03/04/2014 09:00 AM Senate FINANCE

SENATE BILL NO. 138                                                                                                           
                                                                                                                                
     "An Act relating to the  purposes of the Alaska Gasline                                                                    
     Development Corporation to advance  to develop a large-                                                                    
     diameter  natural   gas  pipeline   project,  including                                                                    
     treatment  and  liquefaction  facilities;  establishing                                                                    
     the large-diameter  natural gas pipeline  project fund;                                                                    
     creating  a  subsidiary  related  to  a  large-diameter                                                                    
     natural gas  pipeline project, including  treatment and                                                                    
     liquefaction facilities;  relating to the  authority of                                                                    
     the  commissioner  of  natural resources  to  negotiate                                                                    
     contracts related to North  Slope natural gas projects,                                                                    
     to enter into confidentiality  agreements in support of                                                                    
     contract negotiations  and implementation, and  to take                                                                    
     custody  of  gas  delivered  to   the  state  under  an                                                                    
     election  to pay  the  oil and  gas  production tax  in                                                                    
     kind; relating  to the sale,  exchange, or  disposal of                                                                    
     gas delivered  to the  state under  an election  to pay                                                                    
     the oil  and gas  production tax  in kind;  relating to                                                                    
     the  duties of  the commissioner  of revenue  to direct                                                                    
     the   disposition  of   revenues   received  from   gas                                                                    
     delivered to the state in  kind and to consult with the                                                                    
     commissioner of  natural resources  on the  custody and                                                                    
     disposition  of gas  delivered to  the  state in  kind;                                                                    
     relating  to  the  authority  of  the  commissioner  of                                                                    
     natural resources to  propose modifications to existing                                                                    
     state oil  and gas  leases; making  certain information                                                                    
     provided  to the  Department of  Natural Resources  and                                                                    
     the Department  of Revenue exempt from  inspection as a                                                                    
     public record;  making certain tax  information related                                                                    
     to an  election to pay  the oil and gas  production tax                                                                    
     in  kind exempt  from  tax confidentiality  provisions;                                                                    
     relating  to   establishing  under  the  oil   and  gas                                                                    
     production tax  a gross  tax rate  for gas  after 2021;                                                                    
     making  the  alternate  minimum  tax  on  oil  and  gas                                                                    
     produced north of 68 degrees  North latitude after 2021                                                                    
     apply only  to oil;  relating to  apportionment factors                                                                    
     of  the  Alaska  Net  Income  Tax  Act;  authorizing  a                                                                    
     producer's election  to pay the oil  and gas production                                                                    
     tax  in  kind  for  certain gas  and  relating  to  the                                                                    
     authorization;   relating    to   monthly   installment                                                                    
     payments of  the oil and  gas production  tax; relating                                                                    
     to  interest payments  on monthly  installment payments                                                                    
     of  the  oil  and   gas  production  tax;  relating  to                                                                    
     settlements  between producers  and royalty  owners for                                                                    
     oil  and   gas  production  tax;  relating   to  annual                                                                    
     statements  by  producers  and explorers;  relating  to                                                                    
     annual  production   tax  values;  relating   to  lease                                                                    
     expenditures;  amending the  definition of  gross value                                                                    
     at the  'point of production'  for gas for  purposes of                                                                    
     the  oil and  gas  production  tax; adding  definitions                                                                    
     related to  natural gas  terms; clarifying  that credit                                                                    
     may not  be taken against  the in-kind levy of  the oil                                                                    
     and  gas production  tax for  gas for  purposes of  the                                                                    
     exploration incentive  credit, the oil or  gas producer                                                                    
     education credit,  and the film production  tax credit;                                                                    
     making  conforming  amendments;  and providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
9:08:08 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly announced that amendments  to SB138 should be                                                                    
submitted to the chair by Friday March 7, 2014.                                                                                 
                                                                                                                                
9:08:32 AM                                                                                                                    
                                                                                                                                
Senator Hoffman stated that he  had some amendments to offer                                                                    
but that  the drafting was  moving slowly; as a  result, the                                                                    
amendments might not be ready by Friday.                                                                                        
                                                                                                                                
Co-Chair  Kelly stated  that he  would communicate  with the                                                                    
drafters.                                                                                                                       
                                                                                                                                
9:08:55 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly OPENED public testimony.                                                                                         
                                                                                                                                
9:09:07 AM                                                                                                                    
                                                                                                                                
BILL  WARREN, SELF,  KENAI  (via teleconference),  expressed                                                                    
reservations  with  SB 138.  He  thought  the way  that  the                                                                    
project was  structured would result  waiting upwards  of 20                                                                    
years more  for in-state gas,  if the project  moved forward                                                                    
at all. He shared that he  did not like that AGDC would have                                                                    
to  face   an  open  season   in  2015  with  the   500  mcf                                                                    
restriction.  He stated  that  the project  would leave  the                                                                    
state with interim gas for 20  years, but that Alaska had an                                                                    
immediate need  for gas.  He asserted  that trucking  LNG to                                                                    
Fairbanks  was a  bad  idea and  preferred  that AGDC  build                                                                    
something similar  to the Sweet  Sixteen Express.  He wanted                                                                    
AGDC  to live  up  to its  promise to  get  gas to  Alaskans                                                                    
first.                                                                                                                          
                                                                                                                                
9:13:57 AM                                                                                                                    
                                                                                                                                
BARBARA   HUFF    TUCKNESS,   DIRECTOR,    LEGISLATIVE   AND                                                                    
GOVERNMENTAL  AFFAIRS, ALASKA  TEAMSTERS LOCAL  959, JUNEAU,                                                                    
testified that  her organization supported  the legislation.                                                                    
She noted  that the  discussion of  an in-state  gasline had                                                                    
been under  discussion for approximately the  last 40 years.                                                                    
She stated that  while the HOA and intent  language that had                                                                    
been incorporated  into the bill  did not have the  force of                                                                    
law,  the teamsters  were comfortable  with the  recognition                                                                    
and  believed  that  it reinforced  the  commitment  between                                                                    
industry and  the administration moving forward.  She stated                                                                    
that  the project  would affect  many aspects  of the  state                                                                    
from employment to gas delivery.  She hoped that there would                                                                    
be a large pool of trained  Alaskans to draw from during the                                                                    
hiring process.  She believed that  the state  should invest                                                                    
in training residents.                                                                                                          
                                                                                                                                
9:18:27 AM                                                                                                                    
                                                                                                                                
MERRICK   PIERCE,   BOARD   MEMBER,  ALASKA   GASLINE   PORT                                                                    
AUTHORITY,  FAIRBANKS  (via  teleconference),  testified  in                                                                    
opposition  of SB  138. He  believed that  the international                                                                    
market  should  be  examined more  closely.  He  noted  that                                                                    
Alaska offered  more stability on  many levels  than Russia.                                                                    
He  opined that  Alaska faced  a lot  of competition  in the                                                                    
market. He  said that ExxonMobil  ignored the  markets while                                                                    
under AGIA, which he believed  sabotaged projects.. He spoke                                                                    
to  fraudulent tariffs  employed  by Alyeska  on the  Trans-                                                                    
Alaska  Pipeline   System  (TAPS)  in  an   effort  to  keep                                                                    
competition  off of  the  North Slope.  He  queried why  the                                                                    
state  would want  to build  a gasline  with companies  that                                                                    
engaged in  unsavory practices. He wondered  about the route                                                                    
that  the project  would take  and highlighted  some of  the                                                                    
challenges that the project would face.                                                                                         
                                                                                                                                
9:24:57 AM                                                                                                                    
                                                                                                                                
Co-Chair  Kelly  requested  that the  testifier  submit  his                                                                    
comments in writing.                                                                                                            
                                                                                                                                
9:25:15 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough inquired  if the  Mr. Merrick  was in                                                                    
favor or in opposition of the legislation.                                                                                      
                                                                                                                                
Mr.  Pierce  responded that  he  was  in opposition  to  the                                                                    
entire  bill. He  reiterated that  the market  needed to  be                                                                    
watched closely  in order for  the project to be  a success.                                                                    
He added  that if  the project wasn't  going to  deliver gas                                                                    
until 2022 it would not be  a success. He opined that, given                                                                    
the deficits that the state  faced right now, not building a                                                                    
pipeline now would be lethal to the future.                                                                                     
                                                                                                                                
9:26:07 AM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  queried if  Mr. Pierce  would support                                                                    
the project if the final destination were Valdez.                                                                               
                                                                                                                                
Mr.  Pierce reiterated  that paying  close attention  to the                                                                    
market was critical to the success of the project.                                                                              
                                                                                                                                
9:27:14 AM                                                                                                                    
                                                                                                                                
JIM PLAQUET,  OPERATING ENGINEERS LOCAL 302,  FAIRBANKS (via                                                                    
teleconference), supported  SB 138.  He related that  he had                                                                    
worked on  TAPS and had  seen the economic  development that                                                                    
it had  provided to the  state. He recalled that  around the                                                                    
year 2000,  Alaskans had  wanted to move  arctic gas  to the                                                                    
Lower-48  but that  fracking had  made  it uneconomical.  He                                                                    
believed  that the  project would  create jobs  for Alaskans                                                                    
during construction and into the future.                                                                                        
                                                                                                                                
9:29:30 AM                                                                                                                    
                                                                                                                                
RICK  ROGERS,   EXECUTIVE  DIRECTOR,   RESOURCE  DEVELOPMENT                                                                    
COUNCIL (RDC), ANCHORAGE  (via teleconference), testified in                                                                    
support of  SB 138. He  offered a  brief history of  RDC. He                                                                    
believed that alignment and durability  were critical to the                                                                    
success of  the HOA  agreement. He  stated that  unlike oil,                                                                    
LNG  was   sold  on  long-term  contracts,   which  required                                                                    
durability,  including fiscal  terms.  He  thought that  the                                                                    
legislation  required further  analysis  and encouraged  due                                                                    
diligence in  fully vetting  the project.  He said  that the                                                                    
most beneficial line for Alaskans  would be a large capacity                                                                    
line  sanctioned by  the producers  in partnership  with the                                                                    
state.  He   stated  that  fundamental   project  economics,                                                                    
largely out  of the  state's control, would  dictate whether                                                                    
the  project was  ever sanctioned  and constructed.  He felt                                                                    
that a robust  oil industry must be maintained  on the North                                                                    
Slope  in  order for  the  project  to succeed  because  oil                                                                    
provided   the    funding   and   supported    the   complex                                                                    
infrastructure   needed  to   produce  gas.   He  encouraged                                                                    
continuing    deliberation   and    passage   of    enabling                                                                    
legislation.                                                                                                                    
                                                                                                                                
9:33:29 AM                                                                                                                    
                                                                                                                                
RACHAEL PETRO,  PRESIDENT &  CEO, ALASKA  CHAMBER, ANCHORAGE                                                                    
(via  teleconference), stated  that the  Alaska Chamber  was                                                                    
still  evaluating  the  current  version of  the  bill,  but                                                                    
supported the underline principles found  in the HOA and the                                                                    
legislation.   She   said   the  chamber   supported   state                                                                    
participation in and Alaska gas  project, the state taking a                                                                    
percentage  gas  share, and  the  establishment  of a  clear                                                                    
process to move the project  forward. She explained that the                                                                    
process must  include the necessary tools  to confidentially                                                                    
develop  the   various  project  enabling   arrangements  in                                                                    
contracts  and   establish  a  clear  public   process  that                                                                    
provided  for legislative  oversight,  review and  approval.                                                                    
The  chamber believed  that the  best way  for the  state to                                                                    
develop its resources  was to have the  state participate as                                                                    
a business partner in an Alaska gas project.                                                                                    
                                                                                                                                
9:36:13 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:36:43 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:36:47 AM                                                                                                                    
                                                                                                                                
JASON   HOKE,  EXECUTIVE   DIRECTOR,  COPPER   RIVER  VALLEY                                                                    
DEVELOPMENT  ASSOCIATION,  GLENNALLEN (via  teleconference),                                                                    
spoke  in  support  of SB  138.  He  expressed  indifference                                                                    
concerning  the  size  of  the  pipeline  or  where  it  was                                                                    
located.  He thought  that the  first and  foremost the  gas                                                                    
should  be used  to help  with  the energy  crisis in  rural                                                                    
Alaska, any  additional gas could  then be shipped  and sold                                                                    
in the Lower 48.                                                                                                                
9:38:06 AM                                                                                                                    
                                                                                                                                
LYNN  WILLIS,   SELF,  EAGLE  RIVER   (via  teleconference),                                                                    
testified in opposition  to SB 138. He said  that is primary                                                                    
concern was how the state would pay for the project.                                                                            
                                                                                                                                
9:39:10 AM                                                                                                                    
                                                                                                                                
LAKE   WILLIAMS,    PRESIDENT,   FAIRBANKS    BUILDING   AND                                                                    
CONSTRUCTION   TRADES,   FAIRBANKS   (via   teleconference),                                                                    
testified  in support  of the  basic outline  of SB  138. He                                                                    
believed  that  a  large diameter  pipeline  would  be  most                                                                    
beneficial to  the state and  thought that the  state should                                                                    
be at the table as a  partner. He stressed the importance of                                                                    
local hire and the involvement of local governments.                                                                            
                                                                                                                                
9:41:32 AM                                                                                                                    
                                                                                                                                
DOUG TANSY, INTERNATIONAL  BROTHERHOOD OF ELECTRICAL WORKERS                                                                    
LOCAL  1547, FAIRBANKS  (via  teleconference), testified  in                                                                    
support of  SB 138.   He  expressed support  for the  use of                                                                    
Alaskan contractors  and workforce  on the project.  He said                                                                    
that  there   were  many   qualified  and   skilled  Alaskan                                                                    
contractors,  as  well  as  a  skilled  and  trained  Alaska                                                                    
workforce, available to work on the project.                                                                                    
                                                                                                                                
9:43:10 AM                                                                                                                    
                                                                                                                                
LISA WEISSLER,  SELF, JUNEAU, testified against  SB 138. She                                                                    
expressed  concern  the  administration  was  making  policy                                                                    
decisions that were being ratified  by the legislature after                                                                    
the  fact.  She  thought that  the  administrative  decision                                                                    
concerning  state  ownership in  the  pipeline  was a  major                                                                    
policy  decision that  warranted more  public participation.                                                                    
She offered that  the decision for state  ownership was what                                                                    
was directing all of the  other discussion on the bill, such                                                                    
as the HOA and the MOU. She  said that if it was proven that                                                                    
equity  participation was  the  best way  for  the state  to                                                                    
proceed, the principals that would  guide the state's equity                                                                    
participation should be  set into law. She  likened her idea                                                                    
to  the Stranded  Gas Act  and  believed that  an act  would                                                                    
strengthen the state's position when negotiating.                                                                               
                                                                                                                                
9:46:19 AM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  noted that  Lisa had  referenced past                                                                    
studies and requested an explanation of the studies.                                                                            
                                                                                                                                
Ms. Weissler provided the following studies:                                                                                    
                                                                                                                                
     1979 - Financing the Alaska Highway Gas Pipeline-What                                                                      
     is to be Done                                                                                                              
     Arlon Tussing & Connie Barlow                                                                                              
     http://www.arlis.org/docs/vol1/AlaskaGas/Report2/Report_ISE                                                                
     R_1979_FinancingAkHwyGasPipeline.pdf                                                                                       
                                                                                                                                
     1982 - Kidder Peabody Report                                                                                               
     http://www.arlis.org/docs/vol1/AlaskaGas/Report/Report_KPCI                                                                
     _1982_ParticipationFinancingAKSegment.pdf                                                                                  
                                                                                                                                
     1997 - JP Morgan Report                                                                                                    
     Referenced on page 2-10 in the 2002 State Financial                                                                        
     Participation report                                                                                                       
                                                                                                                                
     2001 - Alaska Highway Natural Gas Policy Council                                                                           
     Committee Report                                                                                                           
     http://www.arlis.org/docs/vol1/AlaskaGas/Report/Report_GasP                                                                
     olicy ouncil_2001_RptGov_v1.pdf                                                                                            
                                                                                                                                
     State Financial Participation in an Alaska Natural Gas                                                                     
     Pipeline                                                                                                                   
     Petrie Parkman & Co. CH2M Hill                                                                                             
     http://www.arlis.org/docs/vol1/AlaskaGas/Report/Report_ADR_                                                                
     2002_StateFinancialParticipation.pdf                                                                                       
                                                                                                                                
9:47:37 AM                                                                                                                    
                                                                                                                                
DON  ETHERIDGE, ALASKA  STATE AMERICAN  FEDERATION OF  LABOR                                                                    
AND   CONGRESS  OF   INDUSTRIAL  ORGANIZATIONS   AND  ALASKA                                                                    
BUILDING  TRADES,  JUNEAU,  testified   in  support  of  the                                                                    
legislation in its  current form. He stressed  that the jobs                                                                    
generated by the  project should go to  Alaskans and benefit                                                                    
Alaskan  companies. He  said  that  Alaskans were  currently                                                                    
being trained to work on the  gasline. He hoped that the gas                                                                    
would reach the Alaskans who were most in need.                                                                                 
                                                                                                                                
9:50:11 AM                                                                                                                    
                                                                                                                                
PAUL GROSSI,  ALASKA PIPE TRADES AND  IRONWORKERS OF ALASKA,                                                                    
JUNEAU, testified  in support of  SB 138. He noted  that the                                                                    
bill  was complicated  and that  it was  important that  the                                                                    
committee take  the time  to get  it right,  particularly in                                                                    
the area of Alaska hire.                                                                                                        
                                                                                                                                
9:51:56 AM                                                                                                                    
JULIE DUQUETTE, ASSOCIATED BUILDERS AND CONSTRUCTORS OF                                                                         
ALASKA, JUNEAU, spoke in strong support of SB 138.                                                                              
                                                                                                                                
9:52:52 AM                                                                                                                    
                                                                                                                                
CHUCK WIEGERS, SELF, JUNEAU, testified in support of SB
.                                                                                                                            
                                                                                                                                
9:54:09 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly CLOSED public testimony.                                                                                         
                                                                                                                                
9:54:22 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:56:56 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:57:03 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly reminded the committee to try to get                                                                             
amendments to the bill to his office by Friday.                                                                                 
                                                                                                                                
SB 138 was HEARD and HELD in committee for further                                                                              
consideration.