Legislature(2003 - 2004)

01/26/2004 03:35 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SB 271-NATURAL GAS DEVEL AUTHORITY PROJECTS                                                                   
CHAIR SCOTT  OGAN, sponsor  of SB  271, informed  members that  SB
271  expands  the scope  of  the Alaska  Natural  Gas  Development                                                              
Authority [ANGDA,  the "Authority"].  Currently the  Authority has                                                              
the scope to  build an LNG line  to Valdez, but if the  scope were                                                              
expanded to build  to the border, the tax-free status  of a state-                                                              
owned pipeline  could be taken advantage  of.  As chairman  of the                                                              
Energy Council,  he reported  that he  attended meetings over  the                                                              
summer  and  spoke  with  people  interested   in  hooking  up  to                                                              
Alaska's  line, possibly  at  the  Canadian border.    TransCanada                                                              
Pipeline indicated a  hook up of about 2 billion  cubic feet (bcf)                                                              
per day  in their  current capacity.   SB 271  also asks ANGDA  to                                                              
evaluate   private    sector   involvement   in    the   planning,                                                              
development,  construction,  and management  of  the operation  of                                                              
the   gas  transmission   pipeline   project.     He   said   that                                                              
philosophically he  feels better about  the private sector  having                                                              
more of a risk-taking  role in this project, given  the history of                                                              
state-owned projects  in the past;  the more private  sector money                                                              
invested, the better.                                                                                                           
CHAIR  OGAN  told  the  committee  that   a  cursory  review  with                                                              
legislative   attorney  Jack   Chenoweth   indicated  that   state                                                              
ownership  with private sector  investment wouldn't  hurt the  tax                                                              
re-status.  He said  he doesn't feel SB 271 is  mutually exclusive                                                              
to one  particular  group; producers  can take  advantage of  this                                                              
and use the tax re-status.                                                                                                      
CHAIR OGAN  noted that Senator Lincoln  had joined the  meeting at                                                              
3:40 p.m.                                                                                                                       
SENATOR KIM ELTON  asked if, in addition to the request  for $2.15                                                              
million, the Authority would require more money.                                                                                
CHAIR OGAN responded  that more money would probably  be necessary                                                              
to permit and plan  a new pipeline route.  Although  the producers                                                              
have  done  a fair  amount  of  engineering  work on  the  Alaskan                                                              
Highway route, he  doesn't suspect that much of that  work will be                                                              
shared.  He  stated that SB 271  does not currently have  a fiscal                                                              
SENATOR ELTON  asked if,  rather than  changing the provisions  of                                                              
SB  241 [Approp:  Natural  Gas  Development Authority],  a  fiscal                                                              
note was anticipated [for SB 271].                                                                                              
CHAIR OGAN  confirmed this to  be so and  said he didn't  think it                                                              
was appropriate  to tack  money onto  SB 241, a  bill that may  or                                                              
may not pass.                                                                                                                   
MR.  HAROLD  HEINZE,  CEO,  ANGDA,  testified  that  the  proposed                                                              
changes would  expand the  scope of  ANDGA's feasibility study  to                                                              
include  the highway project  in addition  to the  LNG project  to                                                              
Valdez.     The bill  provides  for an  additional  six months  to                                                              
address the project's  feasibility and also evaluates  the private                                                              
sector's involvement  in the project.   He believes the  Authority                                                              
can be  of value to  the state by contributing  to the  success of                                                              
any private  sector project that's  undertaken on behalf  of North                                                              
Slope gas.   ANGDA  also stands ready  to work  with any group  on                                                              
the  LNG project.    Both  opportunities  are very  important,  he                                                              
CHAIR OGAN  asked Mr. Heinze if  he agreed that this  approach was                                                              
not mutually exclusive  of one group over another.   He also asked                                                              
whether producers would be interested in this tax-free status.                                                                  
MR.  HEINZE  replied  that  this was  a  friendly  approach.    In                                                              
looking at  the Authority and how  it provides for the  benefit of                                                              
all  Alaskans, he  felt that  its ability  to  provide a  business                                                              
structure  offering   definite  advantages  over   any  commercial                                                              
enterprise was  very important in  terms of commercializing  North                                                              
Slope  gas.     The  associated  tariffs   are  at  the   edge  of                                                              
commerciality  and  these  efforts  could  probably  reduce  those                                                              
tariffs  by  about  one-third,  which  would  make  a  significant                                                              
difference  in the  economics and  competitiveness  of a  project.                                                              
The  first 530  miles,  whether  it moves  LNG  or goes  down  the                                                              
highway,  shares a  common route  from the  North Slope  following                                                              
the TAPS to Delta.   One project continues down the  highway while                                                              
the  other  project  continues  down  the  Richardson  Highway  to                                                              
Valdez.   To  the extent  that both  projects could  share in  the                                                              
cost,  building,  and use  of  the 530  miles,  offers  tremendous                                                              
potential  for   cost-reduction,  tariff  reduction,   and  better                                                              
economics.   Mr. Heinze said  that there was nothing  incompatible                                                              
about this kind of approach.                                                                                                    
CHAIR  OGAN said  that  earlier this  year  ANGDA  was looking  at                                                              
building a much larger  line to Delta; he asked what  bcf capacity                                                              
an LNG project would require per day.                                                                                           
3:49 p.m.                                                                                                                       
MR. HEINZE replied  that at the end  of last year, the ABC  [a big                                                              
capacity] line was  proposed with the idea that, depending  on the                                                              
timing of the highway  project, there would be six  months to look                                                              
at what could  be done to move  ANGDA's project forward  and still                                                              
provide the best  opportunities for further uptake of  gas off the                                                              
North Slope.  With  a 36- or a 48-inch pipe and  the proper design                                                              
modifications, facilitation  of production and transportation  off                                                              
the North  Slope could be  at least twice  as big.  The  Authority                                                              
initially looked  at a 36-inch  design, carrying  up to 3  bcf per                                                              
day.  The initials  were 2 bcf per day but expandable  to 3 [bcf].                                                              
This kind of project  implies reserves of 15 to 20  trillion cubic                                                              
feet.   The  producer described  line  was initially  4.5 bcf  per                                                              
day,  described  at times  as  a  48-inch  line  or bigger.    The                                                              
implied reserve  is 35 trillion cubic  feet (tcf).   For instance,                                                              
two  48-inch pipelines  could  handle  about 10.5  trillion  cubic                                                              
feet per  day, with the implied  resource being about  75 trillion                                                              
cubic  feet.    Mr.  Heinze  said  there  was  some  advantage  to                                                              
building the 530  miles, if not bigger than needed,  at least with                                                              
the  ability  to be  easily  expanded  so  it could  have  a  high                                                              
capacity for the future.                                                                                                        
CHAIR OGAN  asked how  much gas the  LNG plant anticipated  using,                                                              
in bcf per day.                                                                                                                 
MR. HEINZE  responded that the proposed  LNG project was  based on                                                              
2 bcf per day.   By adding compression, this could  be expanded to                                                              
3 bcf  per day.  He  said the producers'  proposal was  similar to                                                              
MidAmerican's; their  project would be designed initially  for 4.5                                                              
bcf per  day, and with  the addition of  compression, it  could be                                                              
expanded  to  6  bcf  per  day.    In  both  cases,  expansion  is                                                              
dependent upon market availability.                                                                                             
CHAIR OGAN suggested  that the committee consider the  effect that                                                              
the drawdown  of gas would  have on  the North Slope's  production                                                              
of oil.   He  said efforts would  be made  to get the  anticipated                                                              
report  by  the   Alaska  Oil  and  Gas  Conservation   Commission                                                              
[AOGCC].  Large quantities  of gas are being addressed,  and if it                                                              
comes from  Prudhoe Bay,  there is a  significant loss of  revenue                                                              
to the state because  oil is worth much more than gas.   The AOGCC                                                              
has the authority  to regulate the waste of hydrocarbons,  but not                                                              
economic waste,  which is more  of a DNR  function.  He  mentioned                                                              
being mindful  of not producing  so much gas  for export  from the                                                              
North Slope  that it would  offset long-term  revenues.  He  asked                                                              
if ANGDA was planning to export to the Lower 48.                                                                                
MR.  HEINZE  responded that  the  market  would include  the  West                                                              
Coast of  the U.S. and  that projections of  the LNG needs  of the                                                              
U.S. grow  dramatically over the next  decade, from 2010  to 2020.                                                              
Also,  Japan,  Taiwan,  and  Korea  represent  substantially  good                                                              
markets  with an interest  in North  Slope gas,  so those  markets                                                              
would be pursued.   He said he  didn't know how the 4.5  bcf would                                                              
penetrate the Lower 48 market.                                                                                                  
CHAIR  OGAN  said that  every  analyst  who  has talked  with  the                                                              
Energy Council has  factored in the natural gas pipeline  down the                                                              
highway as  a basic  assumption.   Even with  the 4.5 coming  down                                                              
the highway, America  will be [importing] 11 to 20  percent of its                                                              
energy needs  in LNG by  2020.  He said  that although there  is a                                                              
demand, site-permitting  will  be a big  hurdle.   He said he  was                                                              
glad ANGDA  is supportive  and that [SB  271] dovetails with  what                                                              
ANGDA is trying to do.                                                                                                          
SENATOR GEORGIANNA  LINCOLN referred  to Section  4 and asked  how                                                              
many plans ANGDA  was envisioning and what the effect  would be on                                                              
the request for $2.15 million.                                                                                                  
MR. HEINZE  referred to  Section 4,  and told  the committee  that                                                              
the addition  of private sector  evaluation wouldn't be  adding to                                                              
ANGDA's  work.   He referred  to the  twelve  items delineated  in                                                              
Section  4 as constituting  a "feasibility  study."   He said  the                                                              
intention was to  produce one feasibility study by  June 15, 2004,                                                              
as required  by law  and also as  required by  pursuit of the  LNG                                                              
market,  which  is dynamic.    He  said  ANGDA has  asked  for  an                                                              
additional $2.15  million of funding,  of which probably 25  to 30                                                              
percent will involve  the business structure of the  Authority and                                                              
would be  applicable to  almost any project.   About $1.5  million                                                              
involves questions  that are project-specific, and  adding another                                                              
project would  require money  to provide  for engineering  design,                                                              
cost estimates,  project schedules,  and so  forth.  In  reference                                                              
to going  down the  highway, he said  that a  lot of money  that's                                                              
needed would be determined  by what is available to  base the work                                                              
on.  Luckily,  Yukon Pacific [YPC] has been  forthcoming regarding                                                              
the Valdez  project, and monies are  being spent in  review rather                                                              
than  in new  design.   The producers  have just  spent over  $100                                                              
million;  he said  he  would  like to  do  this more  cheaply  and                                                              
thinks this is possible.                                                                                                        
MR. HEINZE  continued that SB 241  provides for the  $2.15 million                                                              
as a  supplement to this  fiscal year's funding  so that  the work                                                              
can be  finished by  June 15.    That money  is not allocated  for                                                              
the next  fiscal year.   If SB 271 passes,  because of  the change                                                              
in the  timeline, he suggested that  the funding be  considered as                                                              
FY05  funding  and the  second  development  plan be  produced  as                                                              
required under this bill.                                                                                                       
CHAIR OGAN referred  to Section 4, page 3, paragraph  (12), noting                                                              
that  maybe  a  private sector  entity  would  bring  work  that's                                                              
already been  done in the last  25 years, since the  highway route                                                              
has  certainly  been studied  by  producers  and others  who  have                                                              
proposed building  the pipeline.  He  said he hoped  someone would                                                              
take  advantage  of  this  state-owned,  tax-free  opportunity  by                                                              
planning, building, and thereby bearing a lot of the costs.                                                                     
SENATOR  ELTON  asked  if  the  supplemental  $2.15  million  went                                                              
ahead  on  its  own,  and if  the  deadline  was  pushed  back  to                                                              
January, 2005,  could the fiscal  impact of  SB 271 be handled  in                                                              
the [FY]05 budget.                                                                                                              
MR. HEINZE  said this  was correct.   He explained  that a lot  of                                                              
information  is  available  from  Yukon  Pacific  on  ANGDA's  LNG                                                              
project and  that he didn't  know what price  tag to put  on this,                                                              
but it  was worth  well over  15 years,  or $100  or $200  million                                                              
worth of  information.   This information  is not  public but  has                                                              
been  made available  to ANGDA;  contractors will  need to  verify                                                              
that the information  is reasonable.  That's an  incredible amount                                                              
of work, and because  of that, he said he preferred  to stick with                                                              
the funding  and project  schedule and  to finish the  feasibility                                                              
study.  He  said he appreciates SB  271 and with the  recent entry                                                              
of  a new  applicant, different  from  the producer,  it would  be                                                              
interesting  to see if  more information  would be forthcoming  in                                                              
the next few months.                                                                                                            
SENATOR ELTON  asked if the scope  of the Authority's  involvement                                                              
expanded to  include the  highway route,  was it anticipated  that                                                              
protocols would have  to be worked out with DNR and  DOR, now that                                                              
applications have  been received.  He  asked how ANGDA  would work                                                              
with those two departments.                                                                                                     
MR. HEINZE  responded that  the Authority  would continue to  work                                                              
very  closely  with  the  departments.    He  explained  that  the                                                              
Authority  contributes to  the state's  effort by  working on  the                                                              
feasibility of the  "people's pipeline" to Valdez, the  LNG export                                                              
project, which is the  will of the people.  At the  same time, the                                                              
Authority has  unique business  structures that  can be useful  to                                                              
the state.   He said he is  employed by the state's  Department of                                                              
Revenue, and works  to ensure that the administration  is aware of                                                              
opportunities that  ANGDA offers to  lower the costs  of projects.                                                              
The  supplemental   funding  request  reveals  that   almost  $0.5                                                              
million dollars  is included to  further study business  structure                                                              
issues because  that's an  absolutely crucial  part of what  ANGDA                                                              
is doing.                                                                                                                       
4:07 p.m.                                                                                                                       
SENATOR RALPH  SEEKINS referred to a  proposed bill that  came out                                                              
of the initiative  on September 20, 2001, which states,  "10.  The                                                              
permits  necessary  for  an  Alaskan  gasline  project  have  been                                                              
pledged  to   the  Alaska   Natural  Gas  Development   Authority,                                                              
operating as  a port authority,  to facilitate the development  of                                                              
the project;" - he asked if this was still true.                                                                                
MR.  HEINZE  responded  that Yukon  Pacific  would  make  anything                                                              
deemed good  and valuable available  for purchase, and  until that                                                              
determination  was made,  everything could  be examined;  however,                                                              
ownership is not  acquired by looking.  For example,  if YPC holds                                                              
an engineering  design  of the exact  alignment of  the pipe  from                                                              
Prudhoe  Bay to  Valdez, it  might be  a lot  cheaper to  purchase                                                              
that  rather  than  doing  the  detailed  work  to  re-create  it.                                                              
Although the  price is  to be determined  and negotiated,  it will                                                              
be for  sale.  Mr.  Heinze said he thought  this was a  reasonable                                                              
business structure at this point.                                                                                               
SENATOR SEEKINS  asked if  the rights-of-way  or permits had  been                                                              
MR.  HEINZE  responded  that  money   had  been  included  in  the                                                              
supplemental  request  to  have  an  expert  advise  on  what  was                                                              
important and  valuable, but that  determination had not  yet been                                                              
made.  As an  agency of the state, ANGDA's  right-of-way situation                                                              
may be entirely different from that of a private company.                                                                       
SENATOR SEEKINS asked  if it was in Yukon Pacific's  best interest                                                              
for  ANGDA to  build  or propose  their  line on  YPC's  permitted                                                              
MR.  HEINZE   replied  that   there  was   no  doubt  that   YPC's                                                              
cooperation "has a motive at the end of the day."                                                                               
SENATOR  SEEKINS asked  if  YPC  also holds  right-of-way  permits                                                              
that go from Delta to the Canadian border.                                                                                      
Mr. HEINZE  said he  understands  that they  do not.   He said  he                                                              
believes there are  other parties who are certified  under federal                                                              
CHAIR  OGAN mentioned  this  was  Foothills [Foothills  Pipe  Line                                                              
Ltd.], acquired by TransCanada.                                                                                                 
SENATOR SEEKINS said  he assumed that if MidAmerican  [MidAmerican                                                              
Energy Holdings  Company] or  the producers  wanted to build  this                                                              
pipeline  from  Delta   to  the  Canadian  border,   then  if  the                                                              
Authority's  scope was extended,  it would  need to be  determined                                                              
whether  permits  necessary for  an  Alaskan  gas project  to  the                                                              
Canadian border  have been  pledged to the  Authority.  He  asked,                                                              
if SB 271  passed, would there  be the same pledge  of cooperation                                                              
from Foothills, or whoever owns that right-of-way.                                                                              
MR.  HEINZE said  no, the  right-of-way permits  and other  things                                                              
involved are  not necessarily exclusive,  but there is a  time and                                                              
cost advantage to  dealing with those who have permits,  rights of                                                              
way,  and  so  forth.    The  basic  concept  of  right-of-way  as                                                              
embodied in  both the federal  and state Natural  Gas Act  is that                                                              
people providing  the service  of delivering  the public  resource                                                              
ought to  be able  to work  through the  system.   He said it  was                                                              
practical  to  work  with people  who  have  already  studied  the                                                              
problem and have some of the permits and permission necessary.                                                                  
SENATOR SEEKINS  commented that there  is something for  sale here                                                              
that is  causing an economic  vested interest  in those who  would                                                              
influence  which  route of  delivery  of  natural gas  would  take                                                              
place.   He noted  that caution  should be  exercised to  evaluate                                                              
the reasons behind certain recommendations.                                                                                     
CHAIR  OGAN  said  that  SB  271  addresses   public  and  private                                                              
partnership.   The private  sector, regarding  the route down  the                                                              
highway,  involves several  companies  that have  researched  this                                                              
for 25  years, both  the producers  on the  North Slope and  those                                                              
who proposed  building  pipelines 25  years ago.   It is  mutually                                                              
beneficial.    He  said  it  was  something  to  be  entered  into                                                              
cautiously, with willingness to exercise due diligence.                                                                         
SENATOR  SEEKINS   recalled  being  on  the   governor's  economic                                                              
advisory  committee  on  North  Slope   Natural  Gas;  the  report                                                              
produced  for  the  state was  the  birth  certificate  for  Yukon                                                              
Pacific's  looking  to  get that  gas  to  market.   He  said  the                                                              
Legislature  and Alaskans need  to be  flexible regarding how  the                                                              
gas gets to  market because, "I  don't know where the  market is."                                                              
He said  if it was  determined that a  long-term and a  beneficial                                                              
market was  in the  Midwest, he  would be  more excited about  the                                                              
route through Canada  benefiting people of Alaska versus  gas that                                                              
was  liquefied   and  shipped  elsewhere.     He  also   suggested                                                              
consideration   of   other   spin-offs   such   as   petrochemical                                                              
possibilities  and  opportunities  for  employment  from  in-state                                                              
processing  of  natural  resources,   not  just  the  exportation.                                                              
Senator Seekins said  he wanted to make sure that  options weren't                                                              
being precluded  and that the door  was somewhat open  to consider                                                              
all avenues.                                                                                                                    
CHAIR OGAN  said that  through the  Energy Council,  he's had  the                                                              
opportunity   to   have   first-hand   discussions   with   people                                                              
interested in  acquiring Alaska's gas.   World experts  have said,                                                              
"We need  all of Alaska's  gas and more."   He told the  committee                                                              
that he  had the  opportunity to tour  TransCanada's control  room                                                              
in Alberta,  and  it was  impressive, with  pipelines running  the                                                              
east-to-west  coast across Canada.   Alberta  is a major  supplier                                                              
of natural  gas to  the United  States.   Their equivalent of  the                                                              
AOGCC ordered  100 gas  wells shut-in because  it was hurting  oil                                                              
production; there  are supply/demand problems.   He said  he would                                                              
like  to hear  testimony  from  MidAmerican, TransCanada  and  the                                                              
SENATOR ELTON  stated that SB 247  similarly adds to the  scope of                                                              
ANGDA's  work, and  asked  if  it made  sense  to add,  under  the                                                              
purview of the Authority, any route "except for over-the-top."                                                                  
CHAIR OGAN responded  that this is a  major policy call, as  it is                                                              
a change in the  voter initiative that said, "LNG to  Valdez."  He                                                              
said in  light of the  new opportunities  that were revealed  last                                                              
week and  the applications  under the Stranded  Gas Act, this  was                                                              
an amazingly well-timed bill.                                                                                                   
SENATOR TOM  WAGONER concurred that  the desire was  to streamline                                                              
the process as much as possible and avoid duplication of effort.                                                                
CHAIR OGAN  suggested that  competition among  projects was  good,                                                              
and said  that this was  an exciting time  to chair the  Resources                                                              
TAPE 04-3, SIDE B                                                                                                             
4:25 p.m.                                                                                                                       
SENATOR  LINCOLN referred  to  [meeting  of 9/10/03]  when  Deputy                                                              
Commissioner  Porter said, "There  isn't enough  gas to build  two                                                              
lines.   The state should  focus on passing  the energy  bill with                                                              
the incentives  to build a  highway route pipeline.   If  more gas                                                              
is found, then  it would be appropriate  to build the LNG  line to                                                              
Valdez or expand  the pipeline or other alternatives."   She asked                                                              
for his  response to  questions that  had been asked  of him  in a                                                              
previous  meeting [meeting  of  1/21/04].   In  response to  CHAIR                                                              
OGAN's question  regarding relevancy,  she said this was  relevant                                                              
because  the Authority  had  produced  development plans  and  she                                                              
assumed that those plans were "all the routes."                                                                                 
MR.  STEVE  PORTER, Deputy  Commissioner,  Department  of  Revenue                                                              
(DOR), testified  that the state  believes that both  the Stranded                                                              
Gas Act and ANGDA  are important to moving gas to  market in order                                                              
to  benefit  Alaskans.    In  September,  they  thought  the  most                                                              
effective way  was to move gas  through Canada, and now  there are                                                              
two applications  proposing to do  that.  Additionally,  the state                                                              
thought ANGDA  would be a strong  complement to that,  possibly by                                                              
moving  LNG  to Valdez,  the  Cook Inlet,  or  implementing  other                                                              
alternatives to  benefit the state such  as barging gas  on rivers                                                              
such as the Yukon to transport gas.                                                                                             
SENATOR LINCOLN  asked if  his previous  statement about  focusing                                                              
on the highway route had changed.                                                                                               
DEPUTY COMMISSIONER  PORTER replied  that it hasn't changed;  it's                                                              
unknown  if  there  is  enough gas  in  known  reserves  today  to                                                              
simultaneously have  a 4.5 bcf  pipeline to the  Lower 48 and  a 2                                                              
bcf  LNG  project.   Although  exploration  might  find  20  -  30                                                              
additional  tcf on  the  slope,  making expansion  and  additional                                                              
opportunities  available, the  September  [2003] testimony  refers                                                              
to a  sequence, which is  to build the  major line first  and then                                                              
look at  future expansion whereby the  possibility of an  LNG line                                                              
might make sense as well.                                                                                                       
CHAIR OGAN  said the issue of  whether there's enough  gas depends                                                              
on which gas is  accessed.  If access is wide open,  if there is a                                                              
pipeline company whose  business is trucking gas, and  there is an                                                              
open  season  allowing people  with  leases  in areas  other  than                                                              
Prudhoe  Bay, then  the  gas resource  expands  tremendously.   If                                                              
Foothills gas  and Point Thompson gas  get to the  pipeline first,                                                              
then  Prudhoe Bay  gas  can be  used  to enhance  oil  production.                                                              
There is an  inherent conflict - not  a bad thing -  and companies                                                              
have different  interests; if  one group  builds a pipeline,  they                                                              
want  to sell  their  gas  and aren't  as  interested in  being  a                                                              
charitable organization  to help  others to sell  their gas.   The                                                              
state has an interest  in making sure that the right  gas is there                                                              
first to  preserve the  oil; that will  be the  topic of a  future                                                              
hearing.   Chair Ogan said  he thought there  is more than  enough                                                              
gas if all  the gas is utilized,  especially gas that  hasn't been                                                              
SENATOR  SEEKINS asked  Deputy Commissioner  Porter  if, when  the                                                              
state looks at  potential markets for North Slope  natural gas, it                                                              
includes  residential  and  commercial markets  in  the  Anchorage                                                              
Bowl and the Kenai Peninsula.                                                                                                   
DEPUTY COMMISSIONER  PORTER responded  that the  state has done  a                                                              
limited  amount  of research  on  that  issue and  has  encouraged                                                              
ANGDA to look at  what might be potential and appropriate  uses of                                                              
gas in the state; a more thorough analysis needs to be done.                                                                    
SENATOR  SEEKINS  referred  to  the  demand  and  availability  of                                                              
natural  gas  for  the  Anchorage  Bowl  appears  as  a  dwindling                                                              
resource and that  a lot of oil  or coal will need to  be imported                                                              
to  heat homes  in  the  Anchorage Bowl  in  the not  too  distant                                                              
future.   He commented that there  doesn't seem to  be significant                                                              
concern regarding those projections.                                                                                            
DEPUTY COMMISSIONER PORTER asked for further clarification.                                                                     
SENATOR SEEKINS  clarified that there  is an eagerness to  get the                                                              
gas to market and  convert it to cash.  He said that  the state is                                                              
trying to  authorize and encourage  getting this natural  resource                                                              
to market to  convert it to cash  and he usually hears  talk about                                                              
either  liquefying it,  sending it  to  some unknown  port in  the                                                              
Pacific Rim, or shipping  it overland to the Lower 48.   He asked,                                                              
"What are  we doing to  provide for the  markets from an  in-state                                                              
consumption and from  an in-state value-added processing  basis in                                                              
the state?"                                                                                                                     
DEPUTY COMMISSIONER  PORTER replied that  the state is  looking at                                                              
in-state  gas  benefits.   One  reason  the governor  opposed  the                                                              
over-the-top  route  is  because  it's   seen  as  an  exclusively                                                              
financial  deal,  without  in-state  gas benefit.    Once  gas  is                                                              
brought down  through the state,  it provides for the  opportunity                                                              
to negotiate the  contract - there are additional  options for in-                                                              
state gas.                                                                                                                      
SENATOR SEEKINS  said he  wanted that  response on record  because                                                              
what  he  hears  from  constituents  is,  "You're  gonna  sell  it                                                              
someplace else and my house is gonna go dark and cold."                                                                         
CHAIR OGAN said that  60 percent of the population of  the state -                                                              
the  Anchorage Bowl,  Mat-Su  Valley  and Kenai  -  has a  serious                                                              
shortage.   Enstar  projects  that in  four  years  it won't  know                                                              
where 15 percent  of the gas will  come from; in eight  years that                                                              
figure  will rise  to  about 80  percent.   They  won't know  what                                                              
field their  supply is coming  from.  That's  not very much  time,                                                              
he added.                                                                                                                       
SENATOR  SEEKINS  said  he  almost  agrees  with  Senator  Elton's                                                              
comment, "any place  except over-the-top," adding that  he's after                                                              
wherever there's cash and secondary benefits.                                                                                   
SENATOR WAGONER  said that  one of  the reasons  for his bill  [SB
247]    was    the   continuation    of    existing    industries,                                                              
infrastructure,  and jobs.  He  said that a  shortage of  gas from                                                              
Enstar in  the Anchorage Basin  compounds problems on  the [Kenai]                                                              
Peninsula, which is part of the equation.                                                                                       
SENATOR ELTON referred  to the need under the  application process                                                              
for market  reviews and referred  to Deputy Commissioner  Porter's                                                              
earlier comment  of allocating  the review for  Cook Inlet  to the                                                              
Authority.   He  asked,  if  SB 271  passes,  if the  state  would                                                              
interface  with, or  allocate responsibilities  to the  Authority.                                                              
He  said he  couldn't  imagine the  state ceding  authority  under                                                              
Stranded Gas to the  Authority, and asked, "Do you  see using them                                                              
in any way, as you're reviewing the applications?"                                                                              
DEPUTY COMMISSIONER  PORTER replied that the state sees  using the                                                              
Authority   and  is   also  interested   in   efforts  not   being                                                              
duplicated.   Both the  state and the  Authority need  information                                                              
regarding in-state gas  use and it doesn't make sense  to hire two                                                              
contractors  or  to  produce  two  reports;   it  makes  sense  to                                                              
coordinate efforts.                                                                                                             
SENATOR  ELTON asked  if SB 271  would get  in the  way of  duties                                                              
that  need to  be accomplished  under the  Stranded Gas  Act.   He                                                              
asked if Deputy  Commissioner Porter viewed SB 271  as problematic                                                              
or if he was in favor of SB 271.                                                                                                
DEPUTY COMMISSIONER  PORTER responded  that the Authority's  view,                                                              
different from  that of the Stranded  Gas Act, sees  whether there                                                              
is an  opportunity  for the  Authority to  build a  pipeline as  a                                                              
state entity  rather than  a private  entity building a  pipeline.                                                              
He said the question  was to determine the scope of  the Authority                                                              
- whether it should  deal with the Alaska Highway line,  a line to                                                              
Valdez,  a  line  to  Cook  Inlet.    The  governor's  office  has                                                              
historically  recommended  that  the  Authority  focus  on  Alaska                                                              
issues - basically  Prudhoe Bay to tidewater - and to  look at in-                                                              
state gas  uses and the  benefits that may  arise from a  gas line                                                              
that  goes to  Canada  and to  the  Lower  48.   He  said that  is                                                              
currently  the easiest  way  to move  forward.   "Does  that  mean                                                              
we're opposed  to this?"  He  said it doesn't necessarily  signify                                                              
opposition or  support of  [SB 271],  but things would  coordinate                                                              
better  if ANGDA  focused  primarily  on  Alaska and  on  in-state                                                              
4:44 p.m.                                                                                                                       
CHAIR  OGAN  said  it  was  important   to  look  at  how  SB  271                                                              
interfaces with the  Stranded Gas Act and that this  is probably a                                                              
topic  of  discussion  the  next  time  the  bill  is  before  the                                                              
committee because  the Stranded Gas Act allows  the administration                                                              
to negotiate with  whoever applies for payment in lieu  of taxes -                                                              
on ad valorem taxes.  SB 271 makes the pipeline basically tax-                                                                  
free because it  is owned by the  state.  How are those  two going                                                              
to interface?   Chair Ogan asked  [Deputy Commissioner  Porter] to                                                              
think  about this  and  perhaps to  prepare  something in  writing                                                              
when SB 271 comes up again.                                                                                                     
MR.  LEONARD  HERZOG,  Assistant  Attorney  General,  Oil,  Gas  &                                                              
Mining Section,  Department of  Law (DOL),  testified that he  was                                                              
available to answer questions.                                                                                                  
CHAIR OGAN  suggested that DOL answer  the same question  that was                                                              
just  asked of  DOR -  that is,  how  SB 271  interfaces with  the                                                              
Stranded Gas Act, and whether there are conflicts.                                                                              
MR. HERZOG  said he  thought this  would not  be a legal  problem,                                                              
but rather would  be a policy question for the  administration and                                                              
the  Legislature to  decide regarding  how broadly  to expand  the                                                              
initiative and ANGDA's responsibilities.                                                                                        
CHAIR  OGAN  asked  if  there  was  any  difficulty,  specifically                                                              
asking how  it works  if there  is a tax-free  entity, the  state,                                                              
owning  the pipeline,  and yet  the  Stranded Gas  Act allows  the                                                              
assets  to hit  the ground  as a  payment in  lieu of  taxes.   He                                                              
asked if  it was  correct to assume  that if  the state owned  the                                                              
pipeline, those assets would not be taxed by local government.                                                                  
MR.  HERZOG said  that  one example  of things  happening  without                                                              
real  issues  arising  would  be  if  the  applicant,  MidAmerican                                                              
Energy,  approached  ANGDA  and  the state  with  an  interest  in                                                              
building  a pipeline,  and also  looked into  taking advantage  of                                                              
some of  the state's tax-free  possibilities.   He said there  are                                                              
ways  that the  proponents of  the applications  for stranded  gas                                                              
could  approach  the  state  and possibly  work  in  that  manner.                                                              
ANGDA,  specifically, was  not contemplated  by  the Stranded  Gas                                                              
Act  and  doesn't  have  authority right  now  to  deal  with  the                                                              
applications in that manner.                                                                                                    
CHAIR OGAN  asked if a deal was  made with ANGDA  whereby somebody                                                              
built and operated  a pipeline, would the equipment  that hits the                                                              
ground be  subject to stranded  gas negotiations whereas  the pipe                                                              
wouldn't be?                                                                                                                    
MR. HERZOG  said he thought  ANGDA would  be receptive to  working                                                              
with  private  entities  that  wanted to  take  advantage  of  the                                                              
state's tax situation.                                                                                                          
SENATOR  SEEKINS asked  if  the state  owns  the pipeline,  is  it                                                              
subject to local property taxes.                                                                                                
CHAIR OGAN said he didn't think so.                                                                                             
SENATOR SEEKINS  asked if it is  partially owned by the  state, is                                                              
it subject to a  pro-rata property tax, and what  would happen, if                                                              
the  state were  a  partial  owner,  to taxability  regarding  the                                                              
local political subdivisions along the route.                                                                                   
MR. HERZOG  responded that he  was not prepared  to give  such tax                                                              
CHAIR  OGAN said it  seemed to  him that  if the  state owned  the                                                              
pipeline,  the local governments  couldn't tax  the state  entity,                                                              
whether  it's the  LNG line, a  pipeline to  Canada or  both.   He                                                              
wondered if there was  a need to look at the Stranded  Gas Act and                                                              
amend  it   regarding  making  payment   in  lieu  of   taxes,  to                                                              
compensate   local  communities   for  state   ownership  of   the                                                              
MR.  HERZOG   mentioned  getting  outside   counsel  as   well  as                                                              
consulting  with the  attorneys  in  his office  who  work on  the                                                              
Stranded Gas Act before the next hearing.                                                                                       
CHAIR OGAN asked if  it was correct to assume that  if ANGDA owned                                                              
any gas  line then it  wouldn't be  subject to local  municipality                                                              
MR. HEINZE  replied that  the law created  through the  initiative                                                              
and the other  realities is that the Authority's assets  would not                                                              
be taxable  by local entities; this  would be the property  of the                                                              
State of  Alaska, because  ANGDA is  a public  corporation of  the                                                              
state.  He explained  that this was similar to local  entities not                                                              
taxing   the   International   Airport    or   other   state-owned                                                              
facilities.  Recognizing  that construction activity  would impact                                                              
local communities,  ANGDA would, as  a matter of policy,  look for                                                              
ways  to  produce something  of  value  for  the community.    For                                                              
example, if  ANGDA was  exempt from  property taxes in  Fairbanks,                                                              
it might be  reasonable to provide  for the building of  some sort                                                              
of gas  distribution system in that  area, or some  other facility                                                              
that  might be  of great  value  to the  community.   Because  the                                                              
Authority  is a  nonprofit, with  motives of  public service,  not                                                              
profit, he  drew an analogy  to how  AHFC [Alaska Housing  Finance                                                              
Corporation]  uses  its  margin  to   help  homebuyers  throughout                                                              
Alaska,  saying that  ANGDA would  find ways  to help  communities                                                              
that would be  impacted.  He said  the focus on the tax  issue was                                                              
on the federal income  tax, which in many cases constitutes  25 to                                                              
30 percent of the  cost structure, and that ANGDA's  intent is not                                                              
to use savings in state taxes to any big advantage.                                                                             
CHAIR  OGAN asked  if anything  mandated this  in-kind payment  in                                                              
lieu of taxes.                                                                                                                  
MR. HEINZE said  that the board of directors has  nothing personal                                                              
to gain from  this and there  is no profit motive  associated with                                                              
the Authority.  He  said he was a state employee and  the board he                                                              
works  for are  members of  the public  and are  appointed by  the                                                              
governor.   As such, the broad  structuring of the business  is to                                                              
gain the advantage  for the people of  Alaska.  The right  way for                                                              
the  people's pipeline  to achieve  that is  to construct  certain                                                              
ancillary facilities  of value in  the communities along  the way.                                                              
The spur  line into  the Cook  Inlet area  and other projects  are                                                              
viewed as important  opportunities to make that  contribution very                                                              
CHAIR OGAN  re-stated the question,  asking if they are  nice guys                                                              
who are civic minded or if this was mandated.                                                                                   
MR. HEINZE  replied that  [ANGDA] is  as public-spirited as  AHFC,                                                              
and  that if  Chair Ogan  felt the  need  for a  mandate, then  he                                                              
probably ought to "lay a mandate on us."                                                                                        
CHAIR OGAN said, "I think I got my answer."                                                                                     
SENATOR SEEKINS  said it appeared  to him that  every $1  that was                                                              
part of  that public  corporation would  be $1  held in trust  for                                                              
the  people  in  Alaska  and  would   be  subject  to  legislative                                                              
appropriation.   As  nice guys,  they couldn't  allocate money  to                                                              
help   impacted   communities   unless    it   was   legislatively                                                              
CHAIR OGAN  said this  was a  good discussion  and suggested  that                                                              
the question be put on the back burner for now.                                                                                 
MR.  NELS  ANDERSON,   Jr.,  testified  via  teleconference   from                                                              
Dillingham,  saying that  he was  a lifelong  resident of  Alaska.                                                              
He said he  previously spoke [meeting  of 1/21/04] in favor  of SB
241.   He  said if  SB 271  does not  slow  down the  work of  the                                                              
ANGDA, it  would be appreciated.   As a  member of the  public, he                                                              
was hoping  to seize  some of  the gas  at some  point in time  to                                                              
convert  it  into energy  in  order  to  help lower  the  cost  of                                                              
energy.   He clarified that  he saw the  gas from the  North Slope                                                              
as a  potential source of  energy that could  bring down  the cost                                                              
of living  and energize  the salmon  industry, which has  suffered                                                              
from  low  prices  and  fewer fish.    He  said  low-cost  energy,                                                              
necessary to  produce value-added  products in  the Bay, could  be                                                              
an important part of that strategy.                                                                                             
MR. ANDERSON proposed  an amendment, referring to page  3, Section                                                              
4, (10) of SB  271, and suggested that following  the language, "a                                                              
plan   to   maximize  Alaska   hire,   including   project   labor                                                              
agreements;"  that the  following  be added:    "including a  work                                                              
force development advisory  council".  He suggested this  as a way                                                              
to  address criticism  of  the construction  of  the oil  pipeline                                                              
that very few rural  Alaskans worked on that pipeline.   Few rural                                                              
Alaskans work  at Alyeska, although  the percentage rate  has gone                                                              
up.     He  said  inclusion  of   this  phrase  would   allow  the                                                              
development  authority in the  state to  work closely with  Native                                                              
groups,  unions,   the  state,  and   the  Denali  Commission   to                                                              
coordinate  a  plan  to  maximize  Alaska  hire.    He  urged  the                                                              
committee to expedite passage of SB 241 and SB 271.                                                                             
CHAIR OGAN  said this  was a laudable  goal and  he would like  to                                                              
look at  ways to  incorporate Alaskans  in pipeline  construction.                                                              
He said  timing was  critical  and if it  looked like  this was  a                                                              
sanctioned project then  such language might kick in.   He said he                                                              
wasn't excited about  creating another council or task  force as a                                                              
way to spend state money to study things.                                                                                       
SENATOR SEEKINS  suggested checking  with the Commissioner  of the                                                              
Department of Labor & Workforce Development.                                                                                    
CHAIR OGAN  confirmed that this  department addressed  this issue,                                                              
and thanked Mr. Anderson for his testimony.                                                                                     
SENATOR ELTON  pointed out that  the language  in SB 271,  "(10) a                                                              
plan  to  maximize   Alaska  hire"  would  automatically   include                                                              
workforce  development  issues,  but   he  would  check  with  the                                                              
Department of Labor and contact Mr. Anderson.                                                                                   
CHAIR OGAN  asked if  there was  any further  testimony.   Hearing                                                              
none,  he adjourned  the Senate  Resources  Standing Committee  at                                                              
5:04 p.m.                                                                                                                       

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