Legislature(2015 - 2016)BARNES 124

03/16/2016 01:00 PM RESOURCES

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                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 16, 2016                                                                                         
                           1:03 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Benjamin Nageak, Co-Chair                                                                                        
Representative David Talerico, Co-Chair                                                                                         
Representative Bob Herron                                                                                                       
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Geran Tarr                                                                                                       
Representative Mike Chenault, Alternate                                                                                         
MEMBERS ABSENT                                                                                                                
Representative Mike Hawker, Vice Chair                                                                                          
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 216                                                                                                              
"An Act relating  to obstruction or interference  with a person's                                                               
free  passage on  or use  of  navigable water;  and amending  the                                                               
definition of 'navigable water' under the Alaska Land Act."                                                                     
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 246                                                                                                              
"An  Act  creating the  oil  and  gas infrastructure  development                                                               
program and  the oil and  gas infrastructure development  fund in                                                               
the Alaska Industrial Development  and Export Authority; relating                                                               
to the  interest rates of  the Alaska Industrial  Development and                                                               
Export   Authority;   relating    to   the   sustainable   energy                                                               
transmission  and supply  development  and Arctic  infrastructure                                                               
development  programs of  the Alaska  Industrial Development  and                                                               
Export  Authority;   relating  to   dividends  from   the  Alaska                                                               
Industrial   Development  and   Export   Authority;  and   adding                                                               
definitions  for 'oil  and  gas  development infrastructure'  and                                                               
'proven reserves.'"                                                                                                             
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 247                                                                                                              
"An Act  relating to confidential  information status  and public                                                               
record status of information in  the possession of the Department                                                               
of Revenue;  relating to interest  applicable to  delinquent tax;                                                               
relating  to disclosure  of  oil and  gas  production tax  credit                                                               
information;  relating to  refunds for  the gas  storage facility                                                               
tax  credit,  the  liquefied natural  gas  storage  facility  tax                                                               
credit, and  the qualified  in-state oil  refinery infrastructure                                                               
expenditures tax credit; relating to  the minimum tax for certain                                                               
oil and gas  production; relating to the  minimum tax calculation                                                               
for monthly  installment payments  of estimated tax;  relating to                                                               
interest  on  monthly  installment  payments  of  estimated  tax;                                                               
relating  to  limitations for  the  application  of tax  credits;                                                               
relating  to  oil and  gas  production  tax credits  for  certain                                                               
losses   and   expenditures;    relating   to   limitations   for                                                               
nontransferable oil and  gas production tax credits  based on oil                                                               
production  and  the  alternative  tax credit  for  oil  and  gas                                                               
exploration;  relating to  purchase  of  tax credit  certificates                                                               
from the oil  and gas tax credit fund; relating  to a minimum for                                                               
gross  value  at  the  point of  production;  relating  to  lease                                                               
expenditures  and tax  credits for  municipal entities;  adding a                                                               
definition   for  "qualified   capital  expenditure";   adding  a                                                               
definition for  "outstanding liability  to the  state"; repealing                                                               
oil  and   gas  exploration  incentive  credits;   repealing  the                                                               
limitation on  the application of  credits against  tax liability                                                               
for  lease   expenditures  incurred   before  January   1,  2011;                                                               
repealing provisions related to  the monthly installment payments                                                               
for  estimated tax  for oil  and gas  produced before  January 1,                                                               
2014;  repealing  the  oil  and gas  production  tax  credit  for                                                               
qualified  capital expenditures  and  certain well  expenditures;                                                               
repealing   the  calculation   for  certain   lease  expenditures                                                               
applicable before January 1,  2011; making conforming amendments;                                                               
and providing for an effective date."                                                                                           
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 216                                                                                                                  
SHORT TITLE: NAVIGABLE WATER; INTERFERENCE, DEFINITION                                                                          
SPONSOR(s): REPRESENTATIVE(s) TALERICO                                                                                          
01/19/16       (H)       PREFILE RELEASED 1/8/16                                                                                
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       RES                                                                                                    
03/16/16       (H)       RES AT 1:00 PM BARNES 124                                                                              
BILL: HB 246                                                                                                                  
SHORT TITLE: AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       RES, FIN                                                                                               
02/12/16       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/12/16       (H)       <Bill Hearing Canceled>                                                                                
03/10/16       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/10/16       (H)       -- MEETING CANCELED --                                                                                 
03/16/16       (H)       RES AT 1:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
JOSHUA BANKS, Staff                                                                                                             
Representative David Talerico                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Assisted in presenting HB 216 on behalf of                                                               
Representative Talerico, sponsor.                                                                                               
MELVIN GROVE                                                                                                                    
Alaska Outdoor Access Alliance                                                                                                  
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
SCOTT OGAN                                                                                                                      
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
WARREN OLSON                                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216 and                                                                       
suggested some changes.                                                                                                         
GARY STEVENS                                                                                                                    
Chugiak, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
STEVE STRAIGHT                                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
CEEZAR MARTINSON                                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
CHARLES LEAN                                                                                                                    
Nome, Alaska                                                                                                                    
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
THOMAS VADEN                                                                                                                    
Nome, Alaska                                                                                                                    
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
STEVEN FLORY                                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
CRAIG COMPEAU                                                                                                                   
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
KAREN GORDON                                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
RICHARD BISHOP                                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216 and                                                                       
suggested some amendments.                                                                                                      
JOHN STURGEON                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
KENNY BARBER                                                                                                                    
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 216.                                                                          
FRED PARADY, Deputy Commissioner                                                                                                
Office of the Commissioner                                                                                                      
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   On behalf  of the  governor and as  a board                                                             
member of the Alaska Industrial  Development and Export Authority                                                               
(AIDEA), introduced HB  246 by way of  a PowerPoint presentation,                                                               
"AIDEA Oil and Gas Infrastructure Development Fund, HB 246."                                                                    
GENE THERRIAULT, Energy Policy and Outreach Director                                                                            
Alaska Energy Authority (AEA)                                                                                                   
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   On  behalf  of  the governor,  provided  a                                                             
sectional analysis of HB 246.                                                                                                   
JOHN SPRINGSTEEN, Executive Director                                                                                            
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    On  behalf   of  the  governor,  answered                                                             
questions related to HB 246.                                                                                                    
ACTION NARRATIVE                                                                                                              
1:03:17 PM                                                                                                                    
CO-CHAIR  BENJAMIN NAGEAK  called  the  House Resources  Standing                                                             
Committee meeting to order at  1:03 p.m.  Representatives Herron,                                                               
Chenault   (alternate),   Johnson,  Olson,   Seaton,   Josephson,                                                               
Talerico,  and  Nageak  were  present   at  the  call  to  order.                                                               
Representative Tarr arrived as the meeting was in progress.                                                                     
        HB 216-NAVIGABLE WATER; INTERFERENCE, DEFINITION                                                                    
1:03:58 PM                                                                                                                    
CO-CHAIR NAGEAK  announced that  the first  order of  business is                                                               
HOUSE  BILL  NO.   216,  "An  Act  relating   to  obstruction  or                                                               
interference with a person's free  passage on or use of navigable                                                               
water;  and amending  the definition  of 'navigable  water' under                                                               
the Alaska Land Act."                                                                                                           
1:04:41 PM                                                                                                                    
CO-CHAIR TALERICO,  as the sponsor,  introduced HB 216.   He said                                                               
the  bill  relates to  the  obstruction  or interference  with  a                                                               
person's free passage  on or use of navigable water  and it would                                                               
amend the definition  of "navigable water" under  the Alaska Land                                                               
Act.    He  paraphrased  from  the  following  sponsor  statement                                                               
[original punctuation provided]:                                                                                                
          The "Submerged Lands Act of 1953" recognized each                                                                     
     state  as  holding the  title  for  any submerged  land                                                                    
     under  a navigable  waterway within  the boundaries  of                                                                    
     each state.  Under Alaska  law, this term is defined in                                                                    
     AC 38.05.965(14)  and specifies a number  of activities                                                                    
     that can  be conducted in a  body of water in  order to                                                                    
     deem  the  body  as  navigable.    While  the  list  of                                                                    
     activities  in  statute is  lengthy,  there  are a  few                                                                    
     omissions that House Bill 216 will address.                                                                                
          The first change that HB 216 will make is to                                                                          
     insert  additional  activities  to  the  definition  of                                                                    
     "navigable water" in  order to ensure that  there is no                                                                    
     ambiguity.    The  bill   includes  the  activities  of                                                                    
     harvesting of ice, military  training, and operation of                                                                    
     watercraft,   hovercraft,  snow   machines  and   other                                                                    
     vehicles, and hunting of any  type of game.  The second                                                                    
     change   is  to   allow  all   activities  under   this                                                                    
     definition to  be conducted "in  any season"  to ensure                                                                    
     that  these activities  may  be  conducted whether  the                                                                    
     navigable body of water is thawed or frozen.                                                                               
          The final change in HB 216 is to combine AS                                                                           
     38.05.128(a)(1)  and (2),  to  eliminate redundancy  in                                                                    
     this section  regarding a government  official blocking                                                                    
     access to navigable waters.                                                                                                
1:06:52 PM                                                                                                                    
CO-CHAIR  TALERICO stated  he  would like  to  offer a  committee                                                               
substitute (CS) that would eliminate the  repeal of AS 38.05.  It                                                               
would  instead  combine AS  38.05.128(a)(1)  and  (2) and  delete                                                               
paragraph (2).   This change  would have  the same effect  as the                                                               
repeal of (a)(1) by  eliminating redundancy regarding obstructing                                                               
the  free  passage  on  navigable  waters.   It  would  also  add                                                               
activities that  are allowed to  be conducted on  navigable water                                                               
in  Alaska  and  would  include   the  operation  of  all-terrain                                                               
vehicles, the  storage of vehicles,  and the hunting of  any form                                                               
of game rather than just waterfowl and aquatic animals.                                                                         
CO-CHAIR TALERICO added  that waterways are the  highways for the                                                               
people who  live in his  district, particularly in  the northeast                                                               
part of his district.  He  further noted he is thinking about the                                                               
mining  activities in  Central and  Chicken and  how often  those                                                               
waterways are used  during the winter to transport  goods and get                                                               
materials and  equipment back  and forth to  the communities.   A                                                               
friend   of  his   began   using  the   Porcupine   River  as   a                                                               
transportation corridor  with his great grandfather  and he still                                                               
lives there  today, uses  the river  routinely, and  utilizes the                                                               
river more  in the winter than  in the summer.   It is incredibly                                                               
important  to all  of  the folks  in the  outlying  areas of  his                                                               
district to be  able to utilize those river corridors  all of the                                                               
time.   It is also important  to him that the  federal government                                                               
continue to  uphold those  things that it  passed many  years ago                                                               
that  give   Alaskans  the  right  to   utilize  those  navigable                                                               
waterways on a year round basis.                                                                                                
1:08:55 PM                                                                                                                    
JOSHUA BANKS, Staff, Representative  David Talerico, Alaska State                                                               
Legislature, brought the  sponsor's proposed committee substitute                                                               
to the attention of the committee.                                                                                              
REPRESENTATIVE  JOHNSON moved  to  adopt  the proposed  committee                                                               
substitute  (CS)  for  HB   216,  Version  29-LS0995\E,  Bullard,                                                               
3/14/16, as the working document.                                                                                               
CO-CHAIR NAGEAK objected for discussion purposes.                                                                               
1:10:10 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON asked what  the state's modifying of the                                                               
definition of  "navigability" would mean relative  to the federal                                                               
government's preeminent role on that  question.  He further asked                                                               
whether  he   is  correct  in  understanding   that  the  federal                                                               
government has the final say over the definition.                                                                               
CO-CHAIR TALERICO replied that HB  216 would clarify, expand, and                                                               
define the  definition within  Alaska statute.   It  would assert                                                               
the state's right  under the Submerged Lands Act, as  well as the                                                               
Statehood Compact, to  have the ability to control  and use those                                                               
waterways as navigable for transportation.                                                                                      
1:11:16 PM                                                                                                                    
CO-CHAIR NAGEAK  removed his objection  to adopting  the proposed                                                               
CS.  There  being no further objection, Version E  was before the                                                               
1:11:33 PM                                                                                                                    
MR. BANKS provided  a sectional analysis of the proposed  CS.  He                                                               
explained that  Section 1 of  Version E would  combine paragraphs                                                               
(1) and  (2) in  AS 38.05.128(a).   This  change would  serve the                                                               
purpose of eliminating redundancy in  regard to when a person can                                                               
obstruct the free  passage of another person  on navigable water.                                                               
The definition of  navigable water in regard to Section  1 is the                                                               
definition that  is being changed in  Section 2.  The  offense of                                                               
obstructing  the free  passage of  navigable water  is a  Class B                                                               
misdemeanor under AS  38.05.128(f).  The original  version of the                                                               
bill  repealed (a)(1),  but the  sponsor feels  that this  change                                                               
could  have had  the  potential for  misinterpretation and  taken                                                               
away the state's power.   So instead of repealing (a)(1), Version                                                               
E combines  (a)(1) and (2),  which basically has the  same effect                                                               
of eliminating the  redundancy of this section.   Section 2 would                                                               
clarify the definition  of navigable waters in two  ways.  First,                                                               
Section 2 would  make it so that any activity  that is allowed on                                                               
navigable waters can  be done in any season.   The changes in are                                                               
to make  clear what can be  done on navigable waters.   In regard                                                               
to the language,  "useful public purpose", on page 2,  line 8, of                                                               
Version E, the  sponsor believes that all  these activities would                                                               
be allowed  even if they were  not listed, but the  sponsor wants                                                               
to make  the law  very clear with  very specific  activities that                                                               
are  allowed  as a  way  to  reduce  the  ambiguity of  the  law.                                                               
Second, Section 2 would add  new activities that can be conducted                                                               
on navigable waters  and those activities are  harvesting of ice,                                                               
state or federal  military training, operation of  boats or other                                                               
watercraft,  hovercraft,  snow  machines,  all-terrain  vehicles,                                                               
other motorized  or nonmotorized  vehicles, storage  of vehicles,                                                               
and the  hunting of any  type of wild  game.  Currently,  the law                                                               
only specifies that a person  may hunt for "waterfowl and aquatic                                                               
animals"; this  language would be  deleted to allow for  any type                                                               
of hunting.                                                                                                                     
1:14:45 PM                                                                                                                    
REPRESENTATIVE  HERRON  drew attention  to  the  analysis by  the                                                               
Department of Natural  Resources (DNR) for the  fiscal note dated                                                               
3/14/16  [page  2, fourth  and  fifth  sentences], which  states,                                                               
"Removing  the   open  ended   language  and   instead  providing                                                               
additional  definitions  of  useful public  purposes  may  create                                                               
ambiguity  about navigability  ...."   He  noted  the sponsor  is                                                               
saying  there will  not  be  ambiguity, but  the  fiscal note  is                                                               
saying there will.  He requested an explanation.                                                                                
MR. BANKS replied  he is aware of this and  has clarified it with                                                               
Legislative Legal  and Research Services.   He said  the deletion                                                               
of the  language "but  not limited to"  is a  drafting preference                                                               
that Legislative  Legal and Research  Services is trying  to move                                                               
to.   The language "including  but not  limited to" has  the same                                                               
effect as  the language "including"  and use of  "including" does                                                               
not limit  the number of  activities to just the  activities that                                                               
are stated in statute.  It is just a drafting preference.                                                                       
REPRESENTATIVE HERRON noted  there is a very  high profile Alaska                                                               
case  "in front  of  the supremes"  and said  they  are going  to                                                               
decide  on it.   For  purposes  of this  bill, he  asked what  is                                                               
navigable and who owns the land under the navigable waters.                                                                     
CO-CHAIR TALERICO  responded the State  of Alaska recently  won a                                                               
case for  navigability and the  ownership of the  land underneath                                                               
Moose  Creek  in the  Fortymile  Mining  District on  the  Taylor                                                               
Highway.    That case  was  high  profile  although not  as  high                                                               
profile  as the  case  mentioned by  Representative  Herron.   He                                                               
offered  his belief  that it  was the  Bureau of  Land Management                                                               
that determined  the state does  not own the land  underneath the                                                               
waterways, but  the courts  decided the state  does own  the land                                                               
underneath the  waterways.  That  was a significant  decision for                                                               
the State of Alaska and was an inspiration behind HB 216.                                                                       
1:18:09 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  whether the  language in  Section 2                                                               
regarding any  season and  useful purpose  year round  means that                                                               
the waterways,  spawning beds,  and so forth  would no  longer be                                                               
protected.   Many waterways are  only used during one  season, he                                                               
pointed out, such as when the waterway is frozen.                                                                               
CO-CHAIR TALERICO answered,  "The intention of the bill  is to be                                                               
able  to use  those vehicles  that you  cannot traditionally  use                                                               
when the  water is thawed when  it's frozen."  So,  the intention                                                               
was to  be able to use  other vehicles once the  water is frozen.                                                               
A  prime  example  is  trips  between  Fort  Yukon  and  Central.                                                               
Normally  trips are  done with  snow machine  and they  have been                                                               
done with  highway vehicles when  the river  is frozen.   That is                                                               
the closest  connection to  a road  for those  folks and  so they                                                               
utilize that  on a regular  basis.  Also,  there is the  new road                                                               
going to Tanana  and those folks are thinking they  will have the                                                               
potential for  rubber tired vehicular  access in winter  when the                                                               
river is frozen.   The idea was to be able  to use those vehicles                                                               
when the  season changes.  Obviously,  it is easy to  use a motor                                                               
boat on the  upper Yukon and in the Porcupine  usually from about                                                               
the last  week in May  until the second  week in September.   The                                                               
rest  of  the time  requires  a  change  in  vehicles.   So,  the                                                               
intention  is to  be  able  to utilize  those  vehicles that  are                                                               
available to those folks for  transportation.  Just because these                                                               
are  listed does  not mean  that dog  sleds, skijoring,  or other                                                               
traditional uses are eliminated.                                                                                                
REPRESENTATIVE SEATON  urged the sponsor to  investigate refining                                                               
the  bill to  ensure  it would  not unintentionally  specifically                                                               
allow all-terrain  vehicles to  be used in  these areas  at times                                                               
when it  would not  be appropriate,  when it  is not  frozen, and                                                               
therefore causing impact to other resources.                                                                                    
CO-CHAIR TALERICO  agreed to do so.   He believed there  are some                                                               
areas in  the state where  the Alaska  Department of Fish  & Game                                                               
(ADF&G) has the authority and ability  to ban the use of any type                                                               
of vehicle on a stream.   Some areas have horsepower restrictions                                                               
on  boats  and  some  areas  prevent  people  from  entering  the                                                               
streambed even  on foot.  He  offered his belief that  ADF&G will                                                               
continue to monitor that very closely.                                                                                          
1:22:01 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  said  the  bill seems  to  expand  the                                                               
state's  definition of  navigable water.   He  asked whether  the                                                               
federal government  might use  this to its  benefit and  say that                                                               
the state has a more expanded  definition and use the doctrine of                                                               
Choice of  Law to  piggyback on that  definition in  this statute                                                               
and as a consequence have a broader definition of navigability.                                                                 
CO-CHAIR  TALERICO  replied  he  cannot  speak  for  the  federal                                                               
government,  but   allowed  it  is   a  possibility.     He  said                                                               
navigability is  not an issue to  him at all, rather  the lack of                                                               
the ability  to be  able to  navigate on  these waterways  is his                                                               
biggest fear.  Whether the  federal government would choose to do                                                               
that  he does  not know,  but  by the  federal government's  most                                                               
recent actions  and attitude  he would  seriously doubt  that the                                                               
federal government would expand any definition of navigability.                                                                 
1:23:22 PM                                                                                                                    
CO-CHAIR NAGEAK opened public testimony on HB 216.                                                                              
MELVIN  GROVE,  Alaska  Outdoor  Access  Alliance,  testified  in                                                               
support of  HB 216, saying it  is critical that the  state define                                                               
what is  navigable and  expand the  definition.   Alaska's rivers                                                               
and  lakes are  much easier  to  use in  the winter  than in  the                                                               
summer, he  said, especially  by snow  machine or  track vehicle.                                                               
Anything that  can be done to  protect the access of  Alaskans to                                                               
their  resources is  critical because  the federal  government is                                                               
more and  more trying to limit  that access or taking  it away or                                                               
making it more difficult.                                                                                                       
1:26:13 PM                                                                                                                    
SCOTT OGAN stated  he is a former legislator  and formerly worked                                                               
for   the  Department   of  Natural   Resources  where   he  made                                                               
determinations  of navigability  on  state waters.    He said  he                                                               
supports HB 216 and what the sponsor  is trying to do, but has an                                                               
issue  with eliminating  the  words  "but not  limited  to".   He                                                               
suggested an attorney's opinion be  sought.  He recounted that he                                                               
was asked  all the time  whether a water  was navigable.   He had                                                               
the  delegated  authority  to make  that  determination  and  the                                                               
determination  for  navigability  that  he  made  was  for  state                                                               
ownership.  Under  the Submerged Lands Act and  the Equal Footing                                                               
Doctrine the state received the  title to all the submerged lands                                                               
at  statehood.   However, government  did not  define which  ones                                                               
were  which, so  the state  has been  in a  50-year battle  since                                                               
then,  and, he  added, his  team  successfully led  an action  to                                                               
quiet title on  the Mosquito Fork of the Fortymile.   He said the                                                               
other portion  is navigability for Public  Trust Doctrine access,                                                               
and  the changes  in  HB 216  address  specifically Public  Trust                                                               
Doctrine navigability.  Access to  navigable waters is a State of                                                               
Alaska constitutional  right.  Alaska's constitution  is the only                                                               
one in the  U.S. with that protection; the  founding fathers knew                                                               
that these waters are the highways in undeveloped areas.                                                                        
MR. OGAN  posited that it  is important  to state for  the record                                                               
that  these proposed  changes  will not  change  what rivers  and                                                               
waterways are  owned by the  State of Alaska; that  is determined                                                               
by federal case  law.  The most recent case,  PPL Montana, LLC v.                                                             
Montana,  132 S.Ct.  1215  (2012),  goes back  to  a case  called                                                             
"Daniel  Ball,"  which  is  a  Civil War  era  case  where  if  a                                                             
watercraft  is used  for commercial  activities on  a river  that                                                               
determines that it is navigable; it  does not actually have to be                                                               
tied  to  actual  use,  it   could  be  susceptible  to  use  for                                                               
navigability.  He recounted that his  team tried to lower the bar                                                               
- what  is the  smallest river  in the state  that was  proved in                                                               
court as being  navigable.  That was the Nation  River, the river                                                               
on which  Mr. [John] Sturgeon  was threatened with  citations for                                                               
using his  watercraft, a  craft that was  banned by  the National                                                               
Park Service Code  of Federal Regulations (CFRs).   That issue is                                                               
more of  an issue  of whether lands  designated under  the Alaska                                                               
National Interest  Lands Conservation  Act (ANILCA)  are affected                                                               
by state  sovereign waters.  Mr.  Ogan held that those  are state                                                               
sovereign  because   the  state  owned  them   before  they  were                                                               
transferred to the National Park  Service under ANILCA.  He added                                                               
that the  National Park  Service owns  the uplands  and clarified                                                               
that that is the dispute, not whether the river is navigable.                                                                   
MR. OGAN suggested  that the bill make it a  Class A misdemeanor,                                                               
rather  than Class  B, to  block  access to  somebody's right  to                                                               
access a  navigable water,  because troopers  are not  as excited                                                               
about prosecuting  a Class B misdemeanor  as they are a  Class A,                                                               
and he thinks  it is a pretty serious violation.   Also, he said,                                                               
private landowners do not have the  right to block someone who is                                                               
using the  waterbody on their  land.   He recounted that  many of                                                               
the  disputes he  got involved  in were  when the  water was  not                                                               
navigable for title  purposes but was navigable  for public trust                                                               
purposes under  the statute, and  the private property  owner was                                                               
saying  the public  could  not go  on the  river  and fish  there                                                               
because the  property owner  owned the submerged  land.   He said                                                               
[DNR] concurred  the private property  owner owned  the submerged                                                               
land, but  could not prevent the  public from going on  the river                                                               
because under the delegated authority  in the constitution to the                                                               
legislature,  the legislature  has  determined that  water to  be                                                               
navigable in  this definition  of the  statute and  therefore the                                                               
public has  a right to  access it.  That  is what is  being dealt                                                               
with under HB 246.                                                                                                              
1:32:05 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  drew attention to the  language "in any                                                               
season" on  page 2, line  7, of Version E.   He noted  there have                                                               
been  two main  federal decisions  in the  last decade  that have                                                               
looked  at  navigability, Solid  Waste  Agency  of Northern  Cook                                                             
County v.  United States  Army Corps of  Engineers, 531  U.S. 159                                                           
(2001), and Rapanos  v. United States, 547 U.S. 715  (2006).  The                                                             
state's  rights argument  was that  [the federal  government] was                                                               
classifying too many  things as navigable so the  pushback on the                                                               
federal government was  that that is not navigable  here, it does                                                               
not have a  physical nexus or attachment to  some truly navigable                                                               
water body.  Here, at least as  to seasons, it is being said that                                                               
the state  wants to grow  the definition of navigability  and, as                                                               
far as he can  tell, that does not line up  with the arguments of                                                               
the  states  in  those  two  cases.    He  requested  Mr.  Ogan's                                                               
MR. OGAN replied  that in his opinion and  direct experience, the                                                               
bill will not expand the  ability to assert title navigability in                                                               
federal court.   Statute may say a water is  navigable, but it is                                                               
driven by  federal case  law because  the federal  government did                                                               
convey  the  waters that  were  navigable  and  the test  is  the                                                               
federal case  law.  The  most recent case  law that DNR  hung its                                                               
hat on when he was there was the  PPL Montana, LLC.  In that case                                                             
the river was broken up into  segments, with some segments of the                                                               
river that were  not navigable and some that were.   It was ruled                                                               
that  the non-navigable  segments  do not  belong  to the  state.                                                               
That dispute was over a dam  for generating power that was put in                                                               
the river and the  state argued that it was a  state river so the                                                               
company owed the  state back rent for  use of that dam.   He said                                                               
he does  not know how that  case worked out because  his interest                                                               
was  in what  sections  were navigable  and what  were  not.   He                                                               
related  that on  the morning  of a  summary judgement  motion on                                                               
DNR's  Mosquito Fork  case, the  federal government  came in  and                                                               
disclaimed 100 percent of the river that DNR was litigating.                                                                    
1:35:14 PM                                                                                                                    
WARREN  OLSON said  he has  lived in  Alaska for  55 years,  is a                                                               
member  of the  Citizens'  Advisory Commission  on Federal  Areas                                                               
(CACFA), and has been involved in  water issues for 35 years.  He                                                               
cut his teeth on the  "Gulkana case" that was extremely important                                                               
to  Alaska in  regard  to  navigable waters  in  the  state.   He                                                               
advised that the  term "navigable waters" is a legal  term.  Each                                                               
individual state  determines its  navigable waters  standards and                                                               
how  wide  the  law is  going  to  be  in  each state,  how  much                                                               
influence it  causes.  So it  is a total sovereign  issue of each                                                               
state to  determine navigable waters  within the state,  so there                                                               
are  50 different  navigable water  laws across  the nation.   In                                                               
regard  to  Representative  Josephson's   remarks,  he  said  the                                                               
federal government really  revolves around navigational servitude                                                               
and reserve water rights.   Navigational servitude has to do with                                                               
someone  putting a  cable or  some other  obstruction across  the                                                               
waterway within the state.  No  matter how large or how small the                                                               
obstruction,  that  will  result  in  talking  with  the  federal                                                               
government  because  it  will   be  restricting  commerce  and/or                                                               
personal use of  the waterway.  Reserved water rights  have to do                                                               
with  establishing  refuges  and/or  inholdings  of  the  federal                                                               
government and those  are determined at the  time of establishing                                                               
the inholdings or reserves.                                                                                                     
MR.  OLSON addressed  HB 216.    He related  that when  attending                                                               
CACFA  meetings  the departments  would  describe  their work  in                                                               
regard  to  navigable  water  in  Alaska  and  the  presentations                                                               
usually would be  involved with summertime use.   This particular                                                               
case brought a question to his  mind about the five or six months                                                               
a year of  wintertime use.  Alaskans travel tens  of thousands of                                                               
miles  on all  waterways  during the  winter  with all  different                                                               
types of modes of transportation.   Additionally, personal use of                                                               
those waterways in the wintertime  is necessary to move equipment                                                               
and  so   forth  to  lodges   and/or  mineral   developments  for                                                               
springtime work.   The  purpose of  [HB 216]  is to  elevate that                                                               
particular portion of  the year, when it is frozen,  that has not                                                               
been shown as an example of use of water for users in Alaska.                                                                   
1:38:46 PM                                                                                                                    
MR.  OLSON offered  several  suggestions.   He  said  there is  a                                                               
question of whether float planes  are considered a navigable use.                                                               
Regarding  the   language  "landing  and  takeoff   of  aircraft"                                                               
[original bill version, page 1, line  12, he urged it be specific                                                               
and include "wheels, floats, and  skis".  He suggested that "four                                                               
wheelers" be  added [to page 1,  line 13, in the  original bill],                                                               
because  throughout the  Interior and  the highway  system it  is                                                               
common in  wintertime to see  the utility work of  four wheelers.                                                               
He also urged  that the words "but not limited  to" remain in the                                                               
bill to  prevent the exclusion  of any  particular use.   He said                                                               
the  strength  of  HB  216  is  that  each  navigable  water  law                                                               
throughout the country  is unique to each state and  he is a firm                                                               
believer in naming specific uses  so that when these convocations                                                               
go between  the federal government  and the State of  Alaska that                                                               
Alaska's law stands right up and  Alaska as a sovereign state has                                                               
declared that these particular uses  are a priority; there may be                                                               
others that are practical as well.                                                                                              
MR. OLSON said  there are other areas that the  state should take                                                               
advantage  of,  such  as basin-wide  adjudication.    This  would                                                               
assist the state in determining  navigable water status, possibly                                                               
in more  urgent and  quicker methods than  are being  used today.                                                               
When referring to  navigable water laws, a look must  be taken at                                                               
each state supreme  court in respect to the  state that decisions                                                               
have  come  from.    The  state supreme  court  is  the  ultimate                                                               
authority  on  navigable water  across  the  United States.    He                                                               
thanked the sponsor for introducing the bill.                                                                                   
1:41:32 PM                                                                                                                    
REPRESENTATIVE  SEATON pointed  out  that Version  E, Section  2,                                                               
page 2, line 11, specifies  all-terrain vehicles and this section                                                               
also specifies in any season for  any public purpose.  He further                                                               
noted that Section 2 applies to  ponds and estuaries and he knows                                                               
of people  who have  very large  tired all-terrain  vehicles that                                                               
are  great going  through the  mud  and those  people enjoy  that                                                               
recreation.    He asked  whether  having  this in  statute  would                                                               
override regulations that  are effect by ADF&G  and whether there                                                               
needs to be clarification in this regard.                                                                                       
MR. OLSON  answered that in  the areas of conservation  safety it                                                               
would  seem to  him that  the  department that  has authority  in                                                               
control and can establish  restrictions against particular users.                                                               
Today there are four wheel drives  and street vehicles out on the                                                               
ice,  for example  they  are  crossing the  ice  on  Big Lake  in                                                               
Southcentral Alaska.                                                                                                            
1:43:42 PM                                                                                                                    
GARY STEVENS offered  his strong support for HB 216.   He said he                                                               
is a  member of the  Alaska Outdoor  Council, but is  speaking on                                                               
behalf of himself.  The biggest  issue for him is specifying that                                                               
snow machines  can be  ridden in  wintertime on  frozen navigable                                                               
waterways.   He said he  does not  think the committee  should be                                                               
too concerned about  federal law and what  the federal government                                                               
is going  to decide as  far as what is  navigable.  This  is more                                                               
about the allowed uses - what  is being used on that waterway and                                                               
when  it  is  being  used  on   that  waterway.    In  regard  to                                                               
Representative Seaton's  concerns, he said  he is sure  that laws                                                               
currently on the books will cover anadromous species.                                                                           
1:45:01 PM                                                                                                                    
STEVE  STRAIGHT urged  the  passage of  HB 216.    As a  longtime                                                               
Alaskan  he  said he  finds  it  crazy  that  there needs  to  be                                                               
discussion  about the  idea that  there is  a difference  between                                                               
summer use  of rivers and winter  use of rivers because  it seems                                                               
so logical.   He  said the  reason he urges  the bill  be passed,                                                               
whether in its  original form or the  CS, is that if  the bill is                                                               
not passed the legislature is leaving  it to a judge to make this                                                               
decision,  which is  not always  the wisest  place to  develop or                                                               
make law.   He requested the committee put it  in writing and get                                                               
it right,  because if the bill  is not passed a  judge could then                                                               
rule that the  legislature did not intend for there  to be winter                                                               
access on navigable waters.                                                                                                     
1:47:24 PM                                                                                                                    
CEEZAR MARTINSON testified  in support of HB 216, saying  it is a                                                               
critical  bill  to pass  for  several  reasons.   First  are  the                                                               
reasons  stated by  Mr.  Straight and  the other  is  that it  is                                                               
important for  the State  of Alaska to  expand the  definition of                                                               
what  is navigable  waters  and  what can  be  used on  navigable                                                               
waters.  In particular, the  federal overreach that has been seen                                                               
in Alaska with regard to the  Sturgeon case and other cases where                                                               
the National Park Service has  denied Alaskans the ability to use                                                               
equipment that is  necessary to them to harvest  resources.  This                                                               
bill  is  a  first  step  for the  legislature  to  assert  state                                                               
sovereignty and say navigable waters are  a state issue and it is                                                               
not the  place of the  federal government  to come in  and attack                                                               
Alaska citizens with unnecessary  and burdensome regulations that                                                               
impact their ability to feed themselves and their families.                                                                     
1:49:29 PM                                                                                                                    
CHARLES LEAN stated he is speaking for  himself.  He said he is a                                                               
member of  CACFA and was a  fisheries biologist for 40  years, so                                                               
he has  a great deal of  experience in both winter  and summer in                                                               
Northwest Alaska.  He  said he is in favor of  the bill and likes                                                               
many facets  of it.   The uses  that transferred  navigability to                                                               
the state,  although they  have changed  somewhat, show  that the                                                               
rivers and navigable waters have  not really changed much in that                                                               
timespan and  they still represent  oftentimes the best  route or                                                               
the  best means  of transportation.   Saying  he is  particularly                                                               
interested in  winter transportation,  he pointed out  that large                                                               
rivers like  the Yukon  are highways  in the winter.   It  is the                                                               
side sloughs,  straight shots, and  what is shallow water  in the                                                               
summer that  is frozen to the  bottom in winter and  that is what                                                               
provides the  most stable roadbed.   Nome is  in the thick  of it                                                               
with  the Iditarod,  Iron Dog,  and other  races.   All of  these                                                               
things  occur on  the historic  Iditarod Trail  and the  Iditarod                                                               
Trail is a  network of trails, not  a single line, and  it is the                                                               
historic  transportation  route that  the  mail  traveled in  the                                                               
winter.   It goes all  the way to Eagle  and Bethel and  north to                                                               
Kotzebue; all those trails exist as  a network and they are still                                                               
in use.   [Another example is that] many of  the visitors in Nome                                                               
for  today's  basketball game  came  via  snow machine  on  those                                                               
trails.   Those  trails  transit park  lands,  fish and  wildlife                                                               
lands,  and state  lands and  they make  use of  tidewater.   The                                                               
state owns out  to three miles and it also  owns internal waters;                                                               
those are all  part of the Navigable Waters Act  and those trails                                                               
make high use of the coastal  waters of Alaska in the winter when                                                               
they are  frozen.  He said  he could speak in  great detail about                                                               
fisheries  management  and  how  to remediate  any  impacts  that                                                               
members are concerned  about.  There are villages  in his region,                                                               
such as  Shishmaref, that still  get their water from  rivers and                                                               
families travel on a weekly basis  ten miles from town upriver to                                                               
find good clean water in the form  of ice that they bring back to                                                               
subsist on  for the rest  of the  week.  Reiterating  his support                                                               
for the bill,  he said it has  a number of things  he is grateful                                                               
to see acknowledged.                                                                                                            
1:54:19 PM                                                                                                                    
THOMAS VADEN testified  he is a lifelong Alaskan  and is speaking                                                               
to the  trail system and roads  in Eastern Alaska where  he has a                                                               
guiding  operation.   Right  now between  Nabesna  and the  White                                                               
River he  is freighting  about 60,000  pounds with  snow machines                                                               
using several  rivers and over  very small navigable  rivers that                                                               
are frozen  solid in  the winter.   That is the  only way  to get                                                               
around, he said.   It is a  big help to his  operation hauling in                                                               
horse  feed and  the like.   The  village of  Shushanna uses  the                                                               
Sushana River  coming upstream from  Northway or  Tetlin Junction                                                               
to supply  people with fuel.   The bill  is very critical  to any                                                               
kind of operations  in rural Alaska.  Some of  the trails go over                                                               
glaciers and they  are historic trails from the gold  rush in the                                                               
1920s and  1930s, but most  of those  are harder now  to navigate                                                               
because the  glaciers are receding.   He  said he still  gets ice                                                               
from rivers  to support  his operations, as  do the  residents of                                                               
Shushanna, because there  are no wells.  He  closed his testimony                                                               
by stating his support for the bill.                                                                                            
1:56:23 PM                                                                                                                    
STEVEN FLORY  spoke in favor  of the bill.   He pointed  out that                                                               
many  cabins  and  homes  are  located  on  tributaries.    These                                                               
waterways  have  been  historical  highways  for  generations  of                                                               
Alaskans,  he said,  long before  all-terrain  vehicles and  snow                                                               
machines.  It  is not a new  issue, it is just the  first time it                                                               
is  being addressed  in state  law.   The  bill is  a simple  and                                                               
overdue  solution to  an  oversight.   He  said  he cannot  speak                                                               
enough in favor of HB 216.                                                                                                      
REPRESENTATIVE  TARR  inquired  whether  Mr. Flory  has  had  any                                                               
circumstances  where   he  was  prevented  from   travel  on  any                                                               
navigable waters.                                                                                                               
MR.  FLORY replied  that the  Knik Public  Use Area  was recently                                                               
established by  the legislature and  there is  a push by  a small                                                               
segment of  people to limit the  use in the wintertime.   He came                                                               
to Alaska 26  years ago and trapped in that  area, getting around                                                               
on the ice.  Ice fishing and  other activities go on in that area                                                               
and  certain groups  have tried  to limit  that access.   Another                                                               
example has to do with a lake  that he was trapping nearby and on                                                               
which he  was using  permission from one  of the  property owners                                                               
that abutted the  lake.  The submerged lands  underneath the lake                                                               
and  to the  high  water mark  belong  to the  state  and he  was                                                               
trapping those  areas.  A  person who  did not want  any trappers                                                               
out there literally  interfered and took his traps  and the state                                                               
prosecuted her for that.                                                                                                        
1:59:16 PM                                                                                                                    
CRAIG COMPEAU said  he is a 55 year resident  of Fairbanks and is                                                               
testifying  on behalf  of himself  and his  family business.   He                                                               
held  that  the  definition  of navigable  waters  is  that  they                                                               
provide a channel  for commerce and transportation  of people and                                                               
goods.   The  definition does  not say  anything about  the water                                                               
condition, whether  it is  frozen, thawed, or  muddy.   Since the                                                               
late 1950s his family has  sold almost 20,000 snow machines, most                                                               
of them  to rural villages where  they are used for  hauling wood                                                               
and  water  and  dragging  trees  along  the  water.    If  those                                                               
definitions are  not commerce and  transportation for  the people                                                               
of Alaska, then he does not know  what is.  He offered his strong                                                               
support for the bill, saying  these definitions need to be firmed                                                               
up so  people can use  these waters  as was intended,  whether or                                                               
not they are frozen.                                                                                                            
2:01:01 PM                                                                                                                    
KAREN  GORDON  thanked  Representative  Talerico  for  closing  a                                                               
loophole in this  language by including winter use as  well.  She                                                               
said  there are  those who  would  suggest that  because it  says                                                               
water that it  would not include winter use, but  in Alaska there                                                               
is  significant  wintertime  use  of navigable  waters  that  are                                                               
solid.  She urged the bill be passed.                                                                                           
2:02:04 PM                                                                                                                    
RICHARD  BISHOP noted  he  lives in  the  Goldstream Valley  area                                                               
where trails and  other access are an important  part of people's                                                               
daily lives.   He said  he supports HB 216  and while he  has not                                                               
seen the  proposed committee  substitute he thinks  it is  on the                                                               
right  track.   Alaska's waterways  are essential  for access  by                                                               
Alaskans to the  vast areas of the state -  hiking trails, roads,                                                               
or air fields -  whether they are open water or  frozen.  He said                                                               
he had mistakenly assumed that  Alaskan waterways were considered                                                               
navigable  or  legal  public  access   when  frozen,  so  he  was                                                               
surprised  to learn  otherwise.   He also  recently learned  that                                                               
federal  agencies do  not  consider  frozen waterways  navigable,                                                               
making the  assurances that  state waters  are navigable  all the                                                               
more important.   He said  he supports the  bill as the  means to                                                               
ensure that  Alaska's waters are  considered navigable  and legal                                                               
public access year around.                                                                                                      
MR. BISHOP  recommended several  amendments to  clear up  some of                                                               
the  text.   Referring to  the  original version  before him,  he                                                               
suggested  that "or  ice"  be added  on page  1,  line 10,  after                                                               
"water"  to make  the intent  more clear.   On  page 1,  line 13,                                                               
after the  word ["vehicles"], he  recommended adding  "dog teams,                                                               
pedestrian  uses".    He  proposed  that  page  1,  line  14,  be                                                               
rephrased to  state "trapping, hunting, fishing,  or other lawful                                                               
public purposes and activities".   Regarding the words "trapping"                                                               
and  "hunting", he  held that  those adequately  cover the  terms                                                               
"waterfowl and aquatic animals" as  well as other practices, such                                                               
as  moose hunting,  for  example,  which is  very  common on  the                                                               
waterways.   He  urged the  bill be  passed to  make it  clear in                                                               
statute that Alaska's frozen waters  are considered navigable for                                                               
public access.  As to  potential impacts to salmon spawning areas                                                               
or other anadromous fish, he pointed  out that there is already a                                                               
statute regarding  the protection  of anadromous streams  that is                                                               
rigorously enforced.                                                                                                            
2:05:41 PM                                                                                                                    
JOHN STURGEON  testified in support  of HB 216, saying  it should                                                               
have  been done  long ago.   He  noted that  in 2011  he filed  a                                                               
lawsuit  against the  federal government  on navigability  and on                                                               
1/20/16  it was  heard by  the U.S.  Supreme Court.   During  the                                                               
lawsuit the  issue of uses  of navigable water  has come up  in a                                                               
form of  whether dog  sleds are  allowed.   Another issue  was in                                                               
regard  to places  like  the  Yukon River  that  have very  large                                                               
gravel  bars that  run for  miles.   The definition  of navigable                                                               
waters is ordinary high water to  ordinary high water, so it does                                                               
include  the gravel  bars in  places like  the Yukon  and Susitna                                                               
rivers.   Four wheelers and  other things used for  moose hunting                                                               
are allowed.  The National  Park Service has chased four wheelers                                                               
off  those  gravel bars  on  the  Yukon,  so  if his  lawsuit  is                                                               
successful  and  the state  retains  its  rightful title  to  the                                                               
navigable waters,  he wants  to ensure that  those uses  are very                                                               
clearly defined.                                                                                                                
2:07:23 PM                                                                                                                    
KENNY  BARBER  stated   his  100  percent  support   of  HB  216,                                                               
explaining he is a trapper who  uses these waterways.  For almost                                                               
30  years  he trapped  using  an  M37,  a rubber  tired  military                                                               
vehicle.   He added that he  has never had a  problem trapping on                                                               
rivers.   Another reason he supports  the bill is that  he thinks                                                               
there is  a lot of  overreach by  the federal government  that is                                                               
trying to  stop people  from using these  waterways and  he would                                                               
like to see the state get the jump on the federal government.                                                                   
2:08:37 PM                                                                                                                    
CO-CHAIR TALERICO  closed public testimony  on HB 216  and opened                                                               
committee discussion on the bill.                                                                                               
REPRESENTATIVE  HERRON suggested  careful consideration  be given                                                               
to Representative Seaton's concern  about having certain vehicles                                                               
in  salmon streams.   For  example, a  vehicle being  able to  go                                                               
through some streams at any time  could cause damage.  He said he                                                               
would appreciate it  if the committee could figure  out some sort                                                               
of an accommodation to the concern.                                                                                             
REPRESENTATIVE SEATON  said his  reason for  bringing this  up is                                                               
that subsequent law can override  previous law, so there needs to                                                               
be some  recognition of  that interplay.   He  stated he  has not                                                               
heard from the  department as to how that interplay  would go and                                                               
whether  the  specification of  all-terrain  vehicles  in HB  216                                                               
would  have priority  over previous  law.   He drew  attention to                                                               
[page 1,  line 6, of Version  E] which states that  a person many                                                               
not   obstruct   or   interfere  unless   that   obstruction   or                                                               
interference  falls under  the [four]  conditions  listed in  the                                                               
bill, the  last condition being  "authorized by  the commissioner                                                               
after reasonable public notice."  He  asked whether that is for a                                                               
specific waterway  or in  general; for  example whether  it would                                                               
cover estuaries in general or each specific [estuary].                                                                          
2:10:52 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON suggested the  topic is more complicated                                                               
than may  be thought.   For example,  one witness, a  CACFA board                                                               
member,  said   that  the  only   time  the   federal  government                                                               
intervenes  is  when  there is  some  physical  obstruction  that                                                               
interferes with  interstate commerce or  that sort of thing.   He                                                               
recounted  an  [1824]  decision  that he  used  to  teach  called                                                               
Gibbons  v. Ogden,  22  U.S.  1 (1824),  where  the U.S.  Supreme                                                             
Court, John Marshall,  first said navigability is  a federal area                                                               
and there was not really  any discussion of obstruction, although                                                               
it did  involve a dispute  between New  Jersey and New  York over                                                               
who  controlled New  York Harbor.    So, there  was not  anything                                                               
interfering with  traffic other than  some sort of fee,  which he                                                               
supposed could be the obstruction.                                                                                              
REPRESENTATIVE   JOSEPHSON,  regarding   Representative  Seaton's                                                               
concern, said the  definition as he reads it  seems to liberalize                                                               
hunting.  There are prohibitions  on hunting when game is present                                                               
in the water, he noted, but  because there are exceptions to that                                                               
he  does  not  know  whether  the  bill  would  impede  on  that.                                                               
Regarding the  access issue,  he recalled that  when he  lived in                                                               
the  Bush the  sloughs  and rivers  were  unimpeded highways  for                                                               
vehicles of  all sorts.   He presumed  that would not  be changed                                                               
and would be left alone; for  example, no one was obstructing any                                                               
through  traffic  between Aniak  and  Bethel  that  he saw.    He                                                               
remarked he has a lot more to learn.                                                                                            
2:13:23 PM                                                                                                                    
CO-CHAIR TALERICO said HB 216 will  be held over while his office                                                               
obtains answers to the questions raised by the committee.                                                                       
2:13:45 PM                                                                                                                    
The committee took an at-ease from 2:13 p.m. to 2:15 p.m.                                                                       
         HB 246-AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND                                                                     
2:15:28 PM                                                                                                                    
CO-CHAIR  NAGEAK announced  that the  next order  of business  is                                                               
HOUSE  BILL   NO.  246,  "An   Act  creating  the  oil   and  gas                                                               
infrastructure   development  program   and  the   oil  and   gas                                                               
infrastructure   development  fund   in  the   Alaska  Industrial                                                               
Development and Export Authority;  relating to the interest rates                                                               
of  the  Alaska  Industrial  Development  and  Export  Authority;                                                               
relating  to  the  sustainable  energy  transmission  and  supply                                                               
development  and Arctic  infrastructure  development programs  of                                                               
the Alaska Industrial Development  and Export Authority; relating                                                               
to dividends  from the Alaska  Industrial Development  and Export                                                               
Authority; and  adding definitions  for 'oil and  gas development                                                               
infrastructure' and 'proven reserves.'"                                                                                         
2:15:47 PM                                                                                                                    
FRED  PARADY, Deputy  Commissioner, Office  of the  Commissioner,                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED), noted  he is before the  committee as a board  member of                                                               
the Alaska  Industrial Development and Export  Authority (AIDEA).                                                               
On  behalf of  the governor,  he introduced  HB 246  by way  of a                                                               
PowerPoint   presentation   entitled,    "AIDEA   Oil   and   Gas                                                               
Infrastructure Development  Fund, HB  246."   He said  the bill's                                                               
purpose is  to create an  oil and gas  infrastructure development                                                               
program and fund within AIDEA.   Through AIDEA's work with small-                                                               
and medium-sized oil and gas  developers, AIDEA identified a need                                                               
for  additional tools  to  support those  developers.   The  bill                                                               
would create  an oil and  gas infrastructure  development program                                                               
and  fund  to  make  investments  in  supporting  infrastructure,                                                               
including  roads,  pads,  gathering  systems,  camps,  and  other                                                               
facilities.   The bill  does not propose  to make  investments in                                                               
well and  reservoir development.  The  infrastructures that AIDEA                                                               
would support would  increase oil and gas  production, help bring                                                               
new  fields  on line,  attract  new  investment, increase  future                                                               
state revenues, and support energy security.                                                                                    
2:17:25 PM                                                                                                                    
MR. PARADY  addressed slide 2,  "Current AIDEA  Financing Tools,"                                                               
stating that  AIDEA has 735,000  shareholders, the  population of                                                               
Alaska,   and  they   are  represented   by   the  Alaska   State                                                               
Legislature.   The governor is AIDEA's  institutional shareholder                                                               
who  appoints AIDEA's  seven-member board.   The  staff of  AIDEA                                                               
manages  the day-to-day  business.   Currently,  AIDEA has  three                                                               
funds  [revolving  fund,   sustainable  energy  transmission  and                                                               
supply (SETS)  fund, Arctic infrastructure fund]  and two special                                                               
appropriations projects  [Interior energy project,  Ambler mining                                                               
district  industrial access  project].   Today,  the majority  of                                                               
AIDEA's  core  day-to-day  business   of  providing  capital  and                                                               
partnering  with  industry to  help  drive  the state's  economic                                                               
engines is done through its revolving fund.                                                                                     
MR. PARADY moved to slide  3, "Geographic Project Diversity," and                                                               
pointed out  that the revolving  fund has investments  across the                                                               
state,  which  are  relatively  aligned  with  the  commerce  and                                                               
industry  across  the  state.   Turning  to  slide  4,  "Industry                                                               
Diversification," he  noted the revolving fund  has a diversified                                                               
portfolio of investments in Alaska  businesses that operate under                                                               
the Prudent Investor  Rule.  The revolving  fund has historically                                                               
made select investments  that support oil and  gas development in                                                               
the state.  However, he  said, AIDEA's opinion is that additional                                                               
investments by  the revolving fund  in projects that  support oil                                                               
and  gas  development  would  overweight   what  is  a  currently                                                               
diversified portfolio.   He specified that the 20  percent of the                                                               
revolving  fund  invested in  mining  is  essentially the  DeLong                                                               
Mountain Transportation  System, Red  Dog, but  the risk  in that                                                               
project  is  actually   in  the  past  because   the  project  is                                                               
successful.   Oil  and  gas  represent about  14  percent of  the                                                               
revolving fund.                                                                                                                 
MR. PARADY  displayed slide  5, "AIDEA  Financing Tools  after HB                                                               
246, and  explained that the  concern addressed  by HB 246  is to                                                               
develop an AIDEA financing tool  because the oil and gas industry                                                               
sector continues to  be a crucial contributor to the  state.  For                                                               
AIDEA  to continue  to support  the  industry, AIDEA's  executive                                                               
director  John   Springsteen  and  board  believe   it  would  be                                                               
beneficial  for AIDEA  to have  a separate  tool and  fund solely                                                               
focused  on   supporting  oil  and  gas   development  by  making                                                               
investments in infrastructure.                                                                                                  
2:19:46 PM                                                                                                                    
MR. PARADY  showed slide  6, "Intent of  HB 246,"  and reiterated                                                               
that  the bill's  intent is  to  continue to  support small-  and                                                               
medium-sized  oil and  gas developers  statewide with  a separate                                                               
program and fund  within the AIDEA family of  investments.  These                                                               
investments would  be in infrastructure  to:  support  small- and                                                               
medium-sized  firms;  increase  production  and  help  bring  new                                                               
fields  on   line;  attract   new  investment;   increase  future                                                               
revenues; and support energy security.                                                                                          
MR.  PARADY drew  attention to  slide  7, "Eligible  Oil and  Gas                                                               
Infrastructure Projects," and defined  oil and gas infrastructure                                                               
as roads, pads, camps,  processing facilities, gathering systems,                                                               
and similar above  the ground assets.  He  reiterated that wells,                                                               
reservoirs, or  other below  ground assets  are not  being talked                                                               
about.  Amongst the criteria  AIDEA would use to qualify projects                                                               
for  these  loan  programs  would   be  that  the  infrastructure                                                               
investment must  be for a field  with proven reserves.   The bill                                                               
uses  the Society  of Petroleum  Engineers' definition  of proven                                                               
reserves, but,  he allowed, it  is possible that  that definition                                                               
could come under debate before the committee.                                                                                   
MR.  PARADY  reviewed  slide  8,  "Financing  and  Tax  Credits,"                                                               
explaining that  the bill  proposes an  opt-in/opt-out provision.                                                               
If  a  borrower  opts  in  to using  AIDEA  financing,  then  the                                                               
borrower is opting  out of using the  exploration and development                                                               
tax credit found in AS 43.20.043.                                                                                               
REPRESENTATIVE OLSON  noted that  AS 43.20 is  now closed  to new                                                               
participants.   He  asked whether  there  is any  money left  for                                                               
someone who was in before the cutoff.                                                                                           
MR. PARADY  believed the answer to  be yes, but said  he will get                                                               
back to the committee.                                                                                                          
REPRESENTATIVE OLSON understood a  participant would have several                                                               
years to use that.                                                                                                              
MR. PARADY  replied yes, but added  that he will get  back to the                                                               
committee with a confirmed answer.                                                                                              
2:21:53 PM                                                                                                                    
MR.  PARADY resumed  his presentation  and  continued to  address                                                               
slide 8.  He noted projects  with past tax credits would still be                                                               
eligible for AIDEA financing.                                                                                                   
REPRESENTATIVE  JOHNSON  asked why  a  company  eligible for  tax                                                               
credits would want  AIDEA financing.  In other  words, why borrow                                                               
money when credits would basically give the money to a company.                                                                 
MR. PARADY  offered his belief  that that decision would  rest on                                                               
the sources  of funds available  for the project to  balance what                                                               
is  available  under tax  credits  versus  the overall  project's                                                               
needs for  financing it.   It would be  a calculus that  would be                                                               
performed by the company's accountants or developers.                                                                           
REPRESENTATIVE JOHNSON said  it seems to him  like this statement                                                               
is based upon  repealing of the tax credits, which  is before the                                                               
committee.   Therefore,  he continued,  he is  uncomfortable with                                                               
putting it  on the record  that a  company would be  eligible for                                                               
something that the committee has not yet made a decision on.                                                                    
MR. PARADY  replied that his  best answer  is that of  course the                                                               
legislature  holds the  decision regarding  the oil  and gas  tax                                                               
credits bill.   Envisioned in  HB 246 is  that if a  company opts                                                               
into credits then it is opting  out of AIDEA financing.  The bill                                                               
is creating a new tool in AIDEA to do project finance.                                                                          
2:23:29 PM                                                                                                                    
REPRESENTATIVE  SEATON  recalled  that the  Mustang  Project  has                                                               
above  ground features  financed  through AIDEA  and tax  credits                                                               
were allowed  for other  portions.  He  understood Mr.  Parady to                                                               
have stated that no well  expenditures would be financed under HB                                                               
246 and  asked whether that  is also  a demarcation.   He further                                                               
understood that a  company receiving tax credits  would be unable                                                               
to get financing through AIDEA.                                                                                                 
MR.  PARADY understood  Representative  Seaton's  question to  be                                                               
regarding whether  below ground tax credits  would preclude above                                                               
ground financing.   He  said he  will get  back to  the committee                                                               
with an answer.                                                                                                                 
2:24:27 PM                                                                                                                    
REPRESENTATIVE HERRON  understood the  credits under AS  43.55 to                                                               
be  the  net  operating  loss (NOL)  credit  statewide,  and  the                                                               
qualified  capital  expenditure  (QCE)   credit  and  well  lease                                                               
expenditure (WLE) credit in Cook Inlet.   He noted that in HB 247                                                               
the  governor  is proposing  to  repeal  the  QCE  and WLE.    He                                                               
surmised that Mr. Parady is saying  a company will not use any of                                                               
these credits, including  the ability to carry  forward an annual                                                               
loss, if it participates with AIDEA.                                                                                            
MR. PARADY answered yes, depending upon the outcome of HB 247.                                                                  
2:25:12 PM                                                                                                                    
CO-CHAIR  NAGEAK  inquired whether  the  Mustang  Project on  the                                                               
North Slope has stopped work and, if so, why.                                                                                   
MR. PARADY responded  that the Mustang Project  has been affected                                                               
by the  price decline.  There  was a reworking of  the collateral                                                               
structure of the waterfall  associated with AIDEA's participation                                                               
in that  project, he said, and  he believes it is  moving towards                                                               
warm storage or warm status as the market turns.                                                                                
CO-CHAIR  NAGEAK  asked what  the  implications  are for  AIDEA's                                                               
investment in this project.                                                                                                     
MR. PARADY  replied that AIDEA's  investment is secure  and AIDEA                                                               
is continuing to work to keep it so.                                                                                            
CO-CHAIR NAGEAK inquired whether AIDEA's investment is [indisc.]                                                                
MR. PARADY responded no, not to his best understanding.                                                                         
2:26:12 PM                                                                                                                    
REPRESENTATIVE  JOHNSON asked  what AIDEA  is using  for security                                                               
for these loans.                                                                                                                
MR. PARADY responded that the  security involved in each of these                                                               
loans that comes before the board  can vary with the project that                                                               
is  being  developed.    It  can be  the  equipment,  it  can  be                                                               
collateral on the underground reserve  itself.  It depends on how                                                               
that is structured for each particular deal.                                                                                    
REPRESENTATIVE  JOHNSON  surmised  AIDEA is  going  to  repossess                                                               
leases  if  the  underground  reserve is  the  collateral  and  a                                                               
company defaults.                                                                                                               
MR. PARADY  replied he will  provide a more detailed  answer, but                                                               
under his present  understanding he does not  know that repossess                                                               
the lease  is the right term  and it depends on  the structure of                                                               
the individual deal.  He understood  that the gas reserves of the                                                               
Mustang  Project  are one  of  the  ultimate collaterals,  but  a                                                               
waterfall of steps would come before that step.                                                                                 
2:27:31 PM                                                                                                                    
CO-CHAIR NAGEAK asked  why a new fund is needed  if AIDEA is able                                                               
to support projects like Mustang.                                                                                               
MR. PARADY answered  that oil and gas is currently  at 14 percent                                                               
in the balance  of the overall AIDEA revolving loan  fund.  Since                                                               
the  capital  demand  of  this  sector  of  Alaska's  economy  is                                                               
substantial, it  would overweight the portfolio  and overrule the                                                               
diversification  principle that  underlies  the Prudent  Investor                                                               
REPRESENTATIVE JOSEPHSON addressed the  inquiry about the Mustang                                                               
lease  being  relinquished  to  the  state  down  the  series  of                                                               
waterfall steps.   He surmised the leaseholder  entered into that                                                               
contract probably  before the fall  of oil prices or  even before                                                               
the Walker Administration came into being.                                                                                      
MR. PARADY replied yes.                                                                                                         
2:28:39 PM                                                                                                                    
MR. PARADY  returned to his  presentation and addressed  slide 9,                                                               
"Market Based Interest Rates."   He said that under the structure                                                               
of HB 246,  AIDEA would base the interest rates  based on project                                                               
risk.    Project  risk  would  be evaluated  by  looking  at  the                                                               
operating performance  of the field,  the size of the  field, the                                                               
projected  costs   and  cash  flow,   and  capabilities   of  the                                                               
operation.   Borrower  creditworthiness  would be  looked at,  as                                                               
well as owner and financing  partner commitments - who is backing                                                               
the field  development, their expectation of  financial returns -                                                               
and the collateral  to be made available to AIDEA.   The benefits                                                               
to the state  would also be looked at, including  tax and royalty                                                               
revenue and  jobs, jobs being  a foundation of  AIDEA's analysis.                                                               
The interest rates  may be higher for oil  and gas infrastructure                                                               
projects, he  noted, due  to the  inherent risks  associated with                                                               
the industry.                                                                                                                   
MR. PARADY discussed slide 10,  "Other Bill Components."  He said                                                               
the bill  would modify  the financing  limits of  the sustainable                                                               
energy  transportation   and  supply   (SETS)  fund   and  Arctic                                                               
infrastructure  development fund.    The bill  proposes that  all                                                               
three funds  be allowed to loan  up to 50 percent  of an eligible                                                               
project or offer  a loan guarantee of  up to $25 million.   As in                                                               
the  existing funds,  amounts  in excess  of  these limits  would                                                               
require prior  legislative approval.   He noted that  the current                                                               
limits are 33  percent, which the bill would move  to 50 percent,                                                               
and $20 million, which the bill  would move to $25 million.  This                                                               
is  essentially a  reflection of  a  stronger role  in trying  to                                                               
support these activities.                                                                                                       
2:30:11 PM                                                                                                                    
REPRESENTATIVE OLSON asked whether  the concept of this expansion                                                               
came from an AIDEA board decision or somewhere else.                                                                            
MR. PARADY responded  that the board has had  discussion based on                                                               
its staff's  interaction with the  industry and is also  based on                                                               
discussions within the administration.                                                                                          
REPRESENTATIVE CHENAULT observed  that Sections 10 and  11 of the                                                               
bill increase the loan size that  AIDEA can make in the SETS fund                                                               
and in the Arctic infrastructure fund.   He asked whether that is                                                               
really  necessary or  is an  AIDEA wish  list component  that has                                                               
nothing to do with HB 246.                                                                                                      
MR. PARADY answered  he would not describe it as  a wish list, he                                                               
would describe it  as an updating of the tools  in the AIDEA tool                                                               
kit, but  it is within  the judgement of the  legislature whether                                                               
to lengthen that leash a little  bit or keep it a little tighter.                                                               
In the  context of  the specific fund  before the  committee, the                                                               
oil and  gas infrastructure fund,  the scale of capital  needs in                                                               
the  oil and  gas industry  are such  that he  believes the  move                                                               
makes  clear sense.   Also,  there was  some interest  on AIDEA's                                                               
part in keeping things standard across the state's statutes.                                                                    
REPRESENTATIVE  HERRON said  the way  he and  his staff  read the                                                               
bill  is that  changes would  be made  and he  would think  there                                                               
would be concern  on the legislative side that AIDEA  is going to                                                               
make decisions  that go  against what  the legislature  wanted to                                                               
do.   He inquired whether  HB 246  would allow AIDEA  to transfer                                                               
earnings from other assets to the oil and gas fund.                                                                             
MR. PARADY replied correct, but  noted that is an authority which                                                               
AIDEA already has  within its tool kit as a  corporate entity and                                                               
it is  authority that  AIDEA has exercised  with discretion.   He                                                               
said AIDEA has not transferred  funds between funds and AIDEA has                                                               
returned a sustainable dividend to the state over decades.                                                                      
REPRESENTATIVE HERRON remarked that it is a serious concern.                                                                    
2:32:34 PM                                                                                                                    
CO-CHAIR NAGEAK noted that Buccaneer  Energy Alaska in Cook Inlet                                                               
has left  the state.   He  asked whether AIDEA  was a  partner in                                                               
that venture.                                                                                                                   
MR. PARADY responded  yes, AIDEA had a loan involved  in that and                                                               
AIDEA  recouped its  investment from  the jack-up  rig before  it                                                               
left the state.                                                                                                                 
CO-CHAIR NAGEAK  asked whether AIDEA  was left with  unpaid loans                                                               
due to the bankruptcy.                                                                                                          
MR.  PARADY  answered  zero,  AIDEA  did  not  have  a  write-off                                                               
associated with that  project and in fact AIDEA  earned a return.                                                               
Responding further, he confirmed that AIDEA got its money back.                                                                 
2:33:24 PM                                                                                                                    
REPRESENTATIVE  SEATON recalled  that  two years  ago before  the                                                               
Mustang Project was  underway, there was a proposal to  look at a                                                               
$200 million separate fund or  separate bonding authority so that                                                               
it would  be separate  from the  existing bonding  authority that                                                               
AIDEA is  using.  He  understood the  legislature did not  end up                                                               
passing it, but  asked whether it would be  the bonding authority                                                               
that would  be extended  to give  AIDEA the  money to  make these                                                               
investments or would it be an internal reorganization.                                                                          
MR. PARADY replied that the  current concept of this package, the                                                               
$200  million in  funding, is  associated with  HB 247,  which is                                                               
also before the  committee.  That funding would  be to capitalize                                                               
the  initial fund  and  then  there is  the  question of  whether                                                               
bonding authority would  be extended to it, which  is not present                                                               
in HB 246.                                                                                                                      
REPRESENTATIVE  CHENAULT asked  approximately how  much money  is                                                               
currently in those funds.                                                                                                       
MR. PARADY  responded that  the balance sheet  of AIDEA  has $1.3                                                               
billion spread across  the revolving loan fund and  the other two                                                               
funds.  He said he will provide the committee with a breakout.                                                                  
2:35:14 PM                                                                                                                    
GENE  THERRIAULT, Energy  Policy  and  Outreach Director,  Alaska                                                               
Energy Authority (AEA), Alaska  Industrial Development and Export                                                               
Authority (AIDEA),  Department of Commerce, Community  & Economic                                                               
Development  (DCCED),  on  behalf  of the  governor,  provided  a                                                               
sectional analysis  of HB 246.   He  pointed out that  most bills                                                               
have a small part of new  statute and then the remaining pages of                                                               
the  legislation  make  conforming  amendments  to  the  existing                                                               
statute, which is  the case with HB  246.  The new  fund would be                                                               
created  by Section  12  of the  bill;  it is  a  policy call  of                                                               
members as to  whether that new fund is created.   In addition to                                                               
that policy call, there are  two other distinct policy calls, one                                                               
being  whether the  limits  on  the existing  SETS  fund and  the                                                               
Arctic  infrastructure  fund  should  be made  the  same  as  the                                                               
proposal for the new fund.   The other policy call is the request                                                               
in Section 9  of the bill that AIDEA be  given the flexibility to                                                               
set the  interest rate of  its different financial tools  so that                                                               
it can  reflect the risk and  reward that is being  proposed in a                                                               
specific  project.   He  said  this  is  a distinct  policy  call                                                               
because that is a new authority that would be given to AIDEA.                                                                   
MR. THERRIAULT explained that Sections  1-3 of the bill would add                                                               
the  new  fund  to  the existing  statutes  that  require  yearly                                                               
dividend  payment  from  AIDEA  to the  general  fund  under  the                                                               
definition of unrestricted  net income.  At the bottom  of page 2                                                               
of  the   bill  is  the   addition  of   the  new  oil   and  gas                                                               
infrastructure fund to the list  of AIDEA's investment tools that                                                               
pay a dividend should this fund derive revenue.                                                                                 
2:37:37 PM                                                                                                                    
MR.  THERRIAULT  said   Sections  4-8  of  the   bill  would  add                                                               
references to the  new fund to the existing  statutes that detail                                                               
the level  of interest  levied on  loans from  the SETS  fund and                                                               
Arctic  infrastructure development  fund.   Both those  funds are                                                               
relatively   new  creations   of  the   legislature  in   AIDEA's                                                               
investment   portfolio  and   both   were   established  by   the                                                               
legislature.    He  noted  that the  mechanics  of  the  existing                                                               
language would not be altered by  the addition of the oil and gas                                                               
infrastructure development fund to those sections of statute.                                                                   
MR. THERRIAULT pointed  out that Section 9 would  enable AIDEA to                                                               
set  the  initial  interest  rate  by  project  that  takes  into                                                               
consideration   the  project   risk,  creditworthiness,   partner                                                               
commitments,  and benefit  to  the state.   It  is  one of  those                                                               
policy  calls, a  new requested  authority of  AIDEA to  initiate                                                               
through  regulatory action  an interest  rate  that reflects  the                                                               
risk that is being proposed by an individual project.                                                                           
REPRESENTATIVE  TARR  inquired  whether   authority  to  set  the                                                               
interest  rate means  that decision  would be  made by  the AIDEA                                                               
board or an  executive decision by management.   For example, she                                                               
noted, some people  do not feel there is fairness  in the process                                                               
used regarding the agriculture revolving loan fund.                                                                             
JOHN   SPRINGSTEEN,   Executive   Director,   Alaska   Industrial                                                               
Development   and  Export   Authority   (AIDEA),  Department   of                                                               
Commerce, Community & Economic  Development (DCCED), replied that                                                               
staff would  go through the  process of negotiations  and working                                                               
out what that interest rate would be.   All of this would then be                                                               
approved by the AIDEA board.                                                                                                    
2:39:36 PM                                                                                                                    
REPRESENTATIVE CHENAULT  asked what factors or  criteria would be                                                               
used for determining who got a loan and at what interest rate.                                                                  
MR. SPRINGSTEEN responded that the  technical due diligence would                                                               
include reviews of  the field, field performance,  the owner, the                                                               
operator, the  development plan,  and the type  of infrastructure                                                               
being  requested   for  the  development.     The  financial  due                                                               
diligence would  include looking  at the creditworthiness  of the                                                               
other party, the  commitments behind the other party  in terms of                                                               
other  financiers  and  what  type   of  returns  that  they  are                                                               
requesting,  the  collateral  that  is  made  available  for  the                                                               
investment,  as  well  as reviewing  the  project  economics  and                                                               
performing  financial stress  testing.    Equally important  when                                                               
reviewing these  factors are the  benefits to the state  in terms                                                               
of job  creation and revenue  from taxes  and royalties.   All of                                                               
these would be  weighed as AIDEA pursued its  negotiation with an                                                               
interested developer.                                                                                                           
REPRESENTATIVE  CHENAULT  inquired  whether that  criteria  would                                                               
change  as  AIDEA went  from  development  to development.    For                                                               
example, of  concern to  him is  a local  hire provision  where a                                                               
company  would  get a  lesser  interest  rate  if it  hired  more                                                               
Alaskans than if it did not.                                                                                                    
MR.  SPRINGSTEEN answered  that  through  discussions with  folks                                                               
from the industry, AIDEA is  keenly aware of industry's needs for                                                               
special expertise for  certain projects, so AIDEA  will note that                                                               
need.   Absent that, if  there were  a comparable Alaska  hire in                                                               
terms  of cost  and capability,  it is  part of  AIDEA's role  as                                                               
stewards of the state to work  towards a preference for that type                                                               
of a hire.                                                                                                                      
2:42:04 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  inquired  where AIDEA  would  get  the                                                               
information for  field performance criteria.   For example, would                                                               
AIDEA consult with  the Department of Natural  Resources (DNR) in                                                               
some privileged way and keep that confidential.                                                                                 
MR. SPRINGSTEEN replied  that AIDEA does collaborate  with DNR in                                                               
accessing information,  as well as accessing  technical expertise                                                               
that would  augment AIDEA's internal  team the authority to  do a                                                               
review.   He  noted AIDEA  has a  very lean  general staff  so it                                                               
needs to tap on special expertise  from time to time, and that is                                                               
the process that AIDEA engages in.                                                                                              
2:43:00 PM                                                                                                                    
MR. THERRIAULT continued his  sectional analysis, explaining that                                                               
Sections 10  and 11 propose  to make adjustments to  the existing                                                               
participation limits of the SETS  and Arctic infrastructure funds                                                               
so that they would be the same  levels as is proposed for the new                                                               
oil and  gas fund.   Those two  sections are separate,  but AIDEA                                                               
believes there  is some benefit  if the criteria is  level across                                                               
the different  financing tools.   However, it  is a  separate and                                                               
distinct policy call for the legislature to make.                                                                               
MR. THERRIAULT  said Section 12 is  the meat of the  bill in that                                                               
it would  create the new  fund.  The proposed  statutory language                                                               
that creates the  oil and gas infrastructure  development fund is                                                               
based  on the  framework used  when the  legislature created  the                                                               
SETS and Arctic  infrastructure funds.  However,  the language on                                                               
page 8, lines  3-4, of the bill is specific  to this proposed new                                                               
fund  in  that it  states  the  need  to investigate  the  proven                                                               
reserves.    Bringing attention  to  page  7,  line 17,  and  the                                                               
language, "establish  reserves", he noted  that for the  SETS and                                                               
Arctic infrastructure  funds, it  was very clear  that "establish                                                               
reserves"  was referencing  the financial  reserves of  the fund.                                                               
He  related that  Representative Hawker  is concerned  about this                                                               
language because  this fund is  involved in oil and  gas reserves                                                               
and tweaking of  the language might needed here to  make it clear                                                               
that it is talking about  financial reserves.  Therefore, that is                                                               
a bit of a potential difference  from the structure that was used                                                               
for the other two funds.                                                                                                        
2:45:20 PM                                                                                                                    
REPRESENTATIVE SEATON said he had  been of the understanding that                                                               
under the  oil and  gas infrastructure  fund the  proven reserves                                                               
were  talked about  as collateral,  but now  he is  understanding                                                               
that this is financial reserves and not oil and gas reserves.                                                                   
MR. THERRIAULT explained  that the language on page  7 is talking                                                               
about the  operation of the  fund itself, and  reserves sometimes                                                               
have to be established within the fund.                                                                                         
MR. SPRINGSTEEN elaborated by posing  a scenario of AIDEA issuing                                                               
a bond that  supports a project, for which AIDEA  would then need                                                               
to establish  a financial  reserve, a  general obligation  of the                                                               
authority,  to  backstop the  bond  issuance  and to  secure  the                                                               
project.  That  is generally what this language relates  to - the                                                               
establishment of financial reserve for a bond issuance.                                                                         
MR.  THERRIAULT  said  that points  out  Representative  Hawker's                                                               
concern.    Because  this  fund  in  particular  is  involved  in                                                               
development  of  oil  and gas  reserves,  tweaking  the  standard                                                               
language  might be  necessary to  make that  clarification.   The                                                               
proven reserves is dealt with later on in the bill.                                                                             
2:47:02 PM                                                                                                                    
MR. THERRIAULT resumed his  sectional analysis, drawing attention                                                               
to page 8,  lines 3-4, which would require a  process for proving                                                               
the existence of those proven  reserves.  He noted that expertise                                                               
would  be brought  in, as  discussed  earlier, so  this would  be                                                               
different than the  standard language that was used  for the SETS                                                               
and Arctic infrastructure funds.                                                                                                
MR. THERRIAULT explained that page  8, lines 15-22, would require                                                               
a  project developer  to choose  between securing  infrastructure                                                               
financing  from  this  new  fund  or applying  for  oil  and  gas                                                               
development credits.   This language  does not exist in  the SETS                                                               
and Arctic  infrastructure development funds, he  noted, it would                                                               
be  specific   to  the  proposed   oil  and   gas  infrastructure                                                               
development fund.                                                                                                               
REPRESENTATIVE HERRON  observed on page  8, lines 23-24,  that it                                                               
could  be a  30-year  loan.   He  asked  what  the difference  is                                                               
between a loan and becoming an actual equity owner.                                                                             
MR.  SPRINGSTEEN read  from the  language on  lines 23-24,  which                                                               
state, "Financing under AS 44.88.880  is limited to the projected                                                               
life of  the oil and  gas infrastructure development but  may not                                                               
be more  than 30  years."  Therefore,  he explained,  the vehicle                                                               
could be  either a loan  or an  investment, but when  AIDEA makes                                                               
investments they  are generally preferred equity  with collateral                                                               
and they act much like a loan.                                                                                                  
REPRESENTATIVE  HERRON  inquired whether  it  is  reported as  an                                                               
equity or as a long-term debt.                                                                                                  
MR.  SPRINGSTEEN  responded  it  depends on  the  nature  of  the                                                               
2:49:52 PM                                                                                                                    
REPRESENTATIVE  SEATON  presumed  there  would  be  no  liability                                                               
through  this loan  or equity  for any  of the  terminal cleanup,                                                               
removal, and rehabilitation.                                                                                                    
MR.  SPRINGSTEEN offered  his belief  that  if it  were a  direct                                                               
investment as  opposed to a  loan, AIDEA would  still potentially                                                               
have  responsibility for  what  it  does on  the  top  side.   He                                                               
reiterated that it  is things above ground, such  as roads, pads,                                                               
camps, and  pipe, and  not things related  to reservoir  or field                                                               
development below ground.                                                                                                       
REPRESENTATIVE SEATON  posed a  scenario of a  loan or  an equity                                                               
investment where  the life of  the field is  30 years.   He asked                                                               
whether  the state  would have  liability for  the demobilization                                                               
and rehabilitation  if anything were  to happen to  the partners.                                                               
That liability could be more than the cost of the loan, he said.                                                                
MR. SPRINGSTEEN  answered that  is why it  is very  important for                                                               
AIDEA to  look at  the ability  of the  project partners  and the                                                               
committed backers for  the project to provide  the collateral and                                                               
commitment.   He said  he thinks  the preference  would be  for a                                                               
loan by AIDEA just because it naturally limits liability.                                                                       
REPRESENTATIVE SEATON stated he  is uncomfortable with that being                                                               
a negotiated  term because he does  not think the state  wants to                                                               
get into that liability and that  this may need to be excluded in                                                               
the statute  to prevent the  state from becoming liable  for that                                                               
at the payoff of the loan.                                                                                                      
CO-CHAIR  NAGEAK  asked  whether Representative  Seaton  has  any                                                               
suggestions for language that would resolve his concern.                                                                        
REPRESENTATIVE  SEATON suggested  that  the sponsor  of the  bill                                                               
provide a proposal to fix that or to limit that liability.                                                                      
CO-CHAIR NAGEAK requested AIDEA to propose the language.                                                                        
MR. SPRINGSTEEN agreed to do so.                                                                                                
2:53:11 PM                                                                                                                    
MR. THERRIAULT  recommenced his sectional  analysis.   He brought                                                               
attention to page  8, lines 11-14, which propose  the new project                                                               
limits.   If  AIDEA provides  financing, he  said, the  financing                                                               
would be  limited to up  to one-half of  the capital cost  of the                                                               
oil and  gas infrastructure  development and  the guarantee  of a                                                               
loan is the $25 million.  Those  would be the limits for this new                                                               
fund, and Sections  8 and 9 propose  that it be the  same for the                                                               
SETS and  Arctic infrastructure  funds.  That  is a  policy call,                                                               
but AIDEA believes there is  some value to having some continuity                                                               
across those different loan funds.                                                                                              
REPRESENTATIVE TARR,  regarding the amount authorized  in statute                                                               
for the other two funds, recalled  it being said that raising the                                                               
amount from $20 million is  in some ways adjusting for inflation.                                                               
Regarding the  provision for up  to 50 percent, she  posited that                                                               
this transfers a bigger portion of  the liability to the state in                                                               
terms of  providing that guarantee.   She inquired whether  it is                                                               
standard in  the industry to  go that  high and explained  she is                                                               
asking this question to better  understand the why for going from                                                               
one-third to 50 percent.                                                                                                        
MR.  SPRINGSTEEN replied  the 50  percent  threshold provides  an                                                               
opportunity  for a  true  type of  a  partnership structure  with                                                               
another  entity.   In terms  of obligations  of the  state versus                                                               
obligations of AIDEA,  if AIDEA issues a  general obligation bond                                                               
it  is an  AIDEA general  obligation bond  against the  assets of                                                               
AIDEA  and not  of  the state.   This  provides  AIDEA with  some                                                               
amount of  independence in order  to enter into deals  with third                                                               
party developers and other project financiers.                                                                                  
REPRESENTATIVE  TARR surmised  there should  be a  monetary value                                                               
associated  with  that  that  should  be  positive  in  terms  of                                                               
building  AIDEA's  asset  base.    She  imagined  that  would  be                                                               
preferable as well.                                                                                                             
MR. SPRINGSTEEN responded yes.                                                                                                  
2:55:43 PM                                                                                                                    
REPRESENTATIVE HERRON asked why another  fund needs to be created                                                               
if AIDEA is already able to support projects like Mustang.                                                                      
MR. SPRINGSTEEN  answered that as  AIDEA's assets,  capacity, and                                                               
need for diversity  in the revolving fund were  reviewed with the                                                               
board, it  was viewed that  additional investments  in supporting                                                               
oil and gas infrastructure would  overweight the revolving fund's                                                               
diverse portfolio  and potentially have  an impact on  its credit                                                               
rating.    But it  was  also  understood  that  the oil  and  gas                                                               
industry   continues   to  come   to   AIDEA   for  support   for                                                               
infrastructure,  and that  was the  driver behind  the ask  for a                                                               
separate  program within  AIDEA  to work  alongside  oil and  gas                                                               
industry developers.  Some very  important things are done in the                                                               
revolving fund,  such as  project development,  backstopping bond                                                               
issuances,  and supporting  AIDEA's  loan participation  program,                                                               
where AIDEA  works alongside banks  and federal credit  unions to                                                               
provide reasonable cost  financing to all manner  of business and                                                               
industry in the state.                                                                                                          
REPRESENTATIVE HERRON  inquired whether the AIDEA  board gave any                                                               
thought to just staying in the loan guarantee business.                                                                         
MR. SPRINGSTEEN  replied that that  is part of the  process being                                                               
engaged here - AIDEA has an  idea that it is bringing forward and                                                               
is looking for input and adjustment that is required.                                                                           
REPRESENTATIVE  HERRON asked  whether Mr.  Springsteen is  saying                                                               
the AIDEA  board thought that  a loan program was  needed instead                                                               
of a loan guarantee program.                                                                                                    
MR.  SPRINGSTEEN responded  it is  having the  ability to  either                                                               
guarantee or to make an investment.                                                                                             
2:58:08 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON said he  was struck by Mr. Springsteen's                                                               
statement that  in AIDEA's world  a 50 percent  interest warrants                                                               
potentially having equity in a project.                                                                                         
MR. SPRINGSTEEN  answered he  used the term  loosely in  terms of                                                               
partnership, not as  a strict legal vehicle, but  in reference to                                                               
the nature of  a relationship where there is  a promising project                                                               
that  has  a  good  and  solid  committed  backer  for  reservoir                                                               
development, and  AIDEA would  provide funding  for this  type of                                                               
topside infrastructure development with a partner.                                                                              
REPRESENTATIVE JOSEPHSON  remarked that Mr. Springsteen's  use of                                                               
the word partnership is also  interesting because in HB 247 there                                                               
is, in one sense, absolutely  a partnership, but in another sense                                                               
there is not, it  is a grant.  But, he  continued, AIDEA looks at                                                               
50  percent  investment  as  possibly  warranting  some  sort  of                                                               
partnership interest.                                                                                                           
MR. SPRINGSTEEN responded that the  responsibility of AIDEA staff                                                               
is as  stewards of funds that  are provided to AIDEA.   The staff                                                               
views funds as a renewable source  to take and deploy for project                                                               
development, those  funds are returned  to AIDEA, they  provide a                                                               
return and  also provide a dividend  to the state, and  the funds                                                               
are redeployed for additional project development.                                                                              
REPRESENTATIVE JOSEPHSON  recalled the governor's fiscal  plan as                                                               
stating  that  the  loans  to  the oil  industry  would  be  more                                                               
favorable than  commercial rates.   He  observed that  the second                                                               
paragraph  of the  sectional  analysis says  the  loans would  be                                                               
consistent with what  commercial lenders offer.   He inquired why                                                               
a developer would  come to AIDEA if the developer  can get a loan                                                               
through a commercial lender.                                                                                                    
MR.  SPRINGSTEEN replied  that from  time to  time there  are the                                                               
right  types   of  project  developers   that  are   providing  a                                                               
commanding benefit  to the  state in terms  of employment  and in                                                               
generating royalty  and tax  revenue for  the state,  which would                                                               
get considered  in terms of rate  setting.  He said  AIDEA starts                                                               
with  the idea  of the  merits of  the project  and what  type of                                                               
other  financial  partners  and  commitments there  are  for  the                                                               
project, and  determines what a market  rate is.  Then  AIDEA has                                                               
the  ongoing discussion  of what  additional incremental  benefit                                                               
does  the  developer provide  to  the  state that  would  warrant                                                               
preference in terms of a lower rate.                                                                                            
REPRESENTATIVE JOSEPHSON addressed the  liability issue raised by                                                               
Representative  Seaton.   He  said he  is  concerned about  state                                                               
liability,   but  is   more  concerned   about  the   subject  of                                                               
rehabilitation and demobilization.   He asked whether the current                                                               
system is  inadequate to  handle issues  of after  the life  of a                                                               
field  rehabilitation and  demobilization  and  whether there  is                                                               
something that is not being done to protect Alaska.                                                                             
MR.  SPRINGSTEEN  answered  that   each  deal  is  different  but                                                               
generally AIDEA's approach is to act  in the form of a lender and                                                               
to have  the other party  responsible for addressing  those types                                                               
of liabilities mentioned.                                                                                                       
3:02:15 PM                                                                                                                    
REPRESENTATIVE  SEATON said  he  is uncomfortable  with not  more                                                               
than 50  percent because  he is  unsure how  much of  the project                                                               
that is.   Whether  it is  through credits  or through  loans, it                                                               
seems like  the state is trying  to attempt [to make  it] so that                                                               
people do not  enter into the normal  commercial relationships of                                                               
having  two or  three or  another partner  come in  with expanded                                                               
balance sheets.   In some cases  what the state is  doing is like                                                               
what happened  with Buccaneer -  the state actually  lessened the                                                               
need for  Buccaneer to have  a partner  and have a  broad balance                                                               
sheet due  to the state's participation.   He said he  hopes that                                                               
when this  is discussed again,  AIDEA can provide  some assurance                                                               
about the state's  participation at a 50 percent  rate because it                                                               
may be leveraging  in more financing with the  state's 50 percent                                                               
and getting into the situation  where the state is digging itself                                                               
into a hole.                                                                                                                    
3:03:32 PM                                                                                                                    
REPRESENTATIVE  JOHNSON  expressed  his concern  about  the  zero                                                               
fiscal note because it was  stated several times that AIDEA would                                                               
have to  call in experts from  outside or from DNR.   Thus, there                                                               
needs to  either be a fiscal  note from DNR or  something that is                                                               
going  to reflect  the [reimbursable  services agreement  (RSA)].                                                               
The fiscal  note cannot possibly be  zero if AIDEA does  not have                                                               
the  expertise in-house,  he posited.   He  requested an  updated                                                               
fiscal  note  from the  departments  from  which AIDEA  would  be                                                               
getting the expertise.                                                                                                          
MR. SPRINGSTEEN replied that when  working with project developer                                                               
partners,  AIDEA  often  enters  into  RSAs  with  the  developer                                                               
partner.    If a  developer  is  seriously considering  financing                                                               
through  AIDEA,  then  many  times   it  is  worthwhile  for  the                                                               
developer to provide the funds for  this type of analysis and the                                                               
analysis is done at the control of the authority.                                                                               
REPRESENTATIVE  JOHNSON said  he  thought he  clearly heard  that                                                               
AIDEA would need to have resource  assessments to be able to find                                                               
out what  is in the ground  and DNR is  the only one that  can do                                                               
that, so  that is where  he was going  with that.   He understood                                                               
that other  people might  pay for the  other things,  but someone                                                               
from DNR  is going to have  to step in  and there will be  a cost                                                               
and he would like to accurately reflect the cost of this bill.                                                                  
MR.  SPRINGSTEEN   responded  that  AIDEA  often   engages  other                                                               
departments,  but  they   are  under  RSAs  that   are  paid  for                                                               
ultimately  by the  project developer,  which is  the model  that                                                               
AIDEA contemplates in this.                                                                                                     
[HB 246 was held over.]                                                                                                         
3:05:17 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:05 p.m.                                                                 

Document Name Date/Time Subjects
HB 216 FiscalNote.php.pdf HRES 3/16/2016 1:00:00 PM
HB 216
CSHB 216( ) - Legislation Ver. E.pdf HRES 3/16/2016 1:00:00 PM
HB 216
CSHB 216( ) - Sectional Analysis.pdf HRES 3/16/2016 1:00:00 PM
HB 216
CSHB 216( ) - Sponsor Statement.pdf HRES 3/16/2016 1:00:00 PM
HB 216
CSHB 216( ) - Summary of Changes (Ver. W to E).pdf HRES 3/16/2016 1:00:00 PM
HB 216
HB246 Ver A.pdf HRES 3/16/2016 1:00:00 PM
HRES 5/30/2016 11:00:00 AM
HRES 5/31/2016 11:00:00 AM
HRES 6/1/2016 11:00:00 AM
HB 246
HB246 Sectional Analysis.pdf HRES 3/16/2016 1:00:00 PM
HRES 5/30/2016 11:00:00 AM
HRES 5/31/2016 11:00:00 AM
HRES 6/1/2016 11:00:00 AM
HB 246
HB246 Fiscal Note-DCCED-AIDEA-01-14-16.pdf HRES 3/16/2016 1:00:00 PM
HRES 5/30/2016 11:00:00 AM
HRES 5/31/2016 11:00:00 AM
HRES 6/1/2016 11:00:00 AM
HB 246
HSE RES HB 246 - AIDEA Oil and Gas Infrastructure Development Fund presentation.pdf HRES 3/16/2016 1:00:00 PM
HB 246
HB 216 Supporting documentation.pdf HRES 3/16/2016 1:00:00 PM
HB 216