Legislature(2001 - 2002)

03/25/2002 09:08 AM House O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         March 25, 2002                                                                                         
                           9:08 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Hugh Fate, Vice Chair                                                                                            
Representative Fred Dyson                                                                                                       
Representative Mike Chenault                                                                                                    
Representative Vic Kohring                                                                                                      
Representative Gretchen Guess                                                                                                   
Representative Reggie Joule                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Scott Ogan, Chair                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 423                                                                                                              
"An Act relating  to the Alaska Railroad;  authorizing the Alaska                                                               
Railroad Corporation  to provide  financing for  the acquisition,                                                               
construction, improvement,  maintenance, equipping,  or operation                                                               
of  facilities for  the transportation  of natural  gas resources                                                               
within and  outside the state  by others; authorizing  the Alaska                                                               
Railroad Corporation  to issue bonds to  finance such facilities;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
     - MOVED CSHB 423(O&G) OUT OF COMMITTEE                                                                                     
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 190                                                                                       
"An  Act levying  and collecting  a  tax on  certain North  Slope                                                               
natural  gas in  place if  certain requirements  relating to  its                                                               
sale  and delivery  are  not met,  and imposing  a  limit on  the                                                               
Department of Natural  Resources that relates to  the issuance or                                                               
extension of  oil and gas  leases containing natural gas  that is                                                               
capable of production in paying  quantities; and providing for an                                                               
effective date."                                                                                                                
                                                                                                                                
     - BILL HEARING POSTPONED                                                                                                   
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 423                                                                                                                  
SHORT TITLE:NATURAL GAS TRANSPORTATION BY ALASKA RR                                                                             
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR                                                                                      
                                                                                                                                
Jrn-Date Jrn-Page        Action                                                                                                 
02/13/02     2244       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
02/13/02     2244       (H)        O&G, FIN                                                                                     
02/13/02     2244       (H)        FN1: (CED)                                                                                   
02/13/02     2244       (H)        GOVERNOR'S TRANSMITTAL LETTER                                                                
02/13/02     2244       (H)        REFERRED TO OIL & GAS                                                                        
03/14/02                (H)        O&G AT 10:00 AM CAPITOL 124                                                                  
03/14/02                (H)        Heard & Held                                                                                 
03/14/02                (H)        MINUTE(O&G)                                                                                  
03/18/02                (H)        O&G AT 9:00 AM CAPITOL 124                                                                   
03/18/02                (H)        -- Meeting Canceled --                                                                       
03/25/02                (H)        O&G AT 9:00 AM CAPITOL 124                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
NEIL SLOTNICK, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
P.O. Box 110405                                                                                                                 
Juneau, Alaska  99811-0405                                                                                                      
POSITION STATEMENT:  Presented HB 423 and answered questions.                                                                   
                                                                                                                                
SENATOR JOHN TORGERSON                                                                                                          
Alaska State Legislature                                                                                                        
Capitol Building, Room 427                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Provided information pertinent to HB 423.                                                                  
                                                                                                                                
PATRICK GAMBLE, President and CEO                                                                                               
Alaska Railroad Corporation (ARRC)                                                                                              
Department of Community & Economic Development                                                                                  
P.O. Box 107500                                                                                                                 
Anchorage, Alaska  99510-7500                                                                                                   
POSITION STATEMENT:  Testified on the impacts HB 423 might have                                                                 
on the Alaska Railroad.                                                                                                         
                                                                                                                                
DANIEL R. FAUSKE, CEO/Executive Director                                                                                        
Alaska Housing Finance Corporation (AHFC)                                                                                       
Department of Revenue                                                                                                           
P.O. Box 101020                                                                                                                 
Anchorage, Alaska  99510-1020                                                                                                   
POSITION STATEMENT:  Testified in support of the concept of HB
423 and answered questions.                                                                                                     
                                                                                                                                
JOE DUBLER, Finance Director                                                                                                    
Alaska Housing Finance Corporation (AHFC)                                                                                       
Department of Revenue                                                                                                           
P.O. Box 101020                                                                                                                 
Anchorage, Alaska  99510-1020                                                                                                   
POSITION STATEMENT:  Answered questions relating to HB 423.                                                                     
                                                                                                                                
JOHN WAGNER, Senior Partner                                                                                                     
Kutak Rock LLP                                                                                                                  
(Address not provided)                                                                                                          
POSITION STATEMENT:  As tax counsel for AHFC, answered questions                                                                
relating to HB 423.                                                                                                             
                                                                                                                                
MICHAEL J. HURLEY, Senior Commercialization Specialist                                                                          
ANS Gas Commercialization                                                                                                       
Phillips Alaska, Inc.                                                                                                           
P.O. Box 100360                                                                                                                 
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Testified in support of HB 423.                                                                            
                                                                                                                                
PAUL FUHS, Lobbyist                                                                                                             
for Yukon Pacific Corporation                                                                                                   
1635 Sitka, Number 301                                                                                                          
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Testified in support of HB 423, but                                                                        
requested an amendment.                                                                                                         
                                                                                                                                
DAVE MacDOWELL, External Affairs Manager                                                                                        
for Gas Activities in Alaska                                                                                                    
BP Exploration (Alaska) Inc.                                                                                                    
17600 Rosemont Drive                                                                                                            
Anchorage, Alaska  99516                                                                                                        
POSITION STATEMENT:  Testified in support of HB 423.                                                                            
                                                                                                                                
PAM LaBOLLE, President                                                                                                          
Alaska State Chamber of Commerce                                                                                                
217 2nd Street, Suite 201                                                                                                       
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Testified in support of HB 423.                                                                            
                                                                                                                                
ERIC WOHLFORTH, Attorney at Law                                                                                                 
Wohlforth, Vassar, Johnson & Brecht, APC                                                                                        
900 West 5th Avenue, Suite 600                                                                                                  
Anchorage, Alaska 99501                                                                                                         
POSITION STATEMENT:  As bond counsel, answered question                                                                         
regarding Section 5 of HB 423, saying there is no reason the                                                                    
definition couldn't be expanded.                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 02-18, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE called  the House Special  Committee on  Oil and                                                               
Gas  meeting  to  order  at  9:08  a.m.    Representatives  Fate,                                                               
Chenault, Kohring, Guess,  and Joule were present at  the call to                                                               
order.    Representative Dyson  arrived  as  the meeting  was  in                                                               
progress.  [Representative Ogan was excused.]                                                                                   
                                                                                                                                
HB 423-NATURAL GAS TRANSPORTATION BY ALASKA RR                                                                                
                                                                                                                                
Number 0066                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE announced  that the  committee would  hear HOUSE                                                               
BILL  NO.  423,   "An  Act  relating  to   the  Alaska  Railroad;                                                               
authorizing the Alaska Railroad  Corporation to provide financing                                                               
for  the  acquisition,  construction,  improvement,  maintenance,                                                               
equipping, or  operation of facilities for  the transportation of                                                               
natural gas  resources within  and outside  the state  by others;                                                               
authorizing  the Alaska  Railroad Corporation  to issue  bonds to                                                               
finance such facilities; and providing for an effective date."                                                                  
                                                                                                                                
VICE CHAIR FATE  invited Mr. Slotnick to explain  the bill [which                                                               
was sponsored  by the House  Rules Standing Committee  by request                                                               
of the governor].                                                                                                               
                                                                                                                                
Number 0101                                                                                                                     
                                                                                                                                
NEIL SLOTNICK,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department   of  Revenue,   informed  the   committee  that   the                                                               
department has been working  extensively with outside consultants                                                               
and  the  Alaska  Railroad   Corporation  (ARRC),  analyzing  the                                                               
concept in  HB 423, which  is using  the ARRC's exemption  to the                                                               
"tax-exempt  financing  laws" in  the  Internal  Revenue Code  to                                                               
finance development of a natural gas pipeline in Alaska.                                                                        
                                                                                                                                
Number 0176                                                                                                                     
                                                                                                                                
MR.  SLOTNICK  brought attention  to  a  written presentation  in                                                               
committee   packets  titled   "Alaska   Gas  Pipeline   Financing                                                               
Alternatives:   Use  of Tax-Exempt  Financing through  the Alaska                                                               
Railroad,"  dated February  7, 2002.    Page 4,  he pointed  out,                                                               
depicts  what  are called  official  statements  relating to  the                                                               
offering in 1977  of some bonds issued by the  City of Valdez for                                                               
the marine terminal for the  Trans-Alaska Pipeline System (TAPS).                                                               
He cited  those as an example  of what is being  discussed today:                                                               
conduit financing using a public  corporation - in this case, the                                                               
ARRC, which is similar to the  City of Valdez, a municipal entity                                                               
-  to sell  tax-exempt bonds  to  finance what  is essentially  a                                                               
private-enterprise transportation facility.                                                                                     
                                                                                                                                
Number 0380                                                                                                                     
                                                                                                                                
MR. SLOTNICK explained  that in 1977, offerings were  made by the                                                               
City of Valdez  on the basis of the credit  of the companies that                                                               
would  be building  the  marine  terminal.   The  City of  Valdez                                                               
bonds,   therefore,  were   backed   by  the   credit  of   Exxon                                                               
Corporation.   Although  able  to use  its  tax-exempt status  to                                                               
issue the  bonds, the city didn't  bear any of the  risk that the                                                               
marine  terminal would  prove  unprofitable  or that  bondholders                                                               
could go against the City of Valdez.                                                                                            
                                                                                                                                
MR. SLOTNICK  noted that  similarly, proposed  here is  that ARRC                                                               
use its tax-exempt status to  issue bonds to finance the building                                                               
of a  natural gas  pipeline from  Prudhoe Bay  to markets  in the                                                               
Lower 48.  As  to why Valdez could do this in  1977 but the state                                                               
must go  through the ARRC, he  explained that for one  thing, the                                                               
1977 financing  was only  for the marine  terminal.   Valdez took                                                               
advantage  of  the  ports-and-harbors   exception  to  the  rules                                                               
against  using  tax-exempt   financing  for  private,  for-profit                                                               
projects and was able to sell  these bonds, and yet the companies                                                               
could retain ownership and back the project with their credit.                                                                  
                                                                                                                                
MR. SLOTNICK pointed  out that "our" opportunities  today to sell                                                               
tax-exempt  financing  are limited  to  public  projects such  as                                                               
schools, roads,  or "other things  that you'll typically  see the                                                               
state or municipalities selling bonds for."                                                                                     
                                                                                                                                
Number 0480                                                                                                                     
                                                                                                                                
MR. SLOTNICK referred to the  limited exception used by Valdez in                                                               
1977 and  reported that in the  Tax Reform Act of  1986, Congress                                                               
narrowed  that  exception further;  if  Valdez  tried [today]  to                                                               
finance  such  a  ports-and-harbors  project, it  would  have  to                                                               
retain ownership.                                                                                                               
                                                                                                                                
MR. SLOTNICK specified  that under discussion today  is the model                                                               
of ARRC  selling bonds,  but having the  ownership and  risk stay                                                               
with the private  companies, which are the  producers or pipeline                                                               
companies that actually build and own the line.                                                                                 
                                                                                                                                
Number 0546                                                                                                                     
                                                                                                                                
MR. SLOTNICK explained why the  railroad has a special exemption.                                                               
In  the  [Alaska]  Railroad  Transfer Act  of  [1982],  when  the                                                               
federal government  transferred ownership of the  Alaska Railroad                                                               
to the state, a last-minute  provision was added that exempts the                                                               
railroad  from   the  requirements  of  what   were  then  called                                                               
industrial  development  bonds  -  now  called  private  activity                                                               
bonds.                                                                                                                          
                                                                                                                                
MR.  SLOTNICK  read  from  the   Alaska  Railroad  Transfer  Act,                                                               
"Obligation  issued  by  such  entity   shall  be  deemed  to  be                                                               
obligations of the  state but not obligations  within the meaning                                                               
of  section  103(b)(2)  of  the   Internal  Revenue  Code."    He                                                               
indicated this gives the railroad  an exemption to the rules that                                                               
otherwise  would  require  the   entity  selling  the  industrial                                                               
development  bonds  as  a  conduit to  retain  ownership  of  the                                                               
facilities.                                                                                                                     
                                                                                                                                
MR. SLOTNICK reported  that furthermore, there is no  cap here on                                                               
the amount  of bonds that  could be sold.   Student loans  can be                                                               
sold by  the state, for  example, but are  capped.  He  added, "I                                                               
think the State of Alaska has  a $185 million cap, ... and that's                                                               
always spoken  for by AHFC [Alaska  Housing Finance Corporation],                                                               
by AIDEA  [Alaska Industrial  Development and  Export Authority],                                                               
and  by  Alaska  Student  Loan   [Corporation],  as  well  as  by                                                               
municipalities."                                                                                                                
                                                                                                                                
Number 0739                                                                                                                     
                                                                                                                                
MR.  SLOTNICK  pointed out  that  despite  the Alaska  Railroad's                                                               
unique  exemption in  the  United States  Code,  it doesn't  have                                                               
authorization under  state law to  issue bonds.   It has  to come                                                               
back to  [the legislature] before  issuing any bonds at  all, and                                                               
it  doesn't  have  specific  authorization  to  issue  bonds  for                                                               
development  of  a natural  gas  pipeline.   He  therefore  urged                                                               
passage of HB 423.                                                                                                              
                                                                                                                                
MR.  SLOTNICK  suggested  that bond  counsel  Eric  Wohlforth  of                                                               
Wohlforth, Vassar,  Johnson & Brecht, who  was on teleconference,                                                               
could  offer   expertise  regarding  both  the   Alaska  Railroad                                                               
Transfer  Act and  the financing  that took  place on  the Valdez                                                               
marine terminal, should there be technical questions.                                                                           
                                                                                                                                
Number 0851                                                                                                                     
                                                                                                                                
MR. SLOTNICK turned  attention to the financing  modeling and why                                                               
it might be  something the producers would be interested  in.  He                                                               
said  tax-exempt   financing  is  always  cheaper   than  taxable                                                               
financing.  People  who buy the bonds don't have  to pay taxes on                                                               
the interest from the bonds; therefore,  the bonds can be sold at                                                               
a much cheaper  interest rate.  Generally, the  market will price                                                               
tax-exempt bonds 20-25 percent cheaper than taxable bonds.                                                                      
                                                                                                                                
MR.  SLOTNICK estimated  that if  this were  financed today  on a                                                               
"project-finance" basis,  the spread in interest  rates between a                                                               
taxable and a tax-exempt project-finance  bond would be roughly 2                                                               
percent.   For  example, if  the  market priced  this project  at                                                               
about 8.5 percent  taxable, he said, "we would think  it would be                                                               
about a 6.5 tax-exempt."                                                                                                        
                                                                                                                                
Number 0955                                                                                                                     
                                                                                                                                
MR. SLOTNICK noted  that the producers would  have many financing                                                               
options for this  project.  For instance, rather  than having the                                                               
bonds based  on the project  itself, they  could be based  on the                                                               
balance sheet of the corporations,  which would provide a cheaper                                                               
rate because of the more  solid guarantee.  Tax-exempt bonds sold                                                               
based  on the  corporate credit  would be,  again, roughly  20-25                                                               
percent cheaper than taxable bonds.                                                                                             
                                                                                                                                
MR.  SLOTNICK explained  that because  of  the numerous  options,                                                               
presenting a  model and  figuring out the  amount of  savings was                                                               
difficult; nonetheless, he was presenting  a model that assumes a                                                               
$17  billion project  that  is 70  percent  debt-financed and  30                                                               
percent equity-financed,  which requires someone to  come up with                                                               
cash before the bonds are brought  to market.  The market doesn't                                                               
want to see  100 percent debt financing, he  explained, but wants                                                               
someone taking risks  other than the purchasers  and investors in                                                               
the  bonds used  to finance  a project.   He  cited the  Alliance                                                               
Pipeline that transports  natural gas from Alberta  to Chicago as                                                               
an example of a project with that [70-30] structure.                                                                            
                                                                                                                                
MR.  SLOTNICK noted  that using  the  foregoing assumptions,  the                                                               
model  has  $14.25  billion  in  bonds  issued  in  a  tax-exempt                                                               
scenario.  "That's  more than the 70 percent if  you're doing the                                                               
quick math  in your  head," he pointed  out, "but  that's because                                                               
you also sell  bonds to finance the interest  payments during the                                                               
period of  construction."  He  said he would provide  the figures                                                               
for a taxable scenario for comparison.                                                                                          
                                                                                                                                
Number 1128                                                                                                                     
                                                                                                                                
MR.  SLOTNICK continued  with  the  model.   He  referred to  the                                                               
gross-interest difference  referenced in the packet,  but said it                                                               
is  a  meaningless  figure because  interest  is  tax-deductible.                                                               
What should  be compared is  the after-tax difference in  cost to                                                               
the companies  of tax-exempt versus  taxable financing.   To make                                                               
it meaningful, he  said, one needs to "present-value  it" back to                                                               
today's dollars.  This is a  25-year project, he pointed out, and                                                               
future dollars  aren't worth  as much as  dollars in  hand today;                                                               
therefore,  in this  model  it is  "present-valued"  back to  the                                                               
start of the  project, with a resulting savings  to the producers                                                               
"in  2007  dollars"  of  more  than  $1  billion  for  tax-exempt                                                               
financing.                                                                                                                      
                                                                                                                                
Number 1239                                                                                                                     
                                                                                                                                
MR. SLOTNICK highlighted an important  element of the model:  the                                                               
expectation  that  the  producers would  enter  into  ship-or-pay                                                               
contracts.  He explained:                                                                                                       
                                                                                                                                
     That would  be the basis  of ... taking this  credit to                                                                    
     market.    That's the  way  the  Alliance Pipeline  was                                                                    
     done, is  that the  producers entered  into ship-or-pay                                                                    
     contracts,  meaning  that  even   if  ...  the  project                                                                    
     doesn't   get  built   or  is   delayed,  there   is  a                                                                    
     requirement that  the producers come up  with the money                                                                    
     that would be backing the  bonds.  That's why there ...                                                                    
     would  always be  the credit  of  the producers  behind                                                                    
     such a project.                                                                                                            
                                                                                                                                
Number 1280                                                                                                                     
                                                                                                                                
MR.  SLOTNICK  reported  that [the  Department  of  Revenue]  had                                                               
worked  closely  with an  "investment  banker"  firm to  do  this                                                               
modeling.   Not only had  the department's economist  run models,                                                               
but  economists and  analysts at  the firm  of Goldman  Sachs had                                                               
assisted  and run  some models  as well.   Mr.  Slotnick said  he                                                               
wasn't  sure  whether  the  analyst from  Goldman  Sachs  was  on                                                               
teleconference that day  to answer questions, but if  there was a                                                               
question he  himself couldn't  answer, he could  get back  to the                                                               
committee later with the answer.                                                                                                
                                                                                                                                
Number 1336                                                                                                                     
                                                                                                                                
MR.  SLOTNICK explained  [Section 2]  of HB  423.   He reiterated                                                               
that the  Alaska Railroad has  a unique authorization  in federal                                                               
law that  allows it to issue  bonds to finance this  project, but                                                               
doesn't  have  that  authority  in   Alaska  law.    [Section  2]                                                               
therefore  requests an  amendment to  AS 42.40.250,  the enabling                                                               
Act for  the Alaska Railroad,  to add  a paragraph [(13)]  to the                                                               
list  that  provides authority  for  the  railroad to  issue  the                                                               
financing  "for   the  acquisition,   construction,  improvement,                                                               
maintenance,  equipping,  and  operation of  facilities  for  the                                                               
transportation of  natural gas resources  within and  outside the                                                               
state without regard  to whether the facilities are  [or] will be                                                               
owned in while  or in part by the corporation  or located on land                                                               
owned by the corporation."                                                                                                      
                                                                                                                                
Number 1426                                                                                                                     
                                                                                                                                
MR.  SLOTNICK  explained  Section  3.     He  said  AS  42.40.630                                                               
describes  that the  railroad can  issue  bonds with  legislative                                                               
authorization  and  can  pay  for those  bonds  through  its  own                                                               
revenues  or with  state or  federal grants.   He  remarked, "But                                                               
here, of  course, we're  going to require  that the  railroad pay                                                               
for these  bonds through  means of a  contract entered  into with                                                               
the gas-producing  entities.  So  we wanted to put  that directly                                                               
into the law,  as well, for these bonds that  would be sold under                                                               
the previous authorization that I've just described."                                                                           
                                                                                                                                
MR. SLOTNICK noted that Section  4 just states clearly that these                                                               
bonds are for  a public purpose, which is a  requirement to issue                                                               
tax-exempt bonds.   Section 5 gives the  actual authorization for                                                               
ARRC to sell these bonds.                                                                                                       
                                                                                                                                
Number 1485                                                                                                                     
                                                                                                                                
MR.  SLOTNICK brought  attention to  the fiscal  note from  ARRC,                                                               
which describes ARRC's estimated  contractual costs for issuance.                                                               
He  explained,  "Those  costs  would  be paid  for  by  the  bond                                                               
proceeds, but  nevertheless they would  be a cost that  would ...                                                               
have to  go through the  railroad; so,  therefore, we put  in the                                                               
fiscal note with that estimate in it."                                                                                          
                                                                                                                                
MR.  SLOTNICK  turned  attention  to the  fiscal  note  from  the                                                               
Department of Revenue,  saying the department has put  in a small                                                               
fiscal note for this upcoming fiscal year.  He explained:                                                                       
                                                                                                                                
     The  purpose   of  this   money  is   to  RSA   [use  a                                                                    
     reimbursable  services agreement]  to  the railroad  so                                                                    
     that  the  railroad can  enter  into  contracts with  a                                                                    
     financing  team.   The railroad  should  have the  same                                                                    
     kind of access to the  same kind of outside consultants                                                                    
     that we at  the Department of Revenue  have whenever we                                                                    
     go to the market to sell bonds.                                                                                            
                                                                                                                                
Number 1580                                                                                                                     
                                                                                                                                
MR. SLOTNICK  continued with  the department's  fiscal note.   He                                                               
said all entities that sell  bonds engage a financial advisor and                                                               
bond counsel  for these complicated transactions;  there are lots                                                               
of  laws  governing them  and  lots  of financial  considerations                                                               
about  structure  and  timing,   for  example,  that  require  an                                                               
expert's advice.   Frequently, contracts with  financial advisors                                                               
or bond  counsel are done on  a "deal contingency" basis:   "when                                                               
the deal  is done, that's when  they collect their money."   That                                                               
is how the  Department of Revenue pays its  financial advisor and                                                               
bond counsel, he noted.                                                                                                         
                                                                                                                                
MR.  SLOTNICK  cautioned,  however,   that  although  ARRC  could                                                               
probably procure  outside consultants on this  basis, he believes                                                               
ARRC should avail itself of  advisors whose pay isn't necessarily                                                               
contingent on  having a deal  go forward.   If, for  some reason,                                                               
the deal  being discussed  was not  in the  best interest  of the                                                               
state and  the Alaska Railroad, it  would be best if  the advisor                                                               
had no incentive to keep that information quiet.                                                                                
                                                                                                                                
Number 1644                                                                                                                     
                                                                                                                                
MR. SLOTNICK continued with the fiscal note:                                                                                    
                                                                                                                                
     My  suggestion here  is  that it's  a  small amount  of                                                                    
     money, $50,000  for the next  two years to RSA  over to                                                                    
     the railroad  for it to  obtain advisors that  can work                                                                    
     with the  railroad on how  best to structure  this, how                                                                    
     best  to  go forward  to  market.    And if  ...  those                                                                    
     advisors end  up putting in  more time than  is covered                                                                    
     by  this,  well,  I'm  not   too  worried  about  that.                                                                    
     They'll be willing to do that. ...                                                                                         
                                                                                                                                
     If this  goes forward  at all,  this is  going to  be a                                                                    
     very big  deal, and advisors and  consultants are going                                                                    
     to be  willing to give  the railroad all the  help that                                                                    
     [it] needs.                                                                                                                
                                                                                                                                
MR. SLOTNICK reiterated  that he'd feel more  comfortable "if the                                                               
railroad's  financing  team  was  not  out  there  with  its  pay                                                               
contingent on the  deal, that we had a contract  in place to make                                                               
clear  that  these  advisors  were   working  on  behalf  of  the                                                               
railroad."  He continued:                                                                                                       
                                                                                                                                
     I think  the Department  of Revenue  is willing  to RSA                                                                    
     this money to the railroad.   The railroad is not under                                                                    
     the Executive  Budget Act  and didn't  put in  a fiscal                                                                    
     note itself  for these advisors;  we agreed to  do that                                                                    
     on their  behalf, but we do  think that is a  step that                                                                    
     should be  taken. ...  I've met with  the railroad.   I                                                                    
     appeared before  the railroad board  last week.   We've                                                                    
     explained this fiscal note to them.                                                                                        
                                                                                                                                
MR. SLOTNICK concluded by discussing suggestions made:                                                                          
                                                                                                                                
     We've also  suggested to the  railroad that  perhaps we                                                                    
     should assemble a committee of  the state entities that                                                                    
     have a  lot of experience in  issuing tax-exempt bonds.                                                                    
     Besides the  Department of Revenue, that  would include                                                                    
     AIDEA, which has a history  of doing conduit bonds like                                                                    
     this, and  it is an industrial  development agency, ...                                                                    
     and  then  Alaska  Housing [Finance  Corporation];  ...                                                                    
     it's actually  the biggest  issuer of  tax-exempt bonds                                                                    
     in this state,  so they have a lot of  experience and a                                                                    
     lot of good staff.                                                                                                         
                                                                                                                                
     So my suggestion  to the railroad was,  as it's pushing                                                                    
     forward with this and working  on this project and this                                                                    
     deal, that  they consult  with this  committee.   And I                                                                    
     talked to  Bob Poe  [executive director  of AIDEA].   I                                                                    
     talked  to Dan  Fauske [chief  executive officer  (CEO)                                                                    
     and executive director of AHFC].   We're all willing to                                                                    
     provide whatever  help the  railroad needs.   And  so I                                                                    
     made that suggestion to the railroad board last week.                                                                      
                                                                                                                                
Number 1781                                                                                                                     
                                                                                                                                
VICE CHAIR FATE called upon Senator Torgerson, noting that he is                                                                
the chair of both the Senate Resources Standing Committee and                                                                   
the Joint Committee on Natural Gas Pipelines.                                                                                   
                                                                                                                                
Number 1810                                                                                                                     
                                                                                                                                
SENATOR JOHN TORGERSON, Alaska State Legislature, came forward                                                                  
to testify.  He told members:                                                                                                   
                                                                                                                                
     I just  mainly wanted  to inform  the committee  that a                                                                    
     lot  of  what  you  just  heard  about  hiring  outside                                                                    
     counsel  to  look  at  this  is  something  that  we've                                                                    
     already done.  Legislative  Council authorized a goodly                                                                    
     sum  of money  to do  this.   I  went out  with an  RFP                                                                    
     [request for  proposals], as the chairman  of the joint                                                                    
     committee on  pipelines, and we selected  a Washington,                                                                    
     D.C., firm ...  named Hogan & Hartson,  the largest law                                                                    
     firm in  Washington, a very  reputable firm.   They are                                                                    
     going through  and doing the  first "due  diligence" on                                                                    
     ...  whether  or  not the  railroad  actually  has  the                                                                    
     authority.                                                                                                                 
                                                                                                                                
     It  comes down  to  some  fundamental questions,  which                                                                    
     I'll share  with the committee,  that I've  asked them:                                                                    
     Most   generally,   ...    does   the   railroad   have                                                                    
     extraterritorial  powers?    Does   the  law  that  the                                                                    
     federal  government authorized,  the [Alaska  Railroad]                                                                    
     Transfer Act, say that the  railroad has powers to loan                                                                    
     money anywhere in the state or in a foreign country?                                                                       
                                                                                                                                
     I realize  a lot of this  would be done through  ... an                                                                    
     American firm,  and Alaska-based, maybe, and  what they                                                                    
     do with their money after  that is maybe no business of                                                                    
     ours,  as long  as  it  has something  to  do with  the                                                                    
     pipeline.    So  ...  it will,  in  fact,  be  building                                                                    
     something in  a foreign  country, but  it may  be under                                                                    
     the obligation of ... another entity. ...                                                                                  
                                                                                                                                
     The  question really  is,  ... in  the  transfer Act  -                                                                    
     which was really  clear on the property  that was owned                                                                    
     by  the Alaska  Railroad,  and which  was decided  with                                                                    
     legal descriptions and so forth,  this was just ... one                                                                    
     little paragraph  in that  transfer Act  - did  it mean                                                                    
     that  the  railroad  could do  anything  it  wanted  to                                                                    
     outside of that area?                                                                                                      
                                                                                                                                
Number 1916                                                                                                                     
                                                                                                                                
SENATOR TORGERSON highlighted five  questions he'd asked [Hogan &                                                               
Hartson]  to  respond  to  initially.    First,  can  the  Alaska                                                               
Railroad  provide  tax-exempt financing  for  that  portion of  a                                                               
pipeline within  Alaska?  Second,  can it provide  such financing                                                               
for a portion of a pipeline  outside of Alaska - in Canada, other                                                               
states, the  Far East, or  Mexico?   He noted that  any incentive                                                               
might "tip  a few  more projects  over the edge  as far  as being                                                               
economical."                                                                                                                    
                                                                                                                                
SENATOR  TORGERSON continued  with  the five  questions.   Third,                                                               
could it  provide such  financing for that  portion of  a project                                                               
that isn't a  part of the pipeline, such as  extraction plants in                                                               
Alaska,  Canada,  or  the Lower  48;  "liquefication"  plants  in                                                               
Alaska; or  "regassification" plants in  the Far East  or Mexico?                                                               
Fourth, can it  provide financing for more than one  project?  He                                                               
mentioned the need for suggestions on how to do that.                                                                           
                                                                                                                                
Number 1979                                                                                                                     
                                                                                                                                
SENATOR  TORGERSON noted  that  the fifth  question,  one of  the                                                               
larger  ones,  is  whether  a letter  ruling  from  the  Internal                                                               
Revenue Service  (IRS) is needed.   He added, "Once we  get those                                                               
done, then  it'll be our job,  and this committee's job,  to look                                                               
at the impacts this will have  on our corporate tax structure, if                                                               
any, the  ad valorem taxes  of our  municipality - our  20 mills,                                                               
which we share with local governments."  He told members:                                                                       
                                                                                                                                
     I want this to work, but  this is a big question.  This                                                                    
     is a lot of  money.  And we need to  make sure ... that                                                                    
     we have all  the information that we can.   So I expect                                                                    
     an  initial ruling  back from  this law  firm in  about                                                                    
     three weeks,  which I'll  be glad  to share  [with] the                                                                    
     committee.   And I'll make our  consultant available to                                                                    
     the committee.   And I  have no idea what  you're going                                                                    
     to do with the bill, but  if anywhere we need to do it,                                                                    
     I'll be  glad to make  ... this person  available, plus                                                                    
     we'll be  having hearings  through the  Joint Committee                                                                    
     on Natural Gas Pipelines.                                                                                                  
                                                                                                                                
Number 2054                                                                                                                     
                                                                                                                                
VICE CHAIR FATE expressed hope  that some of those questions will                                                               
be answered  by the  time HB  423 gets  to [the  Senate Resources                                                               
Standing Committee].   He thanked Senator  Torgerson, noting that                                                               
those questions were ones the committee had been going to ask.                                                                  
                                                                                                                                
Number 2088                                                                                                                     
                                                                                                                                
PATRICK GAMBLE,  President and  CEO, Alaska  Railroad Corporation                                                               
(ARRC),   Department  of   Community   &  Economic   Development,                                                               
testified  via  teleconference, noting  that  with  him was  Bill                                                               
O'Leary, chief financial officer for ARRC.  He told members:                                                                    
                                                                                                                                
     At this  early stage in the  process, while everybody's                                                                    
     getting the  legal issues sorted out,  the railroad and                                                                    
     the   executive  staff   for  the   railroad  are   ...                                                                    
     intentionally  maintaining a  pretty  low profile  with                                                                    
     regard to taking  steps to move forward  at the present                                                                    
     time,  steps  that  would include  hiring  advisors  or                                                                    
     structuring  the organization  in some  way other  than                                                                    
     its   current  structure,   in  anticipation   of  this                                                                    
     project.                                                                                                                   
                                                                                                                                
     And we  do that  deliberately because while  there have                                                                    
     been ...  some great  suggestions that have  been made,                                                                    
     such as Neil Slotnick's  suggestion to have a committee                                                                    
     with AIDEA and  AHFC and [Mr. Slotnick]  and his folks,                                                                    
     together  with the  railroad,  these  are all  probably                                                                    
     good ways that  we could evaluate to  move forward when                                                                    
     the time comes.                                                                                                            
                                                                                                                                
     The bottom line is that  the railroad really can't take                                                                    
     any  official  steps  until   its  board  of  directors                                                                    
     authorizes us  to sell  the bonds.   And that  step, of                                                                    
     course,  has  not been  taken,  and  it's going  to  be                                                                    
     awhile,  probably,  before  it is  taken,  because  the                                                                    
     board is in  the process of getting  better educated on                                                                    
     this whole issue itself.                                                                                                   
                                                                                                                                
     At   our  last   board  meeting,   as  [Mr.   Slotnick]                                                                    
     mentioned, we had AHFC sort  of gives us a "Bonds 101,"                                                                    
     a peak  under the  tent at what  the corporation  is in                                                                    
     for, should  ... the decision  be made to  move forward                                                                    
     on  this.    And  the  board  is  in  the  business  of                                                                    
     preparing  to authorize  us to  take  the first  steps.                                                                    
     Their presentation  was very helpful in  ... helping us                                                                    
     to determine  what kind  of organizational  impact this                                                                    
     overall project would have on the railroad.                                                                                
                                                                                                                                
Number 2198                                                                                                                     
                                                                                                                                
MR. GAMBELL continued:                                                                                                          
                                                                                                                                
     The railroad's  position is, we've also  got a railroad                                                                    
     to  run and  ... run  it safely,  and that's  first and                                                                    
     foremost our consideration.  And  this would be a large                                                                    
     addition to what we are  currently very busy doing.  So                                                                    
     there are  some significant  impacts that  would accrue                                                                    
     to the  railroad, and we're quietly  doing our homework                                                                    
     with regard to  those kinds of things.   But, formally,                                                                    
     we  are not  out  hiring anyone  at  the present  time.                                                                    
     We're sort of keeping our  powder dry but getting a lot                                                                    
     smarter,  so that  when  the time  comes,  we can  move                                                                    
     forward  in concert  with those  others  that ...  will                                                                    
     support us and move with us and give us assistance.                                                                        
                                                                                                                                
     And as you  well know - and I've said  this a couple of                                                                    
     times before  - the  railroad has been  instrumental in                                                                    
     some of the  key development moves in the  state in the                                                                    
     past, and  this is  simply a  continuation ...  of that                                                                    
     history, to  be able to  ... possibly do this  again in                                                                    
     the future in  a very big way.  And  so we stand ready,                                                                    
     willing, and  able to step up  to the plate ...  and do                                                                    
     that when the time comes.                                                                                                  
                                                                                                                                
Number 2284                                                                                                                     
                                                                                                                                
VICE  CHAIR  FATE  referred  to   Mr.  Gamble's  mention  of  the                                                               
responsibility  of  the  railroad  and  to  previous  mention  by                                                               
Senator  Torgerson of  multiple  projects.   He  asked whether  a                                                               
bonding  capacity of  $17 billion,  if  entirely utilized,  would                                                               
interfere with the operation of  the railroad, and whether [ARRC]                                                               
would be able to bond any other projects.                                                                                       
                                                                                                                                
MR. GAMBLE said that is a legitimate question that needs to be                                                                  
developed more fully.  He added:                                                                                                
                                                                                                                                
     I  can tell  you  that there  would  be a  considerable                                                                    
     amount of  additional business  in actually  moving the                                                                    
     pipe, ...  just plain railroad business.   The capacity                                                                    
     of the railroad to move  those very heavy, long lengths                                                                    
     of  pipe, and  the additional  structure that  it would                                                                    
     take in  terms of cars, so  as not to compete  with the                                                                    
     current  business  that  we  ...  have,  including  our                                                                    
     passenger  service in  the summertime  -  you know,  we                                                                    
     don't want  to kick them  off the  line - we  would see                                                                    
     the possibility ... of some  improvements - in terms of                                                                    
     our capacity  to be able  to handle all  the additional                                                                    
     work at the  same time - as possibly  being a precursor                                                                    
     to ... actually moving the pipe.                                                                                           
                                                                                                                                
     And in that  sense, there may be  some project-kinds of                                                                    
     improvements, to  say the parts  of the rail  line that                                                                    
     haven't  been  rebuilt  as we've  been  rebuilding  our                                                                    
     infrastructure,  maybe  improvements  to  some  of  our                                                                    
     bridges.   As you  know, those ...  can be  weak points                                                                    
     when you're hauling very heavy  items.  And, of course,                                                                    
     the maintenance  of our  line is  directly proportional                                                                    
     to the  weight and  frequency of heavy  trains crossing                                                                    
     that line, which would be significantly increased.                                                                         
                                                                                                                                
     So ...  the original idea  of the bonds, when  this was                                                                    
     put   into  the   transfer   Act,   was  for   railroad                                                                    
     development.   And we  certainly would  have to  take a                                                                    
     close  look   at  what  further  development   ...  the                                                                    
     railroad  might need  ...  in order  to  make sure  its                                                                    
     infrastructure  can   provide  the   robustness  that's                                                                    
     required for  the safety and  capacity that's  going to                                                                    
     be called for in this very large project.                                                                                  
                                                                                                                                
Number 2438                                                                                                                     
                                                                                                                                
DANIEL R. FAUSKE, CEO/Executive  Director, Alaska Housing Finance                                                               
Corporation, Department  of Revenue, came forward  accompanied by                                                               
Joe  Dubler.   He noted  that  on teleconference  should be  Eric                                                               
Wohlforth; Steven Kantor  [President, Arimax Financial Advisors],                                                               
financial  advisor to  the corporation;  and John  Wagner [Senior                                                               
Partner, Kutak  Rock], special tax  counsel.  He said  these were                                                               
the same  individuals present  before the  railroad board  a week                                                               
ago,  as Mr.  Slotnick had  referenced.   He  suggested that  Mr.                                                               
Wagner, in  particular, could address questions  posed by Senator                                                               
Torgerson in regard  to the ability to build  pipelines in Alaska                                                               
as well as Canada.                                                                                                              
                                                                                                                                
MR. FAUSKE  brought attention to  a handout in  committee packets                                                               
titled "Presentation  to the House  Special Committee on  Oil and                                                               
Gas  by  Alaska Housing  Finance  Corporation,"  dated March  25,                                                               
2002.   He explained that as  requested by the committee,  it was                                                               
the same packet  [AHFC] had produced for the  railroad except for                                                               
the title page.                                                                                                                 
                                                                                                                                
MR.   FAUSKE   referred   to  the   page   labeled   "AHFC   Team                                                               
Participants."  Besides people present  and on teleconference, he                                                               
noted,  the   team  included   others  [Judith   DeSpain,  Deputy                                                               
Executive  Director, AHFC;  Michael Buller,  Chief Administrative                                                               
Officer,  AHFC;  and  Ken   Vassar,  Senior  Partner,  Wohlforth,                                                               
Vassar, Johnson & Brecht].                                                                                                      
                                                                                                                                
MR. FAUSKE referred to the next  page, "AHFC Team."  He indicated                                                               
AHFC  averages $500  million to  $900 million  a year  in various                                                               
types of bond transactions.  He  said the assembled team had been                                                               
together for  some time, and  "assists us in performing  all this                                                               
activity."   [The Management and  Finance team list  included the                                                               
AHFC  executive staff,  the AHFC  finance department,  and Arimax                                                               
Financial Advisors.   The Legal Team  included Wohlforth, Vassar,                                                               
Johnson & Brecht,  "Leading Bond Counsel in  Alaska"; Kutak Rock,                                                               
"One  of the  nation's  leading municipal  bond  tax firms";  and                                                               
Hawkins Delafield & Wood, "The  nation's largest law firm devoted                                                               
exclusively to municipal bonds."]                                                                                               
                                                                                                                                
Number 2545                                                                                                                     
                                                                                                                                
MR. FAUSKE  brought attention  to the next  page of  the handout,                                                               
"$13.153  Billion  in  Bonds  Issued by  AHFC,"  noting  that  it                                                               
provides a brief  history and details the amount of  bond work it                                                               
has  done.    He  said  [for tax-exempt  bonds]  there  were  101                                                               
negotiated transactions  and 25  competitive transactions,  for a                                                               
total of $9.017 billion; there  also were about $4.136 billion in                                                               
taxable  bonds [from  70 negotiated  transaction].   In addition,                                                               
AHFC is involved in short-term  debt issuance of "Euro commercial                                                               
paper," although he said, "We  no longer have the Euro commercial                                                               
paper program;  we brought all  that onshore  [in] ... '99."   In                                                               
addition,  he  noted,  are  [repurchase]  agreements  in  varying                                                               
amounts.                                                                                                                        
                                                                                                                                
MR. FAUSKE turned attention to  the next page, "Non-Housing Bonds                                                               
Issued  by AHFC."   He  noted that  so-called tobacco  settlement                                                               
bonds  were  $116 million  in  2000  and  $126 million  in  2001;                                                               
university [dormitory]  bonds were  $33 million [in  1997]; state                                                               
capital project  bonds under  SB 360  totaled about  $300 million                                                               
[$196 million  in 1999 and $74  million in 2001]; and  the Robert                                                               
B. Atwood  Building bought in downtown  Anchorage [required bonds                                                               
of $40 million in 1999].                                                                                                        
                                                                                                                                
Number 2606                                                                                                                     
                                                                                                                                
MR.  FAUSKE discussed  the next  page, labeled  "AHFC has  issued                                                               
more bonds than any other issuer  in Alaska"; he pointed out that                                                               
its  graph  relates  to  Mr.  Slotnick's  testimony  and  various                                                               
issuers of  bonds in Alaska.   It shows that AHFC  is certainly a                                                               
key player  [at 31.6  percent of tax-exempt  debt in  Alaska from                                                               
1992 to  2002], as  are other  entities.   He noted  the activity                                                               
across  Alaska  by  not  only state  institutions,  but  also  by                                                               
municipal   governments,  boroughs,   the  Alaska   Student  Loan                                                               
Corporation, and others.                                                                                                        
                                                                                                                                
Number 2626                                                                                                                     
                                                                                                                                
MR. FAUSKE referred to the cap  mentioned by Mr. Slotnick that is                                                               
imposed on  tax-exempt bond financing;  he informed  members that                                                               
the cap now has been raised  to $220 million.  All those entities                                                               
doing  private-activity bonds  compete against  it.   As for  the                                                               
issue addressed in HB 423, he said:                                                                                             
                                                                                                                                
     The beauty of this transaction  is that it is not under                                                                    
     that cap.   So that  would be a  significant advantage,                                                                    
     because for  a deal of this  size - I believe  the bill                                                                    
     states $17  billion - that  would tie up  that private-                                                                    
     activity bond cap for "pretty  much ever."  There would                                                                    
     be  no  ability to  do  that  project in  an  effective                                                                    
     manner and  also allow [AHFC], AIDEA,  [Alaska] Student                                                                    
     Loan   [Corporation],   North  Slope   Borough,   Kenai                                                                    
     Borough, [or]  any of the  other entities that  need to                                                                    
     apply  for  pieces of  that  cap  for their  tax-exempt                                                                    
     authorization.                                                                                                             
                                                                                                                                
     So the ability for this  bond transaction to be outside                                                                    
     that is absolutely  key to its success  and its ability                                                                    
     to  function without  undue harm  being created  to the                                                                    
     other issuing entities across the state of Alaska.                                                                         
                                                                                                                                
Number 2675                                                                                                                     
                                                                                                                                
MR. FAUSKE  brought attention  to the next  page of  the handout,                                                               
"The  Bond  Issuance  Process."   Selection  of  the  appropriate                                                               
[professionals]  is  key  to  that   process,  he  said,  whether                                                               
financial, tax,  legal, or financing-specific experts.   He again                                                               
noted  that   Mr.  Kantor,  AHFC's  financial   advisor,  was  on                                                               
teleconference to answer questions.                                                                                             
                                                                                                                                
MR.  FAUSKE  recalled  that WEFA  [Wharton  Economic  Forecasting                                                               
Associates, now  combined into DRI-WEFA]  had been brought  on to                                                               
analyze the  legitimacy of  the figures  produced by  the tobacco                                                               
industry in relation  to what the settlement payments  to all the                                                               
states would be.   He indicated WEFA was  an outside quantitative                                                               
analyst that  gave support to  the states and eventually  to AHFC                                                               
in creation  of the  Northern Tobacco  Securitization Corporation                                                               
to issue  the bonds, so  that there  would be verifiable  data to                                                               
take to the investors - in  the process of putting a bond package                                                               
together, to provide  an indication of the  payment schedules and                                                               
of  the validity  and  security  for those  payments  - prior  to                                                               
purchase of the bonds.                                                                                                          
                                                                                                                                
MR. FAUSKE  suggested this  present case  would be  no different:                                                               
experts  would  analyze  the  validity of  the  project  and  the                                                               
financing  structure, to  offer additional  security and  comfort                                                               
levels   for  those   getting   involved   in  the   transaction.                                                               
Certainly, he said, there would  be special tax counsel; he again                                                               
noted that on  teleconference was a person  whose services [AHFC]                                                               
has used many times, Mr. Wagner  of Kutak Rock, a well-known firm                                                               
that does tax  counsel work for Exxon[Mobil  Corporation].  There                                                               
also  would  be  bond  counsel,   he  said,  which  the  firm  of                                                               
Wohlforth, Vassar, Johnson & Brecht  provides for the corporation                                                               
and other  entities around the  state.  Furthermore,  there would                                                               
be  disclosure   counsel,  engineering   specialists,  investment                                                               
advisors, and other specialty consultants, to name a few.                                                                       
                                                                                                                                
Number 2850                                                                                                                     
                                                                                                                                
MR.  FAUSKE  advised  members  that   in  developing  an  optimal                                                               
financing structure,  coordination with the users  of the project                                                               
is  essential.     As  pointed  out  earlier,   this  is  conduit                                                               
financing; the absolute credit and  ability to pay is "structured                                                               
within  the   firms  of   the  industry,"   and  in   this  case,                                                               
Exxon[Mobil], BP, and Phillips are the three primary players.                                                                   
                                                                                                                                
MR.  FAUSKE recounted  that while  he  was with  the North  Slope                                                               
Borough,  "we would  issue bonds  on  behalf of  the North  Slope                                                               
Borough."  Although those were  general obligation (GO) bonds, he                                                               
also was involved  in conduit financing to  develop a solid-waste                                                               
treatment  facility.    When  he met  with  rating  agencies  and                                                               
investment [firms],  one of  the first things  he'd ask  was what                                                               
the underlying  credit of BP  and ARCO  were; in those  days, the                                                               
North Slope Borough's  tax structure was such  that 94-95 percent                                                               
of its tax revenue came from two or three major [oil] firms.                                                                    
                                                                                                                                
MR. FAUSKE  said the  first question to  ask, therefore,  is what                                                               
the underlying  credit is; in  the instance of ARRC's  issuing of                                                               
the bonds on behalf of the  producers, as contemplated in HB 423,                                                               
the credit of the producers is  what is [important].  He remarked                                                               
that  the three  major oil  companies are  "large players"  on an                                                               
international scale.                                                                                                            
                                                                                                                                
Number 2898                                                                                                                     
                                                                                                                                
JOE   DUBLER,   Finance    Director,   Alaska   Housing   Finance                                                               
Corporation,   Department  of   Revenue,  addressed   an  earlier                                                               
question about  ARRC's issuing  bonds for its  own purposes.   He                                                               
explained that because  the $17 billion - or  whatever the number                                                               
ends up  being -  in bonds  won't use  the railroad's  credit but                                                               
will look to the oil companies  for their credit ratings, the oil                                                               
companies'  ability  to  access  the  bond  market  shouldn't  be                                                               
affected at all.                                                                                                                
                                                                                                                                
Number 2920                                                                                                                     
                                                                                                                                
MR.  FAUSKE mentioned  the  type of  structure  and the  numerous                                                               
options, noting that  Mr. Slotnick's model, to his  belief, has a                                                               
four-year construction schedule.  He  emphasized the need to have                                                               
the oil companies involved because  there would be interim short-                                                               
term  financing, in  many cases,  for construction  costs.   That                                                               
could be  accomplished in  a number  of ways.   For  instance, an                                                               
"equity  infusion" could  be put  in  place by  the industry;  he                                                               
noted that Mr. Slotnick's model uses 30 percent equity.                                                                         
                                                                                                                                
MR.  FAUSKE  said  the individual  financial  structures  of  the                                                               
issuing entities  would need to  be looked at regarding  how they                                                               
want to  see the short-term  financing.   They might opt  to have                                                               
ARRC issue bond anticipation notes  (BANs), which are short-term,                                                               
low-interest-bearing  credit used  for interim  financing, "which                                                               
are then taken out longer term  by bonds."  Or some entity fairly                                                               
heavy in cash might decide to use cash financing for its piece.                                                                 
                                                                                                                                
TAPE 02-18, SIDE B                                                                                                              
Number 2985                                                                                                                     
                                                                                                                                
MR.  FAUSKE explained  that even  though it's  a big  project, it                                                               
will use the  same financial strategy used in smaller  deals.  It                                                               
relates  to how  firms and  issuers maximize  their abilities  to                                                               
enter the  bond market in the  most efficient manner so  that the                                                               
best   cost   savings   are  generated.      Carefully   matching                                                               
construction  financing with  long-term financing  ends up  being                                                               
critical to  the overall success of  the project.  If  one reason                                                               
to  go to  the tax-exempt  market is  because of  savings, it  is                                                               
critical  to  have a  well-planned  financing  timetable so  that                                                               
money is available when needed to supply that efficiency.                                                                       
                                                                                                                                
Number 2937                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE asked what the  timeframe is to put  the package                                                               
together.                                                                                                                       
                                                                                                                                
MR.  FAUSKE  answered  that  there   are  some  legal  parameters                                                               
regarding authorization as  to when to actually  issue the bonds.                                                               
Consulting with Mr. Dubler,  he said it is 60 or  90 days, to his                                                               
belief,  regarding  disclosure  items  and  presentation  of  the                                                               
official statements.   "To put  together documents,  we generally                                                               
allow 45 to 60 days," he added.   He said the ability to get into                                                               
the market is  actually a fairly quick process if  all members of                                                               
the team are in place and know  their roles; it could be a matter                                                               
of weeks or months, "maybe a  couple of months at the outset," to                                                               
do the first phase.  He remarked:                                                                                               
                                                                                                                                
     I would never advocate -  and I don't think anyone here                                                                    
     would -  that you'd  be out on  the street  selling $17                                                                    
     billion worth of  bonds at one sale.  It'd  be just too                                                                    
     big.   One thing, it  would just inundate ...  the U.S.                                                                    
     market of  tax-exempt [financing]; ... it'd  be hard to                                                                    
     ...  disburse  that number  of  bonds  in an  effective                                                                    
     manner.   And,  also,  it probably  wouldn't match  the                                                                    
     construction cycle.   You wouldn't need  all that money                                                                    
     upfront.  So you'd want  to stage yourself going out so                                                                    
     that  you'd  maximize  the   economies  of  scale  when                                                                    
     selling those [bonds].                                                                                                     
                                                                                                                                
Number 2857                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE added  that one  must stay  ahead of  "the power                                                               
curve in  the permitting  and the  licensing procedures  that are                                                               
going to take place, which take a much longer period of time."                                                                  
                                                                                                                                
MR. FAUSKE agreed.   He then addressed local  support.  Regarding                                                               
selling bonds  to build a  trans-Alaska natural gas  pipeline, he                                                               
said  it isn't  something he  would  anticipate a  great deal  of                                                               
"disharmony" about,  although there  could be  some.   He offered                                                               
his perception,  from what is in  the papers and "on  the street"                                                               
that  it  would  be  viewed   quite  positively  by  the  public.                                                               
However, information  to the  public may  be limited  because the                                                               
petroleum  companies   won't  be   required  legally   to  reveal                                                               
construction and drilling schedules, for example.                                                                               
                                                                                                                                
Number 2770                                                                                                                     
                                                                                                                                
MR.  FAUSKE turned  attention to  rating agencies.   Long  before                                                               
issuing the first  bonds, he said, "you" are going  to be meeting                                                               
with  the  three major  rating  analysts  - Moody's,  Standard  &                                                               
Poor's, and Fitch - to  outline the proposals; discuss the bonds;                                                               
and  discuss  the  structure,  even prior  to  the  selection  of                                                               
underwriting firms.   Prior  to issuance, then,  there will  be a                                                               
rating,  by  the  rating  agencies,  on those  bonds.    That  is                                                               
critical  because  it  establishes   the  level  of  risk,  which                                                               
[determines]  the amount  of interest  paid on  those coupons  or                                                               
bonds being issued.                                                                                                             
                                                                                                                                
Number 2725                                                                                                                     
                                                                                                                                
JOHN  WAGNER,  Senior  Partner, Kutak  Rock  LLP,  testified  via                                                               
teleconference, noting that  his law firm is  special tax counsel                                                               
to AHFC.   In response  to Vice  Chair Fate's question  about the                                                               
timetable for getting into the market,  he said the tax laws have                                                               
restrictions  regarding how  quickly  one must  start using  bond                                                               
proceeds.  He explained:                                                                                                        
                                                                                                                                
     One of the rules is that  you have to expect to use ...                                                                    
     85  percent   of  the  proceeds  within   three  years.                                                                    
     Obviously, this  is a very long-term  project, so these                                                                    
     bonds will  have to be  issued in trenches,  based upon                                                                    
     the engineers' expectations  of the use of  money.  Our                                                                    
     firm  happened  to  be  underwriters'  counsel  on  the                                                                    
     Valdez financings many years  ago, ... [which] occurred                                                                    
     over a period of time for that very reason.                                                                                
                                                                                                                                
Number 2684                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING thanked  Mr.  Fauske and  Mr. Dubler  for                                                               
their work  and for the  staff's outstanding job over  the years.                                                               
He commended  them for doing such  an exemplary job at  AHFC.  He                                                               
suggested the  need to support  elements of government that  do a                                                               
good job; he said AHFC certainly  is one of those, being one that                                                               
actually  makes  money for  the  State  of Alaska,  although  the                                                               
legislature  has  seen fit  to  take  some  of  that money  as  a                                                               
"reward"  for  doing  a  good  job.   He  recommended  that  AHFC                                                               
continue, along  with ARRC, to  advise the  legislature regarding                                                               
this bond-issuance process.                                                                                                     
                                                                                                                                
Number 2620                                                                                                                     
                                                                                                                                
MR. FAUSKE  addressed marketing  of the bonds,  which he  said is                                                               
critical.  Selling a bond is  selling a product, he explained.  A                                                               
deal   of  this   size  will   involve  a   great  many   "large,                                                               
institutional investors"  such as insurance companies  or pension                                                               
trust funds.  In addition,  AHFC's schedules include a process it                                                               
has initiated - going out to  retail investors.  "In other words,                                                               
we  have a  special  timeframe  that we  offer  up,  on our  bond                                                               
transactions, where Alaskans get a  priority scheduling at a time                                                               
where  they buy  bonds," he  said,  noting that  on "the  tobacco                                                               
deal,"  50 percent  of the  $126  million was  done under  retail                                                               
transactions.  He added:                                                                                                        
                                                                                                                                
     We've found  it to be a  good piece of business.   [It]                                                                    
     ... gives  Alaskans an  opportunity to  ... be  in that                                                                    
     marketplace.   And something with a  credit rating that                                                                    
     I would  assume this  is going to  have is  generally a                                                                    
     pretty good investment.   And it's back  to that public                                                                    
     support  issue,   as  well  as  to   give  Alaskans  an                                                                    
     opportunity to make sure that they're purchasers.                                                                          
                                                                                                                                
Number 2547                                                                                                                     
                                                                                                                                
MR. FAUSKE  explained that  the process doesn't  end the  day the                                                               
last bond is sold.  He said:                                                                                                    
                                                                                                                                
     You've  got  disclosure  and continuing  disclosure  on                                                                    
     those bonds  for years to come,  absolutely out through                                                                    
     the  life  of  the  bonds.   And  without  knowing  the                                                                    
     structure of this  - whether they're 10-year  or 15- or                                                                    
     20-year bonds  - you're  certainly going  to be  in the                                                                    
     marketplace,   because  you're   going   to  be   doing                                                                    
     refinancings  or  refundings   of  bonds,  potentially,                                                                    
     depending on what interest rate markets do.                                                                                
                                                                                                                                
     But  also,  ...  any  disclosure   issues  or  any  ...                                                                    
     questions involving  the bonds  would come back  to the                                                                    
     issuing  entity and  its  ... experts  that  it has  on                                                                    
     staff for  disclosure items, to answer  those questions                                                                    
     to the purchasers of the bonds.                                                                                            
                                                                                                                                
Number 2512                                                                                                                     
                                                                                                                                
MR. FAUSKE asked Mr. Wagner to respond to Senator Torgerson's                                                                   
testimony about "the ability of financing outside the borders of                                                                
Alaska."                                                                                                                        
                                                                                                                                
MR. WAGNER responded:                                                                                                           
                                                                                                                                
     Senator, I know it's one  of the questions you asked of                                                                    
     Hogan  & Hartson,  so  I  don't mean  to,  in any  way,                                                                    
     interfere in  what they're  going to  look at  for you.                                                                    
     But there is ample evidence,  in at least the Lower 48,                                                                    
     of states  or their local municipalities  issuing bonds                                                                    
     and using  the proceeds to finance  facilities that are                                                                    
     located  outside the  state and,  in  some cases,  even                                                                    
     outside the  territory of the  United States,  that is,                                                                    
     in  foreign countries,  particularly  in Canada,  where                                                                    
     this is  done a  lot by  publicly owned  utilities, not                                                                    
     investor-owned,    but     ...    actually    political                                                                    
     subdivisions themselves,  and they finance  portions of                                                                    
     hydroelectric lines and ... such from Canada.                                                                              
                                                                                                                                
     So, for what  it's worth, there is  ... ample precedent                                                                    
     in  the  ... other  states  for  the  use of  bonds  to                                                                    
     finance  facilities   that  are  located   outside  the                                                                    
     territory of the state where the issuer is located.                                                                        
                                                                                                                                
Number 2441                                                                                                                     
                                                                                                                                
VICE CHAIR FATE asked whether there is a general legal                                                                          
precedent.                                                                                                                      
                                                                                                                                
MR. WAGNER answered:                                                                                                            
                                                                                                                                
     I can think of two things  offhand.  One is, there's an                                                                    
     actual case from,  I believe, ... the  supreme court of                                                                    
     the  State  of Michigan,  where  a  county in  Michigan                                                                    
     issued   tax-backed  bonds   and  built   a  retirement                                                                    
     facility in  Florida.   And they  gave a  preference to                                                                    
     Michigan residents.  But the  supreme court in Michigan                                                                    
     said that it  was OK for a county in  Michigan to build                                                                    
     and own and operate a retirement home in Florida. ...                                                                      
                                                                                                                                
     The  others really  involve utilities.    Like I  said,                                                                    
     they're  not  privately  owned  utilities,  but  public                                                                    
     utilities, which there are a  lot of ... in the Midwest                                                                    
     and  the Seattle-Northwest  area.   And they  routinely                                                                    
     ... have  issued bonds ...  and used the  bond proceeds                                                                    
     to   finance    their   participation    interest   in,                                                                    
     particularly,  transmission of  electricity.   And it's                                                                    
     also in the  case of natural gas pipelines.   But those                                                                    
     are not done pursuant to  treaties; those are just done                                                                    
     pursuant to their general authority.                                                                                       
                                                                                                                                
Number 2364                                                                                                                     
                                                                                                                                
VICE  CHAIR FATE  asked  whether the  natural  gas pipelines  are                                                               
private pipelines.                                                                                                              
                                                                                                                                
MR. WAGNER replied  that the pipelines are, in  most cases, owned                                                               
by a  partnership.   Or if  they're owned  by a  private company,                                                               
then the  utility is actually  financed in a "participation  or a                                                               
partial ownership in that pipeline."                                                                                            
                                                                                                                                
VICE CHAIR FATE indicated he  wanted to establish that it doesn't                                                               
involve a  public utility  like the  power lines  do.   "In other                                                               
words,  there's  two separate  things  that  you're dealing  with                                                               
there," he added.                                                                                                               
                                                                                                                                
MR. WAGNER said that's right.                                                                                                   
                                                                                                                                
Number 2317                                                                                                                     
                                                                                                                                
MR. DUBLER referred back to  Vice Chair Fate's question regarding                                                               
scheduling.  He  clarified that there is no  legal requirement to                                                               
go to market within  a certain number of days.   He said what Mr.                                                               
Fauske  had referred  to, however,  was that  there appear  to be                                                               
significant legal  questions about what authorization  the Alaska                                                               
Railroad really  has under the  section Mr. Slotnick  referred to                                                               
earlier,  and whether  that sweeping  language would  authorize a                                                               
pipeline or a project of this magnitude.                                                                                        
                                                                                                                                
MR.  DUBLER  said  "there's  a   pretty  good  feeling  from  ...                                                               
everybody"  that  a  $100  million  [issuance]  would  not  be  a                                                               
problem;  however, a  $17 billion  tax-exempt issuance  will draw                                                               
attention at  the federal  level.   He said  the legal  issue Mr.                                                               
Fauske  was referring  to, to  his belief,  was that  ARRC should                                                               
ensure, before going any further  towards financing this project,                                                               
that all its  legal opinions from tax counsel are  "in line."  He                                                               
offered the good news that it won't  take as long as it will take                                                               
the engineers to come up with a  way to build the pipe.  He added                                                               
that the financing will not hold this project up.                                                                               
                                                                                                                                
Number 2249                                                                                                                     
                                                                                                                                
MR. FAUSKE offered his position on HB 423:                                                                                      
                                                                                                                                
     I speak out  in support of the bill and  the concept of                                                                    
     the bill in  getting all the pieces put in  place.  The                                                                    
     main question that  seems to be being  asked is, "Well,                                                                    
     what's the IRS  going to do?"  Well,  nobody knows what                                                                    
     the IRS  is going  to do.   I've  looked at  this; I've                                                                    
     listened to others that [have]  more expertise in areas                                                                    
     of law.                                                                                                                    
                                                                                                                                
MR. FAUSKE  said it seems the  transfer Act is fairly  simple but                                                               
gives a lot  of authority.  He suggested the  IRS will analyze it                                                               
"from  a  variety  of  positions."   He  remarked  that  Congress                                                               
appears to  be coming out  in support, as  is the President.   He                                                               
mentioned "issues of national energy  policy, coupled with issues                                                               
of national security" and said:                                                                                                 
                                                                                                                                
     So I think  it's not a matter of simply  the IRS, in my                                                                    
     opinion,  just  saying, "Well,  no,  we  can't do  this                                                                    
     because  of ...  the effect  that  it has  on the  tax-                                                                    
     exempt bond market."   My response to  that was, "Well,                                                                    
     how much money  does it cost to send  the Seventh Fleet                                                                    
     someplace  to go  deal ....?"   So  when we're  talking                                                                    
     about  the ability  of  Americans  to issue  tax-exempt                                                                    
     bonds to  fund projects, I  think it has to  be coupled                                                                    
     with this area of national interest.                                                                                       
                                                                                                                                
     I think it's  also imperative that we, as  a state, put                                                                    
     ourselves in a  position to do something.   Every year,                                                                    
     AHFC  comes  before you  and  we  get authorization  to                                                                    
     issue  bonds going  out into  the future.   Whether  we                                                                    
     issue them  or not, we come  to you and explain  to you                                                                    
     what the  issues are, what  the market's  looking like,                                                                    
     what  the needs  of Alaskans  are,  and we  ask you  to                                                                    
     please  give us  authorization  up to  the hundreds  of                                                                    
     millions of  dollars, so that  when it's time to  go to                                                                    
     market, we have the ability to do that.                                                                                    
                                                                                                                                
     I view this  no differently.  It's a  ... large number,                                                                    
     but there's a great step  that the legislature can take                                                                    
     in  putting Alaska  in  a position  to  do something  -                                                                    
     because  once this  thing starts  to go,  I think  it's                                                                    
     going  to be  imperative, too,  that the  U.S. Congress                                                                    
     understand  that the  state is  supporting this  and in                                                                    
     ... position.                                                                                                              
                                                                                                                                
MR. FAUSKE reiterated  that things can happen quickly.   There is                                                               
a  need to  be in  a  position to  act, especially  if trying  to                                                               
capture  market conditions  on a  particular day.   Acknowledging                                                               
possible amendments,  he concluded, "I think  the basic principle                                                               
is absolutely sound.   And from a financing  perspective, this is                                                               
absolutely doable, and it'd be  a wonderful thing to get involved                                                               
in ... and watch the state go forward with this."                                                                               
                                                                                                                                
Number 2095                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS agreed, but noted  that page 3, lines 22-28,                                                               
specifies  a   route  in  the  bonding   [section],  which  seems                                                               
counterintuitive to the legislation's whole  purpose.  She asked,                                                               
"If we're going  to let the market drive how  we should build the                                                               
pipeline -  and, you  said, things  can change  and move,  and we                                                               
should be able to capture  market conditions - why, in financing,                                                               
would we specify a route?"                                                                                                      
                                                                                                                                
MR. FAUSKE  answered that he'd  assume something in  the language                                                               
must say  where the pipeline will  be.  He deferred,  however, to                                                               
Mr.  Slotnick or  someone else  from the  administration to  deal                                                               
with the specifics.                                                                                                             
                                                                                                                                
VICE CHAIR  FATE expressed  appreciation to  Mr. Fauske  for what                                                               
the AHFC  has done.   He  announced that he  planned to  move the                                                               
bill that day.   He agreed it is not only  another tool, but also                                                               
an  indication that  the State  of Alaska  wants to  move forward                                                               
with a  gas pipeline  project.   He remarked  that Representative                                                               
Guess's point is a good one that might generate an amendment.                                                                   
                                                                                                                                
Number 1977                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING clarified  that  although he  appreciates                                                               
the great  work AHFC  is doing,  he isn't  necessarily supporting                                                               
the legislation.                                                                                                                
                                                                                                                                
Number 1941                                                                                                                     
                                                                                                                                
MICHAEL J.  HURLEY, Senior Commercialization Specialist,  ANS Gas                                                               
Commercialization,  Phillips   Alaska,  Inc.,  came   forward  in                                                               
support of  HB 423.  He  offered the company's initial  view that                                                               
the  ability  to  use  conduit financing  has  the  potential  to                                                               
benefit  a natural  gas pipeline.   He  cautioned, however,  that                                                               
additional  clarity in  several areas  will be  needed.   "We are                                                               
continuing with  our own  due diligence,  in efforts  to evaluate                                                               
the impacts  of the proposal more  fully," he told members.   "In                                                               
the meantime,  we support the  passage of the  legislation, which                                                               
would provide  the authorization necessary, should  this become a                                                               
viable alternative."                                                                                                            
                                                                                                                                
Number 1873                                                                                                                     
                                                                                                                                
MR.  HURLEY, in  response  to  Representative Chenault's  request                                                               
that he  elaborate on concerns,  said a  lot of the  concerns had                                                               
been   brought  up   in  earlier   testimony;  there   are  still                                                               
outstanding  questions about  extraterritoriality and  many other                                                               
issues.   He  pointed out  that many  issues about  the financing                                                               
itself  will  need to  be  answered  closer  to when  the  actual                                                               
financing occurs; many  will be reactions to the  bond market, he                                                               
indicated, and will relate to  how comfortable the people are who                                                               
will be buying the bonds.  He added:                                                                                            
                                                                                                                                
     As you  know, we've  been working  over the  last year,                                                                    
     year and a half, now, but  our focus has been very much                                                                    
     on  trying to  create an  economically viable  project.                                                                    
     We've looked -  very cursory level - at  financing.  As                                                                    
     Mr.  Slotnick pointed  out earlier,  there are  lots of                                                                    
     different options  available to  companies of  our size                                                                    
     and  breadth.    How  we're   going  to  structure  the                                                                    
     financing  on this  is ...  still very  much up  in the                                                                    
     air, from a company standpoint.                                                                                            
                                                                                                                                
     We believe this [bill] is  helpful.  We believe that it                                                                    
     has the  potential to  be of benefit.   But  right now,                                                                    
     we're concentrating on trying to  get a project that is                                                                    
     actually  economically  viable,  because  we  may  have                                                                    
     bonding  authority,  but  if we  don't  have  a  viable                                                                    
     project, it won't do us much good.                                                                                         
                                                                                                                                
Number 1745                                                                                                                     
                                                                                                                                
PAUL  FUHS, Lobbyist  for Yukon  Pacific Corporation  (YPC), came                                                               
forward to express  support for HB 423 and  request an amendment.                                                               
He called attention  to [page 3] lines  23-28, referenced earlier                                                               
by Representative  Guess, which says  in part that  [the proceeds                                                               
of  the   bonds]  shall  only   be  used  for  a   pipeline  that                                                               
"approximately  follows the  right  of way  of  the Trans  Alaska                                                               
Pipeline System from  Pump Station 1 on the North  Slope to Delta                                                               
Junction,  and the  Alaska  Highway from  Delta  Junction to  the                                                               
Alaska/Yukon  Territory  border."   He  explained,  "Once  again,                                                               
without  any  apparent  justification, we're  seeing  legislation                                                               
which limits Alaska's  options for the way that  it might develop                                                               
its natural gas."                                                                                                               
                                                                                                                                
MR. FUHS  provided a  partially handwritten  amendment containing                                                               
three options, which read [original punctuation provided]:                                                                      
                                                                                                                                
       1.   Page 3 Line 23 to 28  Delete entire sentence                                                                        
     starting with "the proceeds of the bonds etc.                                                                              
                                                                                                                                
      2.  OR:  Line 25  that include "but are not limited                                                                       
     to" a pipeline                                                                                                             
                                                                                                                                
        3.  OR  Line 28  add "or a route to tidewater in                                                                        
     Southcentral Alaska or for a spurline to Southcentral                                                                      
     Alaska or other parts of Alaska".                                                                                          
                                                                                                                                
Number 1633                                                                                                                     
                                                                                                                                
MR. FUHS pointed out that without  an amendment, there will be no                                                               
opportunity to consider the  developments which Senator Torgerson                                                               
spoke of; to use this  financing for a stand-alone "to tidewater"                                                               
project  in  Alaska; to  use  it  for a  "Y"  line,  as has  been                                                               
discussed; or  to use it for  a spur line to  Southcentral Alaska                                                               
if, indeed,  a trans-Canada pipeline  is ever built.   Regardless                                                               
of  any  option's  merits,  he said,  nobody  has  yet  presented                                                               
anything that says it is a "slam-dunk" to go one way or another.                                                                
                                                                                                                                
MR.  FUHS reminded  members  that two  weeks  ago, YPC  presented                                                               
information on a  smaller project that YPC  believes is economic.                                                               
"Since  that  time,"  he  reported, "we  have  not  received  any                                                               
information from anyone saying that  these numbers are wrong.  We                                                               
haven't seen  anything on the  trans-Canada pipeline,  although I                                                               
guess we're supposed to get that  by March 31, was ... the latest                                                               
information."                                                                                                                   
                                                                                                                                
MR. FUHS returned attention specifically to HB 423 and said:                                                                    
                                                                                                                                
     If you  do amend  it, then  it would  bring it  in line                                                                    
     more  with the  resolution which  was passed  two weeks                                                                    
     ago out  of this  committee, where  you said,  "We also                                                                    
     want  to  include  the   potential  of  LNG  [liquefied                                                                    
     natural  gas]  to the  U.S.  as  one of  the  potential                                                                    
     markets."                                                                                                                  
                                                                                                                                
     It  would also  bring it  in line  with [U.S.]  Senator                                                                    
     Murkowski's  amendment  that  he  got  to  the  federal                                                                    
     legislation, also  saying that  an Alaska project  - an                                                                    
     LNG  project   -  would  not   be  precluded   by  that                                                                    
     legislation.                                                                                                               
                                                                                                                                
Number 1594                                                                                                                     
                                                                                                                                
MR. FUHS  discussed the three  options in his  proposed amendment                                                               
[text provided previously].   He explained that  the problem with                                                               
the  first approach,  deleting  the last  sentence,  is that  the                                                               
financing  could be  used for  an "over-the-top"  pipeline.   The                                                               
second  option might  do  the same.   The  third  option is  more                                                               
specific,  perhaps addressing  the concern  voiced by  Mr. Fauske                                                               
that it should state what the financing is being used for.                                                                      
                                                                                                                                
Number 1550                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JOULE  pointed out  that  the  third option  says                                                               
"or", whereas everything  he has heard before  has been "and/or".                                                               
He  added  that  the  desire  is  to  not  "put  ourselves  in  a                                                               
straightjacket."                                                                                                                
                                                                                                                                
MR. FUHS  said that  would be  fine, and  that ["and/or"]  is the                                                               
intention.                                                                                                                      
                                                                                                                                
Number 1515                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS  inquired about the  wording "or a  route to                                                               
tidewater  or  a  route  to Southcentral  Alaska".    She  voiced                                                               
concern about  specifying it because certain  people want certain                                                               
routes.   She  asked, for  a route  to tidewater  in Southcentral                                                               
Alaska, whether [this third option] would prohibit it.                                                                          
                                                                                                                                
MR. FUHS  answered that "tidewater"  would mean Kenai  or Valdez,                                                               
so it is generic.                                                                                                               
                                                                                                                                
[Several members concurred that "tidewater" is generic.]                                                                        
                                                                                                                                
Number 1456                                                                                                                     
                                                                                                                                
DAVE MacDOWELL, External Affairs Manager for Gas Activities in                                                                  
Alaska, BP, testified via teleconference.   He told members:                                                                    
                                                                                                                                
     We're  supportive  of  this bill  because  there  is  a                                                                    
     possibility that it could reduce  financing costs for a                                                                    
     gas  pipeline, but  even  more  generally because  it's                                                                    
     indicative of  the creative thinking that  must be done                                                                    
     to help move a project forward.                                                                                            
                                                                                                                                
     An   Alaska  gas   pipeline  project   is  an   immense                                                                    
     challenge,  as  you all  know  -  very expensive,  very                                                                    
     complex,  very risky,  and as  of yet  not commercially                                                                    
     viable.   We're encouraged,  therefore, by  all efforts                                                                    
     to seek ways of addressing these challenges.                                                                               
                                                                                                                                
     The proposal to use  the Alaska Railroad Corporation as                                                                    
     a  vehicle  to  finance the  pipeline  with  tax-exempt                                                                    
     bonds  is  certainly  a   creative  approach  that,  if                                                                    
     possible,  could  help  move towards  lowering  project                                                                    
     costs.    Now,  given   the  creative  nature  of  this                                                                    
     approach,  more  work  and  assurance  will  likely  be                                                                    
     needed  before  bond  investors would  have  sufficient                                                                    
     confidence to invest  in such bonds.   However, if this                                                                    
     confidence were  achieved, lower financing  costs could                                                                    
     translate into lower pipeline  tariffs.  Lower tariffs,                                                                    
     in  turn,  lead  to  higher  netback  prices  and  thus                                                                    
     improved economics and more revenue for the state.                                                                         
                                                                                                                                
     A  cost-competitive transportation  system, along  with                                                                    
     an efficient federal regulatory  framework and a clear,                                                                    
     predictable   fiscal   regime,    are   all   necessary                                                                    
     requirements for the creation  of a commercially viable                                                                    
     project.                                                                                                                   
                                                                                                                                
     BP  Alaska is  intrigued  by the  concepts outlined  in                                                                    
     this  bill and  is currently  evaluating the  potential                                                                    
     benefits  it may  bring to  a project.   Meanwhile,  we                                                                    
     would  ask this  committee to  support passage  of this                                                                    
     legislation.                                                                                                               
                                                                                                                                
Number 1306                                                                                                                     
                                                                                                                                
PAM LaBOLLE, President, Alaska State Chamber of Commerce, came                                                                  
forward to testify in support of HB 423, which she characterized                                                                
as  another  tool  regarding possible  opportunities  for  a  gas                                                               
pipeline.  She added, "We're very  encouraged that there is a lot                                                               
of  thinking along  this  line,  and we  are  in  support of  the                                                               
legislation."                                                                                                                   
                                                                                                                                
Number 1241                                                                                                                     
                                                                                                                                
MR. SLOTNICK came forward again to respond to Representative                                                                    
Guess's question regarding why a route is specified in Section                                                                  
5.  He said:                                                                                                                    
                                                                                                                                
     To answer  that question,  I'd like  to just  draw your                                                                    
     attention to  the fact  that Section 5  is part  of the                                                                    
     uncodified law.  It's the  actual authorization for the                                                                    
     railroad to sell  bonds.  The codified  law, the change                                                                    
     that  we  gave  in  statute to  the  authority  of  the                                                                    
     railroad, doesn't  in any way constrain  the discretion                                                                    
     as to where  the route would be - you  know, what types                                                                    
     of projects the railroad could sell bonds for.                                                                             
                                                                                                                                
     But when  you're taking the actual  authorization to go                                                                    
     to  market, we  considered  this  language and  thought                                                                    
     that it  was perhaps more appropriate  to constrain the                                                                    
     railroad's discretion  here to the project  that ... at                                                                    
     this  time  is  under discussion  with  the  producers.                                                                    
     It's the project that we  have modeled in-house; that's                                                                    
     where we were able to come  up with the numbers.  We've                                                                    
     run  the numbers.   We  know what  the financing  looks                                                                    
     like.   We  know  what project  we're specifying  here.                                                                    
     So,   when  we   thought  we'd   come  to   the  Alaska                                                                    
     legislature   for  a   part  of   the  uncodified   law                                                                    
     specifying  that you  can  go out  and  sell bonds,  we                                                                    
     thought  it'd be  better to  say what  project you  can                                                                    
     sell bonds for.                                                                                                            
                                                                                                                                
     And we  could ...  ask Mr. Wohlforth  - I  believe this                                                                    
     language came from  ... his firm -  whether he believes                                                                    
     an open-ended  authorization to  sell bonds  would have                                                                    
     any repercussions  with the market.   I don't  think it                                                                    
     would,  but I'd  like to  get his  opinion on  that, if                                                                    
     that's what this committee's pleasure is.                                                                                  
                                                                                                                                
     But  generally,  when  you're giving  an  authorization                                                                    
     like that,  you're going  to do it  for a  project that                                                                    
     you've  been   in  discussions  [about],   that's  been                                                                    
     modeled, that's identified.  And  I would say that this                                                                    
     authorization could  be supplemented when  someone else                                                                    
     brings a project  that meets those kind  of criteria to                                                                    
     you; it  could be withdrawn  if this project  isn't the                                                                    
     project that goes forward.   But the reason we wrote it                                                                    
     this  way  is because  this  was  the project  we  were                                                                    
     considering.                                                                                                               
                                                                                                                                
VICE CHAIR FATE requested that Mr. Wohlforth respond.                                                                           
                                                                                                                                
Number 1068                                                                                                                     
                                                                                                                                
ERIC  WOHLFORTH, Attorney  at Law,  Wohlforth, Vassar,  Johnson &                                                               
Brecht, APC,  testified via teleconference, saying,  "There is no                                                               
legal reason why the definition could  not be expanded, if it was                                                               
the committee's desire to do so."                                                                                               
                                                                                                                                
Number 1053                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE said this  describes a "bullet"  pipeline, which                                                               
isn't the intent.  He agreed  with concerns expressed that if the                                                               
language were  adhered to,  it may  be not  even allow  a lateral                                                               
[spur] or a valve or anything else.   He said he was glad to hear                                                               
Mr. Wohlforth's  testimony that legally  he could see  no problem                                                               
with  a conceptual  amendment to  allow  for other  things to  be                                                               
built, whether a  lateral line, a pipeline elsewhere,  or a valve                                                               
somewhere on the Yukon River, for example.                                                                                      
                                                                                                                                
Number 0976                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING requested  elaboration regarding  why the                                                               
ARRC, if  it is  putting forth this  bond issue,  isn't incurring                                                               
the  risk,  which   is  being  incurred  instead   by  the  major                                                               
companies.                                                                                                                      
                                                                                                                                
MR. SLOTNICK answered:                                                                                                          
                                                                                                                                
     The reason is that, by  contract, the railroad will not                                                                    
     assume  any risk.   And  the bondholders  are all  made                                                                    
     aware of that before the bonds  are sold.  It is stated                                                                    
     in  several   places  in  what's  called   an  official                                                                    
     statement, which is  the offering that goes  out to the                                                                    
     investors,  to the  bond holders,  and becomes  part of                                                                    
     the  contract  with ...  the  investors.   It  will  be                                                                    
     stated in capital letters that  there is no recourse to                                                                    
     the railroad, to  the State of Alaska, or  to either or                                                                    
     both of them  as far as if there should  be any default                                                                    
     on the bond.  The only  place they can turn to would be                                                                    
         the credit of the project or the credit of the                                                                         
     corporations, depending on how this is structured.                                                                         
                                                                                                                                
Number 0864                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING  referred to  the use  of the  proceeds of                                                               
the  bond sales  and said  he knows  the intent  is to  make them                                                               
available to  the private  sector, to use  that money  to finance                                                               
the construction of  a line.  He asked whether  those monies also                                                               
could be used by the State of Alaska to build that line.                                                                        
                                                                                                                                
MR. SLOTNICK answered yes.                                                                                                      
                                                                                                                                
REPRESENTATIVE KOHRING remarked that one  of his concerns is that                                                               
if  the  bill  passes  without  stricter  parameters  that  would                                                               
preclude the  state from using  those monies, "that might  be the                                                               
means  with  which the  state  could  actually  engage in  a  big                                                               
capital  project  sponsored and  funded  and  constructed by  the                                                               
government, which  is something I philosophically  disagree with,                                                               
because  it  would  be  along  the  lines  of  the  Seward  grain                                                               
terminal, the  Delta barley project,  things of that  nature that                                                               
have  proven to  be  boondoggles."   He said  he  might offer  an                                                               
amendment at some  point that would add language  to prohibit the                                                               
state from using those proceeds.                                                                                                
                                                                                                                                
Number 0757                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE asked  whether there  were further  questions of                                                               
the testifiers, and then thanked  Mr. Slotnick and Mr. Wohlforth.                                                               
He  asked  whether there  was  further  testimony; there  was  no                                                               
response.  He  closed public testimony and  returned attention to                                                               
possible amendments.                                                                                                            
                                                                                                                                
Number 0711                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOULE  reiterated the desire, other  than what was                                                               
written in  Mr. Fuhs's proposed  amendments, to say  "and/or" and                                                               
then address the issue of  the route to tidewater or Southcentral                                                               
Alaska or other parts of Alaska.                                                                                                
                                                                                                                                
Number 0677                                                                                                                     
                                                                                                                                
VICE  CHAIR FATE  suggested a  conceptual amendment,  on page  3,                                                               
line 25,  after "pipeline", to have  it say "that is  not limited                                                               
to but approximately follows".   The addition would be the phrase                                                               
"that is not limited to [but]".                                                                                                 
                                                                                                                                
REPRESENTATIVE GUESS noted that it  would be the second option in                                                               
the proposed amendments  provided by Mr. Fuhs.   She acknowledged                                                               
the  desire  to have  flexibility,  but  said she  believes  this                                                               
legislature  has  made it  clear  that  the flexibility  wouldn't                                                               
include "going north" [for an "over-the-top" pipeline route].                                                                   
                                                                                                                                
VICE  CHAIR FATE  remarked that  there  has been  not only  state                                                               
legislation passed  which prohibits that route,  but also federal                                                               
legislation; therefore, language  already prohibits that northern                                                               
route.    That  was  his thinking  in  providing  the  conceptual                                                               
language that didn't deal with the northern route, he explained.                                                                
                                                                                                                                
Number 0523                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOULE remarked,  "So long as that's  covered."  He                                                               
pointed out,  however, that the  federal legislation  is pending.                                                               
He asked  whether, for  that reason,  the amendment  shouldn't be                                                               
more specific.                                                                                                                  
                                                                                                                                
Number 0464                                                                                                                     
                                                                                                                                
VICE CHAIR  FATE called an  at-ease at 10:37  a.m.  [End  of Tape                                                               
02-18, Side B.]                                                                                                                 
                                                                                                                                
TAPE 02-19, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
VICE CHAIR FATE called the meeting back to order at 10:40 a.m.                                                                  
                                                                                                                                
Number 0026                                                                                                                     
                                                                                                                                
VICE CHAIR FATE  offered conceptual Amendment 1, on  page 3, line                                                               
25, after  the word "pipeline",  to add  "that is not  limited to                                                               
[but]".  [Thus  it would read, in part, "include  a pipeline that                                                               
is not limited  to but approximately follows the  right of way".]                                                               
Vice Chair Fate asked whether there was any objection.                                                                          
                                                                                                                                
Number 0099                                                                                                                     
                                                                                                                                
REPRESENTATIVE   CHENAULT  objected   for  discussion   purposes,                                                               
expressing concern that it still specifies a route.                                                                             
                                                                                                                                
VICE CHAIR FATE  explained that the conceptual  amendment says it                                                               
isn't limited to a specified route.                                                                                             
                                                                                                                                
REPRESENTATIVE CHENAULT withdrew his objection.                                                                                 
                                                                                                                                
Number 0165                                                                                                                     
                                                                                                                                
VICE CHAIR FATE announced that  there being no further objection,                                                               
conceptual Amendment 1 was adopted.                                                                                             
                                                                                                                                
Number 0184                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING  began discussion  of what he  would offer                                                               
as conceptual Amendment 2.   He restated his concern about having                                                               
the bond  proceeds be  used for  the State of  Alaska to  build a                                                               
pipeline  on its  own, rather  than having  private entities  use                                                               
those dollars to do so.   He conveyed his belief that the process                                                               
should  be strictly  market-based, and  that the  state shouldn't                                                               
build a  line just because  of needing revenues from  it; rather,                                                               
the pipeline  should be  privately constructed,  but only  if the                                                               
market demands and  warrants it.  He said he  doesn't believe the                                                               
state should  be involved in  the business of  constructing major                                                               
capital projects of this nature.                                                                                                
                                                                                                                                
Number 0261                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING therefore  offered conceptual Amendment 2,                                                               
to strike "Alaska Railroad Corporation"  and substitute "State of                                                               
Alaska"  on page  3, line  25.   He said  it appears  it is  just                                                               
excluding the Alaska  Railroad Corporation, and he  would like to                                                               
expand that to include the State of Alaska.                                                                                     
                                                                                                                                
Number 0316                                                                                                                     
                                                                                                                                
VICE  CHAIR FATE  pointed out  that  it would  change the  intent                                                               
because ARRC is the bonding entity.   It states clearly that ARRC                                                               
will  not  be  the  owner.   He  suggested  that  the  conceptual                                                               
amendment   should  retain   the  Alaska   Railroad  Corporation,                                                               
therefore, with the State of Alaska as an addition.                                                                             
                                                                                                                                
REPRESENTATIVE  KOHRING replied,  "However we  need to  wordsmith                                                               
that to accomplish my intent in  the amendment, I'd be pleased to                                                               
do that."                                                                                                                       
                                                                                                                                
Number 0385                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOULE objected to conceptual Amendment 2.                                                                        
                                                                                                                                
REPRESENTATIVE GUESS indicated she objected as well.                                                                            
                                                                                                                                
REPRESENTATIVE  JOULE requested  that  Mr.  Slotnick and  someone                                                               
from the AHFC inform the committee about the ramifications.                                                                     
                                                                                                                                
Number 0416                                                                                                                     
                                                                                                                                
MR.  SLOTNICK suggested  in  order  to accomplish  Representative                                                               
Kohring's goals,  the words "Alaska Railroad  Corporation" should                                                               
remain, but the  words "or the State of Alaska"  should be added.                                                               
That way,  there would  be ownership by  entities other  than the                                                               
railroad or the state.                                                                                                          
                                                                                                                                
REPRESENTATIVE   KOHRING    thanked   Mr.   Slotnick    for   his                                                               
clarification.                                                                                                                  
                                                                                                                                
Number 0445                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUESS inquired  whether that  would preclude  the                                                               
state's being  a partner  in the  pipeline.   She added  that she                                                               
didn't believe so, from her reading, but just wanted to ask.                                                                    
                                                                                                                                
MR. SLOTNICK  answered that  it would require  some thought.   He                                                               
read in part from page 3, beginning on line 24:                                                                                 
                                                                                                                                
     The  proceeds of  the bonds  described in  this section                                                                    
     shall be  used only  for facilities  that are  owned by                                                                    
     one  or more  entities other  than the  Alaska Railroad                                                                    
     Corporation ...                                                                                                            
                                                                                                                                
He  alluded to  the  fact  that if  conceptual  Amendment 2  were                                                               
adopted,  it would  be entities  other than  the state.   If  the                                                               
state were  a partner  in any  of those  facilities, he  said, it                                                               
would seem  to him  that the  proceeds of  the bonds  couldn't be                                                               
used  on those  facilities.   This would,  therefore, remove  the                                                               
state from  any ownership  role of  facilities financed  by these                                                               
bonds.                                                                                                                          
                                                                                                                                
Number 0527                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOHRING said that is the intent of his amendment.                                                                
                                                                                                                                
REPRESENTATIVE JOULE asked why  Representative Kohring would want                                                               
the state out of it, at this point.                                                                                             
                                                                                                                                
REPRESENTATIVE  KOHRING asked  whether  Representative Joule  was                                                               
referring to  owning a facility  to be constructed with  the bond                                                               
proceeds.                                                                                                                       
                                                                                                                                
VICE CHAIR FATE  rephrased the question, asking  whether he would                                                               
object to any  equity interest in the  pipeline, without outright                                                               
ownership, which is what the proposed amendment implies.                                                                        
                                                                                                                                
Number 0582                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING  said  no,  but  added  that  he  doesn't                                                               
believe  the state  should be  constructing and  in ownership  of                                                               
facilities, including a gas pipeline.   The amendment is intended                                                               
to prevent that from happening.  He expanded on his answer:                                                                     
                                                                                                                                
     I  just  see  the  state getting  involved  in  another                                                                    
     potential and  very expensive  boondoggle here,  and we                                                                    
     might  feel  more  inclined  to  build  this  facility,                                                                    
     whether we  really need the  facility or not  - whether                                                                    
     the market warrants it or not.                                                                                             
                                                                                                                                
     And if we end up  spending billions of dollars to build                                                                    
     this gas pipeline  and we find out that  ... the demand                                                                    
     for  our gas  ... was  not  there, then  we might  look                                                                    
     back, in  hindsight, that it  was a  wasted investment,                                                                    
     and it'll end up being  as we've seen before with other                                                                    
     state-funded projects  like the Seward  grain terminal,                                                                    
     the  Delta barley  project,  the agriculture  operation                                                                    
     out at  Point MacKenzie  in my area,  and others.   So,                                                                    
     that's my concern.                                                                                                         
                                                                                                                                
Number 0682                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS  explained that  she objected  to conceptual                                                               
Amendment  2   not  necessarily  because  of   disagreement  with                                                               
Representative Kohring's  concerns, but because she  believes the                                                               
question should  still be on  the table of  whether it is  in the                                                               
state's  best  interest to  have  some  equity interest  in  this                                                               
pipeline,  especially given  the amount  of revenue  that can  be                                                               
generated  from transportation  "and  the fact  that  we did  not                                                               
choose to do that in  TAPS."  Furthermore, she indicated, because                                                               
of market  forces she doesn't  foresee the state's being  able to                                                               
"just  go and  build a  pipeline on  its own."   She  agreed with                                                               
Representative  Kohring's concern,  but said  she didn't  believe                                                               
this was the place to address it.                                                                                               
                                                                                                                                
A  roll  call  vote  was  taken.    Representatives  Kohring  and                                                               
Chenault voted to adopt conceptual  Amendment 2.  Representatives                                                               
Guess, Joule, and  Fate voted against it.   [Representative Dyson                                                               
was absent.]  Therefore, conceptual  Amendment 2 failed by a vote                                                               
of 2-3.                                                                                                                         
                                                                                                                                
Number 0823                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUESS  moved to  report HB  423, as  amended, from                                                               
committee  with  individual   recommendations  and  the  attached                                                               
fiscal notes.  There being  no objection, CSHB 423(O&G) was moved                                                               
out of the House Special Committee on Oil and Gas.                                                                              
                                                                                                                                
VICE  CHAIR FATE  thanked participants  for the  good discussion.                                                               
He pointed  out to Representative  Kohring that other  bills, not                                                               
yet  fully  heard,  deal  with  ownership  of  the  pipeline;  he                                                               
suggested that discussion could be held when they are heard.                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
Number 0896                                                                                                                     
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special Committee on  Oil and Gas meeting was  adjourned at 10:50                                                               
a.m.                                                                                                                            
                                                                                                                                

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