Legislature(2005 - 2006)HOUSE FINANCE 519

06/06/2006 01:00 PM FINANCE


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01:13:50 PM Start
01:15:06 PM HB2003
03:32:03 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- NOTE: Time Change to 1:00 pm --
+= HB2003 NATURAL GAS PIPELINE CORPORATION TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
                  HOUSE FINANCE COMMITTEE                                                                                       
                        June 6, 2006                                                                                            
                         1:13 P.M.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Chenault called the House Finance Committee                                                                            
meeting to order at 1:13:50 PM.                                                                                               
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Denny DeWitt, Special Assistant, Office of the Governor;                                                                        
Louisana W. Cutler, Attorney, Counsel, Preston, Gates,                                                                          
Ellis, Anchorage                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 2003   An Act establishing the Alaska Natural Gas                                                                            
          Pipeline  Corporation to  finance, own, and  manage                                                                   
          the  state's  interest in  the  Alaska North  Slope                                                                   
          natural gas  pipeline project and relating  to that                                                                   
          corporation  and  to  subsidiary entities  of  that                                                                   
          corporation;  relating  to  owner entities  of  the                                                                   
          Alaska  North Slope  natural gas pipeline  project,                                                                   
          including   provisions   concerning  Alaska   North                                                                   
          Slope  natural  gas pipeline  project  indemnities;                                                                   
          establishing   the   gas  pipeline   project   cash                                                                   
          reserves fund  in the corporation  and establishing                                                                   
          the Alaska  natural gas pipeline  construction loan                                                                   
          fund in the Department of Revenue; making                                                                             
          conforming amendments; and providing for an                                                                           
          effective date.                                                                                                       
                                                                                                                                
          HB 2003 was HEARD and HELD in Committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 2003                                                                                                           
                                                                                                                                
     An  Act establishing  the  Alaska  Natural Gas  Pipeline                                                                   
     Corporation  to  finance, own,  and  manage the  state's                                                                   
     interest   in  the  Alaska   North  Slope  natural   gas                                                                   
     pipeline  project and relating  to that corporation  and                                                                   
     to  subsidiary entities  of  that corporation;  relating                                                                   
     to  owner entities  of the  Alaska  North Slope  natural                                                                   
     gas  pipeline project,  including provisions  concerning                                                                   
     Alaska   North  Slope  natural   gas  pipeline   project                                                                   
     indemnities;  establishing   the  gas  pipeline  project                                                                   
     cash reserves  fund in the corporation  and establishing                                                                   
     the Alaska  natural gas pipeline construction  loan fund                                                                   
     in  the   Department  of   Revenue;  making   conforming                                                                   
     amendments; and providing for an effective date.                                                                           
                                                                                                                                
1:15:06 PM                                                                                                                    
                                                                                                                                
DENNY  DEWITT, SPECIAL  ASSISTANT,  OFFICE  OF THE  GOVERNOR,                                                                   
noted that Ms.  Cutler would provide a "walk-through"  of the                                                                   
version of the bill before the Committee.                                                                                       
                                                                                                                                
1:17:03 PM                                                                                                                    
                                                                                                                                
LOUISANA  W.  CUTLER,  ATTORNEY,   COUNSEL,  PRESTON,  GATES,                                                                   
ELLIS, ANCHORAGE, provided the bill's background.                                                                               
                                                                                                                                
Ms.  Cutler explained  that the  role of  the Alaska  Natural                                                                   
Gas Pipeline  Corporation [Alaska  Pipe] has been  misleading                                                                   
to date  and offered to  overview the  Alaska Pipe.   It will                                                                   
be  a   public  corporation   by  which  the   Administration                                                                   
proposes, the  State own  the interest in  the pipeline.   It                                                                   
would  be  the  mainline,  limited-liability   {LLC}  entity,                                                                   
holding  ownership   interest  in   other  segments   of  the                                                                   
projects.  The  mainline LLC would be the entity  which would                                                                   
build  the pipeline  in Alaska;  it is  anticipated that  the                                                                   
Alaska  Pipe  would  spin-off   subsidiaries  to  hold  other                                                                   
aspects  of  the  project, holding  the  interest  in  feeder                                                                   
lines on the slope.   The details have not yet  been defined.                                                                   
The intent  of the  legislation would  provide the  necessary                                                                   
flexibility to complete the project.                                                                                            
                                                                                                                                
1:21:03 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler explained  that  the model  used  to develop  the                                                                   
legislation was  taken from successful corporations  existing                                                                   
throughout   the   State   such   as   the   Permanent   Fund                                                                   
Corporation, the  Alaska Housing Finance  Corporation (AHFC),                                                                   
&  the   Alaska  Industrial   Development  Export   Authority                                                                   
(AIDEA)  statutes.    The  Alaska Pipe  project  would  be  a                                                                   
different  magnitude from  anything the  State has ever  been                                                                   
involved in.                                                                                                                    
                                                                                                                                
Ms.   Cutler  highlighted   the   unique   features  of   the                                                                   
legislation.   The Alaska  Pipe would  be the entity  through                                                                   
which the State  would finance the venture.   The legislation                                                                   
establishes  the issuance  of  revenue bonds  either with  or                                                                   
without authorization.   It would  set-up the  corporation as                                                                   
separate  and   independent,  so   that  the  liability   and                                                                   
revenues  would be  closed-off  from being  connected to  the                                                                   
State, which is important to protect the State's interest.                                                                      
                                                                                                                                
1:22:02 PM                                                                                                                    
                                                                                                                                
Vice  Chair Stoltze  asked  what  the distinctions  would  be                                                                   
between the  proposed entity  and any existing  corporations.                                                                   
Ms.  Cutler  replied she  would  address  that later  in  the                                                                   
testimony,  reiterating  that   this  project  would  be  the                                                                   
largest  &  most complicated  partnership  with  the  private                                                                   
sector.    The  structure  would  differ  from  other  public                                                                   
corporations.                                                                                                                   
                                                                                                                                
The Board would  slightly differ from other  boards and would                                                                   
have seven members:                                                                                                             
                                                                                                                                
   ·    Two commissioners, one from the Department of                                                                           
        Transportation & Public Facilities and one from the                                                                     
        Department of Revenue                                                                                                   
   ·    Five for-cause public members, not serving at the                                                                       
        pleasure of the Governor                                                                                                
                                                                                                                                
She  added Board  members  would need  to  be insulated  from                                                                   
changes  occurring  in  the political  structure  every  four                                                                   
years.    The  idea  is to  create  a  stable  board,  making                                                                   
decisions over  the long  haul.  The  learning curve  for the                                                                   
members will  be big.  The  board members would serve  a six-                                                                   
year  term.   There  would  be no  legislative  confirmation,                                                                   
protecting political behavior, functioning independently.                                                                       
                                                                                                                                
Ms.   Cutler  highlighted   other   features  including   not                                                                   
required compliance  with the Alaska Open Meetings  Act.  She                                                                   
foresaw many concerns, requiring quick decisions.                                                                               
                                                                                                                                
1:27:03 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler   said  the  State   does  not  anticipate   open                                                                   
meetings,  however,  realizes  the importance  for  conveying                                                                   
public information.                                                                                                             
                                                                                                                                
Another  feature regarding  the Public  Records Act  includes                                                                   
language  specifying  exemptions.   The  Public  Records  Act                                                                   
contains  a catch-all,  subject  to disclosure.   The  Courts                                                                   
have been  reluctant to  read the  exemption broadly  enough.                                                                   
She   added  trade   secrets   should  not   be  subject   to                                                                   
disclosure.                                                                                                                     
                                                                                                                                
1:30:02 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler highlighted  provisions  relating to  the LLC  so                                                                   
Alaska  Pipe  can  accomplish  what is  important.    In  the                                                                   
context  of  other  agreements,  the  Alaska  Pipe  would  be                                                                   
located in  the private  sector.  It  is typical  for parties                                                                   
to  agree that  if obligations  are not  met, certain  rights                                                                   
are  lost and  the  authority  to do  that  would  be in  the                                                                   
statute, which would not be typical language.                                                                                   
                                                                                                                                
1:33:17 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler identified  other  features  including the  anti-                                                                   
indemnification  exception,  a  specific provision  in  State                                                                   
law,  making  that  approach  illegal.   Also,  it  would  be                                                                   
exempt from  compliance  with the procurement  code in  order                                                                   
that the  State can enter  into projects, receiving  required                                                                   
services.   The Alaska  Railroad Association  is exempt  from                                                                   
some  codes including  the procurement  code.   They are  not                                                                   
required  to comply  with  statutory or  budgetary  statutes;                                                                   
however,  the  Legislative  Budget &  Audit  (LBA)  Committee                                                                   
could audit that group.                                                                                                         
                                                                                                                                
Ms.  Cutler commented  on the  ownership financing,  provided                                                                   
through bonding  authority & commercial  loans.   Alaska Pipe                                                                   
will have  the authority  to participate  in financing.   The                                                                   
Department   of   Revenue   could  carry   the   loan   fund,                                                                   
anticipating   that   the   Legislature   would   appropriate                                                                   
directly  into   that  fund.    She  commented   on  language                                                                   
establishing  for-profit  subsidiaries,  similar to  that  in                                                                   
the tobacco litigation.                                                                                                         
                                                                                                                                
1:37:01 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze asked  about the  "conflict of  interest"                                                                   
section.    Ms.  Cutler  acknowledged   that  a  conflict  of                                                                   
interest  section had  been included  & that  members of  the                                                                   
Board would  be covered  through the  Ethics Act,  indicating                                                                   
their conflicts.                                                                                                                
                                                                                                                                
1:39:01 PM                                                                                                                    
                                                                                                                                
Ms.   Cutler  overviewed   the   House  Judiciary   Committee                                                                   
version/G  of the  bill, including  the important  "findings"                                                                   
section.  She  believed that the undertaking would  be in the                                                                   
best interest  for the State.   The findings sections  [(1) &                                                                   
(2)], deal with Article 8 of the Constitution.                                                                                  
                                                                                                                                
Section 9,  Pages 2  & 3, stipulate  that it  must be  in the                                                                   
best  interest  for  the  State   to  acquire  ownership  and                                                                   
participate in financing construction of the project.                                                                           
                                                                                                                                
1:42:02 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze pointed out  those findings  sections are                                                                   
usually not  supported by the  House Finance Committee.   Ms.                                                                   
Cutler understood  and recognized that  it was the  choice of                                                                   
the Committee; however,  given the magnitude of  the project,                                                                   
it is  important to  include a finding  section.   Courts use                                                                   
the findings useful during challenges.                                                                                          
                                                                                                                                
1:44:02 PM                                                                                                                    
                                                                                                                                
Vice Chair Stoltze  reiterated his concern with  inclusion of                                                                   
that language.                                                                                                                  
                                                                                                                                
Representative  Holm  voiced concern  that  HB  2003 had  not                                                                   
been  a  legislative  proposal,   instead  came  through  the                                                                   
Governor.    He  recommended  that  Ms.  Cutler  correct  her                                                                   
terminology,   indicating  that   the  concept   is  only   a                                                                   
"proposal  before  the  Committee".     He  added  his  added                                                                   
concern  with  inclusion   of  the  findings.     Ms.  Cutler                                                                   
apologized and stood corrected.                                                                                                 
                                                                                                                                
1:46:01 PM                                                                                                                    
                                                                                                                                
Co-Chair  Chenault  pointed  out  that language  on  Page  3,                                                                   
Lines  16-31, discuss  material  previously  mentioned.   Ms.                                                                   
Cutler agreed.                                                                                                                  
                                                                                                                                
1:48:02 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler  referenced Page  4,  Section  2, Line  5,  which                                                                   
addresses  establishment  of   the  corporation  as  a  State                                                                   
separate  instrument and  is important  language to  include.                                                                   
Alaska Pipe should  be established as a  separate corporation                                                                   
with  independence, yet  separate  from  the Legislature  and                                                                   
Governor  and  should  be outside  any  normal  State  agency                                                                   
structure.                                                                                                                      
                                                                                                                                
Representative  Holm inquired  if there  had been  discussion                                                                   
regarding resident status of the Board members.                                                                                 
                                                                                                                                
Ms.  Cutler said  originally,  no residency  requirement  had                                                                   
been proposed because  of required expertise needed  for that                                                                   
work.   She  pointed  out  language  indicated on  Lines  6-9                                                                   
requiring  certain  experience.    She  emphasized  that  the                                                                   
project  would be large  and sophisticated.   She  understood                                                                   
that a majority of board members would be from Alaska.                                                                          
                                                                                                                                
1:53:01 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze requested  names of the Alaska  residents                                                                   
being considered.  Ms. Cutler did not know.                                                                                     
                                                                                                                                
Representative  Joule added  inquires  regarding the  make-up                                                                   
of  the  Board,  asking  if it  would  include  a  major  oil                                                                   
company  president.    Ms.  Cutler   responded  that  current                                                                   
language does  not provide  for that; it  was not  the intent                                                                   
but instead getting people with oil and gas experience.                                                                         
                                                                                                                                
Representative  Joule voiced  concern  including people  from                                                                   
the oil & gas  industry; he worried that the  State of Alaska                                                                   
could  become   a  minority   member,  negatively   impacting                                                                   
Alaska's well-being.                                                                                                            
                                                                                                                                
Mr.  DeWitt pointed  out  the language  of  the "conflict  of                                                                   
interest" provision.   There was  discussion in  the previous                                                                   
Committee  regarding  corporate  versus  non-corporate  level                                                                   
person  working for  the  company.   That  pool  is large  to                                                                   
avoid  any  conflict of  interest.    Ms. Cutler  added  that                                                                   
every partner  would be a "minority-interest-holder";  no one                                                                   
would carry more than 50% ownership interest.                                                                                   
                                                                                                                                
Ms. Cutler  pointed out inclusion  of the commissioners  from                                                                   
both  the   Department  of   Revenue  commissioner   and  the                                                                   
Department   of  Transportation   &  Public  Facilities   and                                                                   
language exception for those in the armed services.                                                                             
                                                                                                                                
2:00:01 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler reiterated  the  need for  extensive  experience.                                                                   
Mr. DeWitt  interjected  that the criteria  provides a  small                                                                   
pool; the previous  Committee {HJC} attempted to  expand that                                                                   
pool,  keeping  sideboards.    Ms. Cutler  had  mentioned  an                                                                   
appointed  designee,   confusing  HJC.    The   sentence  was                                                                   
removed.                                                                                                                        
                                                                                                                                
Vice Chair Stoltze  advised that some boards  and commissions                                                                   
address  designees  upon  the death  of  a  member.   He  was                                                                   
troubled that  it would be  okay to designate  an unconfirmed                                                                   
deputy commissioner  to  make policy decisions.   Ms.  Cutler                                                                   
advised  that  both commissioners  serve  on  many  different                                                                   
boards and  commissions, noting  that the Permanent  Fund has                                                                   
operated  in  the  proposed  manner  for  many  years.    She                                                                   
understood  the concern,  however, pointed  out it could  not                                                                   
be  expected that  those individuals  would be  able to  make                                                                   
every meeting of  the Alaska Pipe board.    Mr. DeWitt agreed                                                                   
that it is  a logistical problem; each commissioner  would be                                                                   
involved but not always in attendance of all the meetings.                                                                      
                                                                                                                                
2:08:02 PM                                                                                                                    
                                                                                                                                
Ms. Cutler reviewed provisions for board meetings.                                                                              
                                                                                                                                
   ·    They would occur not less than once every three                                                                         
        months;                                                                                                                 
   ·    They would be subject to the call of the chair,                                                                         
        allowing flexibility;                                                                                                   
   ·    They could occur through teleconference, standard                                                                       
        procedure; and                                                                                                          
   ·    The Board would be exempt from the Open Meetings Act                                                                    
        in order to do business quickly, discussing                                                                             
        confidentially materials.                                                                                               
                                                                                                                                
Ms. Cutler  reviewed requirements  for the minutes,  the $400                                                                   
compensation  and "removal  for  cause" clause  of the  board                                                                   
members.   She  pointed  out that  the  board could  delegate                                                                   
staff for  day-to-day  operations.  The  board requires  that                                                                   
the  executive director  or  other members  of  the staff  be                                                                   
delegated  with   authority  to  be  board   spokesperson  at                                                                   
management level.   The staff would serve at  the pleasure of                                                                   
the executive  director and could  be removed at any  time by                                                                   
the executive director without notice or cause.                                                                                 
                                                                                                                                
Co-Chair  Chenault  asked  if that  was  standard  procedure.                                                                   
Ms.  Cutler affirmed  that  anyone in  exempt  service is  in                                                                   
that situation.                                                                                                                 
                                                                                                                                
2:16:05 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler  reviewed  the  conflict   of  interest  section,                                                                   
pointing  that   they  would   be  covered  by   a  financial                                                                   
disclosure  statement.   She  observed that  the  Corporation                                                                   
could sell, lease,  exchange, donate, convey,  or encumber in                                                                   
any manner  by mortgage,  by creation  of any other  security                                                                   
interest  or otherwise,  real or personal  property owned  by                                                                   
it or in which,  it has an interest, including  any ownership                                                                   
interest in the  project or in a subsidiary  entity, when, in                                                                   
the  judgment   of  the   corporation,   the  action   is  in                                                                   
furtherance  of its  corporate  purposes; to  enter into  and                                                                   
perform  its  obligations  under   contracts  or  agreements,                                                                   
including   contracts  or  agreements   to  own,   construct,                                                                   
manage, or operate  the project, and do all  things necessary                                                                   
or  convenient  to  carry  out  its  corporate  purposes  and                                                                   
exercise its powers.                                                                                                            
                                                                                                                                
Vice Chair Stoltze  questioned if an upper threshold  for the                                                                   
elective officials  would need  to be met.   Ms.  Cutler said                                                                   
that concern was addressed in:                                                                                                  
                                                                                                                                
     (11)   To enter into  and perform its obligations  under                                                                   
     contracts   or   agreements,  including   contracts   or                                                                   
     agreements  to own,  construct, manage,  or operate  the                                                                   
     project, and  do all things  necessary or  convenient to                                                                   
     carry  out  its  corporate  purposes  and  exercise  its                                                                   
     powers.                                                                                                                    
                                                                                                                                
Ms. Cutler  explained that  the State might  want to  pay off                                                                   
its interest  to another party.   The corporation  might want                                                                   
to sell off part  of that ownership interest.   The amount of                                                                   
interest  should  be  discussed  at  the  discretion  of  the                                                                   
Governor.                                                                                                                       
                                                                                                                                
Representative  Holm voiced  concern  with  inclusion of  the                                                                   
provision in  Section 8, Page 9.   He said it was  not in the                                                                   
best interest  for the  program.  Ms.  Cutler and  Mr. DeWitt                                                                   
agreed, noting it was added by the previous Committee, HJC.                                                                     
                                                                                                                                
2:23:23 PM                                                                                                                    
                                                                                                                                
Representative  Holm referenced  item #6,  Page 8,  regarding                                                                   
operation  of the  project  and  asked about  that  "vision".                                                                   
Ms.  Cutler  explained   that  it  was  the   intent  of  the                                                                   
corporation to  take the ownership  interest in  the project,                                                                   
asking  to  design the  corporation  in  a  way that  if  the                                                                   
project  takes a  number of  years  to get  going, could  the                                                                   
Legislature see  fit to establish  it before the  approval of                                                                   
a contract.   Alaska  Pipe could then  move forward  with the                                                                   
project.   She  thought that  some State  employees could  be                                                                   
loaned to the operations.                                                                                                       
                                                                                                                                
Representative  Kerttula observed that  it would  run similar                                                                   
to the  Joint Pipeline Office,  subsection (6) [power  of the                                                                   
board  to  operate   any  project  of  any   portion  of  the                                                                   
project].   Ms. Cutler  observed that  Alaska Pipe  would not                                                                   
be building  the pipeline itself,  however, the intent  is to                                                                   
give them all the necessary power.                                                                                              
                                                                                                                                
2:29:01 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze inquired  if names  had been  registered.                                                                   
Ms.  Cutler said  no.   She  highlighted  the  powers of  the                                                                   
corporation  & noted  that the  partners  had voiced  concern                                                                   
with the  State's ability to  meet the financial  obligations                                                                   
under the contract.   There was discussion  regarding failure                                                                   
to do that could result in forfeiture:                                                                                          
                                                                                                                                
     (22)  Except  for a statutory change made  by initiative                                                                   
     or in  response to a   final nonappealable  court order,                                                                   
     to agree that, as part of  an agreement to form an owner                                                                   
     entity of the project, its  voting rights and its access                                                                   
     to  confidential  information   otherwise  provided  for                                                                   
     under the  terms of the  agreement may be  restricted if                                                                   
     this  chapter  is amended or another statute  is enacted                                                                   
     and  that  law has  a  material  adverse effect  on  the                                                                   
     corporation's ability  to perform its  obligations under                                                                   
     that agreement;  however, the corporation may  not agree                                                                   
     to any  terms that attempt  to limit the   legislature's                                                                   
    authority to exercise police powers of the state.                                                                        
                                                                                                                                
Ms. Cutler  explained  that Section 22  would provide  Alaska                                                                   
Pipe authority  to enter  into an  agreement that could  have                                                                   
voting rights  curtailed if it  had an adverse effect  on the                                                                   
corporation's  ability to perform  the obligation  under that                                                                   
agreement.                                                                                                                      
                                                                                                                                
2:35:02 PM                                                                                                                    
                                                                                                                                
In response to Representative  Kerttula, Ms. Cutler explained                                                                   
it is important  that no action adverse impact  Alaska Pipe's                                                                   
ability to  meet obligations.   The intent  is to  design the                                                                   
agreement  so that it  is in accordance  with Delaware  case-                                                                   
law,  which  addresses  the  material   adverse  effect  upon                                                                   
standards.  The  fiscal contract would be Alaska  law and the                                                                   
LLC would be Delaware law.                                                                                                      
                                                                                                                                
Representative  Kerttula emphasized that  the State  would be                                                                   
giving  up their  ability to  pass  law, impacting  it.   She                                                                   
urged further  discussion of  what "material adverse  effect"                                                                   
is  &  the  differences  between  Alaskan  and  Delaware  law                                                                   
regarding that.                                                                                                                 
                                                                                                                                
Ms. Cutler highlighted Section [23] dealing with the power:                                                                     
                                                                                                                                
     (23)  In   furtherance  of   the  satisfaction   of  its                                                                   
     obligations, including, without  limitation, its project                                                                   
     costs and financing obligations,  to instruct any person                                                                   
     making a  payment or distribution to the  corporation to                                                                   
     make  or the  payment or  distribution  directly to  any                                                                   
     person specified by the corporation.                                                                                       
                                                                                                                                
She explained the  intent to assure that the  Alaska Pipe has                                                                   
ability to  pay debts directly.   The LLC would be  the major                                                                   
source  of  revenue  for  Alaska   Pipe  and  the  LLC  would                                                                   
eventually  'spin   off'  revenue  to  all   members  through                                                                   
dividends.   Section 22 allows  the Alaska Pipe,  through the                                                                   
LLC,  to  pay   bond  or  loan  holder's   account,  language                                                                   
recommended by the State financial advisors.                                                                                    
                                                                                                                                
2:39:01 PM                                                                                                                    
                                                                                                                                
Ms. Cutler referenced (24) (b):                                                                                                 
                                                                                                                                
      (b)    Notwithstanding (a) of this section and other                                                                      
             provisions  of  law,  the   corporation  or  any                                                                   
             subsidiary  entity of  the  corporation may  not                                                                   
             sell,  transfer,  or  otherwise  dispose  of  an                                                                   
             interest in  the Alaska North Slope  natural gas                                                                   
             pipeline without the approval of the governor.                                                                     
                                                                                                                                
The above section provides language  to allow subsidiaries to                                                                   
be established as proposed in  the overview.  The Alaska Pipe                                                                   
would  be in  control of  those subsidiaries.   Canadian  law                                                                   
could carry  different requirements.   Subsection  (b) allows                                                                   
the subsidiaries  to transfer assets to the  subsidiary.  The                                                                   
HJC  did  change  Section  (c),   Lines  7-11,  allowing  for                                                                   
interlocking  boards.    In  Canada,  residency  requirements                                                                   
exist; that language addresses those concerns.                                                                                  
                                                                                                                                
Representative Joule asked about  the Board's composition and                                                                   
if members  could be  other than U.S.  citizens.   Ms. Cutler                                                                   
said they could.                                                                                                                
                                                                                                                                
2:45:35 PM                                                                                                                    
                                                                                                                                
Ms.  Cutler briefly  addressed  Article 3,  which covers  all                                                                   
financing obligations  & bonding provisions.   Page 16, Lines                                                                   
18-22, addresses moral obligations of revenue bonding.                                                                          
                                                                                                                                
Co-Chair Chenault  asked if the  bonding provisions  would be                                                                   
the same in both  the U.S. and Canada.  Ms.  Cutler explained                                                                   
the intent is  to provide subsidiary power,  issuing bonds if                                                                   
authority is provided.  She offered to research that.                                                                           
                                                                                                                                
Ms.  Cutler  commented  on  Article  4,  Page  19,  Line  11,                                                                   
regarding  establishment of  the cash  reserve fund,  pulling                                                                   
money for  the Alaska  Pipe from  the Legislature,  using for                                                                   
the purpose of securing a credit line.                                                                                          
                                                                                                                                
Co-Chair Chenault pointed out  that would be only the initial                                                                   
investment.  Ms.  Cutler believed it would last  for the life                                                                   
of  the  fund.   Co-Chair  Chenault  assumed  that  could  be                                                                   
identified in the fiscal note,  indicating core receipts with                                                                   
no General Fund  match.  Initially, he thought it  would be a                                                                   
General Fund  match.   Ms. Cutler  said Mr. Porter  indicated                                                                   
there  were appropriations  in  the Capital  Budget for  that                                                                   
purpose.  It would be up to the  Legislature to determine how                                                                   
that  would   be  paid.     Ms.   Cutler  thought   that  the                                                                   
appropriation could come through  the normal operating budget                                                                   
proceedings.                                                                                                                    
                                                                                                                                
Representative  Joule questioned the  State's exposure.   Ms.                                                                   
Cutler   acknowledged   that   the   corporation   would   be                                                                   
established  as a  separate and  independent  entity so  that                                                                   
only those assets would be exposed.   It is important to make                                                                   
sure that  the liability  is limited  only  to the assets  of                                                                   
Alaska  Pipe and  set up  as a  separate public  corporation.                                                                   
Representative Joule did not understand  that; he wondered if                                                                   
there would be an 80% liability.   Ms. Cutler replied the LLC                                                                   
would be limited  only to the assets of Alaska  Pipe.  Alaska                                                                   
Pipe  will  hold  an  ownership  interest  with  three  other                                                                   
partners.    Those   partners  will  hold  a   percentage  of                                                                   
ownership,  which  means  the  financial  obligations,  would                                                                   
amount to 20%  of equity and would include  a debt percentage                                                                   
structure.   As long  as the corporation  is the  only entity                                                                   
undertaking  the obligations,  what is  exposed would  be the                                                                   
corporation,  which may  or  may not  be  a 20%  match.   The                                                                   
General Fund would not be exposed.   There is concern whether                                                                   
the Alaska Pipe would be "credit-worthy"  enough and if there                                                                   
should be State involvement.                                                                                                    
                                                                                                                                
2:56:02 PM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze referenced  Article 4 - the  relationship                                                                   
to  operations   and  questioned   limiting  the   "political                                                                   
activity" language.  Ms. Cutler  explained there is a purpose                                                                   
to limit that  language and the statement should  be included                                                                   
for  the  appropriate  tax-exempt ruling  from  the  Internal                                                                   
Revenue Service  (IRS).  In  discussion of those  activities,                                                                   
it is assumed  that the Alaska  Pipe would not be able  to go                                                                   
to  Congress  to  participate  in  what  the  loan  guarantee                                                                   
program would look like; hence, the language was narrowed.                                                                      
                                                                                                                                
Ms.  Cutler pointed  out Article  5, Page  20, the  financial                                                                   
statements  provided  to  the Governor  and  the  Legislative                                                                   
Budget  and Audit Committee  (LBA), providing  for audits  of                                                                   
the books; a non-subsidary entity could not be audited.                                                                         
                                                                                                                                
Section  41.42.510  was  borrowed  from  the  Permanent  Fund                                                                   
statute  and  requires  reports  and  publications  including                                                                   
financial  statements.    It requires  that  the  corporation                                                                   
establish  a website  for public  access.    She  highlighted                                                                   
specific exemptions listed Lines 16-29, Page 21.                                                                                
                                                                                                                                
   1. Information pertaining to the particulars of the                                                                          
     business or affairs of an owner entity of the project,                                                                     
     including, without limitation, tax returns, financial                                                                      
     statements, and business plans;                                                                                            
   2. Information containing a trade secret or other                                                                            
     proprietary information of the corporation or of an                                                                        
     owner entity of the project;                                                                                               
   3. Information that is confidential or privileged under                                                                      
     the laws of the state, whether at common law or by                                                                         
     statute or court rule;                                                                                                     
   4. Information that is required to be kept confidential                                                                      
     under an agreement with an owner entity of the project,                                                                    
     or with other participants in an owner entity of the                                                                       
     project;                                                                                                                   
   5. Information that would affect the competitive position                                                                    
     of the corporation or an owner entity of the project;                                                                      
     and                                                                                                                        
   6. Information of the corporation or an owner entity of                                                                      
     the project that has commercial value that might be                                                                        
     significantly diminished by public disclosure.                                                                             
                                                                                                                                
3:05:02 PM                                                                                                                    
                                                                                                                                
Ms. Cutler added:                                                                                                               
   ·  Subparagraph (b) provides information in the                                                                              
        possession of an owner entity of the project is                                                                         
        confidential.                                                                                                           
   ·  Subsection © allows situations in which disclosure                                                                        
        information is confidential, when it can be                                                                             
        disclosed such as to lenders.                                                                                           
                                                                                                                                
Representative Kerttula  clarified that the  information held                                                                   
by  the  LLC would  not  be  public.   She  asked  about  the                                                                   
information  coming from  Alaska  Pipe Co  to the  LLC.   Ms.                                                                   
Cutler replied  information to the  LLC would not  be covered                                                                   
by  the  Public Records  Act  and  would  not be  subject  to                                                                   
disclosure requirements associated with the Act.                                                                                
                                                                                                                                
Representative  Kerttula  asked  if  the  LLC  could  control                                                                   
Alaska  Pipe's behavior.   Ms.  Cutler  compared any  private                                                                   
company that  has information; it  does not apply  to private                                                                   
sector entities.                                                                                                                
                                                                                                                                
Ms. Cutler noted that the definition  section of the bill was                                                                   
contained in Article 6, Page 22, beginning Line 23.                                                                             
                                                                                                                                
   ·  Alaska North Slope natural gas pipeline project                                                                           
   ·  Board                                                                                                                     
   ·  Corporation                                                                                                               
   ·  Financing obligations                                                                                                     
   ·  Owner entity of the project                                                                                               
   ·  Ownership interest in the project                                                                                         
                                                                                                                                
Vice Chair  Stoltze asked about  the forestall  spur-lines of                                                                   
the natural gas  pipeline transportation system.   Ms. Cutler                                                                   
hoped  that would  not  happen and  that  the definition  was                                                                   
intended to cover all aspects of the project.                                                                                   
                                                                                                                                
Vice  Chair  Stoltze emphasized  that  the  bill is  about  a                                                                   
pipeline in  Alaska through Canada.   He did not want  to see                                                                   
something  that would  limit in-State  options.   Ms.  Cutler                                                                   
responded that the language deals  with the main pipeline and                                                                   
the  infrastructure needed  to  connect that  pipeline.   Mr.                                                                   
DeWitt agreed.                                                                                                                  
                                                                                                                                
3:12:01 PM                                                                                                                    
                                                                                                                                
Ms. Cutler  pointed out  that Sections 4  & 5 were  technical                                                                   
amendments  addressing  the  State   entities  buying  stock.                                                                   
Section 6 establishes the loan  fund within the Department of                                                                   
Revenue, providing  options for financing the  obligations, a                                                                   
typical   loan   fund   with   terms   established   by   the                                                                   
Commissioner.                                                                                                                   
                                                                                                                                
Ms. Cutler  noted that Section  7, Page 25, Line  5, provides                                                                   
more technical amendments that  place employees of the Alaska                                                                   
Pipe into  an exempt service.   Section 8, Page 26,  Line 16,                                                                   
adds the  Alaska Pipe staff  to statute, requiring  financial                                                                   
disclosure.  Section 9, Page 27,  Line 7, does the same thing                                                                   
for  the  Board.    Section  10, Page  27,  Line  9,  adds  a                                                                   
conforming  amendment clarifying  that  the subsidiary  board                                                                   
would not be  governed by the Ethics Act because  there would                                                                   
already be a Canadian Ethics Act in place.                                                                                      
                                                                                                                                
Section  11,   Page  27,  Line  18,  outlines   a  conforming                                                                   
amendment to the Public Records Act.                                                                                            
                                                                                                                                
Sections 12  & 13, Pages  29-31, provides an  indemnification                                                                   
provision  to the  effective date.   There  is a statute  and                                                                   
common-law   doctrine,    which   provides    indemnification                                                                   
agreements in construction contracts.   The language provides                                                                   
an   exemption   to  the   common-law   doctrine,   providing                                                                   
indemnification in construction projects.                                                                                       
                                                                                                                                
Ms. Cutler explained  that when building a  pipeline project,                                                                   
it is  common to indemnify  the parties against  mistakes and                                                                   
bad conduct.   She understood that was done  because it would                                                                   
be a large  project.  Sometimes mistakes result  in liability                                                                   
and  sometimes,  worse  conduct occurs,  which  brings  about                                                                   
liability.   In a project of  this size, such  potential must                                                                   
be   managed   and   provides    for   many   provisions   of                                                                   
indemnification.   That  language  could lower  costs of  the                                                                   
construction.                                                                                                                   
                                                                                                                                
3:22:36 PM                                                                                                                    
                                                                                                                                
Representative  Kelly inquired if  entering into a  LLC would                                                                   
protect  and  adjust  the  corporate   "veil".    Ms.  Cutler                                                                   
understood,  there would  be  mutual indemnifications.    The                                                                   
statute largely governs the Alaska Pipe.                                                                                        
                                                                                                                                
Representative  Kelly asked  if that  could provide  a "level                                                                   
playing field"  or would it place  the State in  a vulnerable                                                                   
position.     Ms.  Cutler  thought   there  would   be  cross                                                                   
indemnification  authority.   The  language  allows only  the                                                                   
authority  providing for  the  cross indemnifications.    She                                                                   
could  not  guarantee  that the  agreement  would  accomplish                                                                   
that, however, that was what it was designed for.                                                                               
                                                                                                                                
Ms. Cutler added  that the Administration would  like to take                                                                   
the opportunity to  respond to previous comments  made by Mr.                                                                   
Gildan's memorandum contained in the member's file packet.                                                                      
                                                                                                                                
Representative Kerttula interjected  that Representative Gara                                                                   
had presented  an amendment regarding  taxation to  the State                                                                   
and  asked  if  indemnification  would  extend  to  financial                                                                   
situations.   Ms. Cutler  responded that Representative  Gara                                                                   
was  concerned   that  the  ability  to  indemnify   the  LLC                                                                   
construction of  the project could  be misinterpreted  by the                                                                   
State against  tax royalty owed.   She understood  the intent                                                                   
and that Mr. Gildan  had testified that there might  be a way                                                                   
to interpret  it that  way.  The  State of Alaska's  position                                                                   
would  like  to  reimburse  the  producer  through  a  fiscal                                                                   
contract.    HB  2003  is not  the  vehicle  for  the  fiscal                                                                   
contract but rather  the legislation, which would  govern the                                                                   
establishment  and hold member's  interest in  the LLC.   The                                                                   
Administration would  not support placing that  language into                                                                   
HB 2003 because that is not their position to the contract.                                                                     
                                                                                                                                
Representative Kerttula  asked if the language  would include                                                                   
criminal behavior.   Ms. Cutler said it would and  that it is                                                                   
statutory authority.                                                                                                            
                                                                                                                                
3:32:03 PM                                                                                                                    
                                                                                                                                
Representative Kerttula requested  more information regarding                                                                   
that concern.                                                                                                                   
                                                                                                                                
HB 2003 was HELD in Committee for further consideration.                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:31 P.M.                                                                                          

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