Legislature(2013 - 2014)HOUSE FINANCE 519

04/15/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 316 WORKERS' COMPENSATION MEDICAL FEES TELECONFERENCED
Moved CSHB 316(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 15, 2014                                                                                            
                         8:35 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
8:35:38 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 8:35 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Anna Latham,  Staff, Representative Kurt Olson;  Joe Balash,                                                                    
Commissioner,  Department  of   Natural  Resources;  Michael                                                                    
Pawlowski,    Deputy   Commissioner,    Strategic   Finance,                                                                    
Department   of   Revenue;  Angela   Rodell,   Commissioner,                                                                    
Department of Revenue.                                                                                                          
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 316    WORKERS' COMPENSATION MEDICAL FEES                                                                                    
                                                                                                                                
          CSHB 316(FIN)  was REPORTED out of  committee with                                                                    
          "no  recommendation"  and   with  one  new  fiscal                                                                    
          impact  note  from  the Department  of  Labor  and                                                                    
          Workforce  Development and  one new  indeterminate                                                                    
          note from the Department of Administration.                                                                           
CSSB 138(FIN) am                                                                                                                
          GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
                                                                                                                                
          CSSB 138(FIN) am was HEARD and HELD in committee                                                                      
          for further consideration.                                                                                            
                                                                                                                                
HOUSE BILL NO. 136                                                                                                            
                                                                                                                                
     "An Act requiring the governor's fiscal plan to                                                                            
     include certain information."                                                                                              
                                                                                                                                
8:36:18 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze referred to two amendments.                                                                                    
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 2, 28-                                                                         
LS1362\P.1, Wallace, 4/8/14 (copy on file):                                                                                     
                                                                                                                                
     Page 1, line 11:                                                                                                           
     Delete "board and adopted by reference"                                                                                    
     Insert "medical services review committee [BOARD] and                                                                      
     adopted by the board [REFERENCE]"                                                                                          
                                                                                                                                
     Page 2, line 21:                                                                                                           
     Delete "(1)"                                                                                                               
     Delete "board"                                                                                                             
     Insert "medical services review committee"                                                                                 
                                                                                                                                
     Page 2, line 22:                                                                                                           
     Delete "board"                                                                                                             
     Insert "medical services review committee"                                                                                 
                                                                                                                                
     Page 2, line 23, following "adopted":                                                                                      
     Insert "by the board"                                                                                                      
                                                                                                                                
     Page 2, line 23:                                                                                                           
     Delete ";"                                                                                                                 
     Insert "."                                                                                                                 
                                                                                                                                
     Page 2, lines 24 - 29:                                                                                                     
     Delete all material.                                                                                                       
                                                                                                                                
     Page 3, following line 23:                                                                                                 
     Insert a new subsection to read:                                                                                           
     "(p) The medical services review committee shall                                                                           
     formulate a conversion factor and submit the                                                                               
     conversion  factor to  the  commissioner  of labor  and                                                                    
     workforce  development. If  the  commissioner does  not                                                                    
     approve  the conversion  factor,  the medical  services                                                                    
     review  committee shall  revise  the conversion  factor                                                                    
     and  submit  the  revised   conversion  factor  to  the                                                                    
     commissioner for approval."                                                                                                
                                                                                                                                
     Page 4, following line 15:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "*  Sec. 4.  AS 23.30.395  is amended  by adding  a new                                                                    
     paragraph to read:                                                                                                         
     (42)  "medical  services  review committee"  means  the                                                                    
     committee established under AS 23.30.0950)."                                                                               
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, line 16:                                                                                                           
     Delete "AS 23.30.097(j) - (o)"                                                                                             
     Insert "AS 23.30.097(j) - (p)"                                                                                             
                                                                                                                                
     Page 4, line 18:                                                                                                           
     Delete "sec. 4"                                                                                                            
     Insert "sec. 5"                                                                                                            
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Representative  Thompson explained  that  Amendment 2  would                                                                    
allow the medical services review  committee to directly set                                                                    
the   conversion   rates   for   the   new   fee   schedule.                                                                    
Subsequently,  the  schedule  would   be  submitted  to  the                                                                    
Department of  Labor and Workforce  Development commissioner                                                                    
for  approval. In  the current  bill version  the conversion                                                                    
factors  were set  by the  18  member workers'  compensation                                                                    
board. The medical services review  committee was made up of                                                                    
9   people   including   members  of   the   state   medical                                                                    
association,    chiropractic     society,    nursing    home                                                                    
association,  a  healthcare  provider,  four  non-healthcare                                                                    
providers, and the  commissioner's designee. He communicated                                                                    
that the amendment  streamlined the process and  had come at                                                                    
the bill sponsor's request.                                                                                                     
                                                                                                                                
Co-Chair Stoltze reiterated that  the amendment language had                                                                    
been brought to the committee by the sponsor.                                                                                   
                                                                                                                                
ANNA  LATHAM, STAFF,  REPRESENTATIVE  KURT OLSON,  confirmed                                                                    
the sponsor's support of Amendment 2.                                                                                           
Co-Chair Stoltze  asked for verification that  the amendment                                                                    
language  had  originated  from   the  sponsor.  Ms.  Latham                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 2 was ADOPTED.                                                                                     
                                                                                                                                
Representative Gara MOVED to ADOPT replacement Amendment 1:                                                                     
                                                                                                                                
     Page 2, line 19:                                                                                                           
                                                                                                                                
     Insert  "(4) The  fee schedules  of (A)  - (C)  of this                                                                    
     subsection  shall  not be  used  for  any procedure  or                                                                    
     service  unless  they  satisfy the  service  charge  of                                                                    
     providers in an area so  that patient access to quality                                                                    
     medical care is not compromised."                                                                                          
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Representative Gara  pointed to a concern  that the workers'                                                                    
compensation rate  would be the  Medicare or  Medicaid rate.                                                                    
He  understood  that it  was  not  the sponsor's  intention;                                                                    
therefore,  replacement  Amendment   1  clarified  that  the                                                                    
workers'  compensation rate  would  not be  the Medicare  or                                                                    
Medicaid rates  unless they were adequate  to ensure patient                                                                    
access to quality  medical care. He stated  that the sponsor                                                                    
intended that there  would be a multiplier at  some point in                                                                    
time.                                                                                                                           
                                                                                                                                
Ms.  Latham  believed  the  amendment  had  good  intention;                                                                    
however, she  believed it was  unnecessary for  two reasons.                                                                    
First,  it  created  confusion in  the  interpretation  that                                                                    
Medicare or Medicaid rates would  be used. Second, currently                                                                    
32 states used the methodology  with a conversion factor set                                                                    
by  the state.  The  bill  had been  referred  to the  House                                                                    
Finance  Committee  because  of   its  $62,000  fiscal  note                                                                    
associated  with  the   medical  services  review  committee                                                                    
setting the conversion factors.                                                                                                 
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
Medicare  and Medicaid  language in  the bill  did not  mean                                                                    
that  the  state  would  adopt  those  rates  if  they  were                                                                    
inadequate to  provide quality medical services  and access.                                                                    
Ms. Latham replied  in the affirmative and  pointed out that                                                                    
the  conversion   factor  was  a  large   component  of  the                                                                    
legislation for that reason.                                                                                                    
                                                                                                                                
Representative Gara  was satisfied with the  information put                                                                    
on record by the sponsor's staff. He WITHDREW Amendment 1.                                                                      
                                                                                                                                
8:42:16 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman   referred  to   the  unique   nature  of                                                                    
widespread costs  in Alaska due  to availability  of medical                                                                    
services statewide.  He imagined that cost  differentials in                                                                    
rural  Alaska  could  be quite  varied.  He  wondered  about                                                                    
alignment with Medicaid values.  He asked if comparisons had                                                                    
been  done statewide  to determine  how costs  would average                                                                    
out.                                                                                                                            
                                                                                                                                
Ms. Latham  replied that  the geographical  differential had                                                                    
been included  specifically for rural areas.  She added that                                                                    
the bill  included an exemption for  rural (critical access)                                                                    
hospitals.                                                                                                                      
                                                                                                                                
Representative  Wilson asked  if there  was a  place on  the                                                                    
board  for  physical  therapists. Ms.  Latham  replied  that                                                                    
there was  one open  seat for a  healthcare provider  on the                                                                    
medical services  review committee.  She relayed  that based                                                                    
on testimony,  physical therapists  did not account  for the                                                                    
application  of  a  conversion factor.  The  testifiers  had                                                                    
discussed their experiences using  Medicare rates, which was                                                                    
not  the  intent  of  the  legislation.  She  believed  some                                                                    
confusion existed related to the testimony.                                                                                     
                                                                                                                                
Representative  Wilson   pointed  out  that  there   was  an                                                                    
opportunity for  physical therapists to apply  for a medical                                                                    
services review committee seat if they were interested.                                                                         
                                                                                                                                
Representative   Costello   discussed   the   fiscal   notes                                                                    
including  one fiscal  impact note  from  the Department  of                                                                    
Labor and  Workforce Development  totaling $62,000 in  FY 15                                                                    
and $54,000  in FY 16  through FY 20; and  one indeterminate                                                                    
note from the Department of Administration.                                                                                     
                                                                                                                                
Vice-Chair  Neuman  MOVED to  REPORT  CSHB  316(FIN) out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
CSHB  316(FIN)  was  REPORTED  out  of  committee  with  "no                                                                    
recommendation"  and with  one new  fiscal impact  note from                                                                    
the Department  of Labor and  Workforce Development  and one                                                                    
new    indeterminate   note    from   the    Department   of                                                                    
Administration.                                                                                                                 
8:45:42 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:47:53 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
                                                                                                                                
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
8:47:58 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman  requested an  explanation as to  why the                                                                    
Department of Transportation (DOT)  had not been involved in                                                                    
conversations  about the  infrastructure  needs. He  pointed                                                                    
out to the committee that the  HOA states that the state was                                                                    
going to be responsible for the infrastructure liability.                                                                       
                                                                                                                                
JOE BALASH,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
answered  that the  understanding was  that the  gasline was                                                                    
going to  work like any  other commercial entity  or project                                                                    
approaching  DOT   for  transportation   and  infrastructure                                                                    
services.  He relayed  that the  HOA  contemplated that  the                                                                    
state  would take  actions to  facilitate  and support,  but                                                                    
whenever  a  commercial  party approached  DOT  looking  for                                                                    
infrastructure, funds  were provided by the  party but there                                                                    
would  still be  an  underlying  appropriation required.  He                                                                    
said that the actions that  had been committed to in Article                                                                    
10  were ministerial.  He though  that it  was important  to                                                                    
highlight   language  in   Article  9,   which  would   give                                                                    
assurances that  the state  would not be  "on the  hook" for                                                                    
all of the costs. He referred to Article 9.3.1, part b:                                                                         
                                                                                                                                
     The  Parties   would  establish  a  series   of  impact                                                                    
     payments to be  paid by the Alaska LNG  Parties to help                                                                    
     offset increased  service and other costs  borne by the                                                                    
     State and local governments  during construction of the                                                                    
     Alaska LNG Project.                                                                                                        
                                                                                                                                
Commissioner Balash  said that he had  every expectation the                                                                    
project  would   pay  for  the   things  that   were  solely                                                                    
attributable to the  project. He expected that  DOT would be                                                                    
making the decisions  as to what things were  100 percent of                                                                    
the project  and what things were  partially attributable to                                                                    
the project.                                                                                                                    
                                                                                                                                
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT OF  REVENUE, pointed to  the Page 15 of  the HOA.                                                                    
He  said  that the  provision  recognized  the principle  of                                                                    
impact payments to  the state to offset some  of the impacts                                                                    
at  the  state  and  community   level.  He  said  that  the                                                                    
development of  an impact payment  schedule was part  of the                                                                    
negotiations to be determined. He  relayed that the decision                                                                    
in the  announcement that Nikiski  was the terminus  for the                                                                    
project, and  the preferred direction,  had come  in October                                                                    
2013.  He  stated  that  part  of the  point  of  the  state                                                                    
participating early  was to get  the state in at  the ground                                                                    
floor of  the project  as it was  being developed,  and that                                                                    
the state would be fully aware  of the needs of the project,                                                                    
and that  the state  would be  influential of  the decisions                                                                    
made on the project; for example,  the size of pipe. He said                                                                    
that  the size  of the  pipe had  a material  impact on  the                                                                    
compressor stations and  the amount of work  that would need                                                                    
to be done on infrastructure.                                                                                                   
                                                                                                                                
Representative   Thompson   spoke   of  Stranded   Gas   Act                                                                    
discussions. He  warned of the  large impact on the  City of                                                                    
Fairbanks  once  construction  began  on  the  pipeline.  He                                                                    
mentioned  the  impact   on  police  departments,  emergency                                                                    
services, and residents quitting  their current jobs to work                                                                    
on the  pipeline for increased  pay. He believed  that there                                                                    
should   preconstruction  dollars   in   order  to   address                                                                    
preconstruction concerns, and that  those concerns should be                                                                    
addressed at least a year before construction began.                                                                            
                                                                                                                                
8:56:44 AM                                                                                                                    
                                                                                                                                
ANGELA   RODELL,   COMMISSIONER,  DEPARTMENT   OF   REVENUE,                                                                    
answered that  the concern that  had been discussed  but not                                                                    
in  great   detail.  She  said   that  in  working   on  the                                                                    
Administrative  Order it  had  been  recognized that  social                                                                    
impacts would need  to be considered. She  thought that much                                                                    
could be learned from the TAPS construction.                                                                                    
                                                                                                                                
Vice-Chair  Neuman  referred  to  Page 15  of  the  HOA.  He                                                                    
requested  a  list  of the  impacts  of  the  infrastructure                                                                    
within the state.                                                                                                               
                                                                                                                                
Commissioner  Balash  answered  that   he  would  provide  a                                                                    
description  of all  the required  reports  for the  Federal                                                                    
Energy  Regulatory Commission  (FERC)  process. He  informed                                                                    
that committee that there was  one report in particular that                                                                    
spoke   to  the   socioeconomic  impacts   of  the   project                                                                    
construction.                                                                                                                   
                                                                                                                                
Vice-Chair  Neuman declared  that he  was interested  in the                                                                    
infrastructure impact.                                                                                                          
Commissioner  Balash understood.  He  believed  there was  a                                                                    
specific    component   that    spoke   to    transportation                                                                    
infrastructure.                                                                                                                 
                                                                                                                                
Vice-Chair  Neuman queried  the differentiation  between tax                                                                    
deductions for the  gas pipeline and those  used against the                                                                    
oil taxes on  the upstream side of point  of production, pre                                                                    
flow.                                                                                                                           
                                                                                                                                
9:01:18 AM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski  answered  that  the  expenditures  would  be                                                                    
deducted  against  the  production  tax value  for  oil.  He                                                                    
stated that  there was  no need  to differentiate  whether a                                                                    
certain  piece  of  equipment  would be  used  for  oil  and                                                                    
another  for  gas,  the   deductions  occurred  against  the                                                                    
production  tax value  of  oil. He  said  that the  upstream                                                                    
investments that had been modeled  included a revenue impact                                                                    
primarily from  the build out  at Point Thomson and  some at                                                                    
Prudhoe  Bay.   He  relayed   that  Point   Thomson  carried                                                                    
additional oil  production when more gas  was being produced                                                                    
and  that those  revenue  were included  in  the models.  He                                                                    
shared  that the  way  that the  bill  was structured  there                                                                    
would be no separation of the deductions.                                                                                       
                                                                                                                                
Vice-Chair Neuman expressed concern  with the issue. He felt                                                                    
that   the   oil  company   should   be   putting  as   much                                                                    
infrastructure as was  necessary to handle the  gas, and the                                                                    
upstream costs, in order to deduct  if off of the taxes that                                                                    
would be  paid on  the oil. He  wondered what  protected the                                                                    
state   from  being   charged   hundreds   of  millions   in                                                                    
deductions.                                                                                                                     
                                                                                                                                
Mr.  Pawlowski directed  committee attention  to Page  57 of                                                                    
the bill. He spoke to the deleted language on the page:                                                                         
                                                                                                                                
(C) FOR GAS  RUN THROUGH AN INTEGRATED  GAS PROCESSING PLANT                                                                    
AND GAS  TREATMENT FACILITY THAT  DOES NOT  ACCURATELY METER                                                                    
THE  GAS  AFTER  THE  GAS  PROCESSING  AND  BEFORE  THE  GAS                                                                    
TREATMENT,  THE   FIRST  POINT   WHERE  GAS   PROCESSING  IS                                                                    
COMPLETED  OR  WHERE  GAS  TREATMENT  BEGINS,  WHICHEVER  IS                                                                    
FURTHER UPSTREAM];                                                                                                              
                                                                                                                                
Mr. Pawlowski  explained that the language  had been deleted                                                                    
for  clarity; the  point  of production  was  of the  utmost                                                                    
importance. He said  that the point of  production was moved                                                                    
to the inlet of the pipeline  leaving the fields in order to                                                                    
move  it  up and  away  from  the  gas related  process  and                                                                    
treatment facility.  He recognized  that there  were impacts                                                                    
upstream,  particularly  in  the  Point  Thomson  field.  He                                                                    
stated  that  the  Point  Thomson  settlement  provided  two                                                                    
opportunities  for  the  development of  the  Point  Thomson                                                                    
unit: a major  gas sale and a cycling project.  He said that                                                                    
if the  cycling project  were to  occur under  existing law,                                                                    
only producing liquids and re-injecting  the gas, all of the                                                                    
expenditures  would  be  deductible. He  stressed  that  the                                                                    
natures  of  the fields  were  interconnected  and that  the                                                                    
point  of production  had  been pushed  as  far upstream  as                                                                    
possible in the legislation.                                                                                                    
                                                                                                                                
9:07:19 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman argued that  Point Thomson was a different                                                                    
unit.  He wanted  to  discuss  standard, typical  processing                                                                    
units for  gas. He  wondered where  the point  of production                                                                    
changed other than the Point Thomson field.                                                                                     
                                                                                                                                
Mr. Pawlowski  answered that the  gas treatment  plant would                                                                    
be within  the Prudhoe Bay  unit. He said that  was excluded                                                                    
from  the  point  production;  it   was  downstream  of  the                                                                    
pipeline,  leaving  the  central  gas facility  to  the  gas                                                                    
treatment  plant,  and  the  costs   were  not  included  in                                                                    
upstream costs for the purposes of lease expenditures.                                                                          
                                                                                                                                
Vice-Chair  Neuman said  he understood.  He asked  where the                                                                    
point  of  production  was.  He asked  where  the  point  of                                                                    
production would be 100 miles west of Prudhoe Bay.                                                                              
                                                                                                                                
Mr. Pawlowski replied that the  point of production would be                                                                    
the  point where  the gas  was  after mechanical  separation                                                                    
leaving  the field  to  go to  the inlet  of  a pipeline  to                                                                    
transport the  gas to market.  He stated that the  point was                                                                    
to take out the point  of production the pipelines that were                                                                    
moving the  gas from the  fields to the treatment  plant and                                                                    
make them downstream expenditures.                                                                                              
                                                                                                                                
Mr. Pawlowski pointed to Page 57 of the bill:                                                                                   
                                                                                                                                
     (i)  not  subjected  to   or  recovered  by  mechanical                                                                    
     separation or  run through a gas  processing plant, the                                                                    
     farthest upstream of  the first point where  the gas is                                                                    
     accurately   metered,  the   inlet   of  any   pipeline                                                                    
     transporting the gas  to a gas treatment  plant, or the                                                                    
     inlet of  any gas pipeline system  transporting the gas                                                                    
     to a market;                                                                                                               
      (ii)   subjected  to   or   recovered  by   mechanical                                                                    
     separation but not run through  a gas processing plant,                                                                    
     the farthest upstream of the  first point where the gas                                                                    
     is  accurately metered  after completion  of mechanical                                                                    
     separation, the inlet of  any pipeline transporting the                                                                    
     gas after completion of mechanical  separation to a gas                                                                    
     treatment  plant,  or the  inlet  of  any gas  pipeline                                                                    
     system   transporting   the    gas   after   mechanical                                                                    
     separation to a market;                                                                                                    
     (iii) run through a gas  processing plant, the farthest                                                                    
     upstream  of   the  first  point   where  the   gas  is                                                                    
     accurately  metered downstream  of  the gas  processing                                                                    
     plant, the inlet of any  pipeline downstream of the gas                                                                    
     processing  plant   transporting  the  gas  to   a  gas                                                                    
     treatment  plant,  or the  inlet  of  any gas  pipeline                                                                    
     system   downstream  of   the   gas  processing   plant                                                                    
     transporting the gas to a market                                                                                           
     [;                                                                                                                         
                                                                                                                                
Vice-Chair Neuman asked  if all of the  equipment used prior                                                                    
would be the same that would be used in oil production.                                                                         
                                                                                                                                
Commissioner   Balash  replied   in  the   affirmative.  The                                                                    
equipment  was needed  to initially  separate gas  from oil;                                                                    
the  equipment  was  associated  with  oil  production.  The                                                                    
recognition  was  that the  facility  was  needed onsite  in                                                                    
order  to get  the  oil; therefore,  it  was appropriate  to                                                                    
deduct the expense.                                                                                                             
                                                                                                                                
Vice-Chair Neuman replied that that  was his point. He asked                                                                    
how the state would  differentiate deductions taken under SB                                                                    
21 for  work done primarily  for SB 138. He  reiterated that                                                                    
the state could lose millions of dollars.                                                                                       
                                                                                                                                
9:11:12 AM                                                                                                                    
                                                                                                                                
Commissioner Balash  asserted that  the installation  of new                                                                    
oil  facilities would  be a  good  thing for  the state.  He                                                                    
pointed out  to the committee that  when it came to  gas the                                                                    
state would  receive 13 percent  of the gross  profit, which                                                                    
was  an  excellent  position  for  the  state  even  if  the                                                                    
upstream  costs  were  allowed   to  be  deducted  as  lease                                                                    
expenditures.                                                                                                                   
Vice-Chair Neuman asked where  the point of production would                                                                    
change in  the differentials of  Point Thomson when  gas was                                                                    
moving as opposed to solely moving oil.                                                                                         
                                                                                                                                
Mr. Pawlowski  replied that for  Point Thomson the  point of                                                                    
production would  be similar  because there  would be  a new                                                                    
pipeline built  to move  the gas from  Point Thomson  to the                                                                    
treatment plant  at Prudhoe Bay;  the liquids line  that was                                                                    
being built would  move 70,000 barrels per day  to allow for                                                                    
the  additional  oil production  that  would  come from  the                                                                    
expanded  build-out of  the Point  Thomson unit.  He relayed                                                                    
that  the point  of production  would be  where the  gas was                                                                    
leaving the  field and going  into the new pipeline  to move                                                                    
it from Point Thomson to the gas treatment plant.                                                                               
                                                                                                                                
Vice-Chair  Neuman asked  whether  the  point of  production                                                                    
would be at the inlet or outlet well.                                                                                           
                                                                                                                                
9:13:40 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman asked if they would be upstream.                                                                              
                                                                                                                                
Mr. Pawlowski  answered in the affirmative.  He relayed that                                                                    
the  point   of  production  would  be   where  the  liquids                                                                    
separated from the gas and went  into a meter or the line to                                                                    
move the gas  from Point Thomson to the  treatment plant. He                                                                    
said  that the  gas that  would  come out  of Point  Thomson                                                                    
would contain impurities and would need to be cleaned.                                                                          
                                                                                                                                
Vice-Chair Neuman  asked if  there was  anything in  the HOA                                                                    
that specifically  stated where the point  of production was                                                                    
and which  equipment would be  covered as upstream  cost and                                                                    
which would not.                                                                                                                
                                                                                                                                
Mr. Pawlowski  replied that there were  specific definitions                                                                    
of  the Alaska  LNG project,  which was  where the  point of                                                                    
production was defined. He said  that there was a side issue                                                                    
concerning  the agreement  in the  Point Thomson  settlement                                                                    
about the  treatment of upstream costs  and the implications                                                                    
that had for royalty or other parts of the fiscal system.                                                                       
                                                                                                                                
Vice-Chair Neuman  wondered if  the upstream wells  would be                                                                    
allowable deductions.                                                                                                           
                                                                                                                                
Mr. Pawlowski  replied yes because  they would  be producing                                                                    
both oil and gas.                                                                                                               
Vice-Chair  Neuman  understood  that deductions  under  SB21                                                                    
would be allowed.                                                                                                               
                                                                                                                                
Mr. Pawlowski said that was correct.                                                                                            
                                                                                                                                
9:16:04 AM                                                                                                                    
                                                                                                                                
Representative  Guttenberg pointed  to Page  11 of  the bill                                                                    
which defined the  Natural Gas Act using  flanges, which was                                                                    
something  that   could  move.  He  expressed   concern  for                                                                    
possible shenanigans.                                                                                                           
                                                                                                                                
Mr.  Pawlowski answered  that the  difference was  where and                                                                    
why the definitions  were found in the  legislation. He said                                                                    
that  the reference  Representative  Guttenberg referred  to                                                                    
appeared in  Section 16, page  11, line 25 through  page 12,                                                                    
line 27,  and was  a specific definition  of the  Alaska LNG                                                                    
project only for the purposes  of authorizing and specifying                                                                    
AGDC's participation  in the project. He  furthered that the                                                                    
definition  had  been   taken  from  the  MOU   and  had  no                                                                    
relationship to  state tax  or royalty law,  but was  in the                                                                    
authorizing statute  for AGDC to  participate in  a project.                                                                    
He  stated   that  the  AGDC's   power  to   participate  in                                                                    
liquefaction was limited to its  participation in the Alaska                                                                    
LNG   project,   therefore   the  specific   and   available                                                                    
definition of the Alaska LNG  project had been used. He said                                                                    
that the other sections  were consistent with state language                                                                    
used to build on all of  the regulatory body of support that                                                                    
had been developed.                                                                                                             
                                                                                                                                
Representative   Guttenberg  asked   about   the  point   of                                                                    
production for  oil. He pointed  to Pages  56 and 57  of the                                                                    
bill,   which  related   to  oil.   He  believed   that  the                                                                    
definitions in the bill for  oil and gas point of production                                                                    
were ambiguous.                                                                                                                 
                                                                                                                                
9:20:52 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  replied that  the department  implemented the                                                                    
regulations that provided the  specificity. He said he would                                                                    
research  whether there  was an  upgrade that  would support                                                                    
clarity on the point of production.                                                                                             
                                                                                                                                
Representative  Guttenberg  asked about  infrastructure  and                                                                    
highway  maintenance.  He  requested the  proposed  cost  to                                                                    
maintain highways during construction and operation.                                                                            
Commissioner Balash  replied that  DOT planned  carefully to                                                                    
distinguish  how money  would be  spend and  where. He  said                                                                    
with regard to the condition  of the Dalton Highway, and the                                                                    
need  to  add  to  the   material  in  the  road  base,  the                                                                    
department  would work  with DOT  on the  issue. He  relayed                                                                    
that the list of projects  on the highway identified in 2005                                                                    
had led  to substantial improvements on  the Dalton Highway.                                                                    
He  stated   that  he  would   attempt  to   get  additional                                                                    
information from  DOT on the  definition and  specificity of                                                                    
deferred   maintenance  versus   heavy  maintenance   versus                                                                    
possible road height and clearance issues.                                                                                      
                                                                                                                                
Representative    Guttenberg    asked    about    settlement                                                                    
surrounding the Yukon River Bridge.                                                                                             
                                                                                                                                
9:26:07 AM                                                                                                                    
                                                                                                                                
Commissioner  Balash  was familiar  with  a  slide that  had                                                                    
occurred and was a concern  for settlement and stability. He                                                                    
believed  that  the  Division of  Geologic  and  Geophysical                                                                    
Survey was doing  work to understand the  geo-hazards in the                                                                    
region.  He admitted  that what  exactly needed  to be  done                                                                    
with the bridge was a big question.                                                                                             
                                                                                                                                
Co-Chair Austerman  asked for  clarification on  the project                                                                    
titles: Alaska LNG  Project and the North  Slope Natural Gas                                                                    
Pipeline Project. He felt that  the two titles indicated two                                                                    
different projects.                                                                                                             
                                                                                                                                
Mr.  Pawlowski  shared  that the  legislation  was  enabling                                                                    
legislation for the  Alaska LNG Project as  described in the                                                                    
HOA, and was  also general law, applicable  and important to                                                                    
advance any natural gas project.  He said that the state was                                                                    
currently looking at  two natural gas projects  and that the                                                                    
reference  to  the  North Slope  Natural  Gas  pipeline  was                                                                    
necessitated by  building off of  the architecture of  HB 4.                                                                    
He explained  that the  terms and powers,  the need  for the                                                                    
Department  of Natural  Resources to  facilitate gas  moving                                                                    
through  a project,  would be  needed for  any project  with                                                                    
which the  state went forward.  He asserted that the  law in                                                                    
SB 138  would support  all forms of  gas development  on the                                                                    
North Slope.                                                                                                                    
                                                                                                                                
9:29:15 AM                                                                                                                    
                                                                                                                                
Representative   Wilson  understood   that  the   under  the                                                                    
legislation the state would take all earning in gas.                                                                            
Commissioner Balash  replied that there would  be much taken                                                                    
in gas  but that there  would be fairly  significant streams                                                                    
taken in  cash; specifically,  the corporate income  tax and                                                                    
property tax.                                                                                                                   
                                                                                                                                
Representative Wilson  asked how  the state  could guarantee                                                                    
that credit given would be seen as revenue.                                                                                     
                                                                                                                                
Mr. Pawlowski  replied that the arrangements  would be long-                                                                    
term contracts and would have  a moving price mechanism. One                                                                    
of  the reasons  why the  state  could want  to be  hesitant                                                                    
about  only using  the producers  to sell  the gas  would be                                                                    
because the  producers would had a  different risk tolerance                                                                    
than the  state. He  said that  sometimes LNG  projects were                                                                    
designed  with an  "s" curve,  one of  many terms  that were                                                                    
negotiated  in  the contracts  and  each  contract would  be                                                                    
different.  The contract  would  specify  how money  changed                                                                    
hands for the gas.                                                                                                              
                                                                                                                                
9:32:19 AM                                                                                                                    
                                                                                                                                
Representative  Wilson understood  that Mr.  Pawlowski spoke                                                                    
of the terms to sell the gas  and not the gas that the state                                                                    
would  take in  lieu  of taxes.  She  expressed concern  for                                                                    
fluctuating  gas prices  and the  state  not receiving  full                                                                    
payment.                                                                                                                        
                                                                                                                                
Mr.  Pawlowski believed  it was  important to  remember that                                                                    
under  the in-value  circumstance, the  producer would  take                                                                    
the gas and  sell it for a price with  was in constant flux;                                                                    
the difference in in-kind was  that the state was taking and                                                                    
selling the gas.  He said that the price  change would occur                                                                    
with  both an  in-value of  an in-kind  scenario. He  stated                                                                    
that  unless  the state  was  directly  holding the  gas  it                                                                    
risked losing control over  the appropriate deductions being                                                                    
in place  at the LNG plant.  He stressed that the  state had                                                                    
more control in an in-kind situation for the project.                                                                           
                                                                                                                                
Representative Wilson maintained her disconnect.                                                                                
                                                                                                                                
Commissioner Balash  pointed out to the  committee that with                                                                    
a project  with such a  large price tag, property  tax would                                                                    
be a significant cash flow element.                                                                                             
                                                                                                                                
9:36:31 AM                                                                                                                    
Representative  Wilson   asserted  that  the   state  needed                                                                    
affordable  natural  gas.  She   probed  the  definition  of                                                                    
"direct access."                                                                                                                
                                                                                                                                
Commissioner Balash admitted that  there were many unknowns.                                                                    
He  referred to  page  60, Section  67  of the  legislation,                                                                    
which  required DNR  to identify  the various  scenarios and                                                                    
methods of  getting gas from  the North Slope to  market and                                                                    
within  the  state.  He  said  that the  issue  of  who  was                                                                    
responsible to  satisfy in-state demand would  be discussed.                                                                    
He  believed that  part of  the  answer would  be driven  by                                                                    
market factors  and part  would be  driven by  which players                                                                    
were  engaged.  He  shared  that  one  of  the  reasons  the                                                                    
administration liked  that each  party would  be responsible                                                                    
of its  share of  the gas,  infrastructure and  capacity was                                                                    
because then  everything would  be even along  the way.   He                                                                    
said if the  state alone was responsible  for satisfying in-                                                                    
state demand  then the state's  share of the project  at the                                                                    
liquefaction plant would be altered.  He noted that MOU with                                                                    
TransCanada  contained  provisions   for  backhaul  service,                                                                    
which would allow the same low  prices for gas to be allowed                                                                    
throughout the state.                                                                                                           
                                                                                                                                
9:40:10 AM                                                                                                                    
                                                                                                                                
Representative Wilson remarked that  the Interior had access                                                                    
to heating oil but that it was not affordable.                                                                                  
                                                                                                                                
Representative Munoz noted that the  bill allowed AGDC to be                                                                    
involved  in 2  projects.  She wondered  at  what point  the                                                                    
efforts would come together to focus on one project.                                                                            
                                                                                                                                
Commissioner  Balash answered  that the  work that  would be                                                                    
done during the pre-FEED  phase would include and assessment                                                                    
and efforts to initiate marketing of  the LNG by each of the                                                                    
parties. He  said that  the key question  was: would  any of                                                                    
the parties be  able to sell the LNG from  this project at a                                                                    
price that warranted the required  investment.  He said that                                                                    
the cost  of continuing  into the FEED  phase would  rise to                                                                    
approximately $2 billion, which was  a large amount of money                                                                    
even when spread  across the parties involved.  He said that                                                                    
if  the decision  to  go  forward was  a  positive one,  the                                                                    
project  would  go forward.  He  stated  that AGDC  and  the                                                                    
Alaska Stand Alone Project (ASAP)  project would assure that                                                                    
if Alaska  LNG did not  go forward there was  an alternative                                                                    
project in place. He could  not speak to which project would                                                                    
move forward more quickly and  believed it should be left to                                                                    
the AGDC board  of directors. He said that  the changes made                                                                    
to the AGDC  statues in the legislation would  give them the                                                                    
flexibility  to decide  how  and when  to  advance the  ASAP                                                                    
project. He believed  that the decision as  to which project                                                                    
would move forward would be made in 2015.                                                                                       
                                                                                                                                
9:46:37 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman asked for further explanation of ASAP.                                                                       
                                                                                                                                
Commissioner Balash  replied that with  the passage of  HB 4                                                                    
the legislature gave AGDC a  mission to develop the in-state                                                                    
natural gas pipeline project. He  relayed that ASAP referred                                                                    
to The Alaska Stand Alone Project.                                                                                              
                                                                                                                                
Commissioner  Balash said  that  the  ASAP project  remained                                                                    
available to pursue  in the years to come if  the Alaska LNG                                                                    
project failed to move forward.                                                                                                 
                                                                                                                                
Co-Chair  Stoltze  spoke  to the  potential  for  a  special                                                                    
session.                                                                                                                        
                                                                                                                                
Representative Holmes  referred to talk about  the financial                                                                    
risk the state would bear  during the early years. She asked                                                                    
about sideboards and protections for the state's interest.                                                                      
                                                                                                                                
Commissioner  Balash  replied  that the  state  was  seeking                                                                    
allies. He  said that  the alliances  shifted from  topic to                                                                    
topic.  He thought  that  the balance  of  interest and  the                                                                    
tension  between the  parties would  ultimately work  in the                                                                    
state's favor. He explained that  the state was aligned with                                                                    
producers in terms of wanting  to keep overall project costs                                                                    
down  while  seeking  the highest  value  for  the  resource                                                                    
itself. He  opined that  where alignment  broke down  was in                                                                    
the  development  of   gas  that  did  not   belong  to  the                                                                    
producers. He said  that the state had  a financial interest                                                                    
through  either   royalty,  production  tax,  or   both,  in                                                                    
hundreds  of trillions  of cubic  feet below  ground in  the                                                                    
North Slope region. He stated  that he was encouraged in the                                                                    
alignment   of  interest   with   TransCanada  to   optimize                                                                    
expansions  in  the  future.  He  furthered  that  having  a                                                                    
company  that   was  looking  out  for   its  own  financial                                                                    
interests  was  something  that the  administration  saw  as                                                                    
valuable. He  spoke to provisions  that were built  into the                                                                    
MOU requiring  TransCanada to check  with the state  on work                                                                    
plan and  budget. He said  that if  a matter arose  that the                                                                    
state was dissatisfied with and  opposed to, TransCanada was                                                                    
required to vote against it  per the governance structure of                                                                    
the  joint venture.  He  asserted that  the  state would  be                                                                    
aware  of the  goings on  of the  project, while  relying on                                                                    
TransCanada's   specific   expertise  day-to-day   for   the                                                                    
ultimate execution  of the project.  He reported  that there                                                                    
was a provision in the HOA  that was intended to support the                                                                    
conveyance  of information  by TransCanada  and AGDC  during                                                                    
the development phase, which gave  them the ability to share                                                                    
information with state agencies.                                                                                                
                                                                                                                                
9:54:02 AM                                                                                                                    
                                                                                                                                
Representative  Holmes wondered  whether the  obligation for                                                                    
TransCanada to vote down elements  that were unattractive to                                                                    
the state was legally binding.                                                                                                  
                                                                                                                                
Mr. Pawlowski replied  that the provision could  be found on                                                                    
Page 6, exhibit  C, the term sheet to the  MOU. He said that                                                                    
the MOU had a different  threshold of whether it was legally                                                                    
binding  and  the  terms  would  be  incorporated  into  the                                                                    
agreement. He  said that  the language  would be  binding in                                                                    
the  interim  agreement  executed  by  the  Commissioner  of                                                                    
Natural  Resources. He  concluded that  it would  ultimately                                                                    
have to come before the legislature for approval.                                                                               
                                                                                                                                
Representative   Holmes  asked   for  the   administration's                                                                    
position on the  20 versus 25 percent, and when  and how the                                                                    
number would get locked in.                                                                                                     
                                                                                                                                
Mr.  Pawlowski   replied  that  the   25  percent   was  the                                                                    
combination   of  the   state's  royalty   share  plus   the                                                                    
production  tax;   the  production  tax  was   levied  after                                                                    
royalty,  so the  13 percent  production tax,  when combined                                                                    
with the royalty share equated  to approximately 25 percent.                                                                    
He furthered that  the administration's decision surrounding                                                                    
the appropriate tax  rate was part of the work  that DOR and                                                                    
DNR had  undertaken during the  royalty study.  The question                                                                    
of when terms would be locked in remained open.                                                                                 
                                                                                                                                
9:59:02 AM                                                                                                                    
                                                                                                                                
Representative  Holmes assumed  that  the state's  ownership                                                                    
share   of  the   infrastructure  would   come  before   the                                                                    
legislature, she queried whether  the administration had any                                                                    
recommendations.                                                                                                                
                                                                                                                                
Commissioner Balash  replied that  in reviewing  the project                                                                    
the  administration  had  estimated  that  being  an  equity                                                                    
participant  in  the  project  made sense  as  long  as  the                                                                    
state's share of  the project was 20 percent  or greater. He                                                                    
said  that  if  the  number  were  to  fall  below  20,  the                                                                    
administration would likely recommend  a different course of                                                                    
action.  He  shared  that  the   agreements  that  would  be                                                                    
developed over the next 18  months would deal with the long-                                                                    
term  equity shares  in the  infrastructure and  the offtake                                                                    
and  balancing  agreements.  He  said  that  the  agreements                                                                    
needed to "sync  up." He stated that time would  be spent to                                                                    
identify  the details  around net  profit  share leases  and                                                                    
sliding  scale  royalties. He  asserted  that  SB 138  would                                                                    
assure  that the  state's production  tax interest  was "x",                                                                    
and  would allow  the state  to go  forward and  develop the                                                                    
remainder   of  the   agreements  to   bring  back   to  the                                                                    
legislature.                                                                                                                    
                                                                                                                                
10:02:08 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stoltze contested  that TransCanada  had not  been                                                                    
the state's  first choice for  a partner in the  venture. He                                                                    
suggested  that   the  state  had  been   coerced  into  the                                                                    
partnership.                                                                                                                    
                                                                                                                                
Representative Costello  asked whether  the state  should be                                                                    
attempting to pay down its debt over the next decade.                                                                           
                                                                                                                                
Commissioner Rodell  answered that  the state  currently had                                                                    
commitments  and  liabilities  to consider  before  entering                                                                    
into  the FEED  stage of  the project  in 2016.  She thought                                                                    
that  the state  should  be  set up  in  the position  where                                                                    
current   liabilities   were    managed   and   within   the                                                                    
legislature's control and the  state's rating was maintained                                                                    
in order to receive credit from investors and partners.                                                                         
                                                                                                                                
10:07:08 AM                                                                                                                   
                                                                                                                                
Representative  Costello  understood  that  because  of  the                                                                    
involvement with  TransCanada, when the gas  started flowing                                                                    
the state would see $300  million less coming into the state                                                                    
annually.  She  wondered   whether  the  administration  had                                                                    
conducted a risk  reward analysis. She felt  that the number                                                                    
was significant.                                                                                                                
                                                                                                                                
Commissioner Rodell  replied that the department  had looked                                                                    
at  issue   as  a  cost/benefit  analysis,   rather  than  a                                                                    
risk/reward analysis. She felt  that the forgone revenue was                                                                    
a cost  of participation  that would yield  greater benefits                                                                    
to the  state. She  estimated that  going forward  alone was                                                                    
not an option because of the  burden and cost it would place                                                                    
on the state was too significant.                                                                                               
                                                                                                                                
10:09:49 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman  believed the  committee needed  to spend                                                                    
more time  on the  issue. He  requested that  the department                                                                    
research the  issue and bring  more information at  the next                                                                    
bill hearing.                                                                                                                   
                                                                                                                                
Representative  Costello  queried  the  issue  of  rolled-in                                                                    
rates.                                                                                                                          
                                                                                                                                
Commissioner Balash responded that  terms were driven by the                                                                    
tariff design. He said that  the capital structure, the debt                                                                    
to equity  ratio for  the tariff, was  huge. He  stated that                                                                    
the  state  would  get  further  by  having  a  larger  debt                                                                    
component  than  squeezing  down  on the  return  on  equity                                                                    
component.  He divulged  that lowest  tariffs possible  were                                                                    
the goal.  He stated  that the partners  in the  venture did                                                                    
not have the  same desire for low tariffs  because they were                                                                    
involved in  the entirety of  the value chain. He  said that                                                                    
access to  the pipeline and  pipeline facilities as  well as                                                                    
the liquefaction  plant had  been taken  into consideration.                                                                    
He relayed  that FERC would  have exclusive  jurisdiction on                                                                    
the  regulation   of  the  liquefaction  plant,   which  was                                                                    
centered  on   health,  safety   and  the   environment.  He                                                                    
furthered that  FERC did not  regulate for access  or rates,                                                                    
so  the state  had  nothing  to rely  on  from a  regulatory                                                                    
perspective to assure that those  things happen. He asserted                                                                    
that the solution  to the problem was for the  state to step                                                                    
into  the  participation  role where  each  party  would  be                                                                    
responsible for  their share  of the  project. He  said that                                                                    
there  would be  four  pipes  in the  pipeline  and not  one                                                                    
tariff; in the suggested  proprietary arrangement each party                                                                    
would be responsible  for the financing of its  share of the                                                                    
project  and  therefore  able  to  set  its  own  commercial                                                                    
arrangements for use of the  capacity built with the capital                                                                    
expenditure, extending all the  way down to the liquefaction                                                                    
plant.  He  said  that  the   question  about  rates  became                                                                    
obsolete because there  would not be a rate that  all of the                                                                    
parties  would   pay  and  contribute  to,   each  would  be                                                                    
responsible for  their own share.  He pointed to  Appendix A                                                                    
in the HOA, which listed the  ability for any of the parties                                                                    
to expand any component to the  project as long as the other                                                                    
parties  were held  harmless, others  could participate  but                                                                    
did not  have to.  He thought  that this  would result  in a                                                                    
situation where  third parties would  be confident  in their                                                                    
ability  to access  capacity on  the share  of the  pipe for                                                                    
which the state and TransCanada were responsible.                                                                               
                                                                                                                                
10:16:58 AM                                                                                                                   
                                                                                                                                
Commissioner  Balash furthered  that an  agreement had  been                                                                    
secured  in  the  MOU  on  the  capital  structure  for  any                                                                    
expansions,  even though  it was  unknown what  the cost  of                                                                    
debt or  equity would be in  the future. He stated  that the                                                                    
amount of  spare capacity present  in the line  would depend                                                                    
on  the  specific size  of  the  pipe.  He shared  that  the                                                                    
initial  plan was  for the  pipeline  to be  42 inches,  the                                                                    
initial throughput  was expected  to be  in the  2.8 billion                                                                    
cubic feet  per day range.  He understood that there  was to                                                                    
be  upwards of  a billion  cubic  feet per  day of  capacity                                                                    
available through  compression until looping  was necessary.                                                                    
He relayed  that looping increased costs  and heightened the                                                                    
need  for  a  rolled-in  rate approach.  He  said  that  the                                                                    
department would confirm during  the pre-FEED phase what the                                                                    
capacity  of  the  project  ultimately   was  and  what  the                                                                    
increments  looked like.  He remarked  that  the pipe  would                                                                    
have flexibility  in size, but  that the  liquefaction plant                                                                    
was not  as flexible. He  said that an expansion  to support                                                                    
another liquefaction train  would need to be  very large and                                                                    
would require  a large  discovery of  gas. He  believed that                                                                    
the department  had been successful in  achieving access and                                                                    
a capital  structure resulting  on low  tariffs. He  did not                                                                    
believe that  rolled-in rates would  be necessary,  it would                                                                    
depend on the size and capacity  of the project from day one                                                                    
to what it was expandable to without looping.                                                                                   
                                                                                                                                
Representative Costello  understood that  the nature  of the                                                                    
project being  unregulated would be a  hinge-point for other                                                                    
decisions.                                                                                                                      
                                                                                                                                
Co-Chair Austerman discussed the  direction he hoped to take                                                                    
during the  upcoming 1:30 pm  meeting. He hoped to  focus on                                                                    
the  state shifting  from  a  tax based  to  a profit  based                                                                    
structure. He discussed further housekeeping.                                                                                   
                                                                                                                                
Representative  Gara  asked   if  the  administration  would                                                                    
address a provision in the  contract concerning who paid the                                                                    
full cost of future expansion.                                                                                                  
Co-Chair Austerman reiterated his desire to concentrate on                                                                      
the tax portion of the issue.                                                                                                   
                                                                                                                                
CSSB 138(FIN)am was HEARD and HELD in committee for further                                                                     
consideration.                                                                                                                  
ADJOURNMENT                                                                                                                   
10:24:33 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:24 a.m.                                                                                         

Document Name Date/Time Subjects
HB 316 MSRC 4-15-14.docx HFIN 4/15/2014 8:30:00 AM
HB 316
SB 138 Letter from Legislators.pdf HFIN 4/15/2014 8:30:00 AM
SB 138
SB 138 4.16.14 Presentation HFIN Edgmon Question.pdf HFIN 4/15/2014 8:30:00 AM
SB 138
SB 138 4.16.14 Resource Reports Required by Appendix A to Part 380 of FERC Regulations.pdf HFIN 4/15/2014 8:30:00 AM
SB 138
SB 138 Public Testimony.pdf HFIN 4/15/2014 8:30:00 AM
SB 138