Legislature(1997 - 1998)

03/12/1998 10:15 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
       HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                  
                   March 12, 1998                                              
                     10:15 a.m.                                                
                                                                               
                                                                               
MEMBERS PRESENT                                                                
                                                                               
Representative Mark Hodgins, Chairman                                          
Representative Scott Ogan                                                      
Representative Norman Rokeberg                                                 
Representative Joe Ryan                                                        
Representative Con Bunde                                                       
Representative Tom Brice                                                       
Representative J. Allen Kemplen                                                
                                                                               
MEMBERS ABSENT                                                                 
                                                                               
All members present                                                            
                                                                               
OTHER HOUSE MEMBERS PRESENT                                                    
                                                                               
REPRESENTATIVE JOE GREEN                                                       
                                                                               
COMMITTEE CALENDAR                                                             
                                                                               
HOUSE BILL NO. 380                                                             
"An Act relating to a temporary reduction of royalty on oil and gas            
produced for sale from fields within the Cook Inlet sedimentary                
basin where production is commenced in fields that have been                   
discovered and undeveloped or that have been shut in."                         
                                                                               
     - MOVED CSHB 380(O&G) OUT OF COMMITTEE                                    
                                                                               
HOUSE BILL NO. 393                                                             
"An Act relating to contracts with the state establishing payments             
in lieu of other taxes by a qualified sponsor or qualified sponsor             
group for projects to develop stranded gas resources in the state;             
providing for the inclusion in such contracts of terms making                  
certain adjustments regarding royalty value and the timing and                 
notice of the state's right to take royalty in kind or in value                
from such projects; relating to the effect of such contracts on                
municipal taxation; and providing for an effective date."                      
                                                                               
     - HEARD AND HELD                                                          
                                                                               
(* First public hearing)                                                       
                                                                               
PREVIOUS ACTION                                                                
                                                                               
BILL: HB 380                                                                   
SHORT TITLE: REDUCE ROYALTY ON COOK INLET OIL & GAS                            
SPONSOR(S): REPRESENTATIVES(S) HODGINS, Kohring                                
                                                                               
Jrn-Date    Jrn-Page           Action                                          
02/04/98      2218     (H)  READ THE FIRST TIME - REFERRAL(S)                  
02/04/98      2218     (H)  OIL & GAS, FINANCE                                 
02/26/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
02/26/98               (H)  MINUTE(O&G)                                        
03/05/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/05/98               (H)  MINUTE(O&G)                                        
03/12/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
                                                                               
BILL: HB 393                                                                   
SHORT TITLE: DEVELOP STRANDED GAS RESOURCES                                    
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                   
                                                                               
Jrn-Date    Jrn-Page           Action                                          
02/11/98      2280     (H)  READ THE FIRST TIME - REFERRAL(S)                  
02/11/98      2281     (H)  OIL & GAS, FINANCE                                 
02/11/98      2281     (H)  2 FISCAL NOTES (DNR, REV)                          
02/11/98      2281     (H)  GOVERNOR'S TRANSMITTAL LETTER                      
02/19/98               (H)  O&G AT 11:00 AM CAPITOL 124                        
02/19/98               (H)  MINUTE(O&G)                                        
02/24/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
02/24/98               (H)  MINUTE(O&G)                                        
02/26/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
02/26/98               (H)  MINUTE(O&G)                                        
03/03/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/05/98               (H)  MINUTE(O&G)                                        
03/09/98      2578     (H)  RES REFERRAL ADDED                                 
03/10/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/10/98               (H)  MINUTE(O&G)                                        
03/12/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
                                                                               
WITNESS REGISTER                                                               
                                                                               
PATRICK CARTER, Legislative Assistant                                          
  to Representative Mark Hodgins                                               
Alaska State Legislature                                                       
Capitol Building, Room 110                                                     
Juneau, Alaska  99801                                                          
Telephone:  (907) 465-2283                                                     
POSITION STATEMENT:  Answered questions on CSHB 380(O&G) and                   
                  testified on CSHB 393)O&G).                                  
                                                                               
JAMES EASON, Oil and Gas Operations                                            
Management and Policy                                                          
Forcenergy Incorporated                                                        
8611 Leeper Circle                                                             
Anchorage, Alaska 99504                                                        
Telephone:  (907) 333-9087                                                     
POSITION STATEMENT:  Testified on CSHB 380(O&G).                               
                                                                               
KEN BOYD, Director                                                             
Division of Oil and Gas                                                        
Department of Natural Resources                                                
3601 C Street, Suite 1380                                                      
Anchorage, Alaska 99503                                                        
Telephone:  (907) 269-8800                                                     
POSITION STATEMENT:  Testified on CSHB 380(O&G).                               
                                                                               
BOB SHAVELSON, Executive Director                                              
Cook Inlet Keeper                                                              
P.O. Box 3269                                                                  
Homer, Alaska 99603                                                            
Telephone:  (907) 235-4068                                                     
POSITION STATEMENT:  Testified against CSHB 380(O&G).                          
                                                                               
WILSON CONDON, Commissioner                                                    
Department of Revenue                                                          
P.O. Box 110400                                                                
Juneau, Alaska 99811                                                           
Telephone:  (907) 465-2300                                                     
POSITION STATEMENT:  Testified on CSHB 393(O&G).                               
                                                                               
ACTION NARRATIVE                                                               
                                                                               
TAPE 98-23, SIDE A                                                             
Number 0001                                                                    
                                                                               
CHAIRMAN MARK HODGINS called the House Special Committee on Oil and            
Gas meeting to order at 10:15 a.m.  Members present at the call to             
order were Representatives Hodgins, Ogan, Rokeberg and Kemplen.                
Representatives Ryan, Bunde, Brice arrived at 10:17 a.m., 10:45                
a.m. and 11:00 a.m., respectively.                                             
                                                                               
HB 380 - REDUCE ROYALTY ON COOK INLET OIL & GAS                                
                                                                               
Number 0064                                                                    
                                                                               
CHAIRMAN HODGINS announced the committee would hear CSHB 380( ),"An            
Act relating to a temporary reduction of royalty on oil and gas                
produced for sale from fields within the Cook Inlet sedimentary                
basin where production is commenced in fields that have been                   
discovered and undeveloped or that have been shut in."                         
                                                                               
Number 0101                                                                    
                                                                               
REPRESENTATIVE NORMAN ROKEBERG made a motion to adopt the proposed             
CSHB 380( ), 0-LS1503\B, 3\11\98, for discussion purposes.                     
                                                                               
Number 0130                                                                    
                                                                               
CHAIRMAN HODGINS asked if there was an objection.  Hearing none,               
the proposed CSHB 380( ) was before the committee.                             
                                                                               
Number 0157                                                                    
                                                                               
PATRICK CARTER, Legislative Assistant to Representative Mark                   
Hodgins, stated that last week the committee adopted a proposed                
committee subsitute which named the field eligible for a royalty               
reduction and placed a royalty cap on 40 million barrels of oil and            
a 35 billion cubic feet of gas.  He stated that the only change in             
this committee substitute is the royalty cap on oil is reduced to              
35 million barrels of oil.  He stated that there were some                     
discussions on putting a price cap on the royalties at $24 a barrel            
but after discussing that with legal it was decided that it would              
not be proposed as an amendment because of significant hardships it            
would cause to the industry.                                                   
                                                                               
Number 0357                                                                    
                                                                               
REPRESENTATIVE JOE RYAN stated that he thought that the time-frame             
was originally set for the year 2000, not 2004.                                
                                                                               
                                                                               
MR. CARTER replied that it has always been at 2004.                            
                                                                               
REPRESENTATIVE RYAN asked what is wrong with using a Platt's [ph]              
price, that reflects the type of oil on the market for which it is             
being sold.                                                                    
                                                                               
Number 0433                                                                    
                                                                               
MR. CARTER replied stated that he is not qualified to speak to                 
pricing indexes utilized throughout industry on oil, but there is              
the complication of how often it would be changed.  Would the                  
royalty rate be changed daily and if so that would become very                 
complicated.  For those reasons, it was not considered as an                   
amendment.                                                                     
                                                                               
Number 0491                                                                    
                                                                               
REPRESENTATIVE ROKEBERG referred to the issue of specificity of the            
six discreet fields and asked if he checked with legal as to the               
constitutionality on specifying fields.                                        
                                                                               
Number 0578                                                                    
                                                                               
MR. CARTER replied that he had and the restriction is shut-in                  
fields or undeveloped fields that were discovered before January 1,            
1988 and have remained that way through December 31, 1997.  He                 
stated that in regards to oil and gas legislation, the different               
stratifications, that occur throughout the state, are region                   
specific and that is why they allow quite a bit of leniency with               
regard to special legislation on oil and gas issues.                           
                                                                               
Number 0601                                                                    
                                                                               
REPRESENTATIVE ROKEBERG asked if it was possible to list the six               
fields but add the wording "not limited to" so that it would not               
have any challenges based on special legislation.                              
                                                                               
MR. CARTER replied that language was not discussed, although the               
intention was that the six fields listed are the fields that                   
qualify to date.                                                               
                                                                               
Number 0670                                                                    
                                                                               
REPRESENTATIVE SCOTT OGAN asked if any of the fields had recently              
changed hands.                                                                 
                                                                               
MR. CARTER replied that he would not be qualified to speak to the              
history of the fields.                                                         
                                                                               
Number 0741                                                                    
                                                                               
JAMES EASON, Oil and Gas Operations, Management and Policy,                    
Forcenergy Incorporated, replied that in the case of Redoubt Shoal             
Field, the leases where all owned by a combination of different                
entities all of which were under the control of Daniel Dunkel [ph]             
until about two years ago when the leases were signed to                       
Forcenergy, which unified the leases.  A 3-D seismic survey was                
conducted this fall and currently is in the process of discussing              
with the companies in the Far East, the construction cost for a                
platform that might be used to explore those leases.  In regards to            
the Starichkof field, it was discovered 30 years ago and the lease             
has been held by the same company.  In addition Forcenergy, ARCO               
and (Indisc.) have bought leases from the federal government or the            
state that are near that field.  The ownership of Nicolai Creek has            
been owned by Unocal and Marathon.  He stated that North Fork field            
had originally been drilled by Chevron and there were a number                 
parties involved over the years.  The current ownership is by a Gas            
Pro Alaska, ARCO and Marathon.  He stated that Forcenergy owns                 
leases adjacent to the discovery of the West Foreland field.                   
Falls Creek is owned by ARCO, Cliff Bergland [ph], and private                 
individuals.                                                                   
                                                                               
Number 0959                                                                    
                                                                               
KEN BOYD, Director, Division of Oil and Gas, Department of Natural             
Resources, testified via teleconference from Anchorage that he                 
wanted to point out that a lot of the discussion is that these                 
fields have not been developed for many years, but in fact there is            
a lot new leasing that has gone on some of the oil fields.  He                 
stated that the new leasing surrounding the fields shows that there            
is a lot of interest in Cook Inlet.  He stated that a lot of new               
fields are coming on line.                                                     
                                                                               
Number 1042                                                                    
                                                                               
CHAIRMAN HODGINS asked which of the fields on the list that he knew            
of, would not have any activity.                                               
                                                                               
Number 1050                                                                    
                                                                               
MR. BOYD replied that he expected there to be activity at Redoubt              
Shoal but he did not know which ones would not be developed.  He               
stated that if they become economic they will be developed.  He                
stated that he believed that industry was buying leases with some              
intention of doing something with them.                                        
                                                                               
Number 1183                                                                    
                                                                               
CHAIRMAN HODGINS asked if he would rather this bill did not exist.             
                                                                               
MR. BOYD stated that he was willing to work on the bill and asked              
why the committee has now lowered the number to 35 million barrels             
of oil.  He stated that he was looking for a reason to do this.                
                                                                               
Number 1212                                                                    
                                                                               
CHAIRMAN HODGINS asked if he thought without the bill there would              
be a lot of opportunities on the six fields.                                   
                                                                               
MR. BOYD responded that he saw a lot of opportunities on the oil               
fields and stated that he could not speak to the gas fields as                 
there is no shortage of gas.  He said " If you want to displace                
12.5 percent gas with 5 percent gas that's the benefit you get in              
the short term.  If there is a gas shortage and price rises I think            
simple economics tell you these fields become more economic."                  
                                                                               
Number 1240                                                                    
                                                                               
CHAIRMAN HODGINS stated that Enstar has stated that there is a gas             
shortage.                                                                      
                                                                               
MR. BOYD stated he would not speak for Enstar or anybody else.  He             
stated that there are other companies that would testify there is              
not a gas shortage.  He stated that he is not sure if it is a gas              
shortage or a deliverability problem.                                          
                                                                               
Number 1278                                                                    
                                                                               
CHAIRMAN HODGINS asked him why he thought the fields have not be               
utilized.                                                                      
                                                                               
Number 1300                                                                    
                                                                               
MR. BOYD stated the he believed the companies are out there working            
as Forcenergy, ARCO and Frontier Petroleum are drilling on the west            
side.  He stated that certain fields because of their advantages               
are going to be developed first.  He stated that if a shortage                 
develops and exploration does not pan out the fields would become              
more economical.  He stated that he could not say the terms of the             
bill is the right answer.                                                      
                                                                               
CHAIRMAN HODGINS asked what is the right answer.                               
                                                                               
Number 1350                                                                    
                                                                               
MR. BOYD replied that HB 207.                                                  
                                                                               
CHAIRMAN HODGINS stated that he is interested in HB 207 for the                
fact that it has never been used.                                              
                                                                               
MR. BOYD replied that there has been an application from Unocal and            
that is the only time that it has been applied.                                
                                                                               
Number 1387                                                                    
                                                                               
CHAIRMAN HODGINS stated that the reason could be that HB 207 is too            
cumbersome to be used and this bill would allow industry to get                
into various fields.                                                           
                                                                               
MR. BOYD responded that the other possibility is that the fields               
are economic and do not need relief.                                           
                                                                               
CHAIRMAN HODGINS responded than he would think there would be                  
drilling rigs all over Cook Inlet.                                             
                                                                               
Number 1412                                                                    
                                                                               
REPRESENTATIVE RYAN referred to page 3 of Mr. Eason's letter in                
answer to Representative Ogan's question.  He stated that a spread             
sheet could adjust the royalty rate to the price of oil on a daily             
basis.                                                                         
                                                                               
Number 1460                                                                    
                                                                               
REPRESENTATIVE ROKEBERG asked if the way the bill is drafted, it               
does not distinguish between a field, pool or horizon.                         
                                                                               
Number 1491                                                                    
                                                                               
MR. BOYD stated that the bill as he understands it, it applies to              
the entire field.                                                              
                                                                               
Number 1503                                                                    
                                                                               
CHAIRMAN HODGINS asked that in regards to the fiscal note, what                
would it cost the state if the bill went through.                              
                                                                               
MR. BOYD stated that there was a range of numbers on oil regarding             
two scenarios.  He stated that it was between $14 million and $27              
million.                                                                       
                                                                               
Number 1543                                                                    
                                                                               
CHAIRMAN HODGINS asked what it would cost to administer this bill.             
                                                                               
MR. BOYD responded that it would cost very little.                             
                                                                               
Number 1553                                                                    
                                                                               
REPRESENTATIVE OGAN referred to the discovery oil bill and asked if            
there was an increase in exploration work as a result.                         
                                                                               
Number 1570                                                                    
                                                                               
MR. BOYD responded that the bill was passed a year ago and the                 
regulations have just been adopted.  He stated that he expected to             
see applications in the future.  One of the problems was that there            
were a few lawsuits in Cook Inlet which have been won.                         
                                                                               
Number 1636                                                                    
                                                                               
REPRESENTATIVE OGAN asked if there was a potential for the shut-in             
wells that they could find some new pools and fields then the                  
royalty could be applied to them.                                              
                                                                               
Number 1653                                                                    
                                                                               
MR. BOYD responded that is the purpose of the bill so the answer is            
yes.                                                                           
                                                                               
Number 1671                                                                    
                                                                               
CHAIRMAN HODGINS asked if he could give a synopsis of his letter as            
his office has just now received it.                                           
                                                                               
Number 1677                                                                    
                                                                               
MR. BOYD stated that it was a letter to Senator Halford in response            
to a letter that Forcenergy wrote in March.                                    
                                                                               
Number 1690                                                                    
                                                                               
CHAIRMAN HODGINS called for a brief at ease at 10:45 a.m.                      
                                                                               
Number 1690                                                                    
                                                                               
CHAIRMAN HODGINS called that meeting back to order at 10:48 p.m.               
                                                                               
Number 1716                                                                    
                                                                               
REPRESENTATIVE RYAN asked what would be the initial capital cost               
for these people to go out and set up the various platforms and                
infrastructures they would need to do the drilling.  He stated that            
he is comfortable with the incentive that is offered as if it is               
not offered there is no reason for the people to take the time and             
invest the capital.                                                            
                                                                               
Number 1794                                                                    
                                                                               
REPRESENTATIVE CON BUNDE made a motion to move the proposed CSHB
380( ) out of committee.                                                       
                                                                               
Number 1805                                                                    
                                                                               
REPRESENTATIVE OGAN objected for discussion purposes.                          
                                                                               
Number 1808                                                                    
                                                                               
REPRESENTATIVE ROKEBERG referred to Mr. Eason's letter dated March             
11, 1998 and stated that it answers a lot of the committee's                   
questions.  He stated that there is a section that refers to the               
potential of double dipping and stated that the statutory cite                 
should read AS 83.05.180 subsection (F) not (D) both on page 1 and             
3 of the letter.  He stated that the wanted to note that the letter            
refers to proprietary information on field sites.  He stated that              
because of this disclosure of proven reserves, he has a greater                
comfort level.  He stated that he would rather not complicate the              
bill with sliding scales but it is a policy scale to let the bill              
go forward with the policy reduction as to the entire lease.  He               
stated that he would be voting to support the bill.                            
                                                                               
Number 1955                                                                    
                                                                               
BOB SHAVELSON, Executive Director, Cook Inlet Keeper, testified via            
teleconference from Homer, that Cook Inlet Keeper is a non-profit              
organization that is dedicated to protecting Cook Inlet.  He stated            
that there is no need for this legislation as the oil and gas                  
activity has increased under the existing royalty structure and new            
technology is resulting making wells more efficient.  He stated                
that the more appropriate thing to do, is to take back non-                    
performing leases and wells and put them out for competitive bid               
and see if other companies are interested in trying to make a                  
profit.  He stated that there still are the questions of which                 
fields this bill could be applied to and the fiscal impact to the              
state.  He stated that these nonrenewable resources are public                 
resources, held in trust by the state, which is to ensure that all             
these dispensations be in the best interest of the public.  He                 
stated that testimony has shown that there is no reason to decrease            
revenues that are available to the state.                                      
                                                                               
Number 2057                                                                    
                                                                               
REPRESENTATIVE OGAN asked Mr. Boyd with the royalty reduction given            
on the estimated amount of producible reserves, how much money                 
would the state not be getting.                                                
                                                                               
MR. BOYD estimated the range to be between $14 and $27 million                 
assuming certain things about production rate over 10 years.                   
                                                                               
Number 2111                                                                    
                                                                               
REPRESENTATIVE OGAN removed his objection.                                     
                                                                               
CHAIRMAN HODGINS asked if there were any further objections.                   
Hearing none, CSHB 380(O&G),0-LS1503\B, with individual                        
recommendations and the attached fiscal notes moved out of the                 
House Special Oil and Gas Committee.                                           
                                                                               
HB 393 - DEVELOP STRANDED GAS RESOURCES                                        
                                                                               
Number 2150                                                                    
                                                                               
CHAIRMAN HODGINS announced the committee would hear HB 393, "An Act            
relating to contracts with the state establishing payments in lieu             
of other taxes by a qualified sponsor or qualified sponsor group               
for projects to develop stranded gas resources in the state;                   
providing for the inclusion in such contracts of terms making                  
certain adjustments regarding royalty value and the timing and                 
notice of the state's right to take royalty in kind or in value                
from such projects; relating to the effect of such contracts on                
municipal taxation; and providing for an effective date."  He                  
stated that there is a marked of version of HB 393, which is the               
committee substitute that the committee is proposing.                          
                                                                               
Number 2164                                                                    
                                                                               
PAT CARTER asked that the committee look at the version with the               
words "O&G mark-up 3/12/98" written on the front which is the                  
original bill with the changes written in and CSHB 393(O&G)0-                  
GH2006\B, 3/11/98.  He said "These should be substantially similar             
since its what legal worked off of.  The drafting manual states                
that the new text underlined and the deleted text bracketed only               
applied to changes in existing statute and therefor it is very                 
difficult to disseminate between the original bill and the mark-               
up."   He asked the committee to turn to page 2 on the marked-up               
version  finding (4) was deleted and renumbered accordingly.  He               
stated that in (7) "although developing technology may offer other             
alternatives, such as gas-to-liquids (GTL), was deleted and Insert             
A, was added which reads:                                                      
                                                                               
     Page 2, line 28: (7) following "marine tankers;" INSERT:                  
     although experimental research is being conducted on other                
     alternative technologies such as gas-to-liquids (GTL), this               
     technology is not yet commercially viable.  If this research              
     results in commercially viable technology, and after economic             
     analysis by the state of Alaska of the application of this                
     technology it is shown that local or state tax or regulatory              
     changes are necessary to commercialize an Alaska project                  
     utilizing this technology, then this technology may be                    
     considered in regards to this legislation.                                
                                                                               
Number 2237                                                                    
                                                                               
MR. CARTER stated that (9) was deleted.   In (10) of the original              
bill, "for an enormous volume of gas," "that volume of gas                     
represents approximately one-quarter of the entire East Asian LNG              
market today and probably cannot be placed into that market all at             
once", and "which means that the project must secure most, if not              
all, of the projected growth in demand for LNG in the East Asian               
market over the ramp up period;" was deleted.  Inset B was added               
which reads:                                                                   
                                                                               
     Page 3, Line 16: INSERT a new finding: (11) the state has                 
     contracted an extensive financial analysis of the                         
     commercialization of North Slope gas; this analysis, performed            
     by a recognized expert in petroleum economics, Dr. Pedro Van              
     Meurs, indicates that changes in the local, state, and federal            
     tax structure may be necessary to make commercialization of               
     North Slope gas resources economically viable;                            
                                                                               
Number 2304                                                                    
                                                                               
MR. CARTER stated Insert C was added, which reads:                             
                                                                               
     Page 5, line 12:  INSERT: (b)  The legislature intends that,              
     in order to provide the stable fiscal terms that will                     
     encourage development of stranded gas projects, any contract              
     negotiated pursuant to this Act will express whether the state            
     intends to be bound to the full extent allowed by the                     
     Constitution of the State of Alaska; however, the legislature             
     further intends that the terms of a contract negotiated under             
     this chapter will not be binding on or enforceable against the            
     state or the other parties to the contract unless the                     
     commissioner is authorized to execute the contract by the                 
     legislature as provided in this chapter.                                  
                                                                               
Mr. CARTER stated that on page 6 , line 21 the word "economic" was             
added before "proximity" and as well as throughout the bill.                   
Insert CC  was added which reads:                                              
                                                                               
          Page 7, line 31: INSERT new : (6)  a plan to mitigate the            
          increased demand for public services and other negative              
          effects caused by the project; (7) a plan for the safe               
          management and operation of the project once it is                   
          constructed;                                                         
                                                                               
Number 2349                                                                    
                                                                               
MR. CARTER stated that on page 9, line 31, the date is changed from            
2004 to 2001.  Insert D was added was reads:                                   
                                                                               
     Page 14, line 9:  INSERT: (c)  Subject to the voluntary                   
     agreement of the qualified sponsors, the commissioner may                 
     include a term in the contract providing for incentives to                
     encourage training and hiring of Alaska residents.                        
                                                                               
Number 2377                                                                    
                                                                               
Mr. CARTER stated that on page 15, line 4 the words "any two" were             
deleted and the word "both" was added.  He stated that (iii) and               
(iv) were deleted.  He stated that on page 14, line 7 following As             
43.82.240  "or to a municipal advisory" was added.  On page 14,                
line 12 after the word "Law" "and municipal advisory group                     
established held under AS 43.82.510" was added.  He asked                      
Commissioner Condon to speak to this.                                          
                                                                               
Number 2423                                                                    
                                                                               
WILSON CONDON, Commissioner, Department of Revenue, stated that it             
would be a group that is established and authorized to share                   
confidential information with the municipal advisory group.                    
                                                                               
Number 2452                                                                    
                                                                               
MR. CARTER stated that on page 19, line 31, "enter into the                    
proposed contract" was deleted and "submit the contract to the                 
legislature, together with a request from the Governor, for                    
authority to enter into the proposed contract pursuant to AS                   
43.82.435" was added.  Similar language was also added on page 20,             
line 13, with Insert E.                                                        
                                                                               
TAPE 98-23, SIDE B                                                             
Number 0003                                                                    
                                                                               
CHAIRMAN HODGINS asked if that would be the ratification language.             
                                                                               
MR. CARTER replied that is correct.                                            
                                                                               
Number 0038                                                                    
                                                                               
Mr. CARTER stated that on page 21, line 2 after the word "public"              
"and members of the legislature" is added and (3) is renumbered to             
(4) and vise versa.  He stated that on page 21, line 24 after                  
"appropriate", "and with the pertinent municipal advisory group" is            
added.  He stated that on page 21, line 31, "the commissioner may              
execute the contract is deleted.  Insert F is added which reads:               
                                                                               
     Page 22. Line 2:  Following "state" INSERT: the commissioner              
     shall under 43.82.435 submit the contract to the legislature,             
     together with a request from the Governor for authorization to            
     execute the contract.                                                     
                                                                               
Number 0096                                                                    
                                                                               
MR. CARTER stated that on Insert G is added which reads:                       
                                                                               
     Page 22, between lines 5 and 6, INSERT:  Sec. 43.82.435.                  
     Legislative Authorization. The commissioner may not execute a             
     contract developed pursuant to this chapter and a contract                
     developed pursuant to this contract is not binding  upon or               
     enforceable against the state or other parties to the contract            
     unless the commissioner is authorized to execute the contract             
     by means of general law. The state and the other parties to               
     the contract shall execute the contract within 60 days of the             
     effective date of the authorizing legislation.                            
                                                                               
     Sec. 43.82.440. Judicial Review. A person may only bring an               
     action challenging the constitutionality of an enactment under            
     AS 43.82.435 or the enforceability of a contract executed                 
     pursuant to an enactment under AS 43.82.435 if the action is              
     commenced within 120 days after the date that the contract was            
     executed by the state and the other parties to the contract.              
                                                                               
MR. CARTER stated that page 23, Article 6 was deleted and Insert H             
was added.  He asked Commissioner Condon to explain it.                        
                                                                               
Number 0108                                                                    
                                                                               
COMMISSIONER CONDON stated that in the original bill the contract              
provided for either a formula or an equity participation in the                
project.  Rather than having a specific formula in the legislation             
the new municipal provision provides that the proposed contract                
would provide for payment made directly to municipalities and those            
payments would be negotiated in line with the principles of AS                 
43.82.520 (b).  He stated that the legislation would require the               
creation of an municipal advisory group and one member appointed               
from each municipality whose taxing power would be affected by the             
proposed project.  He stated that the commissioner, in developing              
the contract would be obligated to keep the municipal advisory                 
group informed and to seek their advice and counsel in arriving at             
the municipal sharing formula.                                                 
                                                                               
Number 0191                                                                    
                                                                               
MR. CARTER stated that on page 24, line 23 was added, which reads:             
                                                                               
     (1) "affected municipality" means a municipality for which it             
     is reliably expected by the commissioner of revenue that after            
     the commencement of activities under AS 43.82.200 that a                  
     contract entered into pursuant to AS 43.82. 020 will affect               
     taxes that otherwise would be imposed by that municipality                
     pursuant to AS 43.82.210.                                                 
                                                                               
MR. CARTER stated that Insert J was added which is the definition              
of economic proximity and is renumbered accordingly.  He stated                
that on page 25, line 15, Insert K was added, which is the                     
definition of uneconomic or uncompetitive.                                     
                                                                               
Number 0278                                                                    
                                                                               
REPRESENTATIVE TOM BRICE asked when legislative approval of the                
contracts is mentioned is it the approval in the form of resolution            
or statute.                                                                    
                                                                               
Number 0292                                                                    
                                                                               
COMMISSIONER CONDON replied that the committee substitute would                
provide a template for bringing modifications to the state's fiscal            
system before the legislature.  It calls for the development of a              
proposal which the commissioner would not have the authority to                
sign.  A bill would come before the legislature that, if passed,               
would give the authority to the commissioner to enter into a                   
contract.                                                                      
                                                                               
Number 0325                                                                    
                                                                               
REPRESENTATIVE BRICE stated that a bill is either a resolution or              
a statute and he asked if he was taking statutory to mean a House              
bill.                                                                          
                                                                               
Number 0330                                                                    
                                                                               
COMMISSIONER CONDON replied absolutely.  He stated that it might               
not show up as a section in the codified statutes but it is a bill             
as opposed to a resolution.                                                    
                                                                               
Number 0339                                                                    
                                                                               
REPRESENTATIVE BRICE stated that his concern is that it would leave            
some leeway for legislative manipulation of that contract.  He                 
stated that by resolution that language would be less easily                   
manipulated.                                                                   
                                                                               
Number 0361                                                                    
                                                                               
COMMISSIONER CONDON replied that it would provide an opportunity               
for legislative review before the contract was submitted to the                
legislature along with the request for authority to enter into the             
contract.  He stated that there is both the opportunity to change              
the contract in response to legislative views and then an up or                
down vote once authorization to enter into the contract is                     
requested.                                                                     
                                                                               
Number 0414                                                                    
                                                                               
REPRESENTATIVE BRICE referred to Insert E and stated that the                  
legislature can approve the contract by action of both bodies                  
through resolution.  A resolution would stand for the legislatures             
endorsement of a contract which is much different than having a                
piece of legislation that will be able to be amended in the                    
committee process.                                                             
                                                                               
Number 0469                                                                    
                                                                               
COMMISSIONER CONDON replied that it is the legislature's decision              
as to how this gets structured.  He stated that this bill does not             
give the commissioner the authority to enter into the contract what            
it does is, requires the commissioner, under a detailed set of                 
criteria, to come back to the legislature with a specific proposal             
in contract form and a requirement for it to become legally                    
effective, a specific legislative authorization to enter into the              
contract.  The legislature would not have the authority to amend               
the contract; they would have the authority either to give                     
authority to the commissioner to enter into it or to deny it.                  
                                                                               
Number 0526                                                                    
                                                                               
REPRESENTATIVE BRICE stated that he has a strong concern that the              
authority needs to be defined to be approved by the legislature                
through passage of a resolution, so there is a certain amount of               
specificity as to how the legislature will react to the contract.              
                                                                               
Number 0548                                                                    
                                                                               
REPRESENTATIVE ROKEBERG stated that if a general law was passed, it            
would be possible to amend or change the terms of the contract so              
the issue is, if it should be a law or resolution.  He stated that             
the question is, does the legislature want to be able to change the            
terms of the contract.                                                         
                                                                               
Number 0574                                                                    
                                                                               
COMMISSIONER CONDON stated that as the bill is structured, without             
the passage of a subsequent bill it can not be done by a resolution            
it has to be done by a bill.                                                   
                                                                               
REPRESENTATIVE RYAN stated that there is a separation of power and             
the job of the administration is to bring the deal back to the                 
legislature.  He stated that at that point the legislature could               
approve or disapprove it, it is not in the  legislature's power to             
cut the deal, only to approve it.  He stated that legislative                  
approval is necessary, but we should not be negotiating the deal.              
                                                                               
Number 0657                                                                    
                                                                               
REPRESENTATIVE ROKEBERG stated that he did not agree, he would                 
think that the legislature would have the right to make changes in             
general law as well as granting authority.                                     
                                                                               
Number 0685                                                                    
                                                                               
COMMISSIONER CONDON stated that it could happen in a lot of                    
different ways.  For example, if there was a proposed contract that            
project participants and the commissioners have agreed to it.  If              
the legislature grants the authority to enter into the deal then               
there would be a contract and the legal effects that go along with             
it.  At that point, the legislature could say that they do not like            
the deal but like the ideas.  Therefore, the legislature could take            
the provisions out of the contract and put them into the general               
law and pass it as a bill which would then be the fiscal system.               
He stated that would be the choice the legislature has.                        
                                                                               
Number 0764                                                                    
                                                                               
REPRESENTATIVE ROKEBERG stated that is the point that                          
Representative Brice was making.  He stated that it is in the realm            
of politics, authority and responsibility; by crafting legislation             
we can shift the authority and the ultimate decision making from               
one branch of government to another.                                           
                                                                               
Number 0797                                                                    
                                                                               
COMMISSIONER CONDON stated that this proposed legislation does not             
limit the legislature's authority at all.  It does require a                   
process by which the administration can bring something back to the            
legislature.  He stated that there are some policy advantages by               
having the proposal come back in the form of a contract.  He stated            
that fiscal certainty is important in trying to reduce perceived               
risk to attract investors.  He stated that putting the fiscal                  
system in place in the form of a contract has the advantage of                 
increasing the fiscal certainty that would be investors would have             
but the legislature has full discretion to say whether they like               
the idea.                                                                      
                                                                               
Number 0918                                                                    
                                                                               
MR. CARTER referred to a memo by Tam Cook from legal services that             
this may violate the separation of powers doctrine.  He said "As I             
understand it the administration is not required to seek                       
legislative approval and they have continued to take that position             
under oil contracts.  The latest one is the governor's transmittal             
letter on SB 164 dated April 22, 1995."  He read from the memo                 
"That while the executive branch has consistently and in my view               
correctly asserted that legislative approval provisions are                    
unconstitutional it is often conformed to them to accommodate the              
legislative desire for oversight."                                             
                                                                               
Number 0982                                                                    
                                                                               
COMMISSIONER CONDON referred to the separation of power doctrine               
and stated that the legislature has taken the position that they               
will prevent the executive branch from acting unless there is                  
specific legislative authorization.  Any time the administration               
wants to build something with revenue bonds there needs to be                  
specific legislative authority to do so.  However, there is general            
authority to build roads etc.  He stated that this bill would not              
give the administration the authority to do so, it gives the                   
command to the administration to develop a proposal for legislative            
authorization.  He stated that without legislative authorization               
there can not be a separation of power problem.                                
                                                                               
Number 1090                                                                    
                                                                               
REPRESENTATIVE BRICE stated that the believed the legislature has              
been clear in its support of the gas line.  He stated that HB 393              
gives the administration the authority to break down the terms and             
negotiate the contract.  He stated that he is hearing that                     
Commissioner Condon wants more authority to negotiate fiscal terms             
and then come back to the legislature and ask for specific statute             
changes to meet those fiscal terms.  He had hoped in the event that            
there was a contract, the legislature would either sign off                    
through resolution or not.  He stated that his confusion is that               
instead, the administration is going to come back with further                 
changes to the state's fiscal system.                                          
                                                                               
Number 1216                                                                    
                                                                               
COMMISSIONER CONDON stated that what the bill would do is ask the              
legislature for the authority to enter into the contract.  In order            
to do so a bill would have to be passed.                                       
                                                                               
Number 1253                                                                    
                                                                               
REPRESENTATIVE BRICE replied "The difference between HB 393 and HJR
12 in general terms, are two specific different animals."  He                  
stated that the administration asks for legislative approval                   
submitted in House bill form, but to say that the legislature can              
not go into that contract and make changes is absolutely foreign.              
He stated that to say that the legislature will approve by                     
resolution, the difference is in the discretion.                               
                                                                               
Number 1324                                                                    
                                                                               
COMMISSIONER CONDON stated that if there is a contract they will               
have no discretion unless it is agreed to.                                     
                                                                               
REPRESENTATIVE BRICE asked if he wanted a resolution.                          
                                                                               
COMMISSIONER CONDON replied that it in fact has to be done in the              
form of a bill.                                                                
                                                                               
Number 1357                                                                    
                                                                               
REPRESENTATIVE ALAN KEMPLEN stated that there would be further                 
discussions of this.  The notion of fiscal certainty has been                  
reinforced enough to move forward with the project.  He stated that            
the process is building a case for a long term commitment to the               
terms of the contract.  He stated that he believed this to be a                
good approach.                                                                 
                                                                               
Number 1509                                                                    
                                                                               
REPRESENTATIVE OGAN referred to Ms. Cook's memo and asked if we are            
binding further legislatures from changing the terms of the                    
contract.                                                                      
                                                                               
Number 1559                                                                    
                                                                               
COMMISSIONER CONDON replied that the answer to that question is                
unknown.  At some point in time the legislature will have the                  
option of saying that they want to bind a future legislature, once             
contested the answer will be known.  There are differing views on              
how far the legislature can go in binding future legislatures.                 
                                                                               
Number 1650                                                                    
                                                                               
REPRESENTATIVE OGAN asked that in order to avoid legislation, it               
would be prudent to make sure the law is not ambiguous.                        
                                                                               
Number 1669                                                                    
                                                                               
COMMISSIONER CONDON replied that he agreed with that but in respect            
to this issue, litigation would be wanted to find out the extent of            
the legislature's authority.                                                   
                                                                               
Number 1689                                                                    
                                                                               
REPRESENTATIVE OGAN referred to Article 9, Section 1, and asked if             
he could explain what is provided in the article.                              
                                                                               
Number 1735                                                                    
                                                                               
COMMISSIONER CONDON replied that the question of binding future                
legislatures would not arise now but when dealing with a proposed              
contract.                                                                      
                                                                               
CHAIRMAN HODGINS asked Representative Ryan to present his committee            
substitute.                                                                    
                                                                               
Number 1783                                                                    
                                                                               
REPRESENTATIVE RYAN stated that there were a number of changes that            
he requested that are not reflected in the draft.  He stated that              
he would not ask the committee to introduce his committee                      
substitute until it is includes what he intended it to.  He stated             
that he was going to talk with the legislative legal department.               
                                                                               
Number 2366                                                                    
                                                                               
REPRESENTATIVE ROKEBERG made a motion to adopt CSHB 393(O&G). 0-               
GH2006, version B, 3/11/98.                                                    
                                                                               
TAPE 98-24, SIDE A                                                             
Number 0006                                                                    
                                                                               
CHAIRMAN HODGINS asked if there was an objection.  Hearing none,               
CSHB 393(O&G) 0-GH2006, version B, 3/11/98 was adopted.                        
                                                                               
Number 0076                                                                    
                                                                               
REPRESENTATIVE ROKEBERG stated that he had two conceptual                      
amendments.  He stated that he would like to change that an                    
affected community is not only those that have their revenue base              
affected but those that have a socio-economic impact for the                   
services of those communities, specifically the Mat-su valley and              
the Anchorage area.  Therefore, in the definition of the affected              
municipalities on page 26, line 17 add the word "revenue" before               
the term "affected municipality".  He stated that he would like to             
create a new definition of economically affected communities which             
would state that "the municipalities incorporated under state law              
which have a history of or can demonstrate that they may have their            
services impacted by this type of project would be the economically            
affected communities."                                                         
                                                                               
Number 0291                                                                    
                                                                               
REPRESENTATIVE OGAN stated that definitions are usually put in                 
statute for terms that are in the bill.                                        
                                                                               
REPRESENTATIVE ROKEBERG stated that he did have another amendment              
that would do so.                                                              
                                                                               
Number 0348                                                                    
                                                                               
REPRESENTATIVE ROKEBERG made a motion to adopt the conceptual                  
amendments.                                                                    
                                                                               
CHAIRMAN HODGINS asked if there was an objection.                              
                                                                               
Number 0355                                                                    
                                                                               
REPRESENTATIVE OGAN objected for discussion purposes. He stated                
that he is moving amendments to definitions and the committee does             
not know where he is going with the definitions.  He stated that it            
would be helpful to have the amendments written.                               
                                                                               
Number 0408                                                                    
                                                                               
CHAIRMAN HODGINS stated that the committee could adjourn with the              
motion pending.                                                                
                                                                               
Number 0438                                                                    
                                                                               
REPRESENTATIVE ROKEBERG stated that he would explain the other                 
portion to his amendment.  On page 24, line 18, the economically               
affected communities would be added.  He stated that he would bring            
the formal amendments to the committee.  He withdrew his conceptual            
amendments.                                                                    
                                                                               
Number 0542                                                                    
                                                                               
REPRESENTATIVE OGAN stated that he concurred with Representative               
Rokeberg's direction with the amendments.                                      
                                                                               
Number 0565                                                                    
                                                                               
REPRESENTATIVE KEMPLEN referred to page 7, line 31 and stated that             
would address Representative Rokeberg's concerns. He referred                  
Representative Rokeberg's above-mentioned proposed change on page              
24, and stated that it was his understanding that the municipal                
participation was for those communities that were giving up                    
property taxes.                                                                
                                                                               
Number 0638                                                                    
                                                                               
REPRESENTATIVE KEMPLEN stated that he would like to present a                  
conceptual amendment on page 14, line 25 add "with a credit cap of             
$100 million."                                                                 
                                                                               
CHAIRMAN HODGINS asked that he present that amendment in written               
form at the next meeting.  He announced that the bill would be held            
over.                                                                          
                                                                               
ADJOURNMENT                                                                    
                                                                               
Number 0725                                                                    
                                                                               
CHAIRMAN HODGINS adjourned the House Special Committee on Oil and              
Gas meeting at 12:00 p.m.                                                      
                                                                               
                                                                               

Document Name Date/Time Subjects