Legislature(2013 - 2014)SENATE FINANCE 532

02/25/2014 09:00 AM FINANCE

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09:10:18 AM Start
09:11:15 AM SB64
10:13:00 AM SB138
10:13:33 AM Presentation: the Heads of Agreement and the Memorandum of Understanding, Risks, and Benefits
12:02:25 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Presentation: The Heads of Agreement and the
Memorandum of Understanding, Risks and Benefits
Dept. of Natural Resources Commissioner Joe
Dept. of Revenue Deputy Commissioner Michael
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
<Bill Hearing Postponed>
                 SENATE FINANCE COMMITTEE                                                                                       
                     February 25, 2014                                                                                          
                         9:10 a.m.                                                                                              
9:10:18 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Kelly called the Senate Finance Committee meeting                                                                      
to order at 9:10 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Senator John Coghill; Jordan  Schilling, Staff, Senator John                                                                    
Coghill; Michael  Pawlowski, Deputy  Commissioner, Strategic                                                                    
Finance,  Department of  Revenue; Joe  Balash, Commissioner,                                                                    
Department    of   Natural    Resources;   Angela    Rodell,                                                                    
Commissioner, Department of Revenue;                                                                                            
SB 64     OMNIBUS CRIME/CORRECTIONS BILL                                                                                        
          SB 64 was HEARD and HELD in committee for further                                                                     
SB 138    GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
          SB 138 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Presentation: The  Heads of Agreement and  the Memorandum of                                                                  
Understanding, Risks, and Benefits                                                                                            
SENATE BILL NO. 64                                                                                                            
     "An Act establishing  the Alaska Sentencing Commission;                                                                    
     relating to  jail-time credit  for offenders  in court-                                                                    
     ordered  treatment programs;  allowing  a reduction  of                                                                    
     penalties for offenders successfully completing court-                                                                     
     ordered  treatment programs  for  persons convicted  of                                                                    
     driving  while  under  the  influence  or  refusing  to                                                                    
     submit   to  a   chemical  test;   relating  to   court                                                                    
     termination  of a  revocation  of  a person's  driver's                                                                    
     license; relating  to limitation of  drivers' licenses;                                                                    
     relating  to conditions  of probation  and parole;  and                                                                    
     providing for an effective date."                                                                                          
9:11:15 AM                                                                                                                    
SENATOR JOHN  COGHILL, related that  the bill had  the three                                                                    
overriding  goals of  improving public  safety, slowing  the                                                                    
growth  of  the  prison  population, and  saving  the  state                                                                    
money.  He related  that  if things  were  not changed,  the                                                                    
Senate Finance Committee might to  consider how to build the                                                                    
state's  next big  prison. He  stated  that the  bill was  a                                                                    
cooperative effort  between himself, Senator  Ellis, Senator                                                                    
French, and  Senator Dyson that  had been  under development                                                                    
for well  over a year and  half. He continued that  the bill                                                                    
was  the result  of many  hours  of testimony  and that  the                                                                    
sponsors had hammered  out a good piece  of legislation that                                                                    
the committee would  be able to appreciate.  He thought that                                                                    
there were  several things in  the bill that would  help the                                                                    
state turn  the corner on  a variety of things  that "really                                                                    
kicked the feet  out from under us," which was  the drug and                                                                    
alcohol problem  in Alaska. He  stated that  the legislation                                                                    
would  give   the  Department  of  Corrections   (DOC),  the                                                                  
Department  of Health  and Social  Services (DHSS),  and the                                                                  
Department  of  Law  (DOL)  real  tools  to  help  manage  a                                                                  
population  that  needed  better  avenues.  He  stated  that                                                                    
Alaska needed  to figure out how  to deal with the  issue of                                                                    
sobriety, as well as how  to keep people accountable and not                                                                    
spend the  most amount on  jail time.  He spoke of  the need                                                                    
let  people  have  as  much   freedom  as  possible  and  be                                                                    
productive while still protecting public safety.y.                                                                            
Senator  Coghill  related  that  in  his  mind,  there  were                                                                    
several  over-arching  aspects as  the  bill  was being  put                                                                    
together. He reported  that he had always had an  eye to the                                                                    
victim and  that in  Alaska, victims  were quite  often left                                                                    
without remedy.  He thought that  even as Alaska  was trying                                                                    
to  give  avenues for  those  who  had offended,  the  state                                                                    
wanted to make  sure that the public was safe  and  that the                                                                    
victims  were given  every opportunity  for restoration;  he                                                                    
thought that  there were avenues  to do this under  the 24/7                                                                    
Sobriety Program. He reported  that the 24-7 program allowed                                                                    
people to  be productive  while under  accountability, which                                                                    
allowed them  to pay restitution  in other ways;  he thought                                                                    
that the  bill fell  into what Senator  Dyson had  pushed on                                                                    
restorative justice.  He added  that the protection  for the                                                                    
victim  and   the  need  for  accountability   were  heavily                                                                    
embedded in  the bill  in the  most cost-effective  ways. He                                                                    
noted that the legislation  contained a sobriety program and                                                                    
established  the  Alaska  Criminal Justice  Commission  that                                                                    
would  study the  question of  whether there  were areas  of                                                                    
Alaska's  mandated  sentencing  laws  that  the  legislature                                                                    
should be looking at; the  bill would provide the commission                                                                    
with a  list of things to  think about and would  require it                                                                    
to come back to the legislature with a report.                                                                                  
Senator  Coghill thought  that through  the Alaska  Criminal                                                                    
Justice  Commission,  it  was time  to  examine  how  Alaska                                                                    
looked at  its criminal code, mandatory  sentencing, and how                                                                    
the sentencing had fit in real  life; this would not be done                                                                    
with the  intent of how  to be soft on  crime, but to  be as                                                                    
real  as possible  in accountability.  He  stated that  that                                                                    
imbedded  in the  bill was  a  Probation Accountability  and                                                                    
Ccertain  en  Enforcement     ??(PACE)  program  that  acted                                                              
swiftly in  the event of  a parole violation. He  noted that                                                                    
the  sponsors were  requesting that  a  fund be  established                                                                    
within  the  bill that  would  allow  the  state to  have  a                                                                    
programmatic approach for those  exiting jail; he noted that                                                                    
were  several ways  to setup  of a  fund and  hoped that  he                                                                  
would have  a clearer  path forward on  that issue  the next                                                                    
time the bill was before the committee.                                                                                         
Senator Coghill  noted that thresholds for  felony theft had                                                                    
not   been  adjusted   since  1978   and  thought   that  it                                                                    
represented  an important  thing  to  do because  currently,                                                                    
Alaska could produce  felons for things that  really did not                                                                    
rise  to  the   level  of  a  felony;     if  under  certain                                                                  
circumstances, they   more than  once they could be  a felon                                                                  
if they  offended more  than once. He  noted that  under the                                                                  
bill, some of these felonies  needed to be adjusted and that                                                                  
the  time  value   ofand  money  and  crime   needed  to  be                                                                  
considered. He noted  that the sponsors were  asking the DOC                                                                
epartment of  Corrections and the  Department of  Health and                                                                
Social Services DHSS  to assist in creating  better risk and                                                                  
needs  assessments.  He thought  that  the  bill would  help                                                                    
protect  the public  and keep  people  more accountable.  He                                                                  
reported that the Senate Judiciary  Committee had included a                                                                    
section for people  who picked up children and  did not have                                                                    
good identification; the section heldp  people to a level of                                                                  
accountability if they  did not have the right to  pick up a                                                                    
child at school. He concluded  that were multiple aspects in                                                                    
the   bill,  but   its  real   focus   was  public   safety,                                                                    
accountability,  and avoiding  building another  prison that                                                                    
would cost the state $300 million or more.                                                                                      
9:18:25 AM                                                                                                                    
Senator  Dunleavy pointed  to the  fiscal notes  attached to                                                                    
the bill and inquired if  the he bill's cost would represent                                                                  
an increase to  the budget or a transfer  from another area.                                                                  
Senator Coghill replied  that the way the  bill was written,                                                                    
it would  was a  general fund  appropriation to  the stated,                                                                  
but  added that  he would  have  his staff  propose ways  to                                                                    
decrease  that  cost  and  produce  a  CS.  He  stated  that                                                                    
decreasing  the  bill's  cost  really  revolved  around  the                                                                    
recidivism fund.  He observed that the  legislation did have                                                                    
an expected  savings that  was very  hard to  quantify which                                                                    
was  the reduction  in cost  of  keeping people  accountable                                                                    
outside of jail  versus a the higher  cost of incarceration.                                                                  
He  related that  the cost  savings  would be  very hard  to                                                                    
quantify,  but it  was expected  to occur.  He thought  that                                                                    
there  might  be an  estimation  of  what that  savings  was                                                                  
sometimes in the  future, but reiterated that  he was unsure                                                                  
if the DOCdepartment would be able to quantify the number.                                                                    
9:20:30 AM                                                                                                                    
JORDAN SCHILLING,  STAFF, SENATOR  JOHN COGHILL, spoke  to a                                                                    
PowerPoint  presentation  titled  "Senate  Bill  64  Omnibus                                                                    
Crime/Corrections bill" (copy on file).  He spoke to slide 1                                                                    
of the  presentation and read  off his talking  points (copy                                                                    
on file).:                                                                                                                    
     SLIDE 1                                                                                                                    
     Mr.  Chairman, thank  you for  hearing  Senate Bill  64                                                                    
     today in light of a full schedule.                                                                                         
     Just to bring you up to speed on where SB 64 has been:                                                                     
     (2) senate state affairs                                                                                                   
     (2) joint judiciary                                                                                                        
     (7) senate judiciary                                                                                                       
     The Senate Judiciary Committee  received input from the                                                                    
     Department  of Law,  Dept.  of  Corrections, the  Court                                                                    
     system,  Public  Defender,  and as  a  result  of  that                                                                    
     feedback, this CS was formed.                                                                                              
     Today we go over version D.                                                                                                
9:21:34 AM                                                                                                                    
Mr. Schilling spoke to slide 2 and spoke from his talking                                                                     
     SLIDE 2                                                                                                                    
     The state  is not  receiving good  value for  the money                                                                    
     spent on  our corrections system.   2  out of 3  of our                                                                    
     prisoners  return  to  prison  quickly  after  release.                                                                    
     Most of these offenders return  in the first 6 months -                                                                    
     which  is one  of  the worst  recidivism  rates in  the                                                                    
     country.    So, we  must  ask  ourselves:   with  state                                                                    
     revenues  falling, is  this how  we want  to spend  our                                                                    
9:22:00 AM                                                                                                                    
Mr. Schilling spoke to a graph  on slide 3 and reported that                                                                  
currently,   the price  of incarceration  was $159  per day,                                                                
per  inmate  and  was  about $54,000  per  year,  which  was                                                                    
approximately twice as much the cost in the Lower-48.                                                                           
9:22:09 AM                                                                                                                    
Mr. Schilling addressed slide 4 and read from his talking                                                                     
     SLIDE 4                                                                                                                    
     Today  Alaska  is  at  a   crossroads.  If  the  prison                                                                    
     population continues  to grow at its  current rate, the                                                                    
     state's prisons  will be, yet  again, at  full capacity                                                                    
     in  just two  years. So,  the state  must today  either                                                                    
     start  planning to  build a  new prison,  start sending                                                                    
     prisoners out-of-state,  or, look at programs  that are                                                                    
     proven to work - things  other states are doing today -                                                                    
     to reduce  recidivism, reduce our  DOC budget,  and put                                                                    
     off a  huge capital expense (and  an operating expense)                                                                    
     of building another prison.                                                                                                
Mr. Schilling  related that  the graph on  slide 4  was from                                                                    
the  Legislative Finance  Division. He  stated that  the red                                                                    
line was the maximum capacity  of the prison system and that                                                                    
the blue  line was the  prisoner population. He  stated that                                                                    
the prison  population in Alaska  was growing at a  steady 3                                                                  
percent per  year and that in  2016, where the blue  and red                                                                    
lines  intersect,   was  when  the  system   would  be  over                                                                    
capacity. He stated that the  horizontal cells at the bottom                                                                    
of slide showed the budget and  relayed that the lately,  it                                                                
had increased about 7.3 percent per year.                                                                                       
9:23:14 AM                                                                                                                    
Co-Chair  Kelly  requested  Mr.   Schilling  to  repeat  the                                                                    
figure.  Mr. Schilling  confirmed that  the corrections  the                                                                  
corrections  budget  had  been increasing  7.3  percent  per                                                                  
9:23:20 AM                                                                                                                    
Mr.  Schilling  pointed to  slide  5  and read  his  talking                                                                  
     SLIDE 5                                                                                                                    
     Many states  have been  faced with  the same  problem -                                                                    
     the  problem of  needing a  new  prison every  5 or  10                                                                    
     years.   Those  states  identified  the things  driving                                                                    
     their prison  growth and developed policies  to address                                                                    
     Over  the  last  couple  years,   15  of  those  states                                                                    
     actually closed prisons.                                                                                                   
     Texas and  Kansas were among  the first states  to make                                                                    
     some big changes.  Texas  was faced with building 4 new                                                                    
     prisons.   Instead of doing  that, they funded  some of                                                                    
     these programs, and they ended  up not needing a single                                                                    
     new prison,  and they  actually closed  a prison  a few                                                                    
     years later… so  we can look to what  other states have                                                                    
     done to see what works.                                                                                                    
     Kentucky's  omnibus corrections  bill  is projected  to                                                                    
     save them $420 million over the next 10 years.                                                                             
     Arkansas'  omnibus  bill  is   expected  to  save  $875                                                                    
     We haven't done  much in corrections reform.   The vast                                                                    
     majority of  Alaska's criminal statutes  were rewritten                                                                    
     in  1982. The  Alaska criminal  code was  based on  the                                                                    
     best  research  at  the time.  Research,  however,  has                                                                    
     continued to advance during the  last 25 years and much                                                                    
     has been  learned about effective  ways to  address our                                                                    
     prison problem                                                                                                             
9:24:29 AM                                                                                                                    
Mr. Schilling discussed slide 6 and related that the bill                                                                       
had three main goals, which were to increase public safety,                                                                     
reduce recidivism, and reduce costs.                                                                                            
9:24:38 AM                                                                                                                    
Mr. Schilling addressed slide 7 and spoke from his talking                                                                  
     SLIDE 7                                                                                                                    
     Now, the  DOC has  similar goals.  This is  the mission                                                                    
     statement of the Department of Corrections.                                                                                
     1) Secure confinement                                                                                                      
     2) Reformative programs                                                                                                    
     3) Community Reintegration                                                                                                 
     That   mission  is   pulled  right   from  the   Alaska                                                                    
     Constitution.    So,  it's not  that  their  goals  are                                                                    
     wrong, but it's how  they allocate resources to achieve                                                                    
     those goals.                                                                                                               
9:25:02 AM                                                                                                                    
Mr. Schilling spoke to the charts on slide 8 and read from                                                                  
his talking points:                                                                                                             
     SLIDE 8                                                                                                                    
     This is how they allocate those resources.                                                                                 
     The  Department  places  a  major  emphasis  on  secure                                                                    
     confinement,  and   barely  any   emphasis  reformative                                                                    
     programs  or community  reintegration.   Yet those  are                                                                    
     the very areas where we can affect recidivism.                                                                             
     If we  keep doing  the same  thing, we'll  keep getting                                                                    
     the same results.  These  are the results we're getting                                                                    
     right now.                                                                                                                 
Mr. Schilling  discussed the  top pie chart  on slide  8 and                                                                    
stated  that it  depicted  how DOC  allocated its  full-time                                                                    
positions; 86 percent of the  positions were focuseds on the                                                                  
warehousing aspect, 4 percent  wereas focused on reformative                                                                  
programs, and 10 percent wereas for  supervised release.                                                                    
9:25:39 AM                                                                                                                    
Mr. Schilling directed the committee's attention to the                                                                         
graph on slide 9 and addressed his talking points.:                                                                           
     SLIDE 9                                                                                                                    
     The Department  of Corrections made  this graph  and it                                                                    
     shows the drop  in recidivism over the  past few years.                                                                    
     While  it   may  look  like  a   dramatic  decrease  is                                                                    
     occurring, you'll  notice this is about  1.5% reduction                                                                    
     over  4  years.    That's  not  enough,  and  it's  not                                                                    
     happening  quick  enough.  At  that  rate,  our  prison                                                                    
     system will  be at capacity  by 2016. And 63%  is still                                                                    
    one of the highest recidivism rates in the country.                                                                         
9:26:12 AM                                                                                                                    
Mr. Schilling discussed slide 10 and spoke from his talking                                                                   
   SLIDE 10                                                                                                                     
   SB 64 has 8 main pieces to address our recidivism                                                                            
     ·  SB 64 establishes  a 24/7  Sobriety Program  used to                                                                    
        prevent offenders from drinking.  The program                                                                           
        includes twice-a-day alcohol testing and swift                                                                          
        punishment if alcohol is consumed.                                                                                      
     ·  SB 64 creates the Alaska Criminal Justice Commission                                                                    
        to evaluate the system and make recommendations.                                                                        
     ·  SB 64 expands a  program called P.A.C.E. which  is a                                                                    
        different way of doing probation that prevents                                                                          
        violations and new crimes.                                                                                              
     ·  SB 64 requires the  Dept. of Corrections  to conduct                                                                    
        more assessments of their prisoners.                                                                                    
     ·  SB 64 establishes a Recidivism Reduction fund in the                                                                    
        Department of Corrections to grant money to                                                                             
        transitional re-entry programs.                                                                                         
     ·  SB 64 increases the felony theft threshold from $500                                                                    
        to $750.  The threshold was established in 1978 and                                                                     
        has never been adjusted for inflation.                                                                                  
        o Lastly, SB 64 incentivizes treatment and expands                                                                      
          the ability to get credit for time in treatment.                                                                      
Mr. Schilling inquired if Co-Chair Kelly would like him to                                                                      
go through the bill section by section. Co-Chair Kelly                                                                          
replied in the affirmative.                                                                                                     
9:27:35 AM                                                                                                                    
Mr. Schilling pointed to slide 11 and addressed his talking                                                                     
     SLIDE 11                                                                                                                   
     The first  3 sections  of the  bill fill  a gap  in our                                                                    
     criminal codes relating to attempted child abduction.                                                                      
     These sections  of the bill resulted  from an amendment                                                                    
     in Senate Judiciary.                                                                                                       
Mr. Schilling  related that  while the  first 3  Sections of                                                                    
the legislation  did not deal  directly with  recidivism, it                                                                  
had a strong public safety aspect.                                                                                              
9:27:59 AM                                                                                                                    
Mr. Schilling discussed slide 12  and spoke from his talking                                                                    
     SLIDE 12                                                                                                                   
     If a  potential abductor goes to  a school/daycare, and                                                                    
     attempts  to pick  up a  child that  doesn't belong  to                                                                    
     them, the only  charge currently on the  books that can                                                                    
     be made against the person is Criminal Mischief.                                                                           
     These   sections   create   a   crime   of   "custodial                                                                    
     interference in the 2nd degree" if an attempted                                                                            
     abduction like that is made.                                                                                               
9:28:41 AM                                                                                                                    
Vice-Chair  Fairclough inquired  if there  were comments  or                                                                    
discussions  about   cases  of   custody  in   and  divorces                                                                
situations in  the Senate Judiciary Committee.  She wondered                                                                    
what would  happen if  a mom  who had  custody of  her child                                                                    
sent a neighbor to pick up  the kids and that because of the                                                                    
volatility of  the situation, a  restraining order,  or some                                                                    
other unkownsituation,  the school  did not want  to release                                                                  
to a  friend who the child  knew;. sShe wondered how  this a                                                              
situation like the  one described above would  be dealt with                                                                  
and pointed out thought that  the father might claim that it                                                                  
was  an abduction.  Mr. Schilling  responded that  it was  a                                                                    
good question and relayed that  the issue had been discussed                                                                    
in  the   Senate  Judiciary   Committee.  He   directed  the                                                                    
committee's  attention  to   page  2  on  line   16  of  the                                                                    
legislation and  stated that it  was where the  language was                                                                    
added  that  stated  that  in   order  for  a  crime  to  be                                                                    
committed, a person must have no  legal right to pick up the                                                                    
child; the  language had been  added to address the  type of                                                                    
situation  that Vice-Chair  Fairclough had  referred to.  He                                                                    
explained that if someone who had  custody of a child gave a                                                                    
person permission to pick that  child up, that would suffice                                                                    
as a legal right.                                                                                                               
M9:29:56 AM                                                                                                                   
Mr. Schilling addressed  slide 13 and related  that the next                                                                  
15 sections  of the  bill, which  were Sections  4-19, dealt                                                                    
with Alaska's felony theft threshold.                                                                                           
9:30:08 AM                                                                                                                    
Mr. Schilling  directed the  committee's attention  to slide                                                                    
14 and discussed hise talking points.:                                                                                      
     SLIDE 14                                                                                                                   
     Sections 4-19 address the felony theft threshold.                                                                          
     The  dividing line  between a  misdemeanor theft  and a                                                                    
     felony  theft is  $500.   If you  steal something  over                                                                    
     $500,  it's a  felony.   If you  steal something  under                                                                    
     $500,  it's a  misdemeanor.   That  dividing line,  the                                                                    
     felony  threshold, was  established by  the legislature                                                                    
     over 30 years ago.                                                                                                         
     Because that  amount has never been  adjusted, it fails                                                                    
     to take  into account 30  years of inflation.   $500 in                                                                    
     1978  had  much  more  purchasing power  than  it  does                                                                    
     today.   In fact, $500  in 1978 is equivalent  to $1800                                                                    
     today.  In other words,  what amounted to a misdemeanor                                                                    
     30 years ago may now constitute a felony.                                                                                  
9:30:44 AM                                                                                                                    
Mr. Schilling discussed slide 15  and related that the graph                                                                    
showed  where Alaska  was compared  to other  states on  the                                                                    
West Coast  regarding felony  theft thresholds.  He reported                                                                  
that Alaska  had was  one of  the last  holdouts that  had a                                                                    
felony threshold rate this low  for theft. He added that the                                                                    
graph needed  to be updated  and that not only  had Colorado                                                                    
adjusted  theirs in  2007, but  that  it had  done so  again                                                                  
recently.  He  stated  that  property  crimes  made  up  the                                                                    
largest portion  of Alaska's felonies and  that the sponsors                                                                    
were seeking  a modest increase  in the threshold  from $500                                                                    
to $750.                                                                                                                        
9:31:19 AM                                                                                                                    
Mr.  Schilling  addressed  slide  16  and  stated  that  the                                                                  
following  statutes  were  those   that  would  need  to  be                                                                    
adjusted  if the  felony theft  threshold  was changed  from                                                                    
$500 to $750:                                                                                                                   
     Theft 2nd degree                                                                                                           
     Theft 3rd degree                                                                                                           
     Theft 4th degree                                                                                                           
     Concealment of merchandise                                                                                                 
     Removal of identification marks                                                                                            
     Unlawful possession                                                                                                        
     Issuing a bad check                                                                                                        
     Fraudulent use of an access device                                                                                         
     Vehicle theft in the 1st degree                                                                                            
     Criminal mischief 3rd degree                                                                                               
     Criminal mischief 4th degree                                                                                               
     Criminal mischief 5th degree                                                                                               
     Criminal simulation                                                                                                        
     Misapplication of property                                                                                                 
     Defrauding creditors.                                                                                                      
Mr. Schilling spoke  to slide 16 and stated  that the reason                                                                    
that  there  were  15  sections in  the  bill  dealing  with                                                                    
statutes was because  of the of the number of  them  of them                                                                
that were affected by the threshold change.                                                                                   
Mr. Shilling read from his talking points:                                                                                      
     A  felony  conviction  carries  lifelong  consequences.                                                                    
     There are  thousands of consequences and  barriers that                                                                    
     follow a felony for the rest of his or her life.                                                                           
     A felony  conviction greatly diminishes the  ability of                                                                    
     that individual to lead a productive life.                                                                                 
     This problem disproportionately  affects those in rural                                                                    
     Alaska.  A  basic window, if broken  in Anchorage might                                                                    
     only be  a misdemeanor, but  that same window  in rural                                                                    
     Alaska   could  trigger   a  felony.     As   inflation                                                                    
     continues, this problem will get worse.                                                                                    
     One criticism  we have heard  is that some  think theft                                                                    
     will increase.                                                                                                             
Co-Chair Kelly  inquired if the sponsor  had had discussions                                                                    
about the  $750 dollar  amount and thought  that it  did not                                                                    
seem achieve  that much. Mr.  Schilling responded  that when                                                                    
Senator Coghill  had originally introduced the  idea several                                                                    
years  prior, the  suggested new  threshold had  been $2,500                                                                    
and that when  the bill was again  reintroduced the previous                                                                    
session,  it was at $1,500 ,  but and it was amended down to                                                              
$1,000;  it was  then  amended  again down  to  $750 in  the                                                                    
Senate Judiciary  Committee. He  agreed that the  number was                                                                    
not very significant if it was going by inflation.                                                                              
9:32:40 AM                                                                                                                    
CoCo-Chair  Kelly thought  that  the threshold  in the  bill                                                                  
needed to  higher than $750  and inquired  if the cost  of a                                                                    
dented fender  in the charge  of criminal mischief  would be                                                                    
applied under the legislation.  Mr. Schilling responded that                                                                    
Co-Chair Kelly was correct.                                                                                                     
9:33:10 AM                                                                                                                    
Vice-Chair  Fairclough believed  that  small businesses  are                                                                    
the  ones advocating  for a  smaller threshold  because they                                                                    
felt that breaking a storefront  window in Anchorage rose to                                                                    
the level of a felony.                                                                                                          
Vice-Chair  Fairclough referenced  slide 15  and noted  that                                                                    
only 10 states were provided.  She inquired if the 10 states                                                                    
on  the slide  were  the  bottom 10  and  requested a  range                                                                    
inside  of  the U.S.  where  the  level  might be  set.  She                                                                    
recalled that  the bill had been  originally introduced with                                                                    
a new felony  theft threshold of $2,500 and  now appeared to                                                                    
still  be  second to  the  bottom  at  $750. She  felt  that                                                                    
businesses were not aware of  how much the current threshold                                                                    
was costing  the state  in the form  of corrections  and the                                                                    
Alaska  Court System.  She understood  the offense  and that                                                                    
perhaps  if businesses  wanted to  keep  the threshold  low,                                                                    
they could  help carry the  burden. Mr.  Schilling responded                                                                    
that  Vice-Chair Fairclough  was correct  in that  not every                                                                    
state was listed  on slide 15 and that there  were, in fact,                                                                  
states  that had  a  lower such  threshold  than Alaska.  He                                                                    
stated that  it was also  true that the  National Federation                                                                    
of  Independent  Business  had pushed  back  on  the  bill's                                                                    
9:34:44 AM                                                                                                                    
Mr. Schilling  directed the  committee's attention  to slide                                                                    
20  and thought  that it  was important  to understand  that                                                                    
theft  under  $500  was  still a  class  A  misdemeanor  and                                                                    
carried  up to  a year  in jail  and up  to a  $10,000 fine;                                                                    
furthermore, these  crimes would not go  unpunished, but the                                                                    
threshold was  being adjusted to  track the  original intent                                                                    
of the legislature when it had put in the $500 limit.                                                                           
9:35:04 AM                                                                                                                    
Vice-Chair Fairclough  wondered what the bar  graph on slide                                                                    
15 represented  inside of the  U.S. She inquired  whether it                                                                    
represented the  high and the  low or another  category. Mr.                                                                    
Schilling  responded that  the x-axis  was showing  a dollar                                                                    
amount and  that Alaska's  current bar  was about  $500; the                                                                    
numbers next to the bars  were the years that the thresholds                                                                    
had been  established. He noted that  Alaska's threshold was                                                                    
established  in 1978,  but the  state just  above it  on the                                                                  
chart, which  was Nevada, had  a threshold of $650  that was                                                                    
established in 2011.                                                                                                            
9:35:43 AM                                                                                                                    
Vice-Chair Fairclough  commented that  there were  50 states                                                                    
and that  she was looking for  a range. She inquired  if the                                                                  
chart's states reflected the high  and the low or were there                                                                    
numbers that  were not  shown on  the extrapolation  for the                                                                    
graph.  Mr.  Schilling  responded  that the  graph  did  not                                                                    
reflect a high  or low range, but that he  would produce the                                                                    
information for the committee.                                                                                                  
Vice-Chair Fairclough  stated that she  was trying to  get a                                                                    
range for the  committee. Mr. Schilling replied  that he had                                                                    
a seen   a low  threshold of about  $300, but that  he could                                                                
not recall  which state  that was;  he believed  that $2,000                                                                    
was the new threshold for Colorado.                                                                                             
Vice-Chair  Fairclough  inquired  if Mr.  Schilling  thought                                                                    
that  the  high  was  Colorado   at  $2,000.  Mr.  Schilling                                                                    
responded that he believed that it was.                                                                                         
9:36:29 AM                                                                                                                    
Mr. Schilling spoke  to slide 17 and. He  related that there                                                                  
had been  concerns by the  business community that  the bill                                                                    
would result  in increased crime  and theft;  however, other                                                                    
states had not seen  those effects from similar legislation.                                                                    
He  pointed to  slide 17,  18, and  19's graphs  and related                                                                    
that  they graphs  had come  from the  PEW Research  Center,                                                                  
which  had conducted  a lot  of  research on  the issue.  He                                                                    
noted that Arkansas had raisedchanged  its threshold in 2011                                                                  
and that instances of theft remained unchanged.                                                                                 
9:36:55 AM                                                                                                                    
Mr. Schilling discussed  slide 18 and related  that Ohio had                                                                
increased its threshold in 2011;  theft had actually dropped                                                                    
there since then.                                                                                                             
9:37:00 AM                                                                                                                    
Mr. Schilling discussed slide 19  and pointed out that South                                                                    
Carolina  had doubled  its threshold  in 2012;  again, crime                                                                    
was steady.                                                                                                                     
9:37:06 AM                                                                                                                    
Mr. Schilling addressed  slide 20 and related that  it was a                                                                
visual representation of what the sections did.                                                                                 
Mr. Shilling spoke to his talking points for slide 20:                                                                          
     These sections also raise the lower threshold of $50                                                                       
     that sits between a class A misdemeanor and a class B                                                                      
     misdemeanor to $250.                                                                                                       
     So, we propose to increase the threshold to $750.                                                                          
     It's a modest amount, but it's a step in the right                                                                         
9:37:28 AM                                                                                                                    
Vice-Chair Fairclough  inquired why the threshold  was being                                                                    
changed if there were results that  showed it did not make a                                                                    
difference on the crime rates.    Mr. Schilling replied that                                                                  
the purpose it  was to reduce the number of  people who were                                                                
receivingbeing felonies es for  crimes above $500, but under                                                                
$750. He  furthered that  the sponsor  was trying  to reduce                                                                    
the collateral  consequences that  followed someone  for the                                                                    
rest of their  lives if they received  a felony convictions.                                                                  
He  offered  that  it  was becoming  easier  and  easier  to                                                                    
receive a felony conviction.                                                                                                    
9:38:06 AM                                                                                                                    
Co-Chair Kelly  thought that  the point  was that  the crime                                                                    
level  did not  go up  as a  result of  the changing  the of                                                                  
felony  theft  threshold;  it could  benefit  the  state  by                                                                  
having  the cost  be  a lot  less with  the  same amount  of                                                                    
crime.  He observed  that  the sponsor  was  also trying  to                                                                    
address a human  element with the change, but  that it could                                                                    
not be quantified.                                                                                                              
9:38:27 AM                                                                                                                    
Vice-Chair  Fairclough requested  that  the presentation  be                                                                    
directed back to slide 17 and  noted that when she looked at                                                                    
the graphs,   she saw something  different. She offerednoted                                                                
that  in Arkansas,  it  appeared as  though  theft had  been                                                                    
trending  downward  until  the  threshold  had  been  raised                                                                    
there. Mr. Schilling responded that  the uptick in the graph                                                                    
was right  before the  state had  changed the  threshold and                                                                    
that it appeared to him as  though the line  level was level                                                                  
at the point at which it was changed.                                                                                           
Vice-Chair  Fairclough  observednoted   that  there  was  an                                                                  
inflection downward in  one of the categories  of theft. Mr.                                                                  
Schilling replied in the affirmative.                                                                                           
9:39:09 AM                                                                                                                    
Senator Bishop requested  the average age of  peoples of the                                                                  
felons whothat  committed felony theft. He  wondered if most                                                                
of these types  of crimes were committed by  people who were                                                                    
18  and 19  years  old and  expressed that  he   added  that                                                                  
wanted  to help  paint  the picture.  He  added that  felony                                                                  
theft could be  a barrier to a young person  who was seeking                                                                    
employment and  noted that it  prohibited these  people from                                                                  
working on the pipeline. Mr.  Schilling responded  that that                                                                  
he would work  with the Alaska Ccourt  Sysystem to determine                                                                
if that was a number that he could obtain.                                                                                      
Vice-Chair Fairclough inquired if  there had been discussion                                                                    
regarding in the Senate Judiciary  Committee about a judge's                                                                  
discretion  related to  the bill.  She relayedted  that some                                                                  
judges had indicated to her  that  sometimes the legislature                                                                  
was so prescriptive in what  it did that there was sometimes                                                                    
very  little  latitude  for  judges  to  consider  what  was                                                                    
happening in  the court room  or to an individual  who might                                                                    
be a troubled child who threw  a rock or might be a multiple                                                                    
offender. She  further clarified  the question  and wondered                                                                    
if  the  discussion  of giving  judges  the  flexibility  of                                                                    
weighing  an individual  perpetrator's circumstances  in his                                                                    
decision.  Mr. Schilling  responded that  the issue  had not                                                                    
been discussed  specifically in regards to  the felony theft                                                                    
threshold, but  that he understood  that giving  judges very                                                                  
little discretion was a problem.                                                                                                
9:41:19 AM                                                                                                                    
Vice-Chair Fairclough recalled the  example of a mischievous                                                                    
child breaking a window and  thought that perhaps exceptions                                                                    
could be made in certain  cases. She appreciated the work of                                                                    
the bill's  sponsor but had  heard from the  judicial system                                                                    
that the legislature was getting  very prescriptive and that                                                                    
a   having  justice   versus   prescriptive  penalties   was                                                                    
something that was sometimes out of judges' hands.                                                                          
9:42:07 AM                                                                                                                    
Mr.  Schilling  addressed  slide  22 and  read  off  of  his                                                                    
talking points.                                                                                                               
     SLIDE 21                                                                                                                   
     Alaska has, for  decades, been in a  long struggle with                                                                    
     alcohol.    It  has reached  epidemic  proportions  and                                                                    
     costs the state millions each  year.  The societal cost                                                                    
     of  alcohol is  huge too  -  from FASD  and suicide  to                                                                    
     domestic violence and sexual assault.                                                                                      
     Alcohol is a factor in many  (if not most) crimes - For                                                                    
     example,  alcohol  is  involved   in  75%  of  domestic                                                                    
     violence offenses --  and if we can  address that area,                                                                    
     alcohol  abuse,  we  could  see  a  huge  reduction  of                                                                    
     recidivism in Alaska.                                                                                                      
     Sections 20-22 establish 24/7 in pre-trial.                                                                                
     24/7 Sobriety is  a program developed in  2005 in South                                                                    
     Dakota.   It  curbs alcohol  use, it  makes the  public                                                                    
     safer, and  it reduces  recidivism.   The best  part is                                                                    
     that it costs the state next-to-nothing.                                                                                   
     24/7 Sobriety  is a  growing trend in  the U.S.   There                                                                    
     are 3  states with  an established  program (SD,  ND, &                                                                    
     MT),  11 states  with pending  legislation, and  5 more                                                                    
     states operating pilots.                                                                                                   
     The program has one goal:  sobriety 24 hours per day, 7                                                                    
     days a week.  The program requires the participant to:                                                                     
     1) refrain from alcohol and                                                                                                
     2) show up twice-a-day for a breath alcohol test.                                                                          
     (The court may also  order remote monitoring in certain                                                                    
9:43:42 AM                                                                                                                    
Mr. Schilling  spoke to slide  22 and discussed  his talking                                                                    
     Participation  in  the program  can  be  required as  a                                                                    
     condition of probation, parole, or pre-trial.                                                                              
     So, if  an offender commits  a crime, and alcohol  is a                                                                    
     factor in that  crime, the court can  order that person                                                                    
     on  24/7  Sobriety,  either as  a  condition  of  their                                                                    
     release before  trial, or as  part of  their probation.                                                                    
     It is  a particularly effective program  for repeat DUI                                                                    
9:43:56 AM                                                                                                                    
Senator Hoffman  requested that Mr.  Schilling address   the                                                                  
how  remote  monitoring  would work  in  rural  Alaska.  Mr.                                                                    
Schilling deferred  to DOC regarding where  the department's                                                                    
monitors  could  and could  not  be  used; however,  he  had                                                                    
information later in the presentation  that would cover some                                                                    
of the devices and ways that it would work in rural Alaska.                                                                     
9:44:24 AM                                                                                                                    
Mr. Schilling  continued to  address slide  22 and  spoke to                                                                    
his talking points:                                                                                                             
     So, if  an offender commits  a crime, and alcohol  is a                                                                    
     factor in that  crime, the court can  order that person                                                                    
     on  24/7  Sobriety,  either as  a  condition  of  their                                                                    
     release before  trial, or as  part of  their probation.                                                                    
     It is  a particularly effective program  for repeat DUI                                                                    
9:44:38 AM                                                                                                                    
Mr. Schilling  addressed slide 23 and  discussed his talking                                                                    
     SLIDE 23                                                                                                                   
     All testing fees  are paid by the  participant, so it's                                                                    
     a self-funded program.  The  cost is anywhere from $4-5                                                                    
     dollars per day,  which the offender pays  - and that's                                                                    
     enough to sustain the program.                                                                                             
9:44:52 AM                                                                                                                    
Mr. Schilling  discussed slide 24 and  addressed his talking                                                                    
     SLIDE 24                                                                                                                   
     There  are  several ways  to  test:   in-person,  ankle                                                                    
     bracelet,    home-based   device,    or   a    portable                                                                    
     Breathalyzer.    While  in  the  program,  participants                                                                    
     remain  in society,  conduct their  daily lives,  go to                                                                    
     work,    pay   their    fees,    and   fulfill    their                                                                    
     responsibilities, as long as they remain sober.                                                                            
Mr. Schilling spoke  to slide 24 and stated  that the device                                                                    
on the  far left  side was a  portable breathalyzer  and the                                                                  
one in  the middle  was a home-based  device that  was being                                                                    
used in a pilot program in  Anchorage; the device on the far                                                                    
right was an ankle device  referred to as the SCRAM bracelet                                                                    
and was something that DOC was using.                                                                                           
9:45:28 AM                                                                                                                    
Mr. Schilling  discussed slide 25 and  addressed his talking                                                                    
     SLIDE 25                                                                                                                   
     Someone can be  on the program anywhere from  a week to                                                                    
     a couple years.                                                                                                            
     The program  was based  on personal  responsibility and                                                                    
     accountability, backed  by swift and  certain sanctions                                                                    
     if there  is a violation.   If the offender  blows hot,                                                                    
     they receive a swift  sanction (arrested immediately, a                                                                    
     quick hearing,  and a short jail  sentence, usually 1-3                                                                    
9:45:52 AM                                                                                                                    
Mr. Schilling discussed slide 26 and read from his talking                                                                    
     SLIDE 26                                                                                                                   
     The  program works.  Most people  on  the program  quit                                                                    
     drinking  completely,  and  another 30%  quit  drinking                                                                    
     after their first couple violations.                                                                                       
     24/7  Sobriety  is  a public  safety  measure.    South                                                                    
     Dakota has  been collecting data  on their  program for                                                                    
     almost  10   years  now,  and  the   results  are  very                                                                    
Mr. Schilling pointed to slide 27 and addressed his talking                                                                     
     SLIDE 27                                                                                                                   
     They have seen  a 9% decrease in  domestic violence and                                                                    
     a  12%  decrease in  drunk  driving.   The  program  is                                                                    
     reducing recidivism and saving them money.                                                                                 
     The bottom  line is:  a  majority of the people  in the                                                                    
     program quit  drinking completely, and that's  good for                                                                    
     public safety and good for the budget.                                                                                     
9:46:29 AM                                                                                                                    
Mr. Schilling addressed slide 28 and read from his talking                                                                      
     SLIDE 28                                                                                                                   
     The next  section, 23, makes  changes to  AS 12.55.027.                                                                    
     This  section  of  law lays  out  the  requirements  to                                                                    
     receive credit for time served in a treatment program.                                                                     
     By relaxing  these requirements on  treatment programs,                                                                    
     the   program   can   offer   better   treatment,   and                                                                    
     participants  can more  readily  earn  credit for  time                                                                    
     served   there.     Remember,  offenders   have  little                                                                    
     incentive to  enter (and pay  for) a  treatment program                                                                    
     if they won't get credit for their time.                                                                                   
9:47:06 AM                                                                                                                    
Mr. Schilling discussed slide 29 and spoke to his talking                                                                       
     For   25   years,   it  was   the   Court   that   made                                                                    
     determinations  of  what  counted as  credit  for  time                                                                    
     served  in  a  treatment  program, based  on  years  of                                                                    
     caselaw,  starting with  Nygren  v. State  in 1983.  In                                                                    
     2007 the legislature enacted this section of law.                                                                          
     Now,  it is  laid  out  in statute,  and  is much  more                                                                    
     restrictive  than it  was pre-2007.   It  leaves little                                                                    
     room for an offender  to participate in activities that                                                                    
     programs would like to provide,  such as going to a job                                                                    
     center, attending church,  vocational classes, or going                                                                    
     to AA and NA meetings.                                                                                                     
     If  we  relax  the  requirements in  this  statute,  it                                                                    
     encourages  rehabilitation  and treatment,  and  allows                                                                    
     treatment  programs to  do  more.   And  it brings  the                                                                    
     statute more  in-line with how  things were  done prior                                                                    
     to 2007.                                                                                                                   
     The  way these  changes  are written  in  SB 64,  we're                                                                    
     still preventing  credit for  time served for  going to                                                                    
     dinner and a movie.                                                                                                        
     So, SB  64 says that  in order  to get credit  for time                                                                    
     served, one must  live in a treatment  facility and can                                                                    
     only get a "day pass"  for things like employment, voc.                                                                    
     tech classes, AA or NA  meetings, and any other purpose                                                                    
     that  is directly  related to  their  treatment.   This                                                                    
     encourages treatment,  which is  by far  less expensive                                                                    
     than a prison bed.                                                                                                         
9:48:39 AM                                                                                                                    
Mr. Schilling related that Sections 26 through 28 of the                                                                        
bill dealt with the expansion of PACE.                                                                                        
a program called Probation Accountability and Certain                                                                         
Enforcement (P.A.C.E).                                                                                                        
Mr. Schilling pointed slide 30 and discussed his talking                                                                        
     SLIDE 30                                                                                                                   
     When an offender is put  on probation, they are given a                                                                    
     list of  things they  can't do  - like  use drugs.   If                                                                    
     they  violate  the  conditions of  their  probation  by                                                                    
     using drugs,  it's called  a "probation  violation" and                                                                    
     that can  trigger you going  back to jail.   In Alaska,                                                                    
     we have a big problem  with people on probation getting                                                                    
     these   violations  or   committing   new  crimes   and                                                                    
     repeatedly coming  back into  the prison system.   This                                                                    
     revolving  door of  people  coming in  and  out of  the                                                                    
     prisons  is one  of  the biggest  drivers  of our  high                                                                    
     recidivism rate. But more  important to this committee,                                                                    
     it  is  one   of  the  biggest  cost   drivers  to  the                                                                    
     Department of Corrections.                                                                                                 
9:49:28 AM                                                                                                                    
Mr. Schilling spoke to slide 31 and addressed his talking                                                                       
     SLIDE 31                                                                                                                   
     There is a  way to stop this revolving door.   There is                                                                    
     a different way  of doing probation and  it's a program                                                                    
     called   P.A.C.E.   (Probationer   Accountability   and                                                                    
     Certain Enforcement).                                                                                                      
Mr.  Schilling pointed  to the  pie  graph on  slide 31.  He                                                                    
related that the green slice  represented 14 percent and was                                                                    
the amount of people who were serving time currently solely                                                                   
based on a probation violation.                                                                                                 
Mr. Schilling continued to address slide 31 and read from                                                                       
his talking points.:                                                                                                          
     ..it was  first developed  in Hawaii  and is  now being                                                                    
     used in 17 other states.   It reduces the number of re-                                                                    
     arrests, reduces  the amount  of drug use,  reduces the                                                                    
     number of  missed appointments, and  ultimately reduces                                                                    
     the number of people going back to jail.                                                                                   
     It's an  intensive program for offenders  who have been                                                                    
     identified  as  likely  to violate  the  conditions  of                                                                    
     their  probation.   The program  involves frequent  and                                                                    
     random drug  tests and responds  to any  violation with                                                                    
     swift, certain, and short terms of incarceration.                                                                          
     Probation-as-it's-currently-done-today comes  with high                                                                    
     rates  of  violations.    For  example,  despite  rules                                                                    
     requiring  sober living,  probation-as-usual oftentimes                                                                    
     affords  offenders  opportunities   to  continue  using                                                                    
     drugs, which  in most cases means  continuing to commit                                                                    
     other crimes.  Drug testing  tends to be too infrequent                                                                    
     and  sanctions are  too  rare and  too  delayed.   When                                                                    
     sanctions  are  imposed, they  tend  to  be too  severe                                                                    
     (months, or occasionally years,  in prison) rather than                                                                    
     a 2-3 day jail term.                                                                                                       
     P.A.C.E.  takes away  the discretion  of the  Probation                                                                    
     Officer because  when someone  violates a  condition of                                                                    
     his or her probation  by, for example, testing positive                                                                    
     for  drugs or  missing an  appointment, under  P.A.C.E,                                                                    
     that individual is arrested  immediately and brought to                                                                    
     court within 72 hours. At  the court hearing, the judge                                                                    
     imposes a sanction  of a short jail  term, commonly two                                                                    
     to three  days.   If the offender  violates his  or her                                                                    
     terms again, the process is  repeated.  In short, every                                                                    
     single probation violation is  dealt with quickly and a                                                                    
     sanction  is imposed  each time.    In contrast,  under                                                                    
     "probation as  usual," revoking someone's  probation or                                                                    
     holding a  court hearing might not  occur until several                                                                    
     probation violations  are reported.   As a  result, the                                                                    
     process can require several  costly court hearings over                                                                    
     a six-month  period and can be  generally characterized                                                                    
     as anything but "swift and certain."                                                                                       
     This is more intensive probation,  but it can be scaled                                                                    
     at  low cost.   In  Hawaii,  the program  grew from  35                                                                    
     probationers   to  more   than   1400  without   adding                                                                    
     courtrooms, judges,  court clerks, police  officers, or                                                                    
     jail cells.  To begin  putting a tourniquet on our rate                                                                    
     of  recidivism, this  bill  establishes PACE  statewide                                                                    
     immediately,  which   the  Department   of  Corrections                                                                    
     estimates needing additional personnel for.                                                                                
Mr. Schilling observed that the  bill did have a fiscal note                                                                    
that  accounted for  the need  of  the additional  personnel                                                                    
within DOC.                                                                                                                     
9:52:25 AM                                                                                                                    
Co-Chair Kelly  observed that the  fiscal note for  the bill                                                                    
was for  about $1.6  million and inquired  if there  was any                                                                  
way to anticipate  the savings that it would  result in. Mr.                                                                    
Schilling  replied  that there  were  ways  to estimate  the                                                                    
savings and believed that the  sponsor had a report from the                                                                    
Division of Legislative Research  to that effect. He thought                                                                    
that the report  was in members' packets (copy  on file) and                                                                    
stated  that further  along in  the  presentation, he  would                                                                    
discuss the  reduced number  of days  in prison  that people                                                                    
had under P.A.C.E.                                                                                                              
9:52:51 AM                                                                                                                    
Mr. Schilling continued to address  slide 32 and stated that                                                                    
P.A.C.E.  probationers were  55  percent less  likely to  be                                                                    
arrested for a new crime and  were 72 percent less likely to                                                                    
use drugs.  He noted that  the graph depicted  a precipitous                                                                    
drop   off  after   the  first   violation  of   a  positive                                                                    
9:53:14 AM                                                                                                                    
Mr. Schilling  spoke to  slide 33  and stated  that P.A.C.E.                                                                    
probationers   were  61   percent   less   likely  to   skip                                                                    
9:53:22 AM                                                                                                                    
Mr.  Schilling  addressed  to  slide  34  and  relayed  that                                                                    
P.A.C.E.  probationers  were   ultimately  53  percent  less                                                                    
likely to have  their probations revoked, which  was where a                                                                    
cost savings  could be  found because  they were  not coming                                                                    
back to prison.                                                                                                                 
9:53:37 AM                                                                                                                    
Mr. Schilling  spoke to slide  35. He stated that  the graph                                                                    
also  reflected  the  likelihood of  P.A.C.E.  probationers'                                                                    
probation being revoked, but it  reflected the state's pilot                                                                    
P.A.C.E. program in Anchorage.                                                                                                  
9:53:47 AM                                                                                                                    
Mr. Schilling discussed  slide 36 and stated  that it showed                                                                    
how  many less  days a  P.A.C.E probationer  would spend  in                                                                    
prison;  they served  48 percent  fewer days  in prison.  He                                                                  
reported that  when the cost  of incarceration was  $160 per                                                                    
day, a 48  percent decrease was huge. He  observed that each                                                                    
new probation  officer in Alaska  paid for their  own salary                                                                    
and benefits if they kept just  2 people out of prison for a                                                                    
9:54:17 AM                                                                                                                    
Mr. Schilling  directed the  committee's attention  to slide                                                                    
37 and discussed his talking points.:                                                                                         
     SLIDE 37                                                                                                                   
     The  Department  of  Corrections evaluates  inmates  to                                                                    
     figure  out  their  risks  and needs.    This  type  of                                                                    
     evaluation can give  the DOC an idea  of the underlying                                                                    
     reasons that  person committed the  crime like  if they                                                                    
     have  a substance  abuse or  a  mental health  problem.                                                                    
     Based on this  assessment, you have a good  idea if the                                                                    
     offender  needs  to  be  in   PACE,  if  he  could  use                                                                    
     substance abuse or  mental health treatment, basically,                                                                    
     discovering what the underlying issue is.                                                                                  
9:54:45 AM                                                                                                                    
Mr.  Schilling spoke  to slide  38 and  related his  talking                                                                    
     SLIDE 38                                                                                                                   
     The  department   uses  a  54-item   assessment,  which                                                                    
     identifies  problem areas  in  an  offender's life  and                                                                    
     helps predict their likelihood of recidivating.                                                                            
     The assessment looks into  10 areas like family/marital                                                                    
     issues, attitudes,  substance abuse or  alcohol issues,                                                                    
     However,  when someone  is sentenced  to serve  time in                                                                    
     prison here in  Alaska, more often than not,  we do not                                                                    
     evaluate  or assess  that person.    The Department  of                                                                    
     Corrections  assesses  less  than half  of  the  felons                                                                    
     coming  through the  system,  and  assesses hardly  any                                                                    
     misdemeanants,  even   though  misdemeanants   are  the                                                                    
     future felons.                                                                                                             
     You can't  link an offender  to treatment if  you don't                                                                    
     assess  them.   You  can't  understand the  underlying,                                                                    
     root causes for their crimes if you don't assess them.                                                                     
     In   speaking  with   the   department,  a   risk-needs                                                                    
     assessment takes about 45 minutes to complete.                                                                             
Mr. Schilling addressed slide 39 and read fromaddressed his                                                                   
talking points.:                                                                                                              
     SLIDE 39                                                                                                                   
     So, this section [Section 29]  of the bill requires the                                                                    
     Department to  perform a  risk-needs assessment  on all                                                                    
     offenders who have  been sentenced to 30  days or more.                                                                    
     This will mean a significant  increase in the number of                                                                    
     assessments  the  Department conducts.  The  Department                                                                    
     estimates needing  additional probation officers  to do                                                                    
     these assessments.                                                                                                         
9:55:54 AM                                                                                                                    
Co-Chair Kelly wanted the record to reflect that Co-Chair                                                                       
Meyer had rejoined the committee.                                                                                               
9:56:14 AM                                                                                                                    
Mr. Schilling discussed slide 40 and relayed his talking                                                                        
     SLIDE 40                                                                                                                   
     When  someone has  served their  entire sentence,  they                                                                    
     are released  from prison.  Every  state releases their                                                                    
     prisoners  differently.   Some  states transition  that                                                                    
     person  into a  halfway  house or  some  other type  of                                                                    
     gradually phased  re-entry.   But here in  Alaska, more                                                                    
     often than  not, these prisoners are  released into the                                                                    
     parking  lot  of  the   prison  without  any  resources                                                                    
     whatsoever.   This  is one  of the  root causes  of our                                                                    
     high recidivism  rate -  we dress  them in  the clothes                                                                    
     they entered prison with, and  we release them into the                                                                    
     parking lot.   They don't have first month's  rent or a                                                                    
     deposit,  and they  can't get  a job.   They  certainly                                                                    
     can't  afford  treatment.  And  if  you're  from  rural                                                                    
     Alaska,  you're  probably  being  released  in  a  city                                                                    
     you're unfamiliar with. So, as  a result, many of those                                                                    
     recently  released go  straight to  a homeless  shelter                                                                    
     and are back in jail in no time.                                                                                           
     It's this approach  to re-entry that is  the main cause                                                                    
     of  Alaska's  high  recidivism  rate.  Of  all  of  the                                                                    
     recidivism  we're  seeing, most  of  it  occurs in  the                                                                    
     first 6 months.                                                                                                            
     If,  during  those first  6  months  after release,  we                                                                    
     could, put them in a  transitional re-entry program - a                                                                    
     place  with  a  structured environment,  sober  living,                                                                    
     treatment,  and  help getting  a  job  or education  in                                                                    
     their  own  communities  -- we  could  greatly  improve                                                                    
     their chances of not reoffending.                                                                                          
9:57:13 AM                                                                                                                    
Mr. Schilling discussed slide 44 and related his talking                                                                        
     This section  creates a  fund to  start those  types of                                                                    
     programs.  This fund  will distribute money to programs                                                                    
     that  have  those 4  things:    case management,  sober                                                                    
     living, substance abuse treatment, and work placement.                                                                     
     By putting  some focus on re-entry,  we can drastically                                                                    
     reduce  our rate  of recidivism.   This  fund would  be                                                                    
     managed by the Department of Corrections, which comes                                                                      
     with a fiscal impact to administer the fund.                                                                               
9:57:34 AM                                                                                                                    
Mr. Schilling discussed  slide 46 and related  that the bill                                                                    
established  the Alaska  Criminal Justice  Commission, which                                                                    
was  simply a  commission  that would  review, analyze,  and                                                                    
evaluate  the  effect  of  laws  and  practices  within  the                                                                    
state's criminal justice system.  He stated that an original                                                                    
CS to  the bill had  the commission  set at 17  members, but                                                                    
the  amount had  been reduced  to 12;  the commission  had a                                                                    
sunset date established of 5 years.                                                                                             
9:57:58 AM                                                                                                                    
MrR.  Schilling  addressed  slide  47 and  stated  that  the                                                                  
Alaska  Criminal  Justice  Commission had  some  powers  and                                                                    
duties  that   were  essentially   pulled  from   the  state                                                                    
constitution,  did  not  have  an  executive  director,  was                                                                    
staffed  by the  Alaska  Judicial Council,  and provided  an                                                                    
annual report to the legislature each year.                                                                                   
9:58:07 AM                                                                                                                    
Mr.   Schilling  discussed   slide   49   and  related   the                                                                    
applicability and  transitional provisions  in the  bill. He                                                                    
noted that the  bill had an effective date of  July 1 of the                                                                    
current year; however, the legislation  gave DOC the ability                                                                    
to start working on the regulations immediately.                                                                                
9:58:51 AM                                                                                                                    
AT EASE                                                                                                                         
10:12:06 AM                                                                                                                   
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."                                                                                                           
10:13:00 AM                                                                                                                   
^Presentation: The Heads of Agreement  and the Memorandum of                                                                    
Understanding, Risks, and Benefits                                                                                              
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT  OF  REVENUE,  began  a  PowerPoint  presentation                                                                    
titled  "The  Heads  of  Agreement  and  the  Memorandum  of                                                                    
Understanding,  Risks,  and  Benefits" (copy  on  file).  He                                                                    
recalled   that   the   committee   had   heard   from   the                                                                    
administration's consultants over  the last several hearings                                                                    
and  that the  current presentation  would attempt  to bring                                                                    
back the  prior ones before  the committee as a  summary and                                                                  
would  describe  some  of  the   thought  processes  of  the                                                                    
administration when  it put together the  Heads of Agreement                                                                    
(HOA)  and  the  Memorandum   of  Understanding  (MOU)  with                                                                    
TransCanada.  He  noted  that the  presentation  would  also                                                                    
provide context  for the committee  and comment on  what had                                                                    
been presented to date.                                                                                                         
10:13:33 AM                                                                                                                   
Mr. Pawlowski spoke  to slide 2 titled  "Guidance Document &                                                                    
SB 138." He related that  there it was important to remember                                                                  
that  there were  only three  documents  that the  committee                                                                    
would  be working  through. He  reported that  to date,  the                                                                    
committee  had  been  focusing on  the  HOA,  which  broadly                                                                    
described a  roadmap to advance  the large  Alaska liquefied                                                                    
natural gas  (AKLNG) line  through a phased process; it also                                                              
described key commercial  terms. He stated that  the MOU was                                                                    
a document that described an  agreement to transition out of                                                                  
the Alaska Gasline Inducement Act  (AGIA) license and into a                                                                    
more traditional  commercial relationship  with TransCanada.                                                                    
He  stated that  the HOA  and  MOU really  described to  the                                                                    
legislature and the public how  the administration would use                                                                    
the power  that it would  be granted  if SB 138  was passed;                                                                    
they were guidance documents and  a road map. He stated that                                                                    
SB 138 would  look at three big questions:  should the state                                                                    
participate in the in the  AKLNG project, what percentage of                                                                    
the gas  share the state  would take, what process  was used                                                                    
for the  development of the project-enabling  contracts, how                                                                    
the legislature  would work with the  administration through                                                                    
the phased process,  as well as how  the administration came                                                                    
back for approval before the legislature in the future..                                                                      
10:15:07 AM                                                                                                                   
Mr. Pawlowski addressed slide 3 titled "Introduction."                                                                          
     · Should the State participate in the AK LNG project?                                                                      
        · What are some of the benefits?                                                                                        
        · What are some of the risks?                                                                                           
        · Can the risks be mitigated?                                                                                           
     · Should the State partner with TransCanada?                                                                               
          o Does partnering with TransCanada advance State                                                                      
          o What are the risks and benefits of partnering                                                                       
             with TransCanada?                                                                                                  
10:15:54 AM                                                                                                                   
Mr. Pawlowski  discussed slide  4. He  stated that  when you                                                                    
looked  at the  AKLNG project,  one of  the most  compelling                                                                  
interests for the state to  advance a project this large was                                                                    
the potential revenues that it  would bring to Alaska in the                                                                    
latter part of  the current decade and into  the middle part                                                                    
of the next one. He  reported that the Department of Revenue                                                                  
(DOR)administration    saw    the   opportunity    of    the                                                                  
commercialization  of  North  Slope gGas  as  providing  ato                                                                
provide  significant additional  revenue  stream  on top  of                                                                  
Alaska's  already robust  oil tax  revenues. He  stated that                                                                    
the  bill had  additional benefits  such as  getting gas  to                                                                    
Alaskans,  growing  the  economy,   and  creating  jobs.  He                                                                    
concluded  that  for  the   Senate  Finance  Committee,  the                                                                    
administration would be diving  further into how the project                                                                  
would look  regarding potential investments and  revenues in                                                                  
future presentations.                                                                                                         
 how the project would  look regarding potential investments                                                                  
and revenues.                                                                                                                 
10:16:50 AM                                                                                                                   
JOE BALASH,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
spoke  to  slide 5.  He  related  that  the slide  had  been                                                                    
presented  by  Deepa  Poduval  from  Black  &    and  Veatch                                                                  
Consulting  the  prior week  and  that  it consolidated  and                                                                    
highlighted  the key  findings  and  recommendations of  the                                                                    
study  that the  Department of  Natural Resources  (DNR) had                                                                
commissioned  the  previous  year  on how  to  maximize  the                                                                    
state's  royalty value.  He recalled  the  history that  was                                                                    
being discussed in committee the  previous Thursday and that                                                                    
in 2012  the project had  started to  pick up steam;  it was                                                                    
clear at  that point that  liquid natural gas (LNG)  was the                                                                
most  likely path  to the  commercialization of  North Slope                                                                
gas. He  reported that as  an institution, DNR had  grown to                                                                    
an understand  how to protect  the state's  royalty interest                                                                  
in  a North  American based  project, but  was not  entirely                                                                    
sure how to do that in  an LNG project; the study from Black                                                                    
&and Veatch was commissioned  in order gain understanding of                                                                  
what  those differences  were,  as well  as  what risks  and                                                                    
opportunities an LNG project would  present to the state DNR                                                                  
from a royalty perspective. He  stated that as DNR evaluated                                                                    
not only  the differences  from a regulatory  and commercial                                                                    
standpoint, it had also evaluated  its current set of fiscal                                                                    
terms and  fiscal regime  in order  to ascertain  whether or                                                                    
not there was anything DNR really needed to do.                                                                                 
Commissioner  Balash offered  that  ultimately,  as slide  5                                                                    
would show,  it became clear  that with large,  complex, and                                                                    
expensive  projects, there  was  a  competitive window  that                                                                    
Alaska  could fit  into; however,  the administration  would                                                                    
have to  work to make sure  state made it in  the window. He                                                                    
related that  the findings  of the  study had  really helped                                                                  
inform  the decision  making of  DNR and  DOR regarding  the                                                                    
conversation that  was going  on with  the producers  in the                                                                    
context  of the  HOA.  He reminded  the  committee that  the                                                                    
administration   had  been   struggling   to  overcome   the                                                                    
misalignment of  interests between the state  and the North-                                                                    
Slope Lessees; it  had been through the course  of the Black                                                                  
& and Veatch  study that the administration had  seen a path                                                                  
whereby, if  structured properly, state  participation could                                                                    
maximize the  value proposition for Alaska's  royalty, while                                                                    
mitigating  ed some  of the  risks that  the state  would be                                                                  
exposed to  if it  were to  take an  equity position  in the                                                                    
project.  He concluded  that having  the study  conducted at                                                                    
the  same time  as  the discussions  between  the state  and                                                                    
producers had been beneficial to the process.                                                                                   
10:20:31 AM                                                                                                                   
Senator Hoffman  inquired if  the Black  & and  Veatch study                                                                  
was   available.   Commissioner   Balash  replied   in   the                                                                    
affirmative  and  added that  he  would  provide it  to  the                                                                    
10:20:40 AM                                                                                                                   
Commissioner  Balash  continued  to  speak to  slide  5  and                                                                    
pointed  to  the  bottom-middle  box. He  related  that  the                                                                    
inherent risks of  state participation in the  a project was                                                                
something  that  DNR had  spent  a  lot  of time  trying  to                                                                    
understand,  as  well  as resolving  those  risks  with  the                                                                    
project sponsors.                                                                                                               
10:21:09 AM                                                                                                                   
Commissioner Balash addressed slide 6.                                                                                          
     The HOA: A Step Toward Mitigating Risks                                                                                    
     The   Heads  of   Agreement  begins   the  process   of                                                                    
     mitigating  risks identified  in the  royalty study  by                                                                    
     committing  the Parties  to a  phased  approach to  the                                                                    
     Key State concerns are recognized and Parties commit                                                                       
    to developing agreements during Pre-FEED and FEED.                                                                          
     •Marketing Risk                                                                                                            
     •Expansion Principles                                                                                                      
     •Regulatory Framework and 3rd Parties                                                                                      
Commissioner Balash  stated that fundamentally,  the parties                                                                    
that  were best  situated  to help  the  state mitigate  the                                                                    
various  risks  were the  same  ones  that  it would  be  in                                                                    
partnership with. He reported that  most of the risks either                                                                    
came  in the  upstream  in  the management  of  the gas  and                                                                    
production or  occurred downstream in the  marketing aspects                                                                    
of   the  LNG   sales  process;   it  was   here  that   the                                                                    
administration  had found  several  ways  that these  things                                                                  
could be managed. He stated  the upstream side had balancing                                                                    
agreements  that would  be necessary  between the  different                                                                    
fields  and  leases  and  explainedstated  that  there  were                                                                  
varying royalty rates between the  two primary fields of Pt.                                                                    
Thompson and  Prudhoe Bay;  the exact  order in  which those                                                                    
fields get produced  could leave the state short  or long on                                                                    
its share  of the gas. He  explained that one of  the things                                                                    
that the  administration would be  seeking during  the pPre-                                                                  
FEED  stage  was  to  develop   the  offtake  and  balancing                                                                    
agreements        upstream       with        the       North                                                                    
-Slope producer;  concurrently, it  would be working  on the                                                                  
initial   marketing   efforts  and   potential   disposition                                                                    
agreements with  those producers on an  individual basis. He                                                                    
stated that  the producers had  the expertise  and marketing                                                                    
professionals  in  the  field that  were  dealing  with  LNG                                                                    
buyers that were in Pacific markets.                                                                                            
Commissioner  Balash  relayed  that  there  were  also  some                                                                    
broader  interests  of  the state  that  the  administration                                                                    
wanted to keep  in mind, first of which  was the opportunity                                                                    
for  expansions.   He  stated   that  the   opportunity  for                                                                    
expansions was something that had  been important to DNR for                                                                    
many years and offered  that Alaska had tremendous potential                                                                    
for additional  gas development beyond  Prudhoe Bay  and Pt.                                                                    
Thompson;  expansion opportunities  were  key to  maximizing                                                                    
this potential. He added that  the regulatory framework also                                                                    
allowed for  access by third  parties. He reported  that the                                                                    
administration  had   chosen  to   use  had   a  proprietary                                                                    
construct that  allowed the  state to pay  for its  share of                                                                    
the project, which it would  through the tariffs anyway, but                                                                    
also allowed the state to  control the terms of that section                                                                    
of the project. He stated  that the administration felt that                                                                    
the  above  approach  was  a broad  way  to  solve  multiple                                                                    
problems,  maximize the  opportunity  for the  state from  a                                                                    
royalty perspective, and at the  same time, mitigate the key                                                                    
uncertainties that were  identified; however, the agreements                                                                    
necessary to mitigate  those risks had to be  developed in a                                                                    
step-by-step fashion.                                                                                                           
10:24:42 AM                                                                                                                   
Commissioner Balash spoke to slide  7. He related that while                                                                    
there were  some key principles  laid out in the  HOA, there                                                                    
were a  lot left  that needed the  details worked  out; over                                                                    
the  next 18  months during  pre-FEED, the  state needed  to                                                                    
focus  on putting  those details  on paper,  obtain a  clear                                                                    
understanding  what the  obligations of  the parties  are to                                                                    
one another, and  how risks would be shared.  He stated that                                                                    
during pre-FEED, the state would  be picking up its share of                                                                    
the development cost, that there  was an opportunity to have                                                                    
TransCanada lighten  the state's load  a bit on  those costs                                                                    
from   a  cash   perspective.  He   stated  that   what  the                                                                    
administration was trying  to show on the  slide's chart was                                                                    
that the  state's steps were  going to be  made commensurate                                                                    
with of  those taken my  other parties. He related  that the                                                                    
administration was seeking 18 to  24 months and roughly $100                                                                    
million in  the collection of agreements  and legislation to                                                                    
explore an  opportunity that it  thought was  tremendous. He                                                                    
hoped  that  once  the  pre-FEED  step  was  completed,  the                                                                    
project would  be back before legislature  for approval with                                                                    
the additional  detail and a body  of additional agreements;                                                                    
he added  that approval for  project's next step  would come                                                                    
with another commitment of 2 to  3 years and upwards of $400                                                                    
million. He  added that the  $400 million could be  a lesser                                                                    
amount, depending on partnership opportunities.                                                                                 
10:26:35 AM                                                                                                                   
Senator  Bishop requested  Commissioner Balash  to speak  to                                                                    
the  state's consultants  who were  advising  Alaska on  the                                                                    
issue and  observed that  the public might  not be  aware of                                                                    
who was helping the  state. Commissioner Balash replied that                                                                    
that  the  state-gas team  had  people  who dealt  with  the                                                                    
companies  on  a  daily  basis, but  behind  them  were  the                                                                    
state's consultants  at Black and  Veatch. He  reported that                                                                    
Black  and Veatch  was  a global  engineering  firm that  is                                                                    
involved directly  with the design  and construction  of LNG                                                                    
project such  as the AKLNG  project; the  company's business                                                                    
consultancy,  which  Ms.  Poduval   was  a  member  of,  had                                                                    
provided direct  guidance and  research regarding  how these                                                                    
sorts of  agreements, as well  as the  commercial agreements                                                                    
were put  together. He  related that  Peter Abt,  a managing                                                                    
director at Black and Veatch,  had several decades of global                                                                    
gas  experience,  most  recently   working  for  GAZPROM  in                                                                    
Russia. He  stated that aside  from Black and  Veatch, there                                                                    
were some  subcontractors on that contract  that widened the                                                                    
base of  experience in assessing fiscal  regimes and certain                                                                    
market conditions,  as well as intelligence.  He stated that                                                                    
one  of the  subcontractors, Daniel  Johnston, was  familiar                                                                    
face  and   had  advised  either  the   legislature  or  the                                                                    
administration   in  the   past  and   contributed  to   the                                                                    
competitiveness review  on the project. He  pointed out that                                                                    
the state's outside counsel on  the legal side was Greenburg                                                                    
Traurig,  which was  also  an international  law  firm.   He                                                                    
stated Ken  Minesinger had  served as  general counsel  to a                                                                    
number of North American pipelines. Sinc******)                                                                               
10:29:55 AM                                                                                                                   
10:30:55 AM                                                                                                                   
Senator Hoffman directed the  committee's attention to slide                                                                    
7 and related  that there were three  3 different categories                                                                  
of   funding  that   reflected  the   different  levels   of                                                                    
commitment. He  inquired when the legislature  would need to                                                                    
make those  commitments and further queried  if the payments                                                                    
for 2016,  2017, and 2018 would  have to be made  in 2016 or                                                                    
if they were  spread out over three  3 different legislative                                                                  
sessions.  Commissioner  Balash   replied  that  there  were                                                                    
probably  several ways  to deal  with that  and which  would                                                                    
partially depend on whether the  state still had a cash call                                                                    
exposure through  the liquefaction  portion of  the project;                                                                    
the administration had  identified a partnership possibility                                                                    
with TransCanada and  it may be able  to identify additional                                                                    
partners  during the  marketing  phase  in the  liquefaction                                                                    
portion.  He stated  that if  the state  was able  to secure                                                                    
those partners,  there might  not be a  need for  cash calls                                                                    
during  2016, 2017,  and  2018  on the  part  of the  state;                                                                    
however, no partners  had been identified yet,  so the slide                                                                    
referenced $180 million  to $450 million over  the phase. He                                                                    
stated  that each  party would  be  responsible for  meeting                                                                    
their  cash-call   requirements  and  that   currently,  the                                                                    
frequency of  the commitment  was not  yet written  into the                                                                    
agreement. He  thought that  it was  premature to  know with                                                                    
certainty,  but  that  the  state could  expect  to  have  a                                                                    
significant cash commitment in 2016.                                                                                            
10:33:06 AM                                                                                                                   
Commissioner  Balash  addressed  slide 8  and  related  that                                                                    
there were  3 major components  of the project that  all fit                                                                    
together  in  order to  produce  LNG  for marketing  to  the                                                                    
Pacific markets.  He stated that  one of the  components was                                                                    
the gas  treatment plant  at Prudhoe  Bay that  would remove                                                                    
the CO2,  H2s, and other  impurities that would result  in a                                                                    
very  pure   methane  stream   with  some   other  potential                                                                    
hydrocarbons to  help keep  the BTU  content high;  that gas                                                                    
stream  will  be fed  into  the  pipeline that  will  travel                                                                    
throughout  the  state at  a  relatively  high pressure  and                                                                    
would  end into  a liquefaction  plant located  at tidewater                                                                    
that was expected to be in Nikiski.                                                                                             
10:34:11 AM                                                                                                                   
Commissioner Balash  spoke to  slide 9  and stated  that the                                                                    
question was  what the  state's share  of the  project would                                                                    
be; a range of 20 percent  to 25 percent had been identified                                                                    
in the  HOA as the state's  share. He stated that  range had                                                                    
been determined through discussions  with the companies, but                                                                    
was also a reflection on  the findings of Black and Veatch's                                                                    
work   to  identify   the   minimum   threshold  for   state                                                                    
participation to make  the risks Alaska was  taking on worth                                                                    
it. He noted  that the set of commercial  commitments in the                                                                    
project  were very  long-term  and  that the  administration                                                                    
thought that  having a share  lower than 20 percent  was too                                                                    
low;  conversely, the  state's  potential  partners did  not                                                                    
want  it to  have  an open-ended  upper end  and  a top  end                                                                    
number 25  percent had  been arrived at.  He noted  that the                                                                    
legislation  settled  on  state participation  at  about  22                                                                    
percent  and  relayed  that the  number  was  calculated  by                                                                    
taking  the state's  royalty interest,  which  was fixed  at                                                                    
Prudhoe  Bay  and Pt.  Thompson  and  expect it  to  produce                                                                    
roughly  75/25 split  between the  two fields  in the  long-                                                                    
term;  on a  blended basis,  13 percent  was the  figure for                                                                    
royalty. He  related that the  13 percent royalty  share was                                                                    
added  to the  production  tax share  to  produce the  total                                                                    
state gas  share number. He  observed that the math  was not                                                                    
straightforward  and that  the production  tax rate  of 10.5                                                                    
percent was  out of 100 units  of gas; it was  not that 10.5                                                                    
percent  out of  100 units  of gas  but was  that percentage                                                                    
after the royalties  were taking out. He  expounded that the                                                                    
state's total share of the  gas was actually 10.5 percent of                                                                    
the remaining 87 percent after  royalty plus the 13 percent.                                                                    
He concluded  that the total  state gas share would  then be                                                                    
used to  determine the  state's equity  participation number                                                                    
on the project's  three major components. He  pointed to the                                                                    
slide's gray boxes and noted  that the corresponding capital                                                                    
investment required  to achieve the state  investment in the                                                                    
3 percentages of 20, 22, or 25.                                                                                                 
Co-Chair Kelly  inquired if there  was a slide  that covered                                                                    
risk and cash calls.  Commissioner Balash replied that there                                                                    
was  a  slide  further  back  in  the  HOA  section  of  the                                                                    
presentation and that Commissioner Rodell would address it.                                                                     
10:38:14 AM                                                                                                                   
Vice-Chair Fairclough  thought that Commissioner  Balash had                                                                    
touched on her  question on the blended rate  on the royalty                                                                    
gas. She recalled  that in the Senate  Resource Committee, a                                                                    
floor had  been set  so that the  Alaska's revenue  from the                                                                    
project  could  never  go  to  zero  and  inquired  if  that                                                                    
committee had  set it at  10.5 percent.  Commissioner Balash                                                                    
believed that it was 12.5 percent.                                                                                              
Vice-Chair  Fairclough  inquired  if 12.5  percent  was  the                                                                    
average  of the  lease  rates.  Commissioner Balash  replied                                                                    
12.5 percent  represented the base  royalty rate  for leases                                                                    
that have  an additional  component like a  net-profit share                                                                    
or a  sliding scale.   Vice-Chair Fairclough wondered  if it                                                                    
should be  set at a  blended rate  and thought that  the Pt.                                                                    
Thompsons  lease  was  at  a  higher  rate  of  16  percent.                                                                    
Commissioner Balash  responded that  there were  some leases                                                                    
that had a  16 percent rate, which was a  1/6 rate; however,                                                                    
there were a lot of 1/7 leases.                                                                                                 
Vice-Chair Fairclough  relayed that the intent  in setting a                                                                    
floor in  the Senate Resources  Committee floor was  to make                                                                    
sure that  Alaskans received the  value that  was negotiated                                                                    
on the  lease. She observed  that the  floor was set  at the                                                                    
low end and wondered if it  should be blended because of the                                                                    
discussion on  the point of  production. She noted  that the                                                                    
state would never  go above the 15 percent gross  tax as was                                                                    
stated in  the HOA  and wondered about  the play  between 16                                                                    
percent lease  rate and  Prudhoe Bay.  She wondered  how the                                                                    
actual gas  tax would be  adjusted to stay within  the range                                                                    
of the  blended number  that the administration  was showing                                                                    
the committee.                                                                                                                  
10:40:44 AM                                                                                                                   
Co-Chair  Kelly  requested  Commissioner Balash  to  restate                                                                    
Vice-Chair   Fairclough's   original  question   before   he                                                                    
answered. Commissioner Balash replied  that when DNR offered                                                                    
acreage for  lease at  competitive sales,  the terms  of the                                                                    
leases were noticed before the  bids were brought in; it was                                                                    
intended to be  a transparent process. He  related that when                                                                    
Prudhoe Bay  had been first  put up  for lease in  1969, the                                                                    
terms were  generally set at  a 1/8 or 12.5  percent royalty                                                                    
share.  He reported  that when  Prudhoe Bay  had first  been                                                                    
developed and  the Trans-Alaska  Pipeline System  (TAPS) had                                                                    
been constructed,  there were additional sales  in an around                                                                    
Prudhoe Bay that offered terms  at slightly different rates;                                                                    
in  some  cases,  the  royalties were  made  higher  and  in                                                                    
others, a  net-profit share lease  was offered for  sale. He                                                                    
explained that a  net-profit share lease had  a royalty rate                                                                    
of 12.5 percent,  but the bid variable was a  percent of the                                                                    
profit earned on  that lease rather than being  a bonus bid;                                                                    
it was  a payment  that came  in to DNR  in addition  to the                                                                    
royalty. He reported that DNR  had certain leases that had a                                                                    
sliding scale royalty that had  the base royalty set at 12.5                                                                    
percent, 1/7, or 1/6, but  the royalty rose upward as prices                                                                    
increased.  He observed  that  DNR had  a  large variety  of                                                                    
terms  on  its  leases   and  recalled  that  after  initial                                                                    
production  at Prudhoe  Bay, the  department began  offering                                                                    
some of its  other leases at an even  higher initial royalty                                                                    
rate;  that  was generally  why  Pt.  Thompson coming  in  a                                                                    
higher royalty. He stated that  Pt. Thompson had some leases                                                                    
at  mostly 1/7,  some at  1/8, as  well as  some net  profit                                                                    
sharing and  sliding scale leases;  all of those  leases get                                                                    
blended  together at  the unit  level and  depending on  the                                                                    
field's  production  and  how  the  individual  tracks  were                                                                    
allocated  for production  purposes, it  drove the  math for                                                                    
how much of the gas was "royalty gas."                                                                                          
Commissioner   Balash   continued  to   address   Vice-Chair                                                                    
Fairclough's  question and  stated that  in the  Prudhoe Bay                                                                    
case, the  track factors were  fairly straight  forward; DNR                                                                    
had seen  a lot of production  and cycling of the  gas, knew                                                                    
where  it was  coming from,  and  knew how  to allocate  the                                                                    
production.  He stated  that Prudhoe  Bay's  terms had  been                                                                    
rationalized among  the producers and there  was less chance                                                                    
for disputes;  however, when dealing  with something  as big                                                                    
as SB  138's proposed  gasline, production from  both fields                                                                    
would be  needed to support  the project. All of  the proven                                                                    
24 Trillion Cubic  Feet (TCF) of Prudhoe Bay and  all of the                                                                    
proven  8+ TCF  would be  needed  to support  the sales  and                                                                    
purchase agreements (SPA) that  would finance to project. He                                                                    
relayed that  the exact  timing of when  both of  two fields                                                                    
would  be   in  production  was  not   known  currently  and                                                                    
furthered that part of the  timing would depend on approvals                                                                    
from the Alaska Oil  and Gas Conservation Commission (AOGCC)                                                                    
and  part would  depend  on other  construction windows.  He                                                                    
stated for  example that if  the state agreed on  an overall                                                                    
number that resulted  in 22 percent state gas  share and the                                                                    
Pt. Thompson  production came early,  it may find  it itself                                                                    
with slightly  more than  22 percent  at that  location; the                                                                    
state  wanted to  avoid not  having enough  capacity in  the                                                                    
terms of  infrastructure to move  all of the state's  gas in                                                                    
the  first year.  Conversely, if  Pt. Thompson  gas was  not                                                                    
being  produced  in the  first  year  and  it was  all  from                                                                    
Prudhoe  Bay,  the state  could  find  itself short  on  gas                                                                    
because Prudhoe  Bay by itself  would be slightly  less than                                                                    
22 percent.  He stated  that the  challenge for  all parties                                                                    
involved  was  to develop  a  balancing  agreement, so  that                                                                    
there  was a  way to  long-term balance  the 22  percent gas                                                                    
share  of  the  state  as   well  as  other  parties  shares                                                                    
regardless  of  which  field came  online  first;  this  was                                                                    
something  that  the  state  and  ConocoPhillips  were  very                                                                    
aligned  on  because  that  company  had  a  very  different                                                                    
ownership pattern for both fields.                                                                                              
Commissioner   Balash   continued  to   address   Vice-Chair                                                                    
Fairclough's  questions  and  discussed the  floor  for  the                                                                    
purposes of  SB 138.  He stated that  the authority  DNR was                                                                    
requesting was  to modify the  leases that had a  net profit                                                                    
share  or sliding  scale component  so that  it could  fix a                                                                    
number  rather  than  having  one  that  fluctuated;  having                                                                    
certain  leases within  units that  went up  and down  would                                                                    
make  the balancing  agreement harder  to  solve. He  stated                                                                    
that the  question was  what the fixed  number would  be. He                                                                    
explained that if  the base royalty rate in  Prudhoe Bay was                                                                    
12.5  percent  and sliding  scale  went  up  as high  as  20                                                                    
percent, DNRY would probably ask  for something closer to 20                                                                  
percent and British Petroleum  would probably want something                                                                    
closer  to 12.5  percent.  He thought  the Senate  Resources                                                                    
Committee had  been trying to  make sure that the  State did                                                                    
not receive  under 12.5 percent; he  thought that Vice-Chair                                                                    
Fairclough was asking  if that number should  be higher than                                                                    
12.5 percent  to get closer  to the expected  blended number                                                                    
and  not lose  value. He  thought that  state needed  to pay                                                                    
extra attention  to number language  that would  work across                                                                    
the  North Slope  and  fields and  not put  the  state in  a                                                                    
position  where  it could  not  resolve  the number  from  a                                                                    
commercial standpoint. He  added that the state  may want to                                                                    
have a formula that was  reflective of the base royalty rate                                                                    
for any given  lease plus a some number, so  that the number                                                                    
was not hard wired that may  actually be lower than the base                                                                    
rate, for  example, at Pt.  Thompson. He used 13  percent as                                                                    
an example  and stated that  on a blended,  long-term basis,                                                                    
it  would  be the  state's  royalty  share; however,  if  13                                                                    
percent was  viable at Prudhoe Bay,  it would be too  low at                                                                    
Pt. Thompson. He concluded that  the state would want a more                                                                    
formulaic floor instead of a set number.                                                                                        
10:50:02 AM                                                                                                                   
Vice-Chair  Fairclough  understood  the  interplay  and  the                                                                    
point of production, but wondered  if the state was forgoing                                                                    
about 1.5 percent  interest on gross because  of its ability                                                                    
to meet cash calls or the  certainty in the alignment of the                                                                    
other  partners. She  stated  for example  that  if one  was                                                                    
looking  at  Pt.  Thompson without  blended  rates  and  the                                                                    
legislature wanted  to tax  gas at  10.5 percent,  which was                                                                    
added to  the 16 percent  lease, the state's share  would be                                                                    
about 26.5  percent; however, it  was proposed that  the cap                                                                    
be 22 percent based on the  blended rates. She noted that if                                                                    
the state's tolerance for risk  was greater, it could have a                                                                    
cash call  that when  up to  25 percent;  it would  still be                                                                    
missing an opportunity to make  another 1.5 percent based on                                                                    
the  current lease  structures  that  were determined  years                                                                    
prior if it was blended into  the current proposal of a 10.5                                                                    
percent  gas  tax. She  inquired  if  her understanding  was                                                                    
correct.  Mr. Pawlowski  replied that  Vice-Chair Fairclough                                                                    
was correct and that  the balancing agreements were critical                                                                    
for the state and other  parties; however, he clarified that                                                                    
the  10.5  percent  would  not come  out  to  26.5  percent,                                                                    
because the  10.5 was  "after." He noted  that what  DNR was                                                                    
trying to illustrate in slide  9 was the direct relationship                                                                    
between   the   tax   rate   and   state's   investment   in                                                                    
infrastructure.  He   noted  that  these  numbers   did  not                                                                    
represent  the state's  total interest  in  the project  and                                                                    
that   all  that   was  being   discussed  were   royalties,                                                                    
production tax,  and a share of  infrastructure; in addition                                                                    
to this, the state and  local governments had property taxes                                                                    
and there  was also  corporate income  tax, which  were both                                                                    
separate  from what  was considered  state  revenues on  the                                                                    
project. The concept  that was being advanced  with bill was                                                                    
the state-tax rate in combination  with a royalty that would                                                                    
set Alaska's share in the infrastructure.                                                                                       
10:53:21 AM                                                                                                                   
Vice-Chair Fairclough  inquired if  Alaska would see  a rate                                                                    
of return  on its  cash investments when  it placed  cash on                                                                    
the table to  mitigate risk. Mr. Pawlowski  replied that the                                                                  
return on investment that the  Alaska would receive was laid                                                                    
out in the  TransCanada MOU if state used  an equity option;                                                                    
it was  the exact same  rate of return that  TransCanada was                                                                    
earning on  its equity  amount position.  He added  that the                                                                    
return  on state's  investment on  the liquefaction  had not                                                                    
been set yet and was part  of what the concept going forward                                                                    
needed  to be.  He  concluded  that the  state  would get  a                                                                    
return through the sale of its  gas in the investment in the                                                                    
10:54:13 AM                                                                                                                   
Vice-Chair Fairclough wanted  to be sure that  the state was                                                                    
discussing a  single aspect  inside the  proposed investment                                                                    
to  strategy, but  that there  was  more going  on that  the                                                                    
state   was   trying   to    offer   the   lowest   possible                                                                    
transportation costs,  which had not been  gone through yet.                                                                    
She  appreciated the  understanding that  the administration                                                                    
had regarding  the balancing agreement and  how important it                                                                    
was. She  noted that  the balancing  agreement was  a future                                                                    
agreement that would need to  be brought back to legislature                                                                    
for approval.                                                                                                                   
Co-Chair Kelly  indicated that he  and Senator  Dunleavy had                                                                    
to leave for another engagement.                                                                                                
10:55:11 AM                                                                                                                   
AT EASE                                                                                                                         
10:56:46 AM                                                                                                                   
Co-Chair  Meyer noted  that several  members were  attending                                                                    
the press availability due to time constraints.                                                                                 
10:57:16 AM                                                                                                                   
Commissioner Balash  spoke to  slide 10  and stated  that it                                                                    
was a re-illustration  of the three major  components of the                                                                    
project  with  each  of the  parties'  respective  ownership                                                                    
shares shown.  He noted  all parties would  have a  share of                                                                    
the gas treatment facility, the  pipeline, and the LNG plant                                                                    
He  explained that  the benefit  was in  letting each  party                                                                    
setup  financing   in  a  way  that   suited  its  long-term                                                                    
interests. He  noted that for  years, the state had  been in                                                                    
an  adversarial footing  relative to  the three  majors that                                                                    
were on  the slide regarding  matters with TAPS  and tariffs                                                                    
charged.  Through  the  state's  lease  agreements  and  the                                                                    
production tax system,  it did provide for  a recognition of                                                                    
the costs of  transportation and the question  was what that                                                                    
cost  was.  He  reported   that  the  construction  cost  of                                                                    
infrastructure  was straightforward  and relatively  easy to                                                                    
identify;  how that  cost was  financed was  what drove  the                                                                    
ultimate transportation charges.  He reported that generally                                                                    
the  state  was  interested  in   lowest  possible  cost  of                                                                    
capital,  which usually  meant a  higher debt  component and                                                                    
lower share or  return; for that reason, DNR had  paid a lot                                                                    
of  attention  to  the how  the  state's  partners  financed                                                                    
infrastructure.  He stated  that in  the construct  that was                                                                    
proposed in  the HOA, the state  taking on its share  in all                                                                    
three components  meant that it  did not have to  care about                                                                    
the relative financing of the  three3 other partners because                                                                  
it was  not all being blended  into a single tariff  and was                                                                    
not being  used to calculate  the production tax  or royalty                                                                    
values; instead, the  state would be in a  position to order                                                                    
it's  financing in  a  manner that  it  thought best  served                                                                    
Alaska's  long-term interests  or put  together partnerships                                                                    
on  transportation  services  with  terms  that  worked  for                                                                    
Commissioner  Balash  responded   to  Vice-Chair  Furlough's                                                                    
question regarding  Alaska's return  on equity (ROE)  at the                                                                    
LNG plant.  He noted  that regardless what  the ROE  was set                                                                    
for  on the  state's share  of the  project, the  Alaska was                                                                    
paying  itself and  could set  the ROE  at 6  percent or  12                                                                    
percent;  however, if  it was  set  at a  higher number,  it                                                                    
would  just mean  that  it  would come  out  of the  royalty                                                                    
proceeds  from  LNG sales  and  result  in a  lower  royalty                                                                    
number. He concluded that as  long as the state was charging                                                                    
itself,  it  would be  shifting  funds  from one  pocket  to                                                                    
another in  moving the  ROE around. He  stated that  the ROE                                                                    
became  more important  regarding the  state's partners  and                                                                    
thought  that  Commissioner Rodell  would  be  able to  walk                                                                    
through some slides on the MOU to illustrate that point.                                                                        
11:01:10 AM                                                                                                                   
Commissioner Balash spoke  to slide 11 and  related that the                                                                    
committee  had  seen it  presented  the  prior week  by  Ms.                                                                    
Poduval.  The slide  checked  the  royalty study's  findings                                                                    
against  the  HOA. He  related  that  the alignment  through                                                                    
equity recommendation  was achieved in a  very direct manner                                                                    
in  the  HOA.  He  added that  DNR's  and  its  contractor's                                                                    
analysis  showed that  the  current  alignment improved  the                                                                    
economic   metrics   for   producers  and   the   commercial                                                                    
attractiveness  for the  project;  the  alignment also  took                                                                    
some  steps,  though not  all  of  them, to  reduce  overall                                                                    
government   take.  He   stated  importantly,   the  current                                                                    
alignment preserved  the state's  royalty value, but  it did                                                                    
not  answer all  of  the  questions; it  did  take steps  to                                                                    
manage some  of the  risks, but there  were issues  with the                                                                    
capital  costs that  the HOA  did not  address directly.  He                                                                    
stated  that there  was some  language in  the HOA  that DNR                                                                    
thought  had  great  potential  to  benefit  the  state  and                                                                    
mitigate  the risks  of RIK  marketing  and price  exposure;                                                                    
each  of  the  producer  companies  were  prepared  to  come                                                                    
forward  individually assist  the state  in the  disposition                                                                    
and  sale  of its  LNG.  He  stated  that DNR  thought  that                                                                    
overall  structure  went a  long  way  to providing  a  path                                                                    
forward  with 3rd-party  access  to the  line and  expansion                                                                    
opportunities, which  was an  issue that  the state  and the                                                                    
lessees were  having trouble with;  the construct  seemed to                                                                    
work for the state and lessees and held great promise.                                                                          
11:04:04 AM                                                                                                                   
Commissioner Balash discussed slide 12.                                                                                         
   Key Takeaways: Heads of Agreement                                                                                            
     · LNG is a significant opportunity for Alaska and                                                                          
     · Phased process with commensurate steps.                                                                                  
     · Off-ramps for all Parties.                                                                                               
     · Maintains AGDC momentum on Alaska Stand-Alone                                                                            
        Pipeline (ASAP).                                                                                                        
     · Creates opportunities to mitigate State risks                                                                            
        identified in royalty study.                                                                                            
     · Major risk is cost of State participation                                                                                
Commissioner Balash  spoke to slide 12's  first bullet point                                                                    
and stated that  the project was not only  an opportunity in                                                                    
terms of benefit  to treasury, but also in  the business and                                                                    
job opportunities  that it would represent.  He thought that                                                                    
the  peak  construction was  estimated  to  result in  about                                                                    
15,000 jobs  and after that  peak, the  long-range operation                                                                    
would  require something  on the  order of  1,000 jobs  that                                                                    
were be in  Alaska as long as those SPAs  were in place; the                                                                    
SPAs  would probably  be in  place for  20 or  30 years.  He                                                                    
stated  that process  itself took  a  phased approached  and                                                                    
that  the legislation  was not  asking for  a 20  or 30-year                                                                    
commitment;  the bill  was  asking  for measured  authority,                                                                    
some time, and  some cash. He reported that  there were off-                                                                    
ramps  for  all of  the  parties  and  that the  HOA  itself                                                                    
expired at  the end of  2015. He  stated that the  big risks                                                                    
that  the  state   might  face  in  the   project  had  been                                                                    
identified  and  the state  had  begun  to measure  ways  to                                                                    
mitigate  those  risks;  he  thought that  a  lot  of  those                                                                    
problems would be  solved in the next  phase through further                                                                    
commercial negotiation and agreement  with the other project                                                                    
parties. He added  that cost was a major risk  for the State                                                                    
of Alaska and  stated it would be very  important to monitor                                                                    
the state's  cash flows during  the period  of construction.                                                                    
He noted  that state  needed to  be careful  of the  role of                                                                    
financing  the opportunities  for cash  exposure during  the                                                                    
period of  2019-2023, which was  where partnerships  had the                                                                    
greatest opportunity  to mitigate  the state's risks  in the                                                                    
11:07:15 AM                                                                                                                   
Vice-Chair  Fairclough noted  that  Commissioner Balash  had                                                                    
referenced the state's  ROE and how it could  have an impact                                                                    
on tariff  rates as the  state was trying to  provide lower-                                                                    
cost energy  to Alaskans. She requested  Commissioner Balash                                                                    
to  expand  on  the  comment; she  was  thinking  about  the                                                                    
Insterstate Commerce Clause  and how it would  fit inside of                                                                    
the state's  ability to  try to  reduce the  tariff charges.                                                                    
She  thought that  the commissioner  might  want to  mention                                                                    
Federal  Energy Regulatory  Commission (FERC)  regulation on                                                                    
the pipe  versus the rate. Commissioner  Balash replied that                                                                    
the  state  had  traditionally  relied  on  rate  making  on                                                                    
pipelines to  protect its interests,  which was  most easily                                                                    
seen  in the  case of  TAPS. He  stated that  over the  last                                                                    
decade  and  a  half  as   Alaska  had  hoped  for  pipeline                                                                    
connected  to  the  Lower-48,  the  state  would  have  been                                                                    
relying  on FERC  and the  Canadian  side's National  Energy                                                                    
Board (NEB)  to connect producing  fields with a  liquid and                                                                    
transparent  market  place;  this would  have  meant  highly                                                                    
regulated  infrastructure to  carry the  gas from  fields to                                                                    
market in a  very straight forward way to  value the state's                                                                    
royalty  interest.  He  stated,   however,  as  the  project                                                                    
focused to an LNG project,  the state faced a different sort                                                                    
of value proposition  where it would no longer  take its own                                                                    
gas  to a  transparent  and liquid  hub;  instead, that  gas                                                                    
would  be  taken  to  locked-in buyers  who  had  agreed  to                                                                    
specific terms  for very long period  of time and were  in a                                                                    
propriety  deal.  He furthered  that  LNG  market place  was                                                                    
generally not  transparent or liquid and  the value question                                                                    
became a little  cloudier. He noted that with  LNG there was                                                                    
still a pipeline  involved, but there was the  addition of a                                                                    
liquefaction plant and that FERC  did have some jurisdiction                                                                    
over liquefaction  facility, which was generally  limited to                                                                    
environmental  health  and  safety  matters;  FERC  did  not                                                                    
regulate for  access by  3rd parties  or rates.  He observed                                                                    
that  the  state faced  a  little  bit  of a  question  mark                                                                    
because under  the lease agreements, the  state was entitled                                                                    
to its  royalty share,  but the lessees  were entitled  to a                                                                    
reasonable  transportation deductions;  because liquefaction                                                                    
was part  of the process  of transporting gas,  the question                                                                    
was how to  go about determining what  the reasonable charge                                                                    
was  for  liquefaction.  He  explained  that  that  area  of                                                                    
liquefaction was not regulated, the  state could not rely on                                                                    
FERC to  tell it the answer;  the state was left  largely to                                                                    
settle  those differences  in  commercial  agreements or  in                                                                    
Commissioner   Balash   continued  to   address   Vice-Chair                                                                    
Fairclough's comments  and thought that the  state needed to                                                                    
look at the  cost of that infrastructure,  the debt relative                                                                    
to equity was  financed, and what the return  on that equity                                                                    
was. He stated that if the  state was using its own money to                                                                    
construct  the project,  it could  charge a  very relatively                                                                    
high ROE; if it did that,  it was subtracting value from the                                                                    
market prince in the SPAs  that got deducted and resulted in                                                                    
a  smaller  and smaller  wellhead  value  where royalty  was                                                                    
calculated.  He  stated that  the  higher  the state  pushed                                                                    
those tariffs  and the  smaller it  made that  net-back, the                                                                    
less value that was created  for the Permanent Fund; it also                                                                    
started to  the affect the  starting point for the  price of                                                                    
gas  to Alaskans  and the  state  faced an  odd dilemma.  He                                                                    
explained  that the  state could  arrange  the financing  so                                                                    
that  the  liquefaction  charge  was  really  high  and  the                                                                    
pipeline  charge  was really  low,  gas  could be  moved  to                                                                    
Alaskans at  what would appear  to be a low  price; however,                                                                    
the  state  would really  be  shifting  the costs  from  one                                                                    
pocket to  another and would  be susceptible  to accusations                                                                    
of interfering  with the market  place. He would  rather not                                                                    
speculate on  where those lines  where in order  to preserve                                                                    
them  for future  discussions with  counsel and  regulators;                                                                    
however,  there were  some odd  interplays that  could occur                                                                    
depending on  the overall structure  and what the  price was                                                                    
from a net-back perspective at the North Slope.                                                                                 
11:14:40 AM                                                                                                                   
Mr.  Pawlowski  spoke  to  Vice-Chair  Fairclough's  earlier                                                                    
question regarding how Alaskans  and other parties could see                                                                    
what the  cost of  moving gas through  the pipeline  was and                                                                    
stated that  it was  found in the  MOU with  TransCanada. He                                                                    
thought  given  the  proprietary   nature  of  the  project,                                                                    
TransCanada  brought in  the  best of  both  worlds in  that                                                                    
there was a 3rd party  actor providing the transparent terms                                                                    
for   potential  shippers.   He  thought   that  the   terms                                                                    
highlighted on  slide 13 were  very competitive  compared to                                                                    
other gasoline projects that were regulated by FERC.                                                                            
11:16:09 AM                                                                                                                   
ANGELA  RODELL, COMMISSIONER,  DEPARTMENT OF  REVENUE, spoke                                                                    
to slide 13 and the  memorandum of understanding. She stated                                                                    
that the state's participation in  the project would require                                                                    
significant  financial  and  human resources.  DOR  believed                                                                    
that the path  forward was to take advantage  of the already                                                                    
existing  partnership  with  TransCanada  under  the  Alaska                                                                    
Gasline  Inducement  Act  (AGIA)  framework;  this  and  the                                                                    
investment made by  both the state and  TransCanada made the                                                                    
company a  natural partner to  assist in moving  the project                                                                    
forward. She believed  that the state did need  a partner in                                                                    
the project  because at the  end of the  day it was  a state                                                                    
government and  had an obligations  to Alaskans  to continue                                                                    
to provide  a safe  and prosperous  environment to  live in.                                                                    
She  reported  that  the  state   did  not  have  the  right                                                                    
expertise and  that TransCanada was an  independent pipeline                                                                    
company that  knew how to  build pipelines; the  company had                                                                    
also spent the last 6  years developing an understanding the                                                                    
environment and  challenges that were unique  to Alaska. She                                                                    
stated for  the above  reasons, she and  Commissioner Balash                                                                    
had determined  that entering into the  MOU with TransCanada                                                                    
was in the best interest of the state.                                                                                          
Commissioner Rodell addressed slide 13.                                                                                         
     The Memorandum of Understanding                                                                                            
     The MOU with TransCanada provides a roadmap for a                                                                          
     transition from the AGIA license to a more traditional                                                                     
     commercial relationship with TransCanada.                                                                                  
     The MOU describes how the State will:                                                                                      
     1. Abandon the AGIA license.                                                                                               
     2. Partner with TransCanada in the midstream                                                                               
     (Transmission lines, GTP and Pipeline) of the AKLNG                                                                        
     3. Provide for active interest in expansions.                                                                              
     Key Terms of MOU:                                                                                                          
     1. Favorable Debt to Equity Ratio                                                                                          
     •75/25  ratio  for  rate-making  purposes  reduces  the                                                                    
     State's tariff.                                                                                                            
     •Lower tariffs improve the State's overall cash flows.                                                                     
     2.Cash Contributions by TransCanada                                                                                        
     •TransCanada as  project developer reduces  the State's                                                                    
     exposure  to  cash  calls  and  obligations  until  the                                                                    
     pipeline is in service.                                                                                                    
     3.Improved Value to the Treasury                                                                                           
     •When you  consider the  opportunity cost  of utilizing                                                                    
     the State's  capital (which earns 6%  in the treasury),                                                                    
     our NPV is improved overall.                                                                                               
     •TransCanada committed  to 70/30 capital  structure for                                                                    
     5.Gas to Alaskans                                                                                                          
     •At least 5 offtake points                                                                                                 
     •Distance   sensitive  rates   with  three   zones  for                                                                    
11:19:06 AM                                                                                                                   
Commissioner Rodell spoke to slide 14.                                                                                          
     MOU:  Transporting   Alaska's  Gas:  The   MOU  details                                                                    
     TransCanada's   terms  of   service  for   transporting                                                                    
     Alaska's State Gas  Share via the GTP  and Pipeline. It                                                                    
     is further  contemplated that a  subsidiary corporation                                                                    
     of  AGDC  will  be  established to  carry  the  State's                                                                    
     interest in the LNG plant.                                                                                                 
Commissioner Rodell spoke  to slide 14 and  related that the                                                                    
slide's   diagram  attempted   to  depict   how  the   state                                                                    
transitioned its gas share. She  noted that TransCanada came                                                                    
in with the state's gas  share on the gas treatment facility                                                                    
and  transmission,  as  well   as  with  the  pipeline.  The                                                                  
subsidiary of AGDC  would take the state's gas  share in the                                                                    
LNG facility.                                                                                                                   
11:19:41 AM                                                                                                                   
Commissioner Rodell addressed slide 15.                                                                                         
     Exhibit B  of the  MOU: Contains a  term sheet  for the                                                                    
     State to  exercise an equity  option up to 40%*  of the                                                                    
     partnership   established   by  TransCanada   for   the                                                                    
     relevant portion of the midstream.                                                                                         
Commissioner  Rodell  stated  that the  option  to  exercise                                                                    
equity on  slide was  important because  it would  allow the                                                                    
state to make a decision if  it wanted to take more on after                                                                    
pre-FEED when more  was known about what the  demands of the                                                                    
project and the demands on the state would be.                                                                                  
11:20:37 AM                                                                                                                   
Commissioner Rodell spoke to slide 16.                                                                                          
     MOU: Describes how the State will share the                                                                                
     responsibility for its share of the project with                                                                           
Commissioner  Rodell  stated  that   slide  16  was  another                                                                    
picture of  what was  discussed on  the previous  two slides                                                                    
and did  assume a  25 percent  equity participation  for the                                                                    
ease of illustration.                                                                                                           
11:20:54 AM                                                                                                                   
Commissioner  Rodell discussed  slide 17  and noted  that it                                                                    
was one  of slides  that Black  & Veetch  had included  in a                                                                    
previous presentation. She thought  that it was important to                                                                    
show because it depicted  how the levers were interconnected                                                                    
and what various decisions' impacts  would be.  She reported                                                                    
that  if  the state  wanted  to  decrease  the equity  by  5                                                                    
percent and  increase the debt, it  represent the equivalent                                                                    
of about $200 million in  additional net present value (NPV)                                                                    
to the  state; there  was clearly value  in having  a higher                                                                    
debt,  lower equity  percentage. She  noted that  increasing                                                                    
the ROE by 1 percent would  result in a loss of $100 million                                                                    
to the state.  She noted that for each year  of delay in the                                                                    
project operation resulted in a  loss $800 million in NPV to                                                                    
the state. She relayed that the  slide spoke to the value of                                                                    
maintaining  momentum  and  striving  to get  to  the  final                                                                    
investment decision (FID) in 2018.                                                                                              
11:22:49 AM                                                                                                                   
Commissioner Rodell  addressed slide 18 and  stated that DOR                                                                  
wanted to  understand what  the other  pipelines had  as the                                                                    
debt/equity  structures   and  ROE.  She  stated   that  the                                                                    
information  on  the  slide came  from  the  public  filings                                                                    
within  the  FERC  certificate orders;  the  pipelines  were                                                                    
natural  gas pipelines  located  within  North America  that                                                                    
showed  that  capital  structures tended  have  much  higher                                                                    
equity than  what was in  the MOU with TransCanada.  The ROE                                                                    
of the slide's  pipelines was 13 percent or  14 percent. She                                                                    
offered that the slide showed  that the state had negotiated                                                                    
a fair deal  with TransCanada and that it was  the right way                                                                    
to go.                                                                                                                          
11:23:42 AM                                                                                                                   
Commissioner Rodell spoke  to slide 19 and  related that one                                                                    
of the  things that  DOR was working  on, which  she thought                                                                    
would be presented to the  committee at future meetings, was                                                                    
a  more detailed  analysis  of  the cash  calls  and how  it                                                                    
interacted  with state's  budget,  revenue projections,  and                                                                    
other commitments that the state  had; however, that was not                                                                    
included in  the current presentation. She  related that the                                                                    
slide showed  what kind  of cash  commitments the  state was                                                                    
being asked  to make  on the project.  She reported  that if                                                                    
the state chose to go it  alone, about $108 million would be                                                                    
needed to fund  Alaska's portion of the  pre-feed, which was                                                                    
in the fiscal notes for  the FY15 budget. She clarified that                                                                    
these exact  amounts were not  in budget, but that  the FY15                                                                    
notes attached  to the  bill would  include amounts  to fund                                                                    
the state's investment in pre-Feed.  She offered that if the                                                                    
state chose  not to exercise  the 40 percent  buyback option                                                                    
with TransCanada,  the state's  investment for  the pre-FEED                                                                    
period  would about  $43 million;  DOR would  be asking  for                                                                    
money  to  repay TransCanada  the  40  percent in  the  FY16                                                                    
budget if the  state decided to go forward  with the option.                                                                    
She pointed  out that if  the state  wanted to go  it alone,                                                                    
the  FEED  stage would  cost  another  $400 million;  mostly                                                                    
likely  this amount  would be  included in  the FY16  budget                                                                    
with supplemental  in FY17 and  FY18 as the cash  calls were                                                                    
better understood. She stated  that without using the buyout                                                                    
option, FEED  would cost  the state  about $180  million; if                                                                    
the  state chose  to exercise  the 40  percent buyback,  the                                                                    
cost looked closer to $340 million.                                                                                             
Commissioner  Rodell  continued to  speak  to  slide 19  and                                                                    
stated that  the state  would have to  evidence that  it had                                                                    
the   money  to   make   the   commitments  either   through                                                                    
appropriation or  some other  mechanism. DOR  was continuing                                                                    
to explore what  the other mechanisms might  be available to                                                                    
the state in terms of  making that evidence. She stated that                                                                    
DOR  was looking  at if  it was  possible pursue  a line  of                                                                    
credit  or letter  of credit  that the  state could  draw on                                                                    
without running an appropriation risk.                                                                                          
Co-Chair Meyer stated that the  committee did have SB 138 in                                                                    
its possession and that it was ok to refer to the bill.                                                                         
11:26:59 AM                                                                                                                   
Vice-Chair  Fairclough  was looking  at  the  time value  of                                                                    
money wondered  and the committee's  deliberation of  the $3                                                                    
billion into  the pension plan;  she wondered why  the state                                                                    
would not  set aside  $452 million to  get to  pre-FEED. She                                                                    
observed that  the $452  million would  earn interest  in an                                                                    
account and the state would  still have all of its off-ramps                                                                    
and cash. He  thought that debt was part of  the reason, but                                                                    
requested  an explanation  of the  reasons behind  not doing                                                                    
this. Commissioner Rodell  replied that it was  a good point                                                                    
and  that setting  aside that  money had  value. She  stated                                                                    
that part of  the reason DOR had not  proposed setting aside                                                                    
the  funding were  concerns  of not  wanting  to create  any                                                                    
constitutional issues around dedicated  funds if it was kept                                                                    
inside  the Constitutional  Budget  Reserve  (CBR) Fund  for                                                                    
that  purpose. She  was  concerned  about the  legislature's                                                                    
ability to  carve off  a piece  of that  funding and  how it                                                                    
would  appropriated out  and not  appear  like a  multi-year                                                                    
appropriation. She  thought that there was  value in setting                                                                    
that  amount aside,  but that  what the  potential competing                                                                    
demands  might  be  on  the  budgetary  side  needed  to  be                                                                    
recognized. She  added that  DOR was  working on  a detailed                                                                    
analysis of setting that money aside.                                                                                           
11:29:33 AM                                                                                                                   
Mr. Pawlowski added that one  thing to be careful about when                                                                    
thinking about how  to structure setting money  aside to get                                                                    
to pre-FEED  was the horizon  over which the money  could be                                                                    
invested. He stated that when  existing funds were used that                                                                    
were  leveraging off  of  the way  the  money was  currently                                                                    
invested now,  it was  important to  pay close  attention to                                                                    
when  the cash  was  actually needed.  He  thought that  the                                                                    
balance of whether the money  was better managed in one fund                                                                    
versus another fund  was important, and if  it was efficient                                                                    
to  keep  it  separate  when  it was  part  of  the  state's                                                                    
reserves and was being managed under the current practices.                                                                     
11:30:31 AM                                                                                                                   
Vice-Chair Fairclough  thought that the timeframe  was short                                                                    
enough that  the money could be  issued as a grant  to AGDC.                                                                    
She noted  that the  legislature gave grants  to non-profits                                                                    
and understood  that her  idea was on  a much  larger scale.                                                                    
She  thought that  the proposal  for the  $3 billion  was to                                                                    
transfer those assets  in the form of its  current state and                                                                    
move  the   management  responsibilities  over   the  Alaska                                                                    
Retirement  Management   Board  (ARMB)  versus   paying  for                                                                    
selling products  that the state  was managing  and rebuying                                                                    
them, which  would result in administrative  cost overheads.                                                                    
She added  that the  $3 billion  would go  to paying  a debt                                                                    
that  actuarially was  presented to  the public  on Alaska's                                                                    
finances; she  wondered if  that was  the difference  in the                                                                    
dedicated  fund issue  between the  $3 billion  infusion and                                                                    
her  suggestion  of  setting  $452  million  aside  for  the                                                                    
project.  Commissioner Rodell  replied that  the legislature                                                                    
was  restricted currently  from carving  off and  dedicating                                                                    
reserves for a  specific cause and that the  question was if                                                                    
it was  willing to make  an appropriation either as  a grant                                                                    
or as  appropriation to the Alaska  Capital Corporation; the                                                                    
legislature could  also create  a new  vehicle to  house the                                                                    
money. She stated that there  was tension surrounded how the                                                                    
funding would be set aside  and structurally created so that                                                                    
it  was clearly  identified for  the purpose  of funding  or                                                                    
acting as  a backstop  to the  state's participation  in the                                                                    
project during the  pre-FEED and FEED gates;  DOR would then                                                                    
adjust the asset  allocation and investment of  that to take                                                                    
into account when those cash calls were going to happen.                                                                        
11:32:39 AM                                                                                                                   
Vice-Chair  Fairclough stated  that the  state did  not need                                                                    
another new  organization to  be stood  up and  thought that                                                                    
using an existing structure would be ideal.                                                                                     
11:33:13 AM                                                                                                                   
Co-Chair  Meyer thought  that  Vice-Chair  Fairclough had  a                                                                    
good point  and recalled setting up  a fund to put  money in                                                                    
for  building  a pipeline  and  other  capital projects;  he                                                                    
thought that the fund was  still available and was housed in                                                                    
Alaska Housing  Finance Corporation (AHFC). He  thought that                                                                    
fund  was setup  to earn  good interest  for money  that sat                                                                    
there and that  there was possibility to  do what Vice-Chair                                                                    
Fairclough was  suggesting. Mr.  Pawlowski replied  that the                                                                    
legislation  did  contemplate the  creation  of  a new  fund                                                                    
within  AGDC, which  was  done to  protect  the missions  of                                                                    
AGDC,  but  Vice-Chair   Fairclough's  comments  opened  the                                                                    
question of  how the state  would want  to use the  fund. He                                                                    
thought that discussing  the fund and its  possible uses was                                                                    
a  good  dialogue  for  the   committee  to  have  with  the                                                                    
11:34:17 AM                                                                                                                   
Senator Hoffman  wondered if  FID would  take place  late in                                                                    
2018 or  in 2019,  as well  as what form  it would  come in.                                                                    
Commissioner  Rodell relied  that it  was expected  that the                                                                    
state would be wrapping up the  FEED stage at the end of the                                                                    
2018 calendar  year and that  FID was expected at  the start                                                                    
of calendar year 2019.                                                                                                          
11:34:53 AM                                                                                                                   
Senator  Hoffman  inquired  what   form  the  FID  would  be                                                                    
presented  in and  whether it  be legislation.  Commissioner                                                                    
Rodell replied that it would  require legislation because it                                                                    
was the point  at which the state would decide  if it really                                                                    
wanted to move forward with the pipeline.                                                                                       
11:35:07 AM                                                                                                                   
Senator Hoffman  inquired if that  would take place  in late                                                                    
2018 or  in 2019.  Commissioner Rodell  replied that  it was                                                                    
hard to say  at this stage, but believed that  it would most                                                                    
likely occur during the regular session of 2019.                                                                                
11:35:38 AM                                                                                                                   
Senator Hoffman  noted that  the timing  was a  big decision                                                                    
because 2017 and  2018 would be one  legislative session and                                                                    
that  2019 and  2020 would  be another.  Commissioner Rodell                                                                    
replied that Senator  Hoffman raised a very  valid point and                                                                    
to the  extent that FEED was  successful, the administration                                                                    
would be coming back for approval sooner rather than later.                                                                     
11:36:07 AM                                                                                                                   
Vice-Chair  Fairclough noted  that the  unique point  at FID                                                                    
would mean that the state  had secured gas contracts for the                                                                    
volume and  would have  a defined  tariff number.  She hoped                                                                    
that  if the  state went  that far,  the economics  would be                                                                    
positive for  Alaska. Commissioner  Rodell replied  that the                                                                    
administration would also have  much higher defined costs of                                                                    
the project as well.                                                                                                            
11:36:55 AM                                                                                                                   
Commissioner Rodell  addressed slide  20 and stated  that it                                                                    
gave a  pictorial of  how having  partners could  reduce the                                                                    
state's  investment during  peak construction  and what  the                                                                    
value of  sharing that risk  was to the state.  She reported                                                                    
that  if the  state did  the project  without a  partner, it                                                                    
would have  significant cash  outlays throughout  the period                                                                    
and it reached in excess  of potentially $3 billion per year                                                                    
for 2 or 3 years  during peak construction; that cash outlay                                                                    
was reduced almost in half  if the state allowed TransCanada                                                                    
to carry all  of the state's participation  in the midstream                                                                    
and the gas treatment facility.                                                                                                 
11:37:53 AM                                                                                                                   
Vice-Chair  Fairclough  if  TransCanada would  still  be  as                                                                    
likely, based on  their rate of return  for shareholders, to                                                                    
mitigate cash  calls during FID  if the state set  aside the                                                                    
money she  had referenced earlier  to get the state  to pre-                                                                    
FEED and  the decision points;  this way state would  not be                                                                    
paying  TransCanada  interest  on equity.  She  wondered  if                                                                    
there  was  any  kind  of interplay  or  dependency  in  the                                                                    
current  negotiated contracts  that  allowed TransCanada  to                                                                    
not go forward  with the state's option at FID  if the state                                                                    
had not  been an  active participant in  the project  in the                                                                    
years prior.  Commissioner Rodell thought that  when the FID                                                                    
decisions were  reached there would a  re-assessment by both                                                                    
sides   and  that   as  the   MOU  was   currently  written,                                                                    
TransCanada and  the state could  decide to not  to continue                                                                    
that   partnership.  She   added  that   the  administration                                                                    
expected  to continue  going forward  with the  project. She                                                                    
stated that TransCanada  not being able raise  the money and                                                                    
not being  able procure  debt to  finance the  state's share                                                                    
portion was  a an  off-ramp in  the MOU;  in this  case, the                                                                    
state would  have to  come up with  the funding.  She stated                                                                    
that there  was risk that  TransCanada would not be  able to                                                                    
go forward  with the project,  but the possible  reasons for                                                                    
that  happening were  finance  risks  that all  participants                                                                    
were exposed to.                                                                                                                
11:40:09 AM                                                                                                                   
Vice-Chair  Fairclough noted  that  if  the project  reached                                                                    
FID, the  numbers would  be much more  refined and  that the                                                                    
project  could  should be  able  stand  on  its own  and  be                                                                    
economically  viable for  both  the State  of  Alaska and  a                                                                    
potential equity provider.                                                                                                      
11:40:30 AM                                                                                                                   
Commissioner Rodell addressed slide 21.                                                                                         
    CAN THE STATE GO IT ALONE? - STATE'S DEBT CAPACITY                                                                          
     • Financing the State's share of the AKLNG Project on                                                                      
     the State's balance sheet - key issues:                                                                                    
     • At what cost of debt?                                                                                                    
     • Debt servicing as what % of general fund                                                                                 
     unrestricted revenue.                                                                                                      
     Scenario 1                                                                                                                 
     (lower interest)                                                                                                           
     • SOA Debt at 4.6%                                                                                                         
     • Debt Service limited to 3% of GFUR                                                                                       
     Scenario 2                                                                                                                 
     • SOA Debt at 4.9%                                                                                                         
     • Debt Service limited to 5% of GFUR                                                                                       
     Scenario 3                                                                                                                 
     (higher interest)                                                                                                          
     • SOA Debt at 5.6%                                                                                                         
     • Debt Service limited to 6% of GFUR                                                                                       
     * High-level, indicative assumptions based on input                                                                        
     from Department of Revenue                                                                                                 
Commissioner Rodell spoke  slide 21 and stated  that DOR had                                                                    
given  Black &  Veatch certain  assumptions when  making the                                                                    
scenarios.  She  pointed  out  that in  Scenario  1  it  was                                                                    
assumed that the  debt would be appropriation  debt would be                                                                    
AA+ rated  because it would  be one notch below  the state's                                                                    
AAA credit  rating. She noted  that the assumption  that the                                                                    
scenarios would  use appropriation debt was  because general                                                                    
obligation  debt required  a  vote of  the  people and  that                                                                    
there were currently no revenues  available to finance under                                                                    
a  straight revenue  construct. She  addressed Scenario  1's                                                                    
debt service and stated that  it assumed the state's current                                                                    
debt obligation  of 5 percent  of unrestricted  General Fund                                                                    
Revenue; the scenario would take  the state up to 8 percent,                                                                    
which was  considered good a financial  construct. She noted                                                                    
that  Scenario 2  would add  5  percent and  would take  the                                                                    
total  obligations of  the state  up  to 10  percent of  its                                                                    
unrestricted  General  Fund Revenue;  it  would  be at  a  A                                                                    
rating  and would  cost  more because  of  the lower  credit                                                                    
rating. She stated that Scenario 3 would have BBB rating.                                                                       
Commissioner  Rodell  continued  to  address  slide  21  and                                                                    
related  that the  more unrestricted  General Fund  Revenues                                                                    
that the  state attached to  the project over and  above its                                                                    
current  debt  commitments  the lower  the  rating  and  the                                                                    
higher cost.  She pointed out  that Scenario 1  provided the                                                                    
lowest cost of  debt, but it also gave out  the least amount                                                                    
of  proceeds;  under  Scenario   3  had  the  most  proceeds                                                                    
produced, but at a higher cost.                                                                                                 
11:43:15 AM                                                                                                                   
Commissioner Rodell addressed slide  22 and stated that when                                                                    
Black &  Veatch had  formulated the different  scenarios, it                                                                    
had started off  at the 20 percent equity  stake because the                                                                    
company  thought that  it was  a  good place  to start.  She                                                                    
stated  that the  slide showed  that  if the  state did  not                                                                    
partner   for  the   project,  the   state  would   generate                                                                    
approximately $3.5  billion-$6 billion in debt  depending on                                                                    
the interest the  rate; the remaining balance  would have to                                                                    
come from equity.  She noted that with  the partnership with                                                                    
TransCanada  in scenarios  2 and  3, the  state was  able to                                                                    
fund  a larger  proportion  of its  participation with  debt                                                                    
progressively in each one.                                                                                                      
11:44:22 AM                                                                                                                   
Co-Chair Meyer  thought that Alaska was  not currently over-                                                                    
leveraged with debt,  but wondered if there  was any concern                                                                    
that the  SB 138's project would  get the state in  over its                                                                    
head  regarding  debt.  Commissioner Rodell  responded  that                                                                    
there was concern about how  the extra debt would affect the                                                                    
state's  position  and  fathered that  the  state's  revenue                                                                    
source  was volatile  during the  projects  time period  and                                                                    
seemed to  be going  down. She concluded  that DOR  did have                                                                    
concerns regarding  how much debt  the state could  take on,                                                                    
but that  the state  was not  over-leveraged; the  state was                                                                    
not using all of the capacity  that was available to it. She                                                                    
relayed that  the state  had to recognize  that it  had debt                                                                    
obligations  that   were  in   the  form   unissued  general                                                                    
obligation that  had already been  authorized by  the voters                                                                    
and   the    School   Debt   Reimbursement    Program;   the                                                                    
reimbursement program did  not have any limits  or caps. She                                                                    
stated  that the  pension liability  was  recognized by  the                                                                    
rating agencies as  a state liability. She  offered that how                                                                    
the state  structured its  partnerships, as  well as  how it                                                                    
would participate in  the project was very  important due to                                                                    
the  above concerns;  additionally,  the  concerns were  the                                                                    
reasons  that   the  state  going   it  alone  was   a  very                                                                    
troublesome option from her standpoint.                                                                                         
11:46:14 AM                                                                                                                   
Co-Chair Meyer  noted that the  prospect of the  state going                                                                    
forward  with the  project alone  was troubling  to him  and                                                                    
other committee  members as well  and pointed out  that some                                                                    
of the debt, such as  the School Debt Reimbursement Program,                                                                    
could  not  be  controlled.  He  explained  that  under  the                                                                    
reimbursement  program,  the  state  would have  to  pay  70                                                                    
percent  of  the costs  of  building  a  new school  if  the                                                                    
municipality passed a new school.                                                                                               
11:46:39 AM                                                                                                                   
Senator Hoffman noted  that the state did not  know what its                                                                    
credit rating  would be in  8 years and  that it may  not be                                                                    
AAA, especially  with the bleed  of at least $1  billion out                                                                    
of the general  fund over that time period.  He thought that                                                                    
Alaska credit  rating could drop drastically  and noted that                                                                    
he did not hear DOR  discussing that eventuality. He thought                                                                    
that the  state balancing  its own finances  would be  a key                                                                    
factor in  getting loans.  Commissioner Rodell  replied that                                                                    
the point was valid and that  she had been assuming that the                                                                    
state would continue to balance  its checkbook; however, the                                                                    
Senator Hoffman was correct that  there were scenarios under                                                                    
which the  pressures of spending  versus revenues  created a                                                                    
downgrade  on the  state's credit  rating. She  explain that                                                                    
the uncertainty was  why slide 21 arranged the  debt to show                                                                    
what  a A  and  BBB  rated structure  would  look like.  She                                                                    
thought that  another risk that  had not been  recognized in                                                                    
the presentation regarding debt  was what the future demands                                                                    
on state infrastructure would be to support the project.                                                                        
11:48:34 AM                                                                                                                   
Mr. Pawlowski  directed the  committee back  to slide  4 and                                                                    
related   that  it   represented   the   tension  that   the                                                                    
administration  struggled with  internally. He  commented on                                                                    
the  slide's projection  and relayed  it  reflected Black  &                                                                    
Veatch  taking   DOR's  risk  analysis,   very  conservative                                                                    
revenue forecast case and running  a future project based on                                                                    
it.  He reported  that where  the blue  line would  go after                                                                    
2018  or 2019,  depended a  lot  on what  happened with  the                                                                    
projections  the  department  was  currently  providing  the                                                                    
state and the  upside potential, which was  presented in the                                                                    
Revenue  Source  Book.  He  relayed  that  upside  potential                                                                    
reflected  higher   levels  of   production  that   DOR  saw                                                                    
indications of, but were not  counting on. He stated that in                                                                    
the  long-term,  commercializing  North Slope  gas  had  the                                                                    
potential to  provide a  material additional  revenue stream                                                                    
and that  as the department  looked at the  long-term versus                                                                    
short-term, it  tried to manage  the short  term responsibly                                                                    
enough to get  to the longer-term blend of oil  and plus gas                                                                    
revenue,  which would  provide a  robust revenue  future for                                                                    
the state; this  was ultimately what DOR was  trying to with                                                                    
the HOA and with the partnership with TransCanada.                                                                              
11:50:16 AM                                                                                                                   
Senator Hoffman  noted that  it was  an eight-year  span and                                                                    
that  oil  and gas  over  the  last eight  years  fluctuated                                                                    
widely. He did  not see much fluctuation in  DOR's chart. He                                                                    
stated  that no  one  had  a crystal  ball  and  no one  had                                                                    
predicted  the  price of  oil  to  be  $114 per  barrel.  He                                                                    
thought that  state did  not know what  would happen  to the                                                                    
price of oil or gas.                                                                                                            
11:51:08 AM                                                                                                                   
Vice-Chair Fairclough  recalled the prior discussion  of the                                                                    
bullet pipeline  versus a big  line and that there  had been                                                                    
an attempt to  get consensus for years for a  bullet line to                                                                    
get  to  provide energy  in  state,  specifically for  rural                                                                    
Alaska; there had  been great opposition to  the bullet line                                                                    
because  of the  worry of  the tariffs  being too  high. She                                                                    
stated that  the legislature had  the big line before  it as                                                                    
an  option and  that it  was absolutely  uncertain; she  was                                                                    
unsure of Alaska's  tolerance for risk on the  project.  She                                                                    
noted, however,  that Alaska currently  had the  reverses to                                                                    
take it through that number and  that if it stalled for even                                                                    
two years, the  timeline was pushed and  the reserves became                                                                    
even  more dependent  on the  volatility of  that particular                                                                    
moment in time.                                                                                                                 
11:52:38 AM                                                                                                                   
CCommissioner Rodell spoke to slide 23.                                                                                       
   Key Takeaways: MOU                                                                                                           
     · Delays in momentum will generally outweigh gains in                                                                      
        commercial terms.                                                                                                       
     · Partnering with TransCanada:                                                                                             
     · Advances key State interests (expansion & access)                                                                        
        during Pre-FEED and FEED.                                                                                               
     · Supports larger State Gas Share by sharing risk in                                                                       
     · Provides transition out of AGIA with passage of                                                                          
        enabling legislation.                                                                                                   
     · Off-ramps exist with TransCanada in MOU.                                                                                 
Commissioner  Rodell  reported  that   the  state  would  be                                                                    
revisiting the project and how  the state would move forward                                                                    
every legislative  session because there would  be decisions                                                                    
to   be  made   at   each  point   regarding  contracts   or                                                                    
11:53:40 AM                                                                                                                   
Commissioner Rodell discussed slide 24.                                                                                         
     · State participation in the AK LNG project:                                                                               
     · Maximizes the value of the State's resources.                                                                            
     · Improves competitiveness of AK LNG project.                                                                              
     · Puts State in a position to mitigate risks.                                                                              
     · Partnering with TransCanada:                                                                                             
     · Advances key State interests (expansion & access)                                                                        
        during Pre-FEED and FEED.                                                                                               
     · Supports larger State Gas Share by sharing risk in                                                                       
     · Phased process allows all Parties to mitigate risks.                                                                     
11:54:17 AM                                                                                                                   
Senator Dunleavy noted that as  he listened to the questions                                                                    
and comments and he was  thinking about the four quarters of                                                                    
partnership between  ConocoPhillips, BP, ExxonMobil  and the                                                                    
State  of   Alaska.  He  inquired  if   there  was  anything                                                                    
preventing  the   state  from  talking  to   and  taking  on                                                                    
additional partners that may want  gas in order to lower the                                                                    
state's  risk  on  the project  even  further.  Commissioner                                                                    
Rodell replied in  the negative and added  that she expected                                                                    
that the  state moved closer  to FEED  and FID and  had more                                                                    
certain  information, that  buyers  would  be interested  in                                                                    
getting  a  piece of  the  transmission  facility to  ensure                                                                    
access.  She  concluded  that  in  5  years,  the  financial                                                                    
construct for the state's portion  of the project would look                                                                    
very different from the current plan.                                                                                           
11:56:01 AM                                                                                                                   
Senator  Dunleavy noted  that the  presentation had  various                                                                    
scenarios of  investment for  the state  and the  return and                                                                    
observed  that  this  was  for   the  state's  quadrant.  He                                                                    
observed that the  state could bring in  partners that would                                                                    
help reduce that load within  its own quadrant. Commissioner                                                                    
Rodell replied in the affirmative.                                                                                              
11:56:22 AM                                                                                                                   
Co-Chair Kelly  directed the presentation  back to  slide 24                                                                    
and  requested  an explanation  of  the  state's ability  to                                                                    
mitigate   risk.  Mr.   Pawlowski  responded   that  Senator                                                                    
Dunleavy had pointed to one  place where risk mitigation was                                                                    
possible. He explained  that the when the state  had a share                                                                    
of the project and freedom to  bring in partners, as was the                                                                    
case with  TransCanada, Alaska had  an opportunity  to share                                                                    
some of  the risk; for instance,  if an LNG buyer  wanted to                                                                    
enter into a  long-term contract with the  Alaska, the state                                                                    
may  ask the  long-term  buy  to shoulder  the  take or  pay                                                                    
commitment in  moving the gas  from the North Slope  all the                                                                    
way through  the project.  He related  that being  an active                                                                    
participant in  the project  opened doors  for the  state to                                                                    
have  an  asset to  share  and  enabled  a wide  variety  of                                                                    
opportunities to explore during pre-FEED.                                                                                       
11:58:02 AM                                                                                                                   
Senator Hoffman  directed the presentation back  to slide 13                                                                    
and  discussed the  two  bullet points  under  key term  #5,                                                                    
which  were the  5  take-off points  and distance  sensitive                                                                    
rates  to 3  zones to  delivery. He  thought that  somewhere                                                                    
along  the long  line before  FID,  the time  frame and  the                                                                    
specifics of the  delivery of gas to all  Alaskans needed to                                                                    
be worked  out in  order to let  the state's  residents know                                                                    
that the project  would make Alaska a  more affordable place                                                                    
to live.  He thought  that getting gas  to all  Alaskans was                                                                    
critical element of the project for Alaskans.                                                                                   
11:59:18 AM                                                                                                                   
Senator   Dunleavy   inquired   if  it   was   the   state's                                                                    
responsibility  of delivering  cheap gas  to Alaskans  or if                                                                    
the  entire   concept  worked   to  that   end  and   was  a                                                                    
responsibility shared by all of  the partners. Mr. Pawlowski                                                                    
replied that  the terms of  the MOU was solely  dictating to                                                                    
TransCanada how  it would  charge for  gas moving  in state;                                                                    
however, the  actual shares  of what  would be  delivered in                                                                    
state  and  what  that  would   look  like  was  yet  to  be                                                                    
determined.  He concluded  that  the structure  of how  that                                                                    
responsibility would be  managed was all part  of the design                                                                    
work  and development  in pre-FEED.  HE  concluded that  gas                                                                    
would be provided  to Alaskans and the  MOU with TransCanada                                                                    
set  specific rates  to protect  Alaskans with  the distance                                                                    
sensitive delivery.                                                                                                             
Senator  Dunleavy   stated  that  the  concept   of  getting                                                                    
affordable gas to all Alaskans  was very important to people                                                                    
in Alaska and  that he would be looking at  this element and                                                                    
the risk  versus income. He  noted that one could  invest in                                                                    
an ideas,  but that how much  the state would invest  in the                                                                    
project versus how  much it would get out of  it, as well as                                                                    
getting affordable gas  to Alaskan was what  would drive his                                                                    
decisions on the issue.                                                                                                         
12:01:29 PM                                                                                                                   
SB 138 was HEARD and HELD in committee for further                                                                              
12:01:47 PM                                                                                                                   
Co-Chair Kelly discussed the following meeting's agenda.                                                                        
12:02:25 PM                                                                                                                   
The meeting was adjourned at 12:02 p.m.                                                                                         

Document Name Date/Time Subjects
Copy of FN - SB 64 - AJC - 2-15-14.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - 24x7 Sobriety Overview.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Alaska Corrections Infographic II.jpg SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Alaska Corrections Infographic.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - DOC Inmate Population FY03-FY20.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Felony Theft Graph.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - How DOC Allocates Resources.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Letter of Support - Catholic Social Services.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Letter of Support - NCSL.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Letter of Support - NFIB.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Letter of Support - PSEA.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Newsminer Article.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - PACE Research Report.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - PEW on HOPE-PACE.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Recidivism Curve.PNG SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Sectional Analysis.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Sponsor Statement.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - Summary of Changes.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - The Fiscal Case for Corrections Reform.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 - What Other States Are Doing.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB064CS(JUD)-ACS-TRC-02-17-14.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - ADM 2.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - ADM 3.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - ADM.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - COR.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - CRT.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - DHS.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - GOV.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 - Fiscal Note - LAW.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
022514 SFIN Presentation on MOU Risks and Benefits.pdf SFIN 2/25/2014 9:00:00 AM
Alaska Natural Gas
SB 64 (FIN) Presentation Sh.ppsx SFIN 2/25/2014 9:00:00 AM
SB 64
SB64 Backup Documents - Testimony.pdf SFIN 2/25/2014 9:00:00 AM
SB 64
SB 64 Testimony NFIB.pdf SFIN 2/25/2014 9:00:00 AM
SB 64