Legislature(2001 - 2002)

03/19/2001 03:40 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
         SB 143-RIGHT-OF-WAY LEASING ACT:APPLICATION COST                                                                   
                                                                                                                                
CHAIRMAN TORGERSON announced SB 143 to be up for consideration.                                                                 
                                                                                                                                
MR. DARWIN PETERSON, staff to Senator Torgerson, told members:                                                                  
                                                                                                                                
     One of the  legislature's priorities is commercialization                                                                  
     of  North Slope  gas. Any  sponsor of a  pipeline project                                                                  
     will  have to obtain  a right-of-way  across state lands.                                                                  
     this bill  would authorize the state to be reimbursed  for                                                                 
     work performed by the State  Pipeline Coordinator's Office                                                                 
     [SPCO] in preparing to receive  and process an application                                                                 
     for  a  right-of-way  lease.  It also  clarified  that  an                                                                 
     applicant  must reimburse the  SPCO for costs incurred  in                                                                 
     processing  an application whether or not the  application                                                                 
     is granted.                                                                                                                
                                                                                                                                
     AS  38.35.140 provides  that  lessee shall  reimburse  the                                                                 
     state for  all reasonable costs incurred in processing  an                                                                 
     application  filed for a right-of-way lease. Although  the                                                                 
     SPCO has entered  into an agreement with a lessee  seeking                                                                 
     renewal  of  a lease  to  reimburse  the state  for  costs                                                                 
     incurred  before  receipt  of  the  renewal  application,                                                                  
     legislative legal services  has questioned whether this is                                                                 
     authorized  under existing law  and whether the state  can                                                                 
     be reimbursed for costs  incurred before the receipt of an                                                                 
     application.  The SPCO anticipates  that it will be  asked                                                                 
     to perform  substantial work  by prospective gas pipeline                                                                  
     lessees this  year in anticipation of filing applications                                                                  
     later  this year or early next  year. Much of the cost  of                                                                 
     this work  would clearly be reimbursable  to the state  if                                                                 
     the   prospective   lessee    actually   had   a  pending                                                                  
     application.  It is important to insure that the  state is                                                                 
     reimbursed for the significant  cost that it will incur in                                                                 
     performing  work in  anticipation and  furtherance of  the                                                                 
     application process.                                                                                                       
                                                                                                                                
     Additionally,  the  SPCO,  in  the past,  has  required  a                                                                 
     prospective  lessee  to  reimburse  the  state  for  costs                                                                 
     incurred  in  processing  [an]  application  even  if  the                                                                 
     application has not been  granted. This bill would conform                                                                 
     the  law  to  existing  practice  between   the  SPCO  and                                                                 
     prospective  lessees to make clear that the state  must be                                                                 
     reimbursed  for  the costs  of processing  an application                                                                  
     whether   or  not   the  lease  is   ultimately  granted.                                                                  
     Prospective  lessees cannot  expect the  state to pay  for                                                                 
     services requested  by them on routes that ultimately  are                                                                 
     not  selected or on  applications that  may ultimately  be                                                                 
     withdrawn, suspended, or otherwise not granted.                                                                            
                                                                                                                                
SENATOR ELTON  said, "I think  this is a great  idea." He asked  Mr.                                                            
Coughlin how much it cost for the pre-application process.                                                                      
                                                                                                                                
MR. PATRICK COUGHLIN, Special  Assistant to the Resources Committee,                                                            
answered that  this hasn't ever happened in this large  of an amount                                                            
before. Mr.  Britt's fiscal  note indicates  they expect to  need $4                                                            
million  through  the  first  half  of the  fiscal  year.  His  best                                                            
estimate   is  that  at   least  50  percent   would  otherwise   be                                                            
reimbursable.                                                                                                                   
                                                                                                                                
SENATOR  PEARCE  said  she noticed  on  page  1,  line 9,  the  word                                                            
"reasonable" is already  in statute and asked what a reasonable cost                                                            
would  be  versus one  that  the  state  would not  expect  to  have                                                            
reimbursed.                                                                                                                     
                                                                                                                                
MR. COUGHLIN said  he was just reading the fiscal  note and that his                                                            
understanding  based on a  conversation with  Mr. Britt is  that 100                                                            
percent of  this current budget is  based on program receipts  which                                                            
are based on agreements  that his office negotiates  with lessees to                                                            
cover the cost of running that office.                                                                                          
                                                                                                                                
SENATOR PEARCE asked if these were written agreements.                                                                          
                                                                                                                                
MR. COUGHLIN answered  yes and their purpose is to  detail the scope                                                            
of work between  the Pipeline Office  and the prospective  lessee or                                                            
an applicant,  in the case of this bill, so it is  clear to the SPCO                                                            
what  is  being  asked  of  them  and  how  they  are  going  to  be                                                            
compensated.                                                                                                                    
                                                                                                                                
CHAIRMAN  TORGERSON asked  Mr. Britt  why he estimates  he can  only                                                            
collect 50 percent of the application fees.                                                                                     
                                                                                                                                
MR. BRITT, Pipeline Coordinator, answered:                                                                                      
                                                                                                                                
     In  normal circumstances,  my  office is  entirely funded                                                                  
     through   program  receipts.   The  difference   here   is                                                                 
     procuring the amount of  starting up a gas pipeline office                                                                 
     that  didn't previously  exist and  coordinating with  our                                                                 
     Canadian  and federal counterparts.  In the normal course                                                                  
     of things,  we would be working on a specific  application                                                                 
     with a specific  project proponent and 100 percent  of our                                                                 
     costs  would   go  to  that  project  proponent….This   is                                                                 
     unprecedented. We have a  number of project proponents and                                                                 
     allocative   costs  between  as  many  as  nine  separate                                                                  
     potential  gas pipeline project proponents for  costs that                                                                 
     are likely  to be applicable. Whichever route  comes in is                                                                 
     going  to prove  to be  challenging,  I expect.  I really                                                                  
     won't  know what  percentage of  the total  costs will  be                                                                 
     reimbursable  until I have completed  negotiations with  a                                                                 
     suite of those project proponents.                                                                                         
                                                                                                                                
CHAIRMAN  TORGERSON said  he appreciated  that  explanation, but  he                                                            
knows that the fiscal note  says 50 percent is all they are going to                                                            
get back and that  is incorrect.  He stated, "If it was me, I'd have                                                            
a long  discussion with you  in Finance [Committee]  about  what the                                                            
other 50 percent  was going to be for before I'd approve  the fiscal                                                            
note."                                                                                                                          
                                                                                                                                
MR. BRITT responded  that he expects  to negotiate aggressively.  He                                                            
thought 50 percent was a low-end estimate.                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  said he didn't  think they would have  a project                                                            
by 2003 and he  wouldn't vote for a large appropriation  for setting                                                            
this office up.                                                                                                                 
                                                                                                                                
MR. BRITT  responded  that his  challenge  at this  point is  simply                                                            
having enough  resources to interact with the proponents.  "They are                                                            
making more  requests of my office  than I have people and  money to                                                            
support at this point.  Rather than being ahead of the curve, we are                                                            
actually behind, at this point."                                                                                                
                                                                                                                                
CHAIRMAN TORGERSON  said he understood that, but the  intent of this                                                            
bill is that,  "You should respond to them, but they  should pay you                                                            
for it.  Not us go  out and make  trips to Canada  or wherever  else                                                            
you're  talking  about  going.  The  Canadians  -  you  should  take                                                            
something  off their  sheet.  They're way  ahead  of you  anyway….We                                                            
couldn't  have that  much overhead  cost  until we  actually have  a                                                            
project."                                                                                                                       
                                                                                                                                
SENATOR  TAYLOR  moved  to  pass SB  143  from  committee  with  the                                                            
accompanying fiscal note and individual recommendations. There were                                                             
no objections and it was so ordered.                                                                                            

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