  the board to set up  program directors on                                                               
the two  different projects reporting  to the  executive director                                                               
as part of the normal operation  of the corporation.  It provides                                                               
flexibility  for the  corporation  to manage  two very  important                                                               
efforts for the state that the corporation is tasked with.                                                                      
                                                                                                                                
1:55:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE pointed  out that, unamended, page 4,  line 21, of                                                               
the bill  only says that the  AGDC board shall appoint  a program                                                               
director  for the  Alaska LNG  Project.   Currently, there  is no                                                               
program  director  for  an  in-state  pipeline.    The  executive                                                               
director is to  supervise the operations of AGDC  and is expected                                                               
to  be able  to  supervise  both projects.    It  makes sense  to                                                               
provide the  opportunity to  have program  directors for  each of                                                               
those projects.  Those program  directors are dealing with a pool                                                               
of specialists within  AGDC that, as required, are  able to shift                                                               
from  one project  to another.   The  reason for  that is  simply                                                               
economy of scale  and keeping the expertise that  applies to both                                                               
projects  available  in one  particular  corporate  entity.   The                                                               
board,  in conjunction  with the  executive director,  would hire                                                               
that program  director and that  person would then report  to the                                                               
executive director so  there would be a clear  and distinct chain                                                               
of command.                                                                                                                     
                                                                                                                                
REPRESENTATIVE KAWASAKI said that answers his question.                                                                         
                                                                                                                                
1:57:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER removed his objection to Amendment 16.                                                                    
There being no further objection, Amendment 16 was adopted.                                                                     
                                                                                                                                
1:58:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE withdrew Amendment 5, which was offered and set                                                                  
aside on 4/4/14.  He said the committee addressed the concerns                                                                  
within Amendment 5 through an amendment passed earlier today.                                                                   
                                                                                                                                
1:58:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER withdrew Amendments 6 and 7, [which were                                                                       
offered and set aside on 4/4/14], with the intent that he will                                                                  
bring them back at a later time under different numbers.                                                                        
                                                                                                                                
The committee took an at-ease from 1:59 p.m. to 2:01 p.m.                                                                       
                                                                                                                                
2:01:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER moved to adopt Amendment 17, labeled 28-                                                                       
GS2806\I.A.83, Nauman/Bullock, 4/4/14, which read:                                                                              
                                                                                                                                
     Page 55, following line 30:                                                                                                
     Insert a new bill section to read:                                                                                         
        "*  Sec. 61.  The  uncodified law  of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          LEGISLATIVE BRIEFINGS. Before the first flow of                                                                       
     gas  in a  North  Slope natural  gas project  developed                                                                    
     under the  authority of  this Act,  the parties  to the                                                                    
     project  shall, at  least once  each calendar  quarter,                                                                    
     provide    briefings    to   interested    legislators,                                                                    
     legislative staff,  and legislative consultants  on the                                                                    
     progress  of   a  North   Slope  natural   gas  project                                                                    
     developed under the authority of  this Act.  A briefing                                                                    
     under  this section  must be  accompanied by  a written                                                                    
     report provided by the  Department of Natural Resources                                                                    
     of the  amount of money  the state may be  obligated to                                                                    
     pay a third party under  an agreement or contract under                                                                    
     AS 38.05.020(b)(10) or  (11) if  a North  Slope natural                                                                    
     gas project is terminated before  the first flow of gas                                                                    
     in the project."                                                                                                           
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62"                                                                                                           
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
CO-CHAIR FEIGE objected for purposes of discussion.                                                                             
                                                                                                                                
2:02:11 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER explained  Amendment 17 is a  revised version of                                                               
Amendment 6,  which the  administration had  previously expressed                                                               
some  concerns about.   First,  Amendment  17, page  1, line  10,                                                               
makes it clear the report is  to be provided by the Department of                                                               
Natural Resources.   Second, Amendment 17, page 1,  line 11, uses                                                               
the word "obligated" rather than  "liable".  Third, Amendment 17,                                                               
page 1, line 12, specifies  the report must include payments that                                                               
the  state is  obligated  to pay  as a  result  of the  precedent                                                               
agreement  or  a  firm transportation  services  agreement.    He                                                               
offered  his hope  that these  three  clarifications address  the                                                               
administration's concerns.                                                                                                      
                                                                                                                                
MR. PAWLOWSKI offered his belief  that this language provides the                                                               
clarity the administration was looking  for to fulfill the intent                                                               
of offering the amendment.                                                                                                      
                                                                                                                                
2:03:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  said  he  just heard  that  Amendment  17                                                               
provides  clarity  of intent,  but  he  did  not hear  a  ringing                                                               
endorsement of  the amendment per  se.  He expressed  his concern                                                               
with Amendment 17, saying the  legislature or committee co-chairs                                                               
can call a committee meeting any  time briefings on a project are                                                               
wanted and can  bring anyone before the committee  for a briefing                                                               
of any scope.  Amendment 17  would place into uncodified law that                                                               
"the parties  to the project  shall, at least once  each calendar                                                               
quarter ...."   The  parties to  this project  are some  level of                                                               
subsidiary  organization  within   the  larger  organizations  of                                                               
ConocoPhillips,  BP,  ExxonMobil,   some  level  of  organization                                                               
within AGDC,  and some level  of organization  within TransCanada                                                               
or a  TransCanada subsidiary.   If elsewhere in statute  there is                                                               
established a  public buy-in  process, the public  is a  party to                                                               
the project  and will need  to be  brought into that  briefing by                                                               
this  definition.   Amendment 17  states the  obvious; it  is not                                                               
needed in  uncodified law in  order to allow the  legislature any                                                               
improved  access to  information,  the parties,  or any  briefing                                                               
data that  might be made  available in such  hearings.  It  is an                                                               
answer looking for a problem and that problem does not exist.                                                                   
                                                                                                                                
2:06:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   SADDLER,  in   response  to   Representative  Hawker's                                                               
concerns, said he thinks the  public has a tremendous interest in                                                               
this project.  He related  there are lingering concerns about the                                                               
amount of reimbursement to TransCanada  that the state has run up                                                               
in  previous  versions.   It  is  important  to give  the  public                                                               
reassurance that  there will be  in uncodified law  an obligation                                                               
to have  meetings at  least quarterly  to provide  information to                                                               
let the  public know how  high that tab  is running.   Nothing in                                                               
Amendment 17  says it is  not possible to have  whatever meetings                                                               
of the parties for confidential  briefings to the legislature, as                                                               
provided for in other amendments,  and to have a separate meeting                                                               
available to the public that  makes that information available to                                                               
the public.  He conceded it is  a bit of belt and suspenders, but                                                               
said it is  important enough to give the  public reassurance that                                                               
this is "going to" happen, not just "may" happen.                                                                               
                                                                                                                                
2:06:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   raised  the  relationship   between  the                                                               
confidential briefings  and the  provision in  Amendment 17.   He                                                               
pointed out that the sponsor's  intention in Amendment 17 is that                                                               
these  will be  public briefings,  so the  public can  be brought                                                               
along in  the process,  not just  confidential hearings  with the                                                               
legislature.                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER confirmed the aforementioned is correct.                                                                       
                                                                                                                                
2:07:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR supported the  sponsor's intent because it is                                                               
with the public in mind.  She  said she has been hearing the same                                                               
concerns from  her constituents about costs  and what commitments                                                               
the state  is making.   She inquired whether  quarterly briefings                                                               
would be hard to meet or would twice yearly be sufficient.                                                                      
                                                                                                                                
MR. PAWLOWSKI agreed the timing is  something to think about.  He                                                               
pointed  out that  the Heads  of  Agreement, page  9, includes  a                                                               
commitment by the Alaska LNG  parties, during the Pre-FEED phase,                                                               
to   provide  regular   Alaska   LNG  Project   updates  to   the                                                               
administration,  the Alaska  State Legislature,  and the  public.                                                               
He  deferred to  the Department  of Natural  Resources to  answer                                                               
whether the  report is  a reasonable  expectation, given  it will                                                               
depend on accrual  of work plan and budgets and  what is actually                                                               
going on within the venture.                                                                                                    
                                                                                                                                
2:09:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE   requested  clarification  from   the  amendment                                                               
sponsor regarding "the  parties to the project" on line  6 of the                                                               
amendment.   He  noted there  are several  different corporations                                                               
individually that  all comprise the  parties to the project.   He                                                               
inquired  whether the  sponsor's intent  is that  each individual                                                               
company shall give  an individual briefing or whether  there be a                                                               
collective  briefing  delivered  by  whoever  is  running  public                                                               
affairs for the project.                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER  responded there are three  different parties --                                                               
the producers, the State of  Alaska, and TransCanada.  His intent                                                               
is for all five of those  parties.  However, the drafters did not                                                               
see fit  to define parties.   Each of  the producers has  its own                                                               
pipe within a pipe and its  own individual interests, so it would                                                               
be  appropriate for  each  of  them to  be  participants in  that                                                               
briefing.                                                                                                                       
                                                                                                                                
CO-CHAIR FEIGE  understood the sponsor to  be saying participants                                                               
in the  briefing, but not  necessarily five  different briefings;                                                               
that it would be one briefing  with representation by each of the                                                               
parties involved.                                                                                                               
                                                                                                                                
CO-CHAIR SADDLER replied correct.                                                                                               
                                                                                                                                
CO-CHAIR  FEIGE  requested  clarification regarding  the  written                                                               
report provided  by DNR that  begins on  line 9 of  Amendment 17.                                                               
He  presumed the  sponsor's  intent is  that  the written  report                                                               
would be publically distributed on a wide basis.                                                                                
                                                                                                                                
CO-CHAIR  SADDLER answered  his intent  is for  the report  to be                                                               
publically available,  but there is  no provision for  mailing it                                                               
to everybody in Alaska.   Making it available publically presumes                                                               
Internet publication.                                                                                                           
                                                                                                                                
2:11:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI, regarding the  issue of parties, pointed                                                               
out that this  is being thought about in terms  of the big Alaska                                                               
LNG Project.  However, under  the bill, there is also instruction                                                               
for perhaps an  in-state gasline.  Thus, his  question relates to                                                               
the definition  of project  and whether  one or  both of  the two                                                               
projects are being included [in the amendment].                                                                                 
                                                                                                                                
CO-CHAIR  SADDLER appreciated  the question,  saying he  suspects                                                               
the extent that  AGDC is involved in the North  Slope natural gas                                                               
project  development through  this  act, means  that, yes,  AGDC,                                                               
would  need to  be included  in  those parties  and he  therefore                                                               
stands corrected.                                                                                                               
                                                                                                                                
2:12:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE asked  whether a North Slope  natural gas project,                                                               
by definition, is either/or.                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI responded he does not know.                                                                             
                                                                                                                                
MR. PAWLOWSKI offered  his belief that a North  Slope natural gas                                                               
project definition that is linked  to AS 38.05.020(b)(10) or (11)                                                               
would include  either project.   He  pointed out  that this  is a                                                               
report by  DNR, which is  incurring the obligation, and  AGDC has                                                               
actually separate  work that it  does for outreach  and therefore                                                               
no nexus  with DNR in the  incurrence of an obligation  on behalf                                                               
of  the state.    This  is why,  in  working  with the  amendment                                                               
sponsor,  DNR was  chosen --  to  target very  clearly where  the                                                               
obligation is coming from to be reported.                                                                                       
                                                                                                                                
2:13:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI said when he  reads Amendment 17 he has a                                                               
question of who the  parties are; he knows it is  the HOA and the                                                               
MOU  that are  being  talked about  in  terms of  the  bill.   He                                                               
inquired whether  "the project" includes the  small diameter, in-                                                               
state gasline that is currently being developed.                                                                                
                                                                                                                                
MR. PAWLOWSKI  noted the  reference to  "North Slope  natural gas                                                               
project" is in CSSB 138(FIN) am,  page 20, lines 6-8, which state                                                               
that it  "means a project to  produce natural gas from  state oil                                                               
and  gas and  gas  only  leases that  include  land  north of  68                                                               
degrees North latitude for transport  in a gaseous state from the                                                               
North Slope".   At this stage,  he continued, AGDC has  not asked                                                               
for,  or   incurred  to  his  knowledge,   any  agreements  under                                                               
AS 38.05.020(b)(10) or (11)  because those do not exist  yet.  In                                                               
the event  that AGDC does  start to enter into  those agreements,                                                               
it  may  start  to  bring  in an  alternative  project,  but  his                                                               
interpretation is  that that would  be a world where  the project                                                               
itself is different.                                                                                                            
                                                                                                                                
REPRESENTATIVE  KAWASAKI  understood  "the project  conceived  in                                                               
this"  is  the  big  Alaska   LNG  proposal  and  not  any  other                                                               
alternative project.                                                                                                            
                                                                                                                                
MR. PAWLOWSKI  replied that his  interpretation of  the sponsor's                                                               
intent, and what the language reflects,  is that it is limited at                                                               
this stage.   He added  he was just trying  to point out  that if                                                               
projects change, it may become relevant.                                                                                        
                                                                                                                                
CO-CHAIR SADDLER confirmed  that [Mr. Pawlowski's interpretation]                                                               
is his intent.                                                                                                                  
                                                                                                                                
2:15:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  noted it  was  mentioned  that under  the                                                               
Heads  of Agreement  there  are regular  reports.   Amendment  17                                                               
specifies  quarterly.    He inquired  whether  quarterly  reports                                                               
would  be  a  burden  or  whether  the  HOA  will  fit  into  the                                                               
requirements as long as the reports are done.                                                                                   
                                                                                                                                
MR. PAWLOWSKI answered  it is important to be  very specific with                                                               
the language in this context  because reports are always a burden                                                               
to the  group preparing the  report.   As he reads  the language,                                                               
Amendment  17   describes  briefings.     To  him,   that  sounds                                                               
consistent or  closely consistent with  the commitment on  page 9                                                               
of the HOA, which is for updates.   The report by DNR is separate                                                               
within  this section  and  that is  what  the administration  was                                                               
really looking at  with the sponsor.  In calling  for a report it                                                               
needs  to   be  clear  whose   responsibility  it  is   and  what                                                               
specifically is to be articulated in the report.                                                                                
                                                                                                                                
2:16:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  whether  Mr.  Pawlowski  sees  the                                                               
briefings required by  Amendment 17 as being  burdensome, or more                                                               
burdensome, or  would quarterly briefings suffice  and coordinate                                                               
with the HOA.                                                                                                                   
                                                                                                                                
MR. PAWLOWSKI responded  the administration has not  gone back to                                                               
the  parties to  the Heads  of  Agreement to  define the  regular                                                               
updates and the  schedule around those updates.   He assumed that                                                               
in certain circumstances the updates  may be more than quarterly,                                                               
as it could  depend on the progress in the  project; for example,                                                               
progress  on an  export license  or engagement  with the  Federal                                                               
Energy Regulatory Commission (FERC).   He said the administration                                                               
would want to  talk to the partners to the  HOA about the burdens                                                               
of  timing around  that, but  he just  wanted to  point out  that                                                               
there  was a  commitment in  the HOA  to regular  updates by  the                                                               
project for the public, the legislature, and the administration.                                                                
                                                                                                                                
CO-CHAIR SADDLER  stated that,  certainly, the  intent is  to put                                                               
more  teeth into  the agreement  than the  HOA requiring  regular                                                               
meetings.   Regular could  mean every year,  twice a  year, every                                                               
quarter,  or  every month.    Given  the  intense nature  of  the                                                               
negotiations that will  be ongoing for the next year  and a half,                                                               
quarterly is not  too onerous.  Further, it is  not his intent to                                                               
dictate  the exact  content  of what  those  briefings should  be                                                               
other  than the  specificity of  requiring DNR  to report  on how                                                               
much the state's obligation financially  might be to TransCanada.                                                               
The content, format,  and duration of the  briefings are entirely                                                               
up  to the  parties and  would  be complimentary  to the  regular                                                               
reports envisioned in the HOA.                                                                                                  
                                                                                                                                
2:18:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR, in  regard to  Amendment 17  possibly being                                                               
problematic, inquired whether Mr.  Pawlowski thinks discussion in                                                               
this regard could happen prior to  a time when there would not be                                                               
an opportunity to address it.                                                                                                   
                                                                                                                                
MR.  PAWLOWSKI   replied  there  are   a  couple  of   ways  [the                                                               
administration] engages with the Alaska  LNG Project parties.  In                                                               
the  legislative  process,  that  has  been  through  the  public                                                               
hearings.   They  have come  to the  table and  testified.   If a                                                               
provision like  this went into  the legislation, they  would have                                                               
an opportunity to  talk about it.  Conversations  around the bill                                                               
have been kept to when provisions specifically go in.                                                                           
                                                                                                                                
2:19:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER maintained his objection to Amendment 17.                                                                 
                                                                                                                                
2:19:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON remarked that quarterly  seems too much                                                               
and perhaps  three times a  year would be  better.  She  moved to                                                               
adopt Amendment 1 to Amendment 17, which would:                                                                                 
                                                                                                                                
     Line 7, before "provide":                                                                                                  
          Delete "each calendar quarter,"                                                                                       
          Insert "every four months,"                                                                                           
                                                                                                                                
CO-CHAIR SADDLER  objected, saying he proposed  quarterly because                                                               
that is a standard frequency  of business activities.  Every four                                                               
months is a strange "dipsy-doodle."   There is enough negotiation                                                               
that will be  ongoing so that every quarter is  not too frequent.                                                               
He requested the administration's perspective.                                                                                  
                                                                                                                                
COMMISSIONER BALASH answered the  rationale in terms of financial                                                               
reporting  makes sense  with  regard to  the  obligation for  DNR                                                               
providing a written report.  In  terms of providing a briefing, a                                                               
meeting, to  interested legislators and  staff, the cycle  of the                                                               
year needs  to be considered.   There is  the intense 90  days of                                                               
the legislature  in Juneau and  that would  make a lot  of sense.                                                               
But during  the interim, would those  meetings/briefings occur in                                                               
Anchorage?    Would  that  require   travel  for  those  who  are                                                               
interested or would they watch on  television?  If a briefing was                                                               
done during session,  how many interim briefings  would there be?                                                               
How frequently would they occur?   The last thing anyone wants to                                                               
see is briefings  at which very few legislators or  staff show up                                                               
because  they happen  so frequently.   He  calculated that  under                                                               
Amendment 1 to Amendment 17,  two briefings would be given during                                                               
the interim and one briefing during the session.                                                                                
                                                                                                                                
2:23:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON noted that Amendment  17 says "at least" so                                                               
if the  provision is  for at  least three  times a  year, nothing                                                               
would prevent more  frequent meetings.  He  therefore offered his                                                               
support for  Amendment 1  to Amendment 17  because it  serves the                                                               
purpose of making the material available in a timely fashion.                                                                   
                                                                                                                                
2:24:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR pointed  out that  the enabling  legislation                                                               
has  fiscal notes  and that  next year  there will  be additional                                                               
pieces  of legislation.   Briefings  about financial  commitments                                                               
will  be  necessary  for consideration  of  legislation  and  the                                                               
appropriation necessary  should that  legislation pass.   Because                                                               
legislative  appropriations would  need  to be  made, even  twice                                                               
yearly [briefings] should be sufficient, she concluded.                                                                         
                                                                                                                                
COMMISSIONER BALASH  said he  thinks Representative  Tarr's point                                                               
is a good one.  He added he  is pleased with the language on line                                                               
11 of Amendment 17 which says  "may be obligated" because not all                                                               
of  the specifics  of  the agreements,  and  how often  financial                                                               
information is reported back from  the venture to the transporter                                                               
and ultimately  the agencies,  have yet been  put down  on paper.                                                               
It may be that  estimates will need to be done  based on the last                                                               
bit of information  that was had and there  might not necessarily                                                               
be up-to-date, real-time numbers in terms of cash calls.                                                                        
                                                                                                                                
2:26:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  said  he had  envisioned  that  the  quarterly                                                               
frequency might be the most  advantageous, but if things have not                                                               
yet been  nailed down  then every  four months  would not  be any                                                               
diminution of  the effort and  intent of the amendment  to ensure                                                               
that information  is available  to the public.   He  withdrew his                                                               
objection to Amendment 1 to Amendment 17.                                                                                       
                                                                                                                                
2:27:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  stated  that  under  Amendment  1  to                                                               
Amendment  17, the  words on  lines 6-7  of "at  least once  each                                                               
calendar quarter" would be deleted  and replaced with "once every                                                               
four months".                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SEATON objected  [for discussion  purposes].   He                                                               
said "at least" should be left in  the language so there is not a                                                               
problem with reporting more often.                                                                                              
                                                                                                                                
REPRESENTATIVE P.  WILSON concurred  and restated Amendment  1 to                                                               
Amendment 17, saying the last word  on line 6 and the first three                                                               
words on  line 7 would be  deleted.  Inserted would  be the words                                                               
"every four months".  Thus lines  6-7 would read, "the parties to                                                               
the project shall, at least  every four months, provide briefings                                                               
to interested legislators ...."                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  removed  his objection  to  the  restated                                                               
amendment to  the amendment.   There being no  further objection,                                                               
Amendment 1 to Amendment 17 was adopted.                                                                                        
                                                                                                                                
2:29:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER removed  his  objection  to Amendment  17.                                                               
There being no  further objection, Amendment 17,  as amended, was                                                               
adopted.                                                                                                                        
                                                                                                                                
2:30:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  moved  to  adopt  Amendment  18,  labeled  28-                                                               
GS2806\I.A.84, Bullock, 4/4/14, which read:                                                                                     
                                                                                                                                
     Page 53, following line 14:                                                                                                
     Insert a new bill section to read:                                                                                         
         "* Sec. 58. The uncodified law of the State of                                                                     
     Alaska is amended by adding a new section to read:                                                                         
          AGREEMENTS   AND   CONTRACTS   RELATING   TO   THE                                                                    
     TRANSPORTATION  OF NATURAL  GAS.  (a)  An agreement  or                                                                    
     contract entered into by the  state or an agency of the                                                                    
     state  for the  transportation of  natural gas  may not                                                                    
     allow a  transporter to have  an option  to participate                                                                    
     in  an   in-state  natural  gas  pipeline   project  as                                                                    
     described  in  AS 31.25.005(4)   that  is  designed  to                                                                    
     transport more  than 2,000,000,000 cubic feet  of North                                                                    
     Slope natural gas a day.                                                                                                   
          (b)  In this section, "transporter" means a                                                                           
     person  providing gas  treatment  plant processing  and                                                                    
     natural  gas  transportation  services in  natural  gas                                                                    
     pipelines   and  gas   transmission   lines  that   are                                                                    
     components of an Alaska  liquefied natural gas project,                                                                    
     as that term is  defined in AS 31.25.390(7), enacted by                                                                    
     sec. 12 of this Act."                                                                                                      
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62"                                                                                                           
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON objected for discussion purposes.                                                                         
                                                                                                                                
2:30:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER explained  the  intent of  Amendment  18 is  to                                                               
ensure  that the  provisions to  allow TransCanada  to reenter  a                                                               
deal  for a  natural gas  pipeline project  in Alaska  - what  is                                                               
called the  five-year back-in or  the five-year hook -  would not                                                               
extend to  the right for  TransCanada to reintroduce  itself into                                                               
what  has  been  described  as the  Alaska  Stand-Alone  Pipeline                                                               
(ASAP), the  smaller diameter line.   The question of  what would                                                               
constitute  a   substantially  similar   project  has   not  been                                                               
thoroughly defined  to his satisfaction.   There was  some effort                                                               
to  get that  clear definition,  but  having not  yet seen  that,                                                               
Amendment  18 seeks  to  draw the  line at  the  daily volume  of                                                               
2 billion  cubic  feet   per  day  of  natural   gas,  such  that                                                               
TransCanada would  not have a  right to  back-in to a  deal under                                                               
AS 35.25.005(4) that  was smaller than  2 billion cubic  feet per                                                               
day.  Subsection (b) clarifies the definition of "transporter."                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  pointed out  that page  9 of  Amendment 18                                                               
states "designed to transport 'more' than ...."                                                                                 
                                                                                                                                
REPRESENTATIVE TARR said she thinks it should say "less" than.                                                                  
                                                                                                                                
2:32:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER concurred  and moved  to adopt  Amendment 1  to                                                               
Amendment 18, which would:                                                                                                      
                                                                                                                                
     Page 1, line 9, after "transport":                                                                                         
          Delete "more"                                                                                                         
          Insert "less"                                                                                                         
                                                                                                                                
There  being  no  objection,  Amendment 1  to  Amendment  18  was                                                               
adopted.                                                                                                                        
                                                                                                                                
2:33:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  requested the  administration to  speak to                                                               
Amendment 18.                                                                                                                   
                                                                                                                                
COMMISSIONER  BALASH  responded  that   moving  to  a  volumetric                                                               
limitation triggers  a reaction along  the lines of "oh  my gosh"                                                               
due to  the experience with  the 500  million cubic feet  per day                                                               
limitation that  had been  in the  Alaska Gasline  Inducement Act                                                               
that a  number of folks  stubbed their toe  over.  He  called the                                                               
committee's attention to line 8  and the specific reference of AS                                                               
31.25.005(4), saying the  kind of project described  there is one                                                               
which would  not have liquefaction  powers for AGDC.   This leads                                                               
to the  question of how  to get to 2  billion cubic feet  per day                                                               
without having  a liquefaction component  to the project.   Maybe                                                               
there will  be some other industrial  use or load along  the way,                                                               
but the  administration does  take some comfort  in that  line of                                                               
demarcation of  AS 31.25.005(4) because of  that distinction with                                                               
regard to liquefaction rather than a specific volume.                                                                           
                                                                                                                                
2:35:19 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER recalled that earlier  in the testimony, several                                                               
questions  were   heard  about  what   would  be  defined   as  a                                                               
substantially  similar  line.    At that  time,  willingness  was                                                               
expressed by Mr. Balash to accept  someone driving in a stake and                                                               
saying this is  the bright line.  Co-Chair  Saddler asked whether                                                               
the  administration  has,  or  is working  on,  a  definition  of                                                               
substantially similar or  whether there is a  better mechanism to                                                               
drive a  stake someplace to draw  that bright line.   This is his                                                               
effort to do so.                                                                                                                
                                                                                                                                
COMMISSIONER BALASH replied that  yesterday's feedback was to tie                                                               
the configuration  of the project  referenced in  AS 31.25.005(4)                                                               
to the  current plan that is  in place.  The  statutory reference                                                               
of AS 31.25.005(4)  goes to describe the plan  developed in 2011,                                                               
but then  allows it  to be  updated.  It  has been  updated since                                                               
2011 and  it is known what  ASAP is today, and  everybody agrees,                                                               
including TransCanada, that TransCanada  is not trying to back-in                                                               
to the  ASAP Project.  The  question is just how  much definition                                                               
is wanted here  and he thinks everyone would agree  that the ASAP                                                               
plan that the AGDC board and  staff are pursuing right now is not                                                               
substantially similar.   A  back-in right  would not  occur until                                                               
getting  to the  firm transportation  services agreement  (FTSA),                                                               
and whatever  back-in right at  whatever point in time  would not                                                               
give TransCanada a  right of entry to.  The  feedback provided by                                                               
the administration  yesterday was an understanding  of the desire                                                               
to try and get more specific.                                                                                                   
                                                                                                                                
2:37:51 PM                                                                                                                    
                                                                                                                                
MR. FAUSKE  added that  the state  is limited  under AGIA  at 500                                                               
million  cubic feet  [per day]  and unless  that limitation  goes                                                               
away, AGDC  is designing  everything to  500 million  cubic feet.                                                               
He understood Amendment  18 is a look into the  future as to what                                                               
potentially might  happen.  Discussion  was had  with TransCanada                                                               
and others as  to what significantly similar means.   Some of the                                                               
folks in  the room had concerns  as to the legalization  of that.                                                               
He said he does  not know if the right answer  is 2 billion cubic                                                               
feet.   There  have been  approaches to  AGDC from  all kinds  of                                                               
folks in a variety of ways  and AGDC remains committed to ASAP as                                                               
well as to making  the Alaska LNG Project work.  It  may not be a                                                               
bad idea  to have something  out in  the future that  allows some                                                               
other type  of development  if, in fact,  the state's  dream does                                                               
not come true  and the project does not work.   He understood the                                                               
sentiment behind the amendment.   From what he heard yesterday he                                                               
thought there  was going to be  a side letter addressing  some of                                                               
these  issues  as  to  the   confusion  of  that  language.    He                                                               
apologized if he missed some clarification that was offered.                                                                    
                                                                                                                                
COMMISSIONER  BALASH said  a side  letter has  been put  together                                                               
with  TransCanada  regarding  the  timing  of  the  AGIA  license                                                               
termination.    TransCanada has  executed  it  and he  and  [DOR]                                                               
Commissioner  Rodell  will  do  so  promptly.    The  letter  was                                                               
delivered to them from TransCanada in signature form last night.                                                                
                                                                                                                                
2:40:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  understood Amendment  18 is  trying to  draw that                                                               
bright  line  over  what  is substantially  similar.    He  asked                                                               
whether it is  correct that changing the 2 billion  cubic feet of                                                               
North Slope natural gas a day  to 500 million cubic feet of North                                                               
Slope  natural gas  a day  would describe  the ASAP  line at  its                                                               
current stage of development today.                                                                                             
                                                                                                                                
MR. FAUSKE answered correct.                                                                                                    
                                                                                                                                
2:41:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  argued Amendment  18 gets  the legislature                                                               
into micromanaging the terms of the  MOU, and the MOU is integral                                                               
to  the   HOA.    It   is  known  that  in   complex  transaction                                                               
negotiations  like this,  for every  provision that  someone does                                                               
not like  in the  accord, something was  received that  is liked.                                                               
Legislators do not  know about the negotiations that  led to that                                                               
five-year  tag  provision, which  in  isolation  he has  concerns                                                               
about.   If legislators  push here  it is  unknown what  comes up                                                               
over there  with TransCanada,  especially given  that TransCanada                                                               
has the absolute  right to walk away from  this whole transaction                                                               
right  up  front if  this  enabling  legislation  is not  to  its                                                               
satisfaction.   He  said  he will  continue to  be  leery of  any                                                               
future amendments  that try to micromanage  parameters within the                                                               
MOU and overall transaction because  legislators are messing with                                                               
things  they  do  not  know about.    While  one  micromanagement                                                               
provision   might  be   okay,  an   aggregate  of   micromanaging                                                               
provisions  could result  in something  that  is unacceptable  to                                                               
TransCanada.  While legislators are  not here to be acceptable to                                                               
TransCanada, legislators are here to  move a project forward with                                                               
the  greatest possible  assurance and  clarity, and  he does  not                                                               
want to  cloud that.   The ASAP Project  today is limited  to 500                                                               
million cubic feet  a day.  He could easily  support Amendment 18                                                               
if the  2 billion  cubic feet  a day was  500 million  cubic feet                                                               
because there has  been testimony on the record  that 500 million                                                               
cubic  feet  would not  be  considered  substantially similar  by                                                               
TransCanada.   Why 2 billion  cubic feet?   Why not 1.75  or 2.25                                                               
billion?  A  line is being drawn in the  sand that members really                                                               
do not  know what they  are doing.   He therefore  maintained his                                                               
objection to Amendment 18.                                                                                                      
                                                                                                                                
2:44:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON  shared  the   sponsor's  sentiments.    He                                                               
suggested the  sponsor could hold on  to the amendment for  a day                                                               
or two until  more can be found  out.  Noting that  this has been                                                               
one of  his sticking points  all along, he  said he chose  not to                                                               
bring his own amendment when he found out about Amendment 18.                                                                   
                                                                                                                                
REPRESENTATIVE  SEATON   remarked  he   does  not   mind  putting                                                               
sideboards  on  negotiations  that   are  going  forward  if  the                                                               
legislature decides it  would not want to  approve something that                                                               
is beyond  that.  However, talking  about 2 billion cubic  feet a                                                               
day, when the existing one is  2.4 billion cubic feet a day, does                                                               
not seem helpful  and does not give a good  demarcation on things                                                               
that he believes would be substantially similar.                                                                                
                                                                                                                                
2:46:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR surmised  what  is being  suggested is  that                                                               
instead of  less than 2 billion  cubic feet a day,  the amendment                                                               
would say more than 500 million cubic feet a day.                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER  replied [the suggestion] is  less than 500                                                               
million [cubic feet a day].                                                                                                     
                                                                                                                                
CO-CHAIR FEIGE  pointed out 500 million  cubic feet a day  is the                                                               
current  size limitation  under  AGIA.   In  further response  to                                                               
Representative Tarr he said it  would be "less than" [500 million                                                               
cubic feet a day].                                                                                                              
                                                                                                                                
The committee took an at-ease from 2:47 p.m. to 3:00 p.m.                                                                       
                                                                                                                                
3:00:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE set aside Amendment 18, as amended.                                                                              
                                                                                                                                
3:00:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR moved  to adopt  Amendment  19, labeled  28-                                                               
GS2806\I.A.87, Nauman/Bullock, 4/4/14, which read:                                                                              
                                                                                                                                
     Page 47, line 15:                                                                                                          
          Delete "a new subsection"                                                                                             
          Insert "new subsections"                                                                                              
                                                                                                                                
     Page 47, line 23:                                                                                                          
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, line 1:                                                                                                           
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, lines 2 - 3:                                                                                                      
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, lines 8 - 9:                                                                                                      
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, line 17:                                                                                                          
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, line 18:                                                                                                          
          Delete "or gas"                                                                                                       
                                                                                                                                
     Page 48, following line 22:                                                                                                
          Insert a new subsection to read:                                                                                      
          "(i)  For purposes of (h) of this section, for a                                                                      
     lease or property  that produces both oil  and gas, the                                                                    
     portion of the                                                                                                             
               (1)  operating costs that are lease                                                                              
     expenditures  attributable to  oil incurred  to explore                                                                    
     for, develop,  or produce an  oil and gas deposit  is a                                                                    
     fraction the  numerator of which  is the  production of                                                                    
     oil  expressed  in  BTU   equivalent  barrels  and  the                                                                    
     denominator  of which  is the  total production  of oil                                                                    
     and gas expressed in BTU equivalent barrels; and                                                                           
               (2)      capital   costs   that   are   lease                                                                    
     expenditures  attributable to  oil incurred  to explore                                                                    
     for, develop,  or produce an  oil and gas deposit  is a                                                                    
     fraction  the numerator  of which  is the  total proven                                                                    
     reserves of oil  of the lease or  property expressed in                                                                    
     barrels  and  the denominator  of  which  is the  total                                                                    
     proven  reserves  of  oil  and  gas  of  the  lease  or                                                                    
     property expressed in BTU equivalent barrels."                                                                             
                                                                                                                                
CO-CHAIR FEIGE objected.                                                                                                        
                                                                                                                                
3:01:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR explained Amendment  19 replaces an amendment                                                               
[she  did not  offer]  labeled 28-GS2806\I.A.37,  Nauman/Bullock,                                                               
4/2/14.   The intent is similar,  but the language is  clearer at                                                               
the  suggestion  of  [the enalytica]  consultants.    Dealt  with                                                               
earlier today  was [Amendment 11],  related to oil and  gas lease                                                               
expenditures in which there was "or"  and "and".  Amendment 19 is                                                               
a further  clarification on what  would be deductible.   She said                                                               
her concern and the spirit of  Amendment 19 is that enalytica had                                                               
calculated that  if the gas  expenses are allowed to  be deducted                                                               
from  oil  taxes it  could  cost  [the state]  between  $250-$375                                                               
million a  year and it is  possible that it would  reduce oil tax                                                               
collections from  Point Thomson to close  to zero.  With  some of                                                               
the other modifications that have  been made, the state has found                                                               
itself with  bigger budget deficits than  perhaps anticipated and                                                               
[the question  is] whether  the state  can afford  to potentially                                                               
take a hit  of almost $400 million annually for  a four-year time                                                               
period, for a  cumulative amount of about $1.6 billion.   She did                                                               
not believe any  of this was modeled when [SB  21] was considered                                                               
last year because  it would not have been relevant  at that time,                                                               
so  there was  not  the opportunity  to  consider the  cumulative                                                               
impact.    Amendment 19,  page  1,  would  delete "or  gas";  but                                                               
regarding page 2, there would not  be a real ability to delineate                                                               
that  until such  time as  there  is gas  production.    So,  for                                                               
purposes  of  figuring  out  what would  be  deductible,  it  was                                                               
suggested [by  enalytica] that operating  costs be done  from the                                                               
production tax  because for operating  cost there  would actually                                                               
be oil  production, and that  capital cost would be  done against                                                               
the known reserves.                                                                                                             
                                                                                                                                
3:04:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE directed attention  to Amendment 11, which changed                                                               
the wording  in each  of the lines  [addressed by  Amendment 19].                                                               
As now  amended, he  pointed out, the  bill currently  reads "and                                                               
gas" rather than  "or gas".  He said the  drafters at Legislative                                                               
Legal and  Research Services will  make conforming  amendments as                                                               
appropriate, but he wants to make members are aware of this.                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON inquired whether  page 2, line 5, of the                                                               
amendment should read  "a fraction of the  numerator" rather than                                                               
"a fraction the numerator".                                                                                                     
                                                                                                                                
REPRESENTATIVE TARR replied she, too,  read that as a grammatical                                                               
error and said the drafters would fix that.                                                                                     
                                                                                                                                
CO-CHAIR FEIGE  disagreed, saying it reads  correctly because the                                                               
"gas deposit  is a fraction  the numerator of  which" - so  it is                                                               
talking about the ratio there.                                                                                                  
                                                                                                                                
REPRESENTATIVE TARR concurred.                                                                                                  
                                                                                                                                
3:06:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  asked whether the administration  has comments on                                                               
Amendment 19.                                                                                                                   
                                                                                                                                
MR.  PAWLOWSKI responded  this issue  has come  up in  just about                                                               
every committee and discussion around  the advancement of a North                                                               
Slope  natural gas  project.   Regarding the  statement that  the                                                               
effects of lease expenditures were  not modeled in the discussion                                                               
of  legislation last  year, he  would respectfully  point to  the                                                               
broad presentations that are posted  on both the administration's                                                               
web site  and the  Legislative Budget  and Audit  Committee's web                                                               
site  about the  impact of  lease expenditure,  specifically ones                                                               
that were  provided to this  committee of  the effect of  the old                                                               
tax system  which had  a much  higher tax  rate and  marginal tax                                                               
that has  a higher impact  on lease  expenditures than the  SB 21                                                               
flat 35 percent  rate.  This was seen in  the depictions of heavy                                                               
oil, of  some of  the unconventionals,  where the  state actually                                                               
had  negative  value for  each  barrel  produced because  of  the                                                               
effect of deducting in the  progressivity equation in the old tax                                                               
system.  That was resolved by moving to a flat 35 percent tax.                                                                  
                                                                                                                                
MR.  PAWLOWSKI continued,  stating  that the  idea of  separating                                                               
lease expenses  introduces an important policy  distortion to the                                                               
efforts to  move a  gasline forward.   He  noted he  will address                                                               
this  issue from  a  "30,000"  foot level,  which  is beyond  the                                                               
detail that the  Department of Revenue is concerned  about as far                                                               
as what expenditure is for gas or  is for oil.  The Point Thomson                                                               
settlement is  really where this  issue is coming from,  and this                                                               
settlement gives the lessees three  options to maintain the field                                                               
in its  entirety.  One option  is to build the  "cycling project"                                                               
and  recover the  hydrocarbons, which  at Point  Thomson directly                                                               
come out  as condensates in oil  from the gas production.   Under                                                               
his  interpretation of  Amendment 19,  the policy  call would  be                                                               
that  if Point  Thomson  were  to make  the  investments for  oil                                                               
production and to only produce  oil, the lease expenditures would                                                               
be deductible.   So long  as that gas was  being put back  in the                                                               
ground,  and   the  oil  was   being  produced,  all   the  lease                                                               
expenditures  would  be  deductible.     Therefore,  an  economic                                                               
incentive was  introduced for the  operators at Point  Thomson to                                                               
defer  gas production  simply to  maximize  the deductibility  of                                                               
lease  expenditures in  the production  tax system.   That,  as a                                                               
fundamental concern,  worries him  because Point Thomson  will be                                                               
producing  oil with  the  gas.   The  oil comes  out  of the  gas                                                               
cycling, so  when looking at  that option available in  the Point                                                               
Thomson  settlement, coupled  with  this policy  call, more  than                                                               
just the  economics of that  near-term reduction in  revenue must                                                               
be considered.   Also needing to  be looked at are  the economics                                                               
of the incremental oil production  that comes from the "expanding                                                               
cycling" and  the gas production that  comes to the state.   This                                                               
was part  of the  equation that  was put  into the  evaluation of                                                               
what the appropriate tax rate  was when the administration looked                                                               
at lease expenditures.  So,  from a just operational perspective,                                                               
but   more   importantly   from   a   policy   perspective,   the                                                               
administration would be  very concerned about a  move to separate                                                               
lease expenditures on  gas for the odd incentives  it may create,                                                               
which are things that were seen under the old tax system.                                                                       
                                                                                                                                
3:10:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER endorsed Mr.  Pawlowski's comments and said                                                               
[CSSB 138(FIN) am] creates  a new flat tax on gas  in the form of                                                               
a 13 percent  royalty-in-kind (RIK) for production taxes.   As he                                                               
mentioned earlier, there  has been give and there  has been take;                                                               
the  bill  before  the  committee is  carefully  balanced.    The                                                               
committee cannot  keep looking at  this just in the  places where                                                               
the state  gave; the committee must  also look at what  the state                                                               
is  taking away,  which in  this case  is an  upfront 13  percent                                                               
taking away of production from  the wellhead and the deduction of                                                               
costs against  that is  not being  allowed.  It  is a  gross tax.                                                               
But, in  that the state  is now going  to this blended  gross and                                                               
net tax  structure -  gross on  gas, net  on oil  - the  state is                                                               
still  allowing  those  expenses  to  get  deducted  against  oil                                                               
because otherwise,  for a fair  tax system, the state  would have                                                               
to allow  them to be taken  against the gross value  at which the                                                               
state is  taxing gas or  else the state  is just going  to strand                                                               
those costs and  tell industry that it wants  industry to develop                                                               
gas, but  industry does not get  the benefit of any  of the costs                                                               
that  are incurred  to  accomplish  that task.    That  is not  a                                                               
business incentive  and it  certainly is not  a policy  that [the                                                               
legislature] wants to be introducing into this statute.                                                                         
                                                                                                                                
3:12:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  recalled that legislators  visited Point                                                               
Thomson last fall.  He  requested elaboration on when those plans                                                               
of development  were made  and signed and  how current  the plans                                                               
are at this point.                                                                                                              
                                                                                                                                
COMMISSIONER BALASH answered  the work ongoing now  was first put                                                               
forward as  a plan of  development during the process  of dispute                                                               
and litigation  that occurred during the  timeframe of 2007-2008.                                                               
The litigation itself was resolved in  2012 and the work that has                                                               
been  ongoing since  has  certainly escalated.    Two wells  were                                                               
drilled prior  to the  final settlement.   In  actual development                                                               
there has  been the  installation of the  pads, the  airport, and                                                               
this winter's  installation of the  vertical support  members and                                                               
pipes.   A  tremendous amount  of activity  will be  taking place                                                               
this  summer  when  there  is  again open  water.    The  initial                                                               
production system plan was tabled in late 2007, early 2008.                                                                     
                                                                                                                                
3:14:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  supported Amendment  19, saying  he does                                                               
not know  whether it is  because of the Point  Thomson settlement                                                               
directly or other  factors, but that he certainly wants  to see a                                                               
gasline built.  The problem he  sees is trying to find nickels to                                                               
scrape  together to  finish the  state's operating  budget.   The                                                               
[Point Thomson  operators] ran the  numbers as early as  2007 and                                                               
have said  they want to monetize.   So, to essentially  give [the                                                               
Point Thomson operators] these expenditures  means that the State                                                               
of Alaska is going to be out a lot nickels.                                                                                     
                                                                                                                                
MR. PAWLOWSKI  responded that the  changes in SB 21  had negative                                                               
impact  on  the  financial  contributions of  the  state  to  the                                                               
operators  and other  working interest  owners at  Point Thomson.                                                               
The  State of  Alaska is  contributing less  to that  development                                                               
through the tax system today.                                                                                                   
                                                                                                                                
3:16:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI asked  whether it is being  said that the                                                               
ability to  give these  lease expenditure  deductions is  part of                                                               
that payment that is going to make the project go.                                                                              
                                                                                                                                
COMMISSIONER  BALASH  replied  it  is being  said  that  for  the                                                               
economics  of gas  to make  sense, the  cost associated  with gas                                                               
must be dealt with.  Those costs  cannot be stranded.  All of the                                                               
models that  [the administration]  and the companies  have looked                                                               
at assume  a healthy ongoing oil  business to carry the  costs of                                                               
the  fields  at Prudhoe  Bay  and  Point  Thomson.   If  the  gas                                                               
revenues and  investment numbers  are burdened  with the  cost of                                                               
maintaining Prudhoe Bay and Point  Thomson, those economics would                                                               
degrade and potentially degrade rapidly.   If those costs are not                                                               
accounted  somewhere and  the state  tries to  take its  share of                                                               
those costs and jam it to  the other sponsors, the state is going                                                               
to wind up in a different place, as will the other sponsors.                                                                    
                                                                                                                                
MR. PAWLOWSKI  added he does  not want to leave  uncontested that                                                               
the  deductibility  of  lease expenditures  is  somehow  a  trade                                                               
because  no one  in  the administration  who  worked through  the                                                               
issue sees it that way.   If lease expenditures are prohibited or                                                               
somehow  separated based  on  gas production,  there  will be  an                                                               
economic  incentive to  put gas  back in  the ground  rather than                                                               
produce that  gas to maximize  the lease  expenditures.  It  is a                                                               
distortion that gets introduced  into the decision making process                                                               
that upsets  what really should be  a sharing of the  cost to the                                                               
infrastructure  and, as  has been  done  in CSSB  138(FIN) am,  a                                                               
greater  share  of the  gas  taken  as  production that  is  then                                                               
disposed of  for revenue.   The policy calls  made in SB  21 were                                                               
not based on  a short-term view, but rather a  long-term view and                                                               
how these  things operate  over the long  term.   A fundamentally                                                               
similar policy call  in the long term is also  being made in CSSB                                                               
138(FIN) am with  the decision to allow lease  expenditures to be                                                               
deductible.                                                                                                                     
                                                                                                                                
3:19:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  inquired how  long the State  of Alaska  has been                                                               
offering  reimbursements for  lease expenditures  as part  of the                                                               
fiscal regime.                                                                                                                  
                                                                                                                                
MR. PAWLOWSKI offered his  understanding that lease expenditures,                                                               
and the  deduction for lease expenditures,  were first recognized                                                               
with  the passage  of the  production  profits tax  (PPT) in  the                                                               
transition from  a gross to a  net system.  They  were reaffirmed                                                               
in Alaska's Clear  and Equitable Share (ACES)  and were continued                                                               
in SB 21.                                                                                                                       
                                                                                                                                
CO-CHAIR FEIGE  surmised that if lease  expenditures were limited                                                               
oil-to-oil and  gas-to-gas under  Amendment 19, then  those lease                                                               
expenditures  on  infrastructure to  produce  gas  would only  be                                                               
deductible against gas actually flowing down the pipeline.                                                                      
                                                                                                                                
MR. PAWLOWSKI  said he  reads Amendment 19  as having  no process                                                               
for  carrying forward  expenditures, it  is not  in that  profit-                                                               
share  lease.   Lease expenditures  happen in  the year  they are                                                               
incurred.  The introduction on page  2, line 2, of the amendment,                                                               
describes "for  a lease  or property that  produces both  oil and                                                               
gas".  If the  gas is put back in the  ground to re-pressurize in                                                               
a  cycling project,  as will  be done  in the  initial production                                                               
system, the  field would only  be producing  oil.  That  would be                                                               
the  only product  severed from  the lease  and committed  at the                                                               
point of  production.  As  he interprets Amendment 19,  the lease                                                               
expenditures  in that  instance would  be applicable  against the                                                               
production  of oil  until  gas  is produced  and  then the  lease                                                               
expenditures would  be divided when  the lease is  producing both                                                               
oil and gas.                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE asked  whether the  lease  expenditures would  be                                                               
deferred or not able to be deducted at all.                                                                                     
                                                                                                                                
MR. PAWLOWSKI offered  his belief that the entirety  of the lease                                                               
expenditures would be deducted against  the oil production in any                                                               
event.                                                                                                                          
                                                                                                                                
3:21:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE inquired  whether  the legislature's  consultants                                                               
have anything they would like to add.                                                                                           
                                                                                                                                
JANAK  MAYER, Partner,  Energy  Consultant, enalytica,  responded                                                               
CSSB  138(FIN) am  proposes an  entirely gross  system of  tax on                                                               
gas.  The  costs are attributed separately to oil  and to gas, so                                                               
there is no ability to deduct  those expenditures; it is simply a                                                               
gross  system  that disregards  the  question  of upstream  costs                                                               
altogether for that gas.   Under Amendment 19, separation is done                                                               
by  saying  that  capital  cost  must be  separated  by  its  own                                                               
reserves  and operating  cost must  be  separated on  production;                                                               
therefore, he  would concur with  Mr. Pawlowski that  it provides                                                               
some incentive either  to postpone gas production or  at least to                                                               
maximize condensate recovery at Point  Thomson to ensure that the                                                               
maximum amount of liquids is  recovered to allow the maximum cost                                                               
deduction.   That may or  may not be  in the state's  interest as                                                               
much  of  that  is  determined   by  the  relative  pace  of  gas                                                               
production from  Point Thomson.   Whether  that is  ultimately in                                                               
the state's  interest is unknown until  much additional technical                                                               
work is  undertaken.   If they were  to be  separated, separating                                                               
them  on the  basis of  reserves  for upfront  capital costs  and                                                               
production for subsequent  operating costs is the only  way to do                                                               
it,  but he  would concur  with the  concern that  it does  put a                                                               
particular incentive on  a particular way of  producing the field                                                               
that may or  may not be optimal.   Overall, the test  is what the                                                               
total share is  that is coming to the state  from any tax system.                                                               
When  the  numbers  are  run  and  enalytica  looks  at  what  is                                                               
proposed, it seems a reasonable share as it is proposed.                                                                        
                                                                                                                                
3:23:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE posed  a scenario in which  gas condensate cycling                                                               
proves  not   to  be  economic   and  the  Alaska  Oil   and  Gas                                                               
Conservation  Commission allows  the Point  Thomson operators  to                                                               
blow down the field.  He  asked whether Amendment 19 would create                                                               
an obstacle  for a gas pipeline  to be filled with  Point Thomson                                                               
gas.                                                                                                                            
                                                                                                                                
MR. MAYER replied he would not go  so far as to say it creates an                                                               
obstacle, but  it would somewhat change  the incentives producers                                                               
face  when  looking  at  plans of  production  toward  trying  to                                                               
maximize recovery of condensates, possibly  at the expense of the                                                               
pace  of gas  production because  of the  ability to  write costs                                                               
against that  oil production if  that is included in  the initial                                                               
reserve estimate.                                                                                                               
                                                                                                                                
3:25:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  said that  that point  seems in  contrast to                                                               
what is being accomplished with  the enabling legislation and the                                                               
other two documents  that the state is moving forward  on.  There                                                               
may be  a brief window in  time when that would  potentially have                                                               
the aforementioned negative incentive,  she allowed, but it seems                                                               
that would be such  a limited period in time as to  not be a real                                                               
concern  because as  things  move forward,  some  of these  other                                                               
agreements and  commitments are  locked in as  to what  is coming                                                               
from Prudhoe Bay and Point Thomson.   Secondly, if the intent was                                                               
the  allowable deductions,  then it  would have  been cleaner  to                                                               
have an  ACES-style deduction of  an upfront  capital expenditure                                                               
reimbursement with a timeframe on it,  but now is not the time to                                                               
get into  that conversation.   Regarding the  negative incentive,                                                               
she inquired whether the time period would be brief.                                                                            
                                                                                                                                
MR.  PAWLOWSKI answered  it is  a fair  point and  the degree  to                                                               
which it  is or is not  an incentive is debatable  as the company                                                               
runs  the  numbers  for  its   particular  situation.    Alaska's                                                               
production tax is by the segment  -- the entire North Slope.  So,                                                               
one company's  particular view  of that  situation will  depend a                                                               
lot on the other activities it  has ongoing on the North Slope at                                                               
the time.  Regarding consistency  with the Heads of Agreement and                                                               
moving the  project forward  with the  fiscal structure  that has                                                               
been described, the question is whether  it would even get to the                                                               
aforementioned   described   agreements   coming  back   to   the                                                               
legislature for  advancement.  He  concurred with Mr.  Mayer that                                                               
in evaluating these things the  totality of the state's share and                                                               
the cash  the state receives  for disposition must be  looked at.                                                               
Additionally, there  are nuances in the  Point Thomson settlement                                                               
that may have adverse impacts  that the state has not necessarily                                                               
modeled for  going down this  road.  He deferred  to Commissioner                                                               
Balash to discuss those impacts in the settlement.                                                                              
                                                                                                                                
COMMISSIONER BALASH explained the  matter being referenced by Mr.                                                               
Pawlowski  has  to  do  with  field costs.    Because  of  timing                                                               
considerations  and where  Point  Thomson was  at  the time  that                                                               
there was  a settlement reached  on Prudhoe  Bay gas, there  is a                                                               
field  cost allowance  that  is  a product  of  a settlement  for                                                               
Prudhoe  Bay.   Because  Point  Thomson  has  the same  types  of                                                               
leases,  it is  likely  that an  argument would  be  made by  the                                                               
lessees  that  a  similar  cost  allowance  mechanism  should  be                                                               
included.    In  anticipation  of   some  of  these  things,  the                                                               
administration  struck  an  element   of  the  agreement  in  the                                                               
settlement that provides there will be  no claim for a field cost                                                               
allowance under  the terms of the  leases so long as  the state's                                                               
production  tax system  recognizes upstream  costs.   So, in  all                                                               
likelihood,  Amendment  19  would  trigger the  undoing  of  that                                                               
particular element  in the settlement  and provide an  avenue for                                                               
the  lessees to  then seek  that upstream  cost allowance  - that                                                               
field  cost allowance  -  that would  weigh  against the  state's                                                               
royalty in a negative manner.                                                                                                   
                                                                                                                                
3:29:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  said the  committee would not  be having                                                               
this conversation if gas was at  $15 per thousand cubic feet, but                                                               
that is  not the case  and the state  is challenged.   Alaska has                                                               
been an oil state  for a long time and is  now transitioning to a                                                               
gas state and  is trying to figure out how  these pieces all work                                                               
together.    He  asked  whether   there  are  examples  of  other                                                               
sovereigns that  do things  differently and do  not link  oil and                                                               
gas or when it comes to expenditures in the field.                                                                              
                                                                                                                                
MR. PAWLOWSKI  responded that  his general  observation is  if it                                                               
can  be  thought  of  then   there  is  probably  a  jurisdiction                                                               
somewhere in  the world that does  something similar to it.   The                                                               
diversity  of  oil  and  gas  tax regimes  around  the  world  is                                                               
mindboggling  when  getting into  the  specific  nuances in  each                                                               
instance.  He deferred to enalytica to provide an answer.                                                                       
                                                                                                                                
3:31:00 PM                                                                                                                    
                                                                                                                                
MR. MAYER said  he can think of regimes  that distinguish between                                                               
oil and gas  production from the perspective of  cost recovery in                                                               
a number  of ways.   In  production-sharing contracts  around the                                                               
world,  it is  not unusual  to see  both oil  and gas  treated as                                                               
production-sharing items  with the ability  to recover  costs but                                                               
to account  for them  separately and to  maintain a  separate oil                                                               
cost account  and a separate  gas cost  account.  There  are also                                                               
many  regimens that  may treat  them together  for cost  purposes                                                               
under a  production-sharing contract but then  have an additional                                                               
pure  gross  royalty  with  a  gross rate  on  the  gas  that  is                                                               
different from the  gross rate on the oil.   So, that is entirely                                                               
feasible to  do in terms  of international comparison and  is not                                                               
uncommon.   The questions  here are more  about specifics  of the                                                               
circumstance  -- whether  it be  the  overall nature  of what  is                                                               
proposed and  how [Amendment  19] might  change that  and whether                                                               
that is a question of  incentives for production of Point Thomson                                                               
or any other number of fields,  or the terms of the Point Thomson                                                               
settlement.                                                                                                                     
                                                                                                                                
NIKOS TSAFOS,  Partner, Energy Consultant, enalytica,  added that                                                               
when looking  at big gas  projects around  the world, one  of the                                                               
greatest  project facilitators  in terms  of the  projects moving                                                               
forward  is  having  liquids  with  the  gas.    One  project  in                                                               
Australia  started  the liquids  part  of  the project  first  to                                                               
generate revenue  to pay for the  gas later on, which  is in some                                                               
ways  similar  to Alaska.    In  terms  of  the tax  system,  the                                                               
standard practice is generally that  the economics of the oil and                                                               
liquids assist the development of  the gas, which is usually more                                                               
costly and less  economic.  From an  accounting perspective there                                                               
are different ways to do that.   Even in a place like Qatar where                                                               
gas  is cheap  to  produce, the  gas is  piggybacked  on the  oil                                                               
production, the condensate production,  to drive the economics of                                                               
the  projects.     Therefore  it  is   pretty  standard  practice                                                               
internationally to  have the  gas piggyback  on the  economics of                                                               
the oil to make the gas look like an attractive project.                                                                        
                                                                                                                                
3:33:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI   queried  whether  it  is   limited  to                                                               
production-sharing  countries  or  whether there  are  sovereigns                                                               
that do not adopt production-sharing agreements.                                                                                
                                                                                                                                
MR. MAYER responded that when  talking about deducting costs in a                                                               
fiscal  regime, typically  one  of two  things  is talked  about:                                                               
either  a  profit-based  taxation  system  or  production-sharing                                                               
contract.   At the moment, he  said, he cannot think  of examples                                                               
of profit-based taxation systems  where one distinguishes between                                                               
the two.   What is proposed  here by being a  profit-based system                                                               
on oil, but a gross system on  gas, is unusual, but makes a great                                                               
deal of sense for the purposes  that have been before in terms of                                                               
establishing a state gas share.   So, the only logical comparison                                                               
he  can  find  are  ones   in  the  world  of  production-sharing                                                               
contracts rather than the world  of profit-based tax systems.  In                                                               
further response,  Mr. Mayer  said profit-based  taxation systems                                                               
by  and large  tend to  be simple  uniform taxes  applied to  all                                                               
hydrocarbons without distinguishing between the two.                                                                            
                                                                                                                                
3:35:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR offered  her  understanding  that the  field                                                               
cost allowance  would typically not  be 100 percent of  the cost;                                                               
she presumed  there would be some  percentage or a cap.   Even if                                                               
the state  went to something  that could trigger  that provision,                                                               
the state  would probably negotiate  something that was  a little                                                               
less  costly  to the  state  than  100  percent.   She  requested                                                               
enalytica to comment in this regard.                                                                                            
                                                                                                                                
MR. MAYER deferred to Commissioner  Balash as someone who is more                                                               
familiar with the details of settlement negotiation.                                                                            
                                                                                                                                
COMMISSIONER BALASH  said the field  cost allowance  is expressed                                                               
as an amount of  money per unit of gas.  So,  yes, in that regard                                                               
a  "cap" could  be put  on it.   That  is something  that perhaps                                                               
could be  negotiated here and, yes,  that cost would be  borne by                                                               
the state's  royalty gas.   The question  would then be  what the                                                               
state is  going to  do about  its tax  gas.   If the  same charge                                                               
applied,  would it  be fixed?   Yes,  it would.   However,  there                                                               
would  still be  these costs  that from  the state's  perspective                                                               
look  like they  go away,  but they  will be  borne by  somebody.                                                               
They will burden  the economics of hydrocarbon  production on the                                                               
North Slope.  The state can  pretend it is doing something to cap                                                               
or limit  the costs,  but they  do not  go away.   If  a positive                                                               
outcome  is wanted  for  the overall  prospects  of this  project                                                               
moving  forward, what  is come  to in  the body  of the  Heads of                                                               
Agreement is a way to be  a partner in the overall project, where                                                               
the state is going  to pay its share of the costs.   If the state                                                               
wants  to move  away from  that,  if the  state is  going to  try                                                               
avoiding paying  its share of  the cost,  there then needs  to be                                                               
some fundamental re-thinking of things.                                                                                         
                                                                                                                                
3:37:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  recalled discussion  about the  state having                                                               
skin  in the  game but  said none  of those  talks included  this                                                               
potentially  $375  million  as  part  of that.    What  would  be                                                               
appropriated  this year  was looked  at, as  were other  decision                                                               
making points  and what financial commitments  would be necessary                                                               
through the  stage-gated approach.   She said she feels  this was                                                               
not  fully  considered as  part  of  the state's  commitment  and                                                               
perhaps  this should  have been  brought up  sooner.   Last year,                                                               
while doing reform, the theme  of incentivizing was that it would                                                               
only be  done based  on production,  whereas the  previous regime                                                               
allowed these  deductions for  capital costs.   Thus, it  has not                                                               
been  consistent in  her  mind  and she  is  concerned about  the                                                               
financial  impact  of that  on  an  ongoing  basis for  the  next                                                               
several years.                                                                                                                  
                                                                                                                                
CO-CHAIR FEIGE maintained his objection to Amendment 19.                                                                        
                                                                                                                                
3:39:36 PM                                                                                                                    
                                                                                                                                
A roll  call vote was  taken.  Representatives Tarr  and Kawasaki                                                               
voted  in favor  of  Amendment 19.    Representatives Seaton,  P.                                                               
Wilson,  Hawker,  Olson, Saddler,  and  Feige  voted against  it.                                                               
Therefore, Amendment 19 failed by a vote of 2-6.                                                                                
                                                                                                                                
3:40:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON moved to adopt Amendment 20, labeled 28-                                                                  
GS2806\A.65, Bullock, 4/3/14, which read:                                                                                       
                                                                                                                                
     Page 15, following line 30:                                                                                                
     Insert a new bill section to read:                                                                                         
        "*  Sec. 16.  AS 38.05 is  amended by  adding a  new                                                                
     section to read:                                                                                                           
          Sec. 38.05.023. Expansion of a North Slope                                                                          
     natural   gas  project.   An   agreement  or   contract                                                                  
     negotiated    under   AS 38.05.020(b)(11)    or   other                                                                    
     agreement or  contract in  which the  state is  a party                                                                    
     and that is  associated with a North  Slope natural gas                                                                    
     project  may  allow all  parties  the  benefit of  cost                                                                    
     savings that result from the  expansion of the project.                                                                    
     However, the  agreement or  contract must  provide that                                                                    
     an expansion  that results in  an increase in  the cost                                                                    
     of transportation  may not, for  a party that  does not                                                                    
     participate    in   the    expansion,   increase    the                                                                    
     transportation  cost  for  each   1000  cubic  feet  of                                                                    
     natural gas  above the  highest cost  of transportation                                                                    
     for that party before the expansion."                                                                                      
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 17, line 24:                                                                                                          
          Delete "sec. 17"                                                                                                      
          Insert "sec. 18"                                                                                                      
                                                                                                                                
     Page 21, line 16:                                                                                                          
          Delete "sec. 27"                                                                                                      
          Insert "sec. 28"                                                                                                      
                                                                                                                                
     Page 25, line 9:                                                                                                           
          Delete "sec. 30"                                                                                                      
          Insert "sec. 31"                                                                                                      
                                                                                                                                
     Page 31, line 18:                                                                                                          
          Delete "sec. 37"                                                                                                      
          Insert "sec. 38"                                                                                                      
                                                                                                                                
     Page 53, lines 24 - 25:                                                                                                    
          Delete "sec. 23"                                                                                                      
          Insert "sec. 24"                                                                                                      
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "16, 17, 23 - 27, 29, 30, 37, 39, and 55 -                                                                     
     61"                                                                                                                        
          Insert "16 - 18, 24 - 28, 30, 31, 38, 40, and 56                                                                      
     - 62"                                                                                                                      
                                                                                                                                
     Page 56, line 8:                                                                                                           
          Delete "Section 38"                                                                                                   
          Insert "Section 39"                                                                                                   
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
CO-CHAIR FEIGE objected for purposes of discussion.                                                                             
                                                                                                                                
REPRESENTATIVE SEATON explained  Amendment 20 addresses expansion                                                               
of a  North Slope project that  goes forward.  He  recalled there                                                               
was discussion about  allowing benefits to parties  that were not                                                               
parties to the expansion and were  not providing in the costs and                                                               
that on a per-unit-volume basis  they could receive a benefit for                                                               
that.   However,  if  it  costs more  on  a secondary  expansion,                                                               
Amendment 20 would also mean  that the cost for non-participating                                                               
parties could  not rise above  those parties'  original per-unit-                                                               
volume  cost;  so   everyone  would  share  in   both  of  those.                                                               
Otherwise,  there could  be  an  expansion that  is  going to  be                                                               
avoided because  all of that  further cost  would be borne  by so                                                               
much differential  in the  price of  the gas  for transportation.                                                               
Amendment 20 means that no party  will ever have to pay more than                                                               
it  did originally,  but at  least if  there is  an expansion  to                                                               
provide more throughput,  then the cost would at  least be shared                                                               
somewhat, but no further than any party's original cost.                                                                        
                                                                                                                                
3:42:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE requested  the administration  to comment  on the                                                               
amendment.                                                                                                                      
                                                                                                                                
MR.  PAWLOWSKI  said  the administration  understands  the  issue                                                               
behind Amendment 20 and the  interest described by the sponsor is                                                               
in allowing rates  in an expansion to rise back  to the rate that                                                               
was charged  prior to the expansion.   That is a  concept loosely                                                               
related  to rolled-in  rates.   When  the administration  started                                                               
talking  with the  parties about  this project,  it became  clear                                                               
that  much  of  the  thinking  related  to  expansions,  and  the                                                               
treatment of expansions,  changes when moving to  an LNG project.                                                               
While  the pipeline  is much  talked  about in  this project,  it                                                               
really is  an LNG project with  a pipeline and a  treatment plant                                                               
attached.  An LNG project,  by its nature, is market constrained.                                                               
The  addition  of a  train  is  necessary  for large  volumes  of                                                               
expansion.  When he looks  at Amendment 20, a particular scenario                                                               
troubles him  deeply.  To illustrate,  he posed a scenario  of an                                                               
in-state gas price that is  based on a hypothetical wellhead cost                                                               
of $2  plus a  pipeline tariff  of $4, so  that gas  for Alaskans                                                               
would be $6 leaving the pipe.   In this scenario there is then an                                                               
expansion that the state does or  does not participate in and the                                                               
tariff  drops to  $2 so  that the  in-state gas  price is  now $2                                                               
wellhead  plus $2  transportation, effectively  lowering the  in-                                                               
state  gas price.   Then  let's  say there  is another  expansion                                                               
after a few more years, but  this time the costs in the expansion                                                               
roll back  up to the original  $4 and in effect  the in-state gas                                                               
price  goes back  to  $6.   This  may  set up  the  dynamic of  a                                                               
political   conflict  around   an  expansion.     The   expansion                                                               
principles in  the Heads of  Agreement do not  allow specifically                                                               
for this rolling  back up of the cost to  the original tariff; it                                                               
allows for the opportunity for the  state or a party of the state                                                               
to initiate an  expansion, provide that access, but  it is really                                                               
built on the  premise of live and let live  and let the economics                                                               
drive  the expansions.   In  that  this is  counter to  expansion                                                               
principles, he said he believes  the administration has a concern                                                               
with Amendment 20,  as well as for the  fundamental scenario that                                                               
it  could set  up in  the state  related to  how the  citizens of                                                               
Alaska might view  an expansion and the impact  on their in-state                                                               
rates.  There are multiple other  scenarios in which gas that the                                                               
state has  no fiscal interest in  comes into the line,  and while                                                               
the state  loves the construction,  the jobs, and  the expansion,                                                               
now the  state's tariff goes  back up and  that will come  out of                                                               
the price of the gas that the  state is selling on the market, so                                                               
state revenues might go down.   Those are all things that can get                                                               
worked out  commercially.  Putting  this principle as  a limiting                                                               
on the  agreement or contract  runs counter to the  static nature                                                               
of an LNG project and gives the administration some concern.                                                                    
                                                                                                                                
COMMISSIONER   BALASH   concurred    with   Mr.   Pawlowski   and                                                               
respectfully opposed Amendment 20.                                                                                              
                                                                                                                                
3:46:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  opposed Amendment 20, saying  he will vote                                                               
against the  amendment for the  aforementioned reasons.   He said                                                               
he  also continues  to be  concerned  about legislators  imposing                                                               
micromanagement  points  and  constraints  into  the  negotiation                                                               
process.   The MOU  and the  HOA are  a framework  for conducting                                                               
negotiations.   However, he noted, he  does not want his  no vote                                                               
on  Amendment 20  to  in  any way  imply  a  constraint on  those                                                               
negotiations  should they  actually find  a time  and a  place to                                                               
incorporate some element of the  amendment or what is proposed in                                                               
the amendment  if it  became appropriate in  the process.   Right                                                               
now,  however, there  is a  huge risk  in making  it a  statutory                                                               
constraint.                                                                                                                     
                                                                                                                                
MR. PAWLOWSKI  thanked Representative  Hawker for  the statement,                                                               
saying it made  him realize that within the  MOU with TransCanada                                                               
is  a  particular  arrangement  where the  state  can  elect  for                                                               
rolled-in rates  on certain parts of  the pipe.  Given  that that                                                               
would  be  a  contract   under  [Amendment  20],  [Representative                                                               
Hawker's] clarification  on the  record is important  because the                                                               
administration will look to the  record during the discussion for                                                               
guidance as it moves into negotiations.                                                                                         
                                                                                                                                
3:48:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON related that  in previous discussion it was                                                               
said the State of Alaska was  probably going to be the outlet for                                                               
expansions in the  pipeline.  If that is the  case, any secondary                                                               
expansion that  would increase the  cost probably means  that the                                                               
project will  not go forward.   It also  might mean that  even if                                                               
one of  the parties finds other  gas and if none  of the parties'                                                               
rates can  go up,  including the state's  rate, the  project will                                                               
not  go  forward.   The  question  is  whether expansion  in  the                                                               
pipeline is wanted.  "Do we want  to say that ... if it goes down                                                               
further on  the second expansion  everybody benefits, but  if the                                                               
cost is higher  to get expansion in this pipeline,  do we want to                                                               
make that  happen?"   It will  not happen if  the cost  is solely                                                               
borne  by  the  expansion  and  therefore  the  economics  become                                                               
terribly offset.  The parties  going into this project are saying                                                               
they will  sanction the project  at whatever base rate  they have                                                               
for the throughput for which it  is designed.  If the parties are                                                               
now saying that  on the first expansion [the costs]  will go down                                                               
and will never  go up such that for a  second expansion the costs                                                               
cannot  go  up  so  the  expanding party  must  bear  that  whole                                                               
expansion cost, then  the expansions will not  take place because                                                               
the  expanding  party bears  all  of  the  cost, even  above  the                                                               
original cost.   Representative  Seaton said  is not  looking for                                                               
the AGIA 115 percent of original  rate, but maintained that it is                                                               
very reasonable to  say that to stimulate expansions  that if the                                                               
new  expansions are  higher  than the  original,  a party's  rate                                                               
cannot go above what it originally  said was economic to have the                                                               
project go  forward.  This  is really important to  enable future                                                               
expansions  to take  place,  he  opined.   There  will  be a  big                                                               
economic drag on  expansions if there is not  some provision like                                                               
this  because the  transportation  cost of  that other  expansion                                                               
will be  so high and  un-uniform from  what was determined  to be                                                               
economical in  the first  place, which will  result in  gas being                                                               
left in the fields.   That is not in the  state's benefit and the                                                               
whole idea  was that  the state would  probably be  the expansion                                                               
party for new  people that find fields.   It does not  have to be                                                               
for LNG,  it could be a  mine that needs  a lot of gas  and which                                                               
would require  an expansion on part  of the pipeline to  do that;                                                               
but if  the cost  is totally  borne on  just that  expansion, the                                                               
state might not  be able to do that.   Therefore, Amendment 20 is                                                               
a reasonable way to ensure future expansions.                                                                                   
                                                                                                                                
3:52:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  noted that for  the administration speaking  as a                                                               
future  partner in  this project,  it would  certainly be  in the                                                               
state's best interest to keep  the state's cost of transportation                                                               
at a level  that is predictable and is not  going to rise because                                                               
that affects  the state's economics  as well as the  economics of                                                               
the other partners.  It is  to the state's advantage as a partner                                                               
that if there is an expansion  that results in lower overall unit                                                               
costs  to take  advantage of  that decrease,  which is  a benefit                                                               
that cannot necessarily  be planned for and the  economics of the                                                               
original investment  are not necessarily  based on.   The problem                                                               
does come  in if  there is  a subsequent  expansion, but  it does                                                               
raise  a  legitimate  issue  that  if  the  additional  expansion                                                               
capacity is  not fully utilized  on the first round  of expansion                                                               
it does  not seem unfair.   Depending on  the nature of  what the                                                               
expansion is, it could be  that the additional expansion actually                                                               
results in  a further lowering of  per unit costs, in  which case                                                               
all  parties  would be  able  to  enjoy  the benefit  of  further                                                               
lowering of  those unit costs.   But, if for some  reason, by the                                                               
nature   of   the  expansion   the   costs   were  to   rise,   a                                                               
disproportionate share of that operating  cost would be placed on                                                               
one  expansion party,  which  could be  the state  if  it were  a                                                               
partner to the secondary expansion, or  it could be placed on the                                                               
additional  expansion partner,  perhaps  affecting the  economics                                                               
such that that  expansion does not happen.  It  is in the state's                                                               
best  interest to  have  the  expansion happen.    It  is in  the                                                               
[interest of  the] original investors  in this project to  have a                                                               
cap  on  how  high  their  transportation costs  could  go.    He                                                               
therefore inquired  where the middle  ground is  [in relationship                                                               
to Amendment 20].                                                                                                               
                                                                                                                                
The committee took an at-ease from  3:55 p.m. to 4:13 p.m. at the                                                               
request of Mr.  Pawlowski so he could look up  the information to                                                               
provide an answer to Co-Chair Feige.                                                                                            
                                                                                                                                
4:13:45 PM                                                                                                                    
                                                                                                                                
MR. PAWLOWSKI, responding  to the question about  a middle ground                                                               
in relation to Amendment 20,  noted that the expansion principles                                                               
in  the Heads  of Agreement  were a  carefully balanced  back and                                                               
forth.    It  was  a   place  where  [the  administration]  found                                                               
TransCanada's involvement  to be particularly important  from the                                                               
state's perspective.  The terms  enable expansions, but there are                                                               
potentially   economic  impediments   which   are  the   economic                                                               
realities of  what it will take  to do an expansion.   He divided                                                               
the question into two types  of expansions.  He characterized the                                                               
first  type of  expansion  as a  relatively small-scale  in-state                                                               
expansion  where somebody  finds a  small amount  of gas,  in the                                                               
range of 20-50 million cubic feet a  day, and wants to move it to                                                               
a mine.   The  [Alaska LNG  Project] pipe  will be  designed with                                                               
expansion capacity available within  it for efficient expansions,                                                               
which is where there is not  much or any incremental capital cost                                                               
to put  a bit more  gas in the pipe.   Compressors run  better in                                                               
the winter,  so there can be  more capacity one time  of the year                                                               
and less capacity  at another time of the year.   During the Pre-                                                               
FEED stage,  work will be done  to understand the sizing  and the                                                               
benefits  of  those  types  of  expansions.   There  is  also  an                                                               
incremental expansion,  which would  require one compressor  or a                                                               
relatively modest  capital increment that  could be a  benefit to                                                               
the expander.   The second  type of  expansion is one  that would                                                               
pose a substantial  challenge to the state.  That  is addition of                                                               
a new train  -- where it is  not the pipe that is  the issue, but                                                               
the market beyond Alaska that is  really the constraint.  The LNG                                                               
plant envisioned  today is for three  trains at a cost  of $22-24                                                               
billion.  The  addition of a fourth train at  the LNG facility is                                                               
a  multi-billion  dollar  investment.    An  expansion  to  carry                                                               
additional large-scale reserves  will have to be  large enough to                                                               
justify  that expansion.   Justifying  the additional  investment                                                               
necessary to open that additional  window to the market is driven                                                               
more by the  cost of the train than the  addition of expenditures                                                               
in the midstream in the pipeline or the gas treatment plant.                                                                    
                                                                                                                                
4:17:02 PM                                                                                                                    
                                                                                                                                
MR.  PAWLOWSKI continued  his response,  saying  the impact  that                                                               
this type  of large-scale expansion  potentially has  on Alaska's                                                               
share of  the project is  important because the  state's revenues                                                               
come  after cost.   If  it  is a  situation where  the state  has                                                               
enjoyed the  benefits of the  efficient expansions by  a lowering                                                               
of the  state's rates for  several years  and then new  gas comes                                                               
into the project  that would increase those rates, even  if it is                                                               
back to the initial rate, the  result would be a reduction in the                                                               
state's  revenue   from  where  the   state  was  at   the  time.                                                               
[Amendment  20]  would set  up  that  concern, particularly  when                                                               
looking to the  future and seeing that there  are different state                                                               
fiscal  interests in  different  gas; for  example offshore  gas.                                                               
Today the  state does not  have revenue sharing for  offshore gas                                                               
development.   The state likes  the jobs,  throughput, expansion,                                                               
and all  the economic  activity that creates,  but from  a fiscal                                                               
perspective the state does not,  as yet, have revenue sharing for                                                               
that gas being  developed.  So, the state would  have a different                                                               
interest  in how  that expansion  gets treated.   Those  were the                                                               
things  [the  administration]  thought through  in  crafting  the                                                               
expansion principles in  tension with the other  parties that are                                                               
looking  out for  their interests  as well.   The  gives and  the                                                               
takes  must be  looked at  in any  of these  agreements.   In the                                                               
expansion  principles,  the unilateral  ability  for  one of  the                                                               
parties  to initiate  an  expansion, and  for  that expansion  to                                                               
proceed, is  a powerful principle  that protects  the opportunity                                                               
for an expansion.   There are a range of  economic scenarios, but                                                               
[the administration]  believes it has  landed on, at  this stage,                                                               
an opportunity  to work  through some of  these issues  as things                                                               
continue.   The administration  is not sure  it sees  a potential                                                               
for a middle ground under  Amendment 20, given the uncertainty of                                                               
the project at  this stage, all of the  potential scenarios where                                                               
a downside is seen for  state, and pending actual detailed design                                                               
of  the  size of  the  pipe  and  the opportunity  for  efficient                                                               
expansion in-state.                                                                                                             
                                                                                                                                
4:19:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI supported  Amendment 20,  saying he  can                                                               
imagine a pipeline  going from the North Slope to  the Kenai area                                                               
with an  offtake point at  Fairbanks taking a  significant amount                                                               
of  gas, leaving  empty capacity  below Fairbanks  that could  be                                                               
filled.   Below Fairbanks  are the Nenana  Basin and  the Susitna                                                               
Basin.  It  is clear that expansion of the  project would have to                                                               
have a benefit  of cost savings for all parties.   During most of                                                               
the discussions  it was  said that  the transportation  tariff is                                                               
something that  is negotiated and  that happens  under commercial                                                               
agreements.  Amendment  20 is necessary to  potentially get small                                                               
players into the pipe.                                                                                                          
                                                                                                                                
4:20:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.   WILSON  drew  attention  to   the  Heads  of                                                               
Agreement, page 21, Appendix A,  which explains the pro-expansion                                                               
principles.  She  noted [A.1.1] states that  following the start-                                                               
up of the  Alaska LNG Project, any Alaska LNG  party may initiate                                                               
the process for  an expansion in which the party  has an interest                                                               
unless  the expansion  would result  in  any of  the four  events                                                               
listed in  that section.   [A.1.1]  concludes with  the statement                                                               
that expansions can proceed if  they meet the criteria in Section                                                               
A.1.1.   She  further observed  that A.1.2  states the  expansion                                                               
parties will  pay all of the  costs.  She asked  whether there is                                                               
anything in the appendix that would help to better explain this.                                                                
                                                                                                                                
COMMISSIONER BALASH  responded these principles are  just that --                                                               
principles.  There  needs to be much more  detailed agreements to                                                               
further  define  and refine  the  ways  in  which costs  will  be                                                               
allocated and  borne between and  among the parties and  from the                                                               
parties to their  shippers.  In the larger sense,  what is had is                                                               
an  agreement on  how the  capital costs  are going  to be  split                                                               
between the  parties.  Each  party is going  to pay its  share of                                                               
the project,  which gets  to the  pipe and a  pipe concept.   The                                                               
things  that are  going  to get  tricky and  require  a lot  more                                                               
detail are the  operating costs that get borne by  each party; in                                                               
all likelihood that is going  to reflect the party's recalculated                                                               
equity  interest  in  the  project as  expansions  occur  and  as                                                               
capacity  is increased.    Those are  going to  be  the kinds  of                                                               
things  that will  be seen  in subsequent  rounds of  agreements.                                                               
Many  people are  still struggling  with  the difference  between                                                               
what  is  being  talked  about  here and  now  in  this  body  of                                                               
agreements compared  to HB 4 and  the ASAP line, and  compared to                                                               
the  AGIA and  Denali [natural  gas pipeline]  efforts that  were                                                               
looking at  overland projects  where there  was a  single project                                                               
with  a  single  tariff.    Because this  project  goes  down  an                                                               
undivided joint interest approach pathway,  there is not a single                                                               
tariff that  gets applied to all  parties.  Thus, the  state will                                                               
be free  to order its financing  and its tariff the  way it wants                                                               
to for  the state's purposes  on its segment  of the pipe.   But,                                                               
the other  three sponsors -  BP, Exxon, and ConocoPhillips  - are                                                               
not necessarily going to have tariffs.   There will be a division                                                               
of costs up front in the capital  and there will be a division of                                                               
cost as  things go  forward in the  operation of  the facilities.                                                               
In regard  to questions  around the  cost of  transportation, the                                                               
language  in  Amendment  20  does  not  fit  in  this  particular                                                               
commercial construct.                                                                                                           
                                                                                                                                
4:25:18 PM                                                                                                                    
                                                                                                                                
COMMISSIONER BALASH continued, noting  that there is some initial                                                               
understanding of what the capacity of  the pipe is going to be at                                                               
the outset relative  to the liquefaction capacity.   Based on the                                                               
initial understandings, there is  going to be sufficient capacity                                                               
in  the pipe  through its  efficient expansions  to increase  the                                                               
capacity in  the pipe enough  to add at  least one more  train of                                                               
liquefaction in  Nikiski.  There  would still be  additional room                                                               
in the  pipe for in-state  deliveries, be it  for a mine  or some                                                               
other smaller  industrial load.   People need  to keep  mind that                                                               
the size of a  train in this case is going to be  on the order of                                                               
750-800 million cubic  feet per day of  gas.  That is  large.  In                                                               
regard  to making  room  for small  players,  small players  like                                                               
Brooks Range  Petroleum Corporation and Great  Bear Petroleum LLC                                                               
on the North  Slope are out of  the game when it  comes to adding                                                               
an  entire  train  of  liquefaction.   A  company  like  Anadarko                                                               
Petroleum Corporation,  with a very  large land position  in "the                                                               
foothills,"  might find  sufficient reserves.   However,  many of                                                               
Anadarko's  leases  are not  on  state  land  but on  private  or                                                               
federal land  from which  the state  gets no  royalty and  no tax                                                               
gas.   So, the way  each circumstance  and scenario is  viewed is                                                               
going to vary.                                                                                                                  
                                                                                                                                
4:27:25 PM                                                                                                                    
                                                                                                                                
COMMISSIONER BALASH continued further,  pointing out that in this                                                               
next  phase  DNR  will  be very  diligent  in  understanding  and                                                               
obtaining  from the  other sponsors  the kind  of representations                                                               
and  warranties that  can  be counted  on in  terms  of what  the                                                               
capacities are  expected to be.   That way  it will be  known how                                                               
many efficient expansions and how  much capacity there will be in                                                               
the pipe before starting to  run into these per-unit increases in                                                               
cost  that might  burden the  economics relative  to the  day-one                                                               
rates or costs.   He sympathized with the  sponsor's intention in                                                               
Amendment 20, but  said at this particular point in  time it must                                                               
be kept  in mind that there  is pipe, a gas  treatment plant, and                                                               
liquefaction, and all three are  going to have somewhat different                                                               
costs and may or may not  be needed for a given commercial player                                                               
down the  road.  Some  players might only  need pipe room  and no                                                               
treatment, others might  need treatment and pipe,  and some might                                                               
not need  liquefaction service at  all.  Amendment  20's language                                                               
raises  many questions  with regard  to how  this would  actually                                                               
play out.   The agreement  or contract under  AS 38.05.020(b)(11)                                                               
is  an agreement  negotiated  by  DNR, so  that  is  going to  be                                                               
midstream services  agreements with  TransCanada and/or  AGDC for                                                               
treatment, pipeline, and liquefaction  services, and maybe marine                                                               
or marketing services,  but that does not  necessarily make [DNR]                                                               
a party  to agreements in that  case for the equity  and the cost                                                               
structure  of the  project  itself.   [The  department] will  not                                                               
necessarily  be   signing  agreements  with  the   producers,  so                                                               
Amendment 20  does not  actually get  to where  folks want  to go                                                               
from this  policy perspective.   The amendment has  references to                                                               
the project, but  does not distinguish between  the components of                                                               
the  project.   It  may  be  that  one  component or  another  is                                                               
actually the bottleneck.  He said  he is left in an awkward place                                                               
here because  he believes  that the  policy principle  is already                                                               
reflected  in the  Heads of  Agreement  in terms  of ensuring  an                                                               
accessible   and  expandable   pipe  that   will  encourage   and                                                               
incentivize additional  exploration.   Getting into  a particular                                                               
conversation at this juncture is  a struggle because right now it                                                               
is  unknown as  to the  circumstances under  which costs  will or                                                               
will not go up, or how much they will or will not go up.                                                                        
                                                                                                                                
4:31:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  understood Commissioner  Balash to  be                                                               
saying that Amendment  20 would severely constrain  what is going                                                               
to be  happening in  the next  18 months  because those  types of                                                               
things will be talked about in all different kinds of ways.                                                                     
                                                                                                                                
COMMISSIONER BALASH  replied correct,  a number of  questions are                                                               
going  to be  faced and  they are  going to  be iterative  policy                                                               
developments as  the base project  is examined in regard  to what                                                               
it looks  like and  what those  capacities are.   There  has been                                                               
discussion with  the other project  sponsors about,  for example,                                                               
if the  pipe is 42  inches whether another train  of liquefaction                                                               
could be  added in Nikiski  and are the  sponsors sure.   What if                                                               
the sponsors  are not sure?   What would be the  incremental cost                                                               
of going  to 44  inches or  all the  way to  48 inches?   Roughly                                                               
speaking, it  is thought  that that  is a  difference in  cost of                                                               
about $600  million.  Nobody wants  to overpay for pipe  and pipe                                                               
capacity that is not needed, but  maybe there is a scenario where                                                               
it makes sense  for the state to  do that.  And  that invites all                                                               
kinds  of questions  as to  how many  people make  48 inch  pipe.                                                               
Will this drive  costs in a different way?   These considerations                                                               
and  questions  will   be  looked  at  very  hard.     How  those                                                               
considerations are ultimately  weighed will be one  of the things                                                               
discussed  with legislators  in these  executive sessions  as the                                                               
project  goes forward  to ensure  that  things are  appropriately                                                               
balanced for  the long  term.   This will get  to be  clearer and                                                               
there will be a better  understanding of what the opportunity and                                                               
what the  costs are for  a given expansion policy  depending upon                                                               
the size  and depending  upon the nature  of those  more detailed                                                               
operating agreements as they get refined in the next two years.                                                                 
                                                                                                                                
4:34:02 PM                                                                                                                    
                                                                                                                                
MR.  PAWLOWSKI  added he  sits  as  the Department  of  Revenue's                                                               
designee on  the board of  the Alaska Industrial  Development and                                                               
Export Authority  (AIDEA).  This means  he gets to work  with the                                                               
other  LNG project  that was  authorized by  this committee  last                                                               
year.   To provide  context to  the previously  mentioned 750-800                                                               
million cubic  feet a day for  an LNG train, he  pointed out that                                                               
the expansion  being talked  about for  serving customers  in the                                                               
core community  of Fairbanks is  - per  year - 500  million cubic                                                               
feet.   Thus, the  daily throughput in  that expansion  is bigger                                                               
than the entire annual  use.  He said he is  pointing this out to                                                               
help people  realize the scale  of difference when  talking about                                                               
in-state  demand and  in-state  work versus  the larger,  export-                                                               
driven project that is being described here today.                                                                              
                                                                                                                                
4:35:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER noted  that  both the  Heads  of Agreement  and                                                               
Amendment  20 agree  in principle  and  in the  statute that  all                                                               
parties  can  benefit  from  expansion.   But  at  the  heart  of                                                               
Amendment 20  seems to be  the expansion that increases  the cost                                                               
and that the  cost of that expansion can be  shared with the non-                                                               
expansion parties only  up to their highest level.   He asked why                                                               
somebody would make an investment  in expansion that raises their                                                               
transportation costs.                                                                                                           
                                                                                                                                
MR. PAWLOWSKI replied  the person may look at  the value received                                                               
for the  sale of the commodity.   Having a larger  volume of that                                                               
commodity may  exceed the incremental  increase in  the expansion                                                               
cost across  all units that  are being sold.   So, the  volume in                                                               
the market goes up higher than  the cost in midstream.  Amendment                                                               
20 would prohibit  the negotiating of a contract that  on page 22                                                               
of  the Heads  of Agreement  provides that  non-expansion parties                                                               
will be  kept whole and  will not bear  any costs related  to the                                                               
expansion.  So, the principal  disconnect is in the sentence that                                                               
the  administration  could  not   move  forward  with  agreements                                                               
relating to the principles in the Heads of Agreement.                                                                           
                                                                                                                                
4:36:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  said the  concern is that  the words  can be                                                               
there, but  can be constructed  in such  a way that  expansion is                                                               
discouraged, in  which case the  words are meaningless.   Unclear                                                               
to her in the HOA is why it was not enough in A.1.2 [pages 21-                                                                  
22, Appendix A]  to say that only expansion parties  will pay for                                                               
the cost.  It seems that  would be sufficient to protect the non-                                                               
expansion parties.   She  inquired why it  was also  necessary to                                                               
say that the non-expansion parties will share in the benefits.                                                                  
                                                                                                                                
MR. PAWLOWSKI  answered from the state's  perspective, noting the                                                               
state is  a participant and is  co-investing in the project.   By                                                               
building the project  an opportunity is created  for an expansion                                                               
to happen.  If there is no pipe,  no LNG plant, there is never an                                                               
expansion.   So, an opportunity  is created for another  party to                                                               
come  in  and  benefit  from  the  initial  installation  of  the                                                               
infrastructure.   The state  looks at  that as  well and  says if                                                               
there  is an  investment by  another party  that would  bring gas                                                               
through the project  that the state may not have  an interest in,                                                               
should  the state  not benefit  simply because  that is  a policy                                                               
call?  [The administration] looked at  it and said there are many                                                               
instances  where the  state  may not  be involved  at  all in  an                                                               
expansion, but  the state through its  co-investment, created the                                                               
opportunity for  that expansion  to happen.   To the  extent that                                                               
in-state demand can  benefit, to the extent  that state revenues,                                                               
state  royalty  revenues,  all   benefit,  that  opportunity  was                                                               
created by  this body  and subsequent  bodies' decisions  to take                                                               
that  step and  enable  that  infrastructure.   So,  that is  the                                                               
underlying principle that was part of  the give and take with the                                                               
other side  of that, which  is if a party  is willing to  pay the                                                               
cost the  other parties are not  going to fight over  whether the                                                               
expansion  can  proceed.    The expansion  can  proceed  in  that                                                               
unadulterated opportunity  to expand the infrastructure;  this is                                                               
a powerful  tool for the  state in  enabling access.   He pointed                                                               
out that there  is an interesting division in  Appendix A between                                                               
A.1 and A.3.   Section A.3 talks about a  new liquefaction train,                                                               
he  said,  because  this  is  not  just  about  the  pipe.    The                                                               
opportunity for any party, which  in this instance would be AGDC,                                                               
to  initiate  the  process  of  installing a  new  train  is  not                                                               
actually  an expansion.    But, it  is a  very  powerful tool  to                                                               
enable either  one producer or  a consortium of producers  on the                                                               
North  Slope  to have  an  opportunity  for  an outlet  to  serve                                                               
foreign markets  with that gas.   It is the totality  that led to                                                               
the  policy  call, in  addition  with  looking at  the  different                                                               
scenarios where  there is  private land or  offshore.   The state                                                               
does not have the same fiscal  interest in every instance in this                                                               
project the way  the state may have had going  to a deeply liquid                                                               
market with  just one  simple piece  of infrastructure,  which is                                                               
complicated in its  own right but not to the  degree that the LNG                                                               
project is.                                                                                                                     
                                                                                                                                
4:40:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  pointed out  the project has  been brought                                                               
to legislators with  the idea that the state  and TransCanada are                                                               
going to be the primary expansion  parties for new players on the                                                               
North Slope.   That is one of the underlying  principles with all                                                               
the  trillions of  cubic  feet  of gas  that  are  out there  for                                                               
development on  state and  other land.   The question  is whether                                                               
the  expansion costs  will be  [high] enough  that the  expansion                                                               
does not  take place.  The  principle of not raising  costs above                                                               
what was initially  agreed on in the initial project  makes a lot                                                               
of  sense.   The  theory behind  Amendment 20  is  to ensure  the                                                               
expansion  will  work.   A  big  element behind  why  TransCanada                                                               
should be  involved is  because TransCanada,  like the  state, is                                                               
interested in expansions.  Yet,  if we are under the circumstance                                                               
that the  expansions are  constrained because  all the  costs, if                                                               
they are  costs for a  secondary expansion,  are going to  have a                                                               
high economic cost  and make it unprofitable,  then the expansion                                                               
would not happen.  There are  private and federal lands, but what                                                               
is mostly being looked at is  the probability on state lands from                                                               
which  the  state receives  royalty  and  taxes.   Representative                                                               
Seaton said he is very  interested in staying with the principles                                                               
under which  this project  has been  brought to  the legislature.                                                               
There are many different issues, he  allowed, and maybe it is not                                                               
the right  time for making  this decision.   However, he  is glad                                                               
for having this conversation and that  DOR and DNR are well aware                                                               
that  it is  something that  legislators want  to have  front and                                                               
center as things go forward.  He withdrew Amendment 20.                                                                         
                                                                                                                                
4:43:17 PM                                                                                                                    
                                                                                                                                
[CSSB 138(FIN) am was held over.]                                                                                               

Document Name Date/Time Subjects
I.A.67Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.68Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.69Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.70Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.71Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.72Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.73Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.74Feige-Admin.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.79.Feige.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.80.Feige.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.81.Feige.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.85.Seaton.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.86.Feige.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.87 Tarr.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.83.Saddler.pdf HRES 4/5/2014 10:00:00 AM
SB 138
I.A.84.Saddler.pdf HRES 4/5/2014 10:00:00 AM
SB 138