Legislature(2001 - 2002)

04/19/2002 08:10 AM 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                                                                           
                         April 19, 2002                                                                                         
                           8:10 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Scott Ogan, Chair (via teleconference)                                                                           
Representative Hugh Fate, Vice Chair (chairing)                                                                                 
Representative Fred Dyson                                                                                                       
Representative Mike Chenault                                                                                                    
Representative Vic Kohring                                                                                                      
Representative Gretchen Guess                                                                                                   
Representative Reggie Joule                                                                                                     
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Jim Whitaker                                                                                                     
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 519                                                                                                              
"An  Act authorizing  priority treatment  under the  Right-of-Way                                                               
Leasing  Act  for an  Alaska  North  Slope natural  gas  project;                                                               
expanding the  scope for  the kinds  of gas  development projects                                                               
that may become qualified projects  under the Alaska Stranded Gas                                                               
Development   Act;   extending   the  deadline   for   submitting                                                               
applications  under  the  Alaska Stranded  Gas  Development  Act;                                                               
exempting an  Alaska North Slope  natural gas project  from state                                                               
property  tax and  all municipal  taxes during  construction; and                                                               
providing for an effective date."                                                                                               
     - MOVED CSHB 519(O&G) OUT OF COMMITTEE                                                                                     
PREVIOUS ACTION                                                                                                               
BILL: HB 519                                                                                                                  
SHORT TITLE:NATURAL GAS PIPELINE: SPECIAL PROVISIONS                                                                            
SPONSOR(S): RLS                                                                                                                 
Jrn-Date   Jrn-Page                     Action                                                                                  
04/16/02     2952       (H)        READ THE FIRST TIME -                                                                        
04/16/02     2952       (H)        O&G, RES, FIN                                                                                
04/16/02     2952       (H)        REFERRED TO OIL & GAS                                                                        
04/19/02                (H)        O&G AT 8:00 AM CAPITOL 124                                                                   
WITNESS REGISTER                                                                                                              
REPRESENTATIVE PETE KOTT                                                                                                        
Alaska State Legislature                                                                                                        
Capitol Building, Room 204                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:   Presented HB  519 as chairman of  the House                                                               
Rules Standing Committee, sponsor of the legislation.                                                                           
PAT POURCHOT, Commissioner                                                                                                      
Department of Natural Resources                                                                                                 
400 Willoughby Avenue, Fifth Floor                                                                                              
Juneau, Alaska  99801-1724                                                                                                      
POSITION STATEMENT:   Testified on HB 519, noting  that he chairs                                                               
the governor's  Natural Gas Cabinet; spoke  against granting this                                                               
tax  "holiday" or  waiver outside  a negotiated  process, but  in                                                               
support  of  sections  that  reactivate  and  expand  the  Alaska                                                               
Stranded Gas Development Act.                                                                                                   
LARRY PERSILY, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
P.O. Box 110400                                                                                                                 
Juneau, Alaska  99811-0400                                                                                                      
POSITION  STATEMENT:   Testified  on  HB  519; proposed  changes;                                                               
conveyed DOR's  preference for reauthorizing the  Alaska Stranded                                                               
Gas Development  Act instead  of waiving  $500 million  in taxes;                                                               
explained how  the broadness of  "related facilities"  may impact                                                               
the fiscal note.                                                                                                                
DAVID MARQUEZ, Attorney                                                                                                         
for VECO Corporation                                                                                                            
18546 Osprey Circle                                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Urged passage of HB 519.                                                                                   
RHONDA BOYLES, Mayor                                                                                                            
Fairbanks North Star Borough (FNSB)                                                                                             
P.O. Box 71267                                                                                                                  
Fairbanks, Alaska  99707                                                                                                        
POSITION STATEMENT:   Testifying  as mayor and  a businessperson,                                                               
called HB 519 imperfect but "one  leg of a three-leg stool"; said                                                               
a  waiver   during  construction   is  reasonable,  but   so  are                                                               
discussion    of   both    recoupment   during    operation   and                                                               
"socioeconomic impact  aid"; said  municipalities deserve  a seat                                                               
at the table regarding long-term tax structuring.                                                                               
BILL ALLEN, Chairman and Chief Executive Office (CEO)                                                                           
VECO Corporation                                                                                                                
3601 C Street                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in  support of HB 519 and answered                                                               
PAMELA LaBOLLE, President                                                                                                       
Alaska State Chamber of Commerce                                                                                                
217 Seward Street                                                                                                               
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Urged passage of HB 519.                                                                                   
JACK CHENOWETH, Assistant Revisor                                                                                               
Legislative Legal Counsel                                                                                                       
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
State Capitol                                                                                                                   
Juneau, Alaska  99801-1182                                                                                                      
POSITION STATEMENT:   As drafter  of HB 519, Version  L, answered                                                               
questions  regarding possible  later recoupment  and the  meaning                                                               
and implications of "related facilities".                                                                                       
KEN KONRAD, Senior Vice President                                                                                               
BP Exploration (Alaska) Inc.                                                                                                    
P.O. Box 196612                                                                                                                 
Anchorage, Alaska  99519-6612                                                                                                   
POSITION STATEMENT:   Testified in  support of HB  519; suggested                                                               
that some technical  modifications may be needed  to ensure there                                                               
is no legal challenge regarding use of in-state capabilities.                                                                   
JOE MARUSHACK, Vice President                                                                                                   
ANS Gas Commercialization                                                                                                       
Phillips Alaska, Inc.                                                                                                           
P.O. Box 100360                                                                                                                 
Anchorage, Alaska  99510-0360                                                                                                   
POSITION STATEMENT:  Testified in  support of HB 519, noting that                                                               
minor clarifying changes may be needed.                                                                                         
ACTION NARRATIVE                                                                                                              
TAPE 02-23, SIDE A                                                                                                              
Number 0001                                                                                                                     
VICE CHAIR  FATE called  the House Special  Committee on  Oil and                                                               
Gas meeting  to order  at 8:10 a.m.   Representatives  Fate, Ogan                                                               
(via teleconference), Dyson,  and Guess were present  at the call                                                               
to order.   Representatives Chenault, Joule,  and Kohring arrived                                                               
as the meeting was in progress.                                                                                                 
VICE CHAIR FATE informed members  of a legal interpretation [from                                                               
Tamara Cook,  Director, Legislative Legal and  Research Services]                                                               
that for purposes of making  a quorum, a member on teleconference                                                               
can  be counted  [for  all  business except  moving  a bill  from                                                               
HB 519-NATURAL GAS PIPELINE: SPECIAL PROVISIONS                                                                               
[Contains  discussion of  HB  38  during Commissioner  Pourchot's                                                               
testimony;  contains discussion  of  SB  360 at  the  end of  Mr.                                                               
Marquez's testimony]                                                                                                            
Number 0092                                                                                                                     
VICE  CHAIR  FATE announced  that  the  committee would  consider                                                               
HOUSE BILL NO. 519, "An  Act authorizing priority treatment under                                                               
the Right-of-Way  Leasing Act for  an Alaska North  Slope natural                                                               
gas  project;   expanding  the  scope   for  the  kinds   of  gas                                                               
development  projects that  may become  qualified projects  under                                                               
the Alaska  Stranded Gas Development Act;  extending the deadline                                                               
for  submitting  applications  under   the  Alaska  Stranded  Gas                                                               
Development  Act; exempting  an  Alaska North  Slope natural  gas                                                               
project from  state property tax  and all municipal  taxes during                                                               
construction; and providing for an effective date."                                                                             
Number 0102                                                                                                                     
REPRESENTATIVE  DYSON  moved  to  adopt  the  proposed  committee                                                               
substitute (CS),  version 22-LS1651\L,  Chenoweth, 4/18/02,  as a                                                               
work draft.   There being no objection, Version L  was before the                                                               
Number 0241                                                                                                                     
REPRESENTATIVE PETE KOTT, Alaska  State Legislature, presented HB
519 as  chairman of the  House Rules Standing  Committee, sponsor                                                               
of  the legislation.   He  explained that  there is  a window  of                                                               
opportunity to  diversify Alaska's  economy.  This  bill provides                                                               
some incentive  for building a  gas pipeline during  this window,                                                               
which he  suggested will close  after perhaps two or  three years                                                               
because other  markets will  be available.   He  reminded members                                                               
that the  producers have  formed a  working group  to look  at [a                                                               
pipeline]  and have  concluded that  the economics  aren't right,                                                               
regardless of what route is chosen.                                                                                             
REPRESENTATIVE KOTT  noted that it  remains to be seen  what will                                                               
happen with netback  provisions in federal statutes.   He pointed                                                               
out that at  the state level, however,  Alaskans can collectively                                                               
support a  gas pipeline,  which will  mean a  lot to  the state's                                                               
economy,  especially since  there is  an earnest  search underway                                                               
for additional revenues to fill a $1-billion budget gap.                                                                        
Number 0459                                                                                                                     
REPRESENTATIVE  KOTT referred  to Section  1 of  the bill,  which                                                               
adds  a   findings-and-intent  section  that   substantiates  the                                                               
variety of reasons  the bill is needed.  He  recalled that in ten                                                               
years  in the  legislature, he'd  never before  seen a  bill that                                                               
comprehensively lists the intent with substantive findings.                                                                     
REPRESENTATIVE  KOTT   characterized  this  as  a   simple  idea:                                                               
providing a tax  "holiday" on property and sales  taxes along the                                                               
right-of-way if  this project  goes forward.   He alluded  to new                                                               
language in Section  4 of the bill, paragraph  (7), and indicated                                                               
it  is  based on  a  date  established  by the  commissioner  [of                                                               
revenue] during the construction phase  and ends December [31] of                                                               
the second  full calendar year  in operation.   He added  that it                                                               
could be  seven years, for  example, or twelve, depending  on the                                                               
length  of the  construction  phase; he  suggested the  producers                                                               
could provide a better idea regarding that.                                                                                     
Number 0581                                                                                                                     
REPRESENTATIVE KOTT  noted that  provisions in the  bill identify                                                               
requirements to qualify  as a project.  In  addition, a provision                                                               
calls for the greatest maximum use  of Alaskans to be trained and                                                               
qualified  for the  various  jobs, and  calls  for using  Alaskan                                                               
businesses to the greatest extent possible under current law.                                                                   
REPRESENTATIVE  KOTT   reiterated  the  desire  to   have  a  tax                                                               
"holiday" for property and sales  taxes.  Regarding whether there                                                               
would be a  loss of revenue, he pointed out,  there is nothing to                                                               
be  taxed right  now,  and  what will  happen  in  the future  is                                                               
unknown.   He offered his belief  that a little sacrifice  on all                                                               
sides will be required.                                                                                                         
REPRESENTATIVE KOTT compared the  current situation to needing to                                                               
put money into a slot machine in  order to get anything back.  He                                                               
concluded, "If  we want to  get a pipeline  built and we  want to                                                               
get  some  revenues generated  -  which,  in ...  a  conservative                                                               
estimate will  be about 50  years, and it  could be a  lot longer                                                               
than that - we're  going to have to put something  in."  He noted                                                               
that other testifiers could address technical aspects.                                                                          
Number 0775                                                                                                                     
REPRESENTATIVE OGAN, speaking via  teleconference, noted that the                                                               
Department  of  Revenue  has  characterized the  bill  as  a  tax                                                               
waiver, rather  than a  holiday; unlike  the Alaska  Stranded Gas                                                               
Development Act,  this doesn't  have a  mechanism to  recoup that                                                               
foregone revenue.                                                                                                               
REPRESENTATIVE KOTT agreed  it is a waiver of taxes  as well, but                                                               
indicated he has heard the term "holiday" being used.                                                                           
Number 0885                                                                                                                     
PAT  POURCHOT,  Commissioner,  Department  of  Natural  Resources                                                               
(DNR), came  forward to testify,  noting that he also  chairs the                                                               
governor's   Natural  Gas   Cabinet.     He   told  members   the                                                               
administration  doesn't support  the  provisions of  HB 519  that                                                               
provide  a  grant of  up  to  $500  million  in state  and  local                                                               
property taxes -  as either a "holiday" or a  waiver - outside of                                                               
a  negotiated  process  that  takes into  account  not  only  the                                                               
economic necessity  of providing  the incentives, but  also other                                                               
issues of importance to the state.                                                                                              
COMMISSIONER  POURCHOT  reported  that  on the  other  hand,  the                                                               
administration  supports  the   provisions  that  reactivate  and                                                               
expand  the  Alaska  Stranded  Gas  Development  Act,  which  was                                                               
proposed by  the governor  several years ago  and enacted  by the                                                               
legislature in  1998; he indicated  those were in Sections  9 and                                                               
[10] of the  bill.  He noted that the  governor has another bill,                                                               
HB 38, similar to those sections;  it would move the "starting of                                                               
the  operational date  of  that Act  up" and  also  expand it  to                                                               
include  all  kinds  of  natural   gas  projects,  not  just  LNG                                                               
[liquefied natural  gas], as the  original Act provided for.   He                                                               
told members:                                                                                                                   
     We see that negotiating framework  that's set up in the                                                                    
     Act, as  expanded and  reactivated in  this bill,  as a                                                                    
     way  of  bringing  in  economic  information  into  the                                                                    
     decision  making  on  whether  to grant  this  type  of                                                                    
     economic  incentive   or  other  types   dealing  with,                                                                    
     perhaps, severance  tax, ways of valuation  of gas, and                                                                    
     other  things that  the  Stranded  Gas Development  Act                                                                    
     speaks to. ...                                                                                                             
     Also, that  Act sets  up a  framework that  would allow                                                                    
     the  state   to  bring  other  things   to  the  table.                                                                    
     Clearly, there's  interest in  issues like  local hire,                                                                    
     access  to gas,  use of  the state's  royalty, that  we                                                                    
     feel would  be very much  a logical and  necessary part                                                                    
     of  any kind  of larger  negotiation on  incentives for                                                                    
     advancement of a gas line.                                                                                                 
     The Stranded  Gas Development Act also  has a mechanism                                                                    
     for  bringing in  municipal  interests.   And  clearly,                                                                    
     when  $250  or  $300   million  of  potentially  waived                                                                    
     locally  property taxes  are involved,  there certainly                                                                    
     would  be   a  role,   it  seems,  for   the  municipal                                                                    
     governments involved.                                                                                                      
Number 1065                                                                                                                     
COMMISSIONER POURCHOT continued:                                                                                                
     This   ...  negotiated   approach  involving   economic                                                                    
     information  isn't   new.    We  and   the  legislature                                                                    
     addressed  that  in   the  marginal-fields  legislation                                                                    
     several years ago.   It was addressed  and discussed at                                                                    
     length  in  the  Northstar legislation,  of  trying  to                                                                    
     assess the economics of the  project and how incentives                                                                    
     would or wouldn't help a  project become a reality.  So                                                                    
     we  think  that  there  are  ways  of  providing  state                                                                    
     incentives  for the  gas  line.   We  want to  approach                                                                    
     those ... in a framework  that makes sense and looks at                                                                    
     all available information.                                                                                                 
Number 1130                                                                                                                     
     The particular  tax incentive that's mentioned  in this                                                                    
     bill - property tax "holiday"  or property tax waiver -                                                                    
     was,  indeed,  something that  was  pointed  to by  our                                                                    
     consultants in  a fairly  comprehensive study  by Pedro                                                                    
     van Meurs  several years ago.   He pointed  to property                                                                    
     tax as  being perhaps  the most single  significant tax                                                                    
     that should  be looked  at for  possible ...  change to                                                                    
     advance a gas line, in  that it's ... a very regressive                                                                    
     tax and comes  at a very inopportune time  in a project                                                                    
     life, in that property  taxes are being assessed during                                                                    
     construction and before revenues  flow from a completed                                                                    
     gas line.                                                                                                                  
     His ideas, however, ran not  to an out-and-out grant of                                                                    
     ... an  exemption from all  those taxes, but  to change                                                                    
     the  front loading,  if  you will,  of  those taxes  to                                                                    
     perhaps  a  back-loaded  system where  the  state,  and                                                                    
     perhaps municipalities, could  recoup deferred property                                                                    
     taxes down  the road  of a  project when  revenues were                                                                    
     flowing,  and  it  would be  less  onerous  to  project                                                                    
COMMISSIONER  POURCHOT  concluded  by  offering  that  there  are                                                               
better ways to approach this,  already used by the legislature in                                                               
its approach  to similar issues.   He indicated Larry  Persily of                                                               
the Department of Revenue could address fiscal impacts.                                                                         
Number 1253                                                                                                                     
REPRESENTATIVE  JOULE  asked  whether Commissioner  Pourchot  has                                                               
received   any  of   the   producers'   findings  regarding   the                                                               
construction of a [gas] line.                                                                                                   
COMMISSIONER POURCHOT said no.                                                                                                  
VICE CHAIR FATE  thanked Commissioner Pourchot and  called on Mr.                                                               
Number 1291                                                                                                                     
LARRY PERSILY,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department of  Revenue (DOR), testified  via teleconference.   He                                                               
agreed  with  what  Commissioner  Pourchot had  said,  then  told                                                               
     What   the  [Alaska]   Stranded  Gas   Development  Act                                                                    
     envisioned and what  it included when it  was passed in                                                                    
     1998  was  to  authorize   the  state  to  negotiate  a                                                                    
     contract  for   payments  in  lieu  of   taxes  with  a                                                                    
     developer of  a gas  project so that  we could  make it                                                                    
     more affordable  at the beginning, at  the early stages                                                                    
     - give  them incentives  by deferring  or restructuring                                                                    
     the  state's   fiscal  regime,   so  that   during  the                                                                    
     construction, when  ... it's all outlay  and there's no                                                                    
     revenue,  during the  early years  where there's  not a                                                                    
     positive cash flow, the state's take would be lower.                                                                       
     The project  developer would  be able  to use  the cash                                                                    
     that  starts   coming  in,  in   the  early   years  of                                                                    
     production,  to recoup  their expenses.   But  in later                                                                    
     years,  when the  line is  more  profitable, when  cash                                                                    
     flow is  positive and when  prices are high,  the state                                                                    
     would share in  those benefits and would  take a higher                                                                    
     percentage.    So,  it'd make  the  state  system  more                                                                    
     progressive, rather  than regressive, which ...  we are                                                                    
     now,  as Commissioner  Pourchot  explained, by  lumping                                                                    
     property taxes on.                                                                                                         
     For  the  committee,  ... the  assessment  of  property                                                                    
     taxes for [the] state  and municipalities begin the day                                                                    
     that  first  piece  of  pipe hits  the  dock  and  gets                                                                    
     unloaded.     So  under  the  existing   statute,  it's                                                                    
     correct:    whoever  builds   this  project  would  pay                                                                    
     property  tax  on  pipe, related  equipment,  from  the                                                                    
     first day  they start mobilizing for  construction.  It                                                                    
     would be years before there's positive cash flow.                                                                          
     So  that part  of  the intent  of  this legislation  we                                                                    
     agree  with, because  it does  match  the Stranded  Gas                                                                    
     Development  Act of  1998, which,  by the  way, expired                                                                    
     last year; it  had a deadline of June 30,  2001, and no                                                                    
     one applied,  as we know  - no  one offered to  build a                                                                    
     gas line.   So that Act would need  to be reauthorized,                                                                    
     which   this   legislation   does  by   extending   the                                                                    
     application date to June 30, 2005.                                                                                         
Number 1440                                                                                                                     
MR. PERSILY continued:                                                                                                          
     What the Department of Revenue  would prefer is, rather                                                                    
     than  ... waiving  $500 million  or more  in state  and                                                                    
     municipal  property taxes  without getting  anything in                                                                    
     return,  we  would  prefer   just  to  reauthorize  the                                                                    
     Stranded  Gas  Development Act  that  says  we can  sit                                                                    
     down,  figure out  what  is needed  to  make a  project                                                                    
     economical,  what is  needed for  someone  to make  the                                                                    
     decision to  go ahead  and lay  out $10  or $15  or $20                                                                    
     billion -  what the state  can do  to help with  that -                                                                    
     and then,  in return,  when cash flow's  positive, when                                                                    
     prices are higher, what the state can get back.                                                                            
     The state - and  particularly the municipalities - will                                                                    
     face some  heavy costs  during the  construction cycle.                                                                    
     We all  remember from the  oil pipeline:   police, fire                                                                    
     [protection], schools,  roads.   To give  away property                                                                    
     tax  and sales  tax  for all  those  years, which  this                                                                    
     legislation does,  is going  to place  a burden  on the                                                                    
     state  and  particularly  on municipalities.    And  we                                                                    
     would prefer  just to go  back to the  original wording                                                                    
     of the  Stranded Gas Development  Act, which  allows us                                                                    
     to negotiate a contract for payments in lieu of taxes.                                                                     
Number 1524                                                                                                                     
MR. PERSILY offered concluding remarks and recommendations:                                                                     
     We  feel  this  is  premature, and  we  would  strongly                                                                    
     recommend   a   change  in   that   property-tax-waiver                                                                    
     provision to  include an opportunity  for the  state to                                                                    
     share  in   the  potential   benefits  from   a  highly                                                                    
     profitable  project, as  part  of any  package for  tax                                                                    
     relief,  provide   an  opportunity  for   the  affected                                                                    
     communities   to   participate  in   those   tax-relief                                                                    
     discussions, and  some sort of  needs test so  that the                                                                    
     state  doesn't give  up  more in  tax  revenue than  is                                                                    
     needed.    I  think  any  project  developer  would  be                                                                    
     willing to admit that they  would be happy to pay their                                                                    
     fair share, a reasonable share.   But taking it down to                                                                    
     zero for six  or seven years, in our  opinion, does not                                                                    
     meet that fair-share test.                                                                                                 
Number 1558                                                                                                                     
MR. PERSILY explained why the fiscal note may be higher than the                                                                
amount submitted:                                                                                                               
     The legislation,  in granting the tax  waiver, we think                                                                    
     is  very broad  in terms  of defining  the North  Slope                                                                    
     natural  gas project  as the  pipeline and  any related                                                                    
     facilities.   That could include  an awful  lot besides                                                                    
     just  the pipeline,  compressor stations,  conditioning                                                                    
     plant on the North Slope.   What if wells are converted                                                                    
     from  oil  to  gas, petrochemical  construction  -  you                                                                    
     could end  up giving away  more than the  $500 million-                                                                    
     plus than we had estimated in the fiscal note.                                                                             
Number 1597                                                                                                                     
REPRESENTATIVE JOULE asked whether  Mr. Persily was indicating he                                                               
might change the fiscal note if there is a broader application.                                                                 
MR. PERSILY  reiterated part of  his earlier  explanation, adding                                                               
that  the  department  has  only recently  come  to  realize  the                                                               
potential broadness of "related facilities".   He said the fiscal                                                               
note  for  [Version L]  probably  would  be expanded,  therefore,                                                               
"because the potential for more lost revenue is very real."                                                                     
Number 1656                                                                                                                     
REPRESENTATIVE OGAN alluded to the  analysis section of the DOR's                                                               
fiscal note  submitted by Mr.  Persily the previous day;  he said                                                               
he  shared  some  of  those  concerns.   Before  reading  it,  he                                                               
explained, he'd been  under the impression that  [HB 519] follows                                                               
the  Alaska  Stranded  Gas  Development Act,  with  which  he  is                                                               
familiar  from being  a member  of  both this  committee and  the                                                               
House Resources  Standing Committee for eight  years; he recalled                                                               
the  arduous task  of reviewing  the  Pedro van  Meurs study  and                                                               
spending hundreds  of hours in  hearings.  Speaking of  that Act,                                                               
he remarked,  "I was a little  uncomfortable with it then,  but I                                                               
had a good  feeling about it because there was  an ability, on an                                                               
upside, to  recoup the  money."   He said  [HB 519]  departs from                                                               
that philosophy  because there  is no recoupment.   He  asked Mr.                                                               
Persily whether he also interprets this as a waiver of taxes.                                                                   
MR. PERSILY replied,  "Yes, that's how we interpret  it.  There's                                                               
no ability to recoup, no ability to negotiate anything."                                                                        
Number 1774                                                                                                                     
REPRESENTATIVE  OGAN referred  to  [feasibility]  studies by  the                                                               
producers.  He  recalled requesting, early in the  year, that the                                                               
producers  bring forth  their economic  models to  the committee,                                                               
which hadn't  happened.  He  asked Mr. Persily whether  he'd seen                                                               
any  economic  models from  the  studies  of that  working  group                                                               
[which  consists  of the  three  large  producer companies:    BP                                                               
Exploration (Alaska) Inc.; Phillips  Alaska, Inc.; and ExxonMobil                                                               
MR.  PERSILY responded,  "I  myself  haven't.   We  have had  our                                                               
economist here  see some sketchy  models.  But no,  the producers                                                               
have not shared everything with us."                                                                                            
REPRESENTATIVE OGAN  said that  distresses him  somewhat "because                                                               
they're asking  for a big  chunk here, with  no ... models."   He                                                               
offered  his  understanding  that  all  three  companies  in  the                                                               
working group must  agree [in order to  provide information], but                                                               
that  one company  wouldn't; therefore,  he would  ask testifiers                                                               
which company hadn't agreed, and why they won't show the models.                                                                
VICE  CHAIR  FATE requested  that  Mr.  Persily be  available  to                                                               
answer questions.   He noted that Mark  Myers, Director, Division                                                               
of Oil & Gas, DNR, was online to answer questions as well.                                                                      
Number 1901                                                                                                                     
DAVID  MARQUEZ, Attorney  for VECO  Corporation, came  before the                                                               
committee  to   urge  passage  of   HB  519,  noting   that  VECO                                                               
Corporation  is an  Alaskan company  headquartered in  Anchorage.                                                               
He told members:                                                                                                                
     VECO Corporation  is an engineering,  construction, and                                                                    
     oil and  gas service  company that  has been  active in                                                                    
     the Alaska oil patch for  several decades.  It has also                                                                    
     been  a  good employer  and  an  active member  of  the                                                                    
     greater Alaska  community, participating  vigorously in                                                                    
     philanthropic and community activities.                                                                                    
     VECO  urges passage  of this  bill because  it believes                                                                    
     that Alaska  desperately needs a  gas pipeline  for its                                                                    
     economy.  VECO has seen  and experienced, over the last                                                                    
     15 years,  significant reductions  in the  oil industry                                                                    
     workforce  in  this state,  with  the  most recent  one                                                                    
     being announced  within the last  few weeks  by Alyeska                                                                    
     Pipeline Service  Company.   Coincident with  all these                                                                    
     reductions  has  been  the  elimination  of  contractor                                                                    
     positions staffed by  employees of VECO.   VECO needs a                                                                    
     gas  pipeline to  keep its  Alaska employees  employed,                                                                    
     and hopefully even to increase its workforce.                                                                              
Number 2010                                                                                                                     
MR. MARQUEZ continued:                                                                                                          
     Despite the high  costs and huge risks  of this project                                                                    
     for the  development of the Alaska  North Slope natural                                                                    
     gas pipeline,  VECO believes that it  is still possible                                                                    
     to achieve  this dream.  Some  producers have indicated                                                                    
     that work will continue  when three legislative actions                                                                    
     are  taken:     first,  federal  enabling  legislation;                                                                    
     second, federal legislation that  helps reduce the risk                                                                    
     of  gas  prices'  cycling to  low  levels;  and  third,                                                                    
     Alaska legislation that provides  both an incentive and                                                                    
     tax certainty and clarity.                                                                                                 
     As  to the  federal legislation,  some have  questioned                                                                    
     why federal assistance should be  provided if the State                                                                    
     of Alaska  is unwilling  to step  forward.   House Bill                                                                    
     519 will send a clear  signal that the state is willing                                                                    
     to  participate.   It grants  a temporary  exemption to                                                                    
     the  project from  local  and  state property  taxation                                                                    
     under the 20-mill  property tax (under AS  43.56) for a                                                                    
     period from commencement  of the project's construction                                                                    
     through  the  first  two  years  of  operation  of  the                                                                    
     pipeline.     The  bill  also  calls   for  expeditious                                                                    
     priority treatment  by state officials and  agencies in                                                                    
     support  of   development  and  construction   of  this                                                                    
     The bill puts back into  the action the Alaska Stranded                                                                    
     Gas  Development  Act that  expired  last  June.   This                                                                    
     legislation  was  enacted   after  a  very  substantial                                                                    
     effort,  as  Representative   Ogan  described,  by  the                                                                    
     legislature,  the administration,  and the  industry to                                                                    
     encourage  the   development  of  an  LNG   project  to                                                                    
     commercialize Alaska  North Slope gas.   House Bill 519                                                                    
     makes it applicable  to a North Slope gas  line as well                                                                    
     as  an LNG  project, and  extends until  June 2005  the                                                                    
     deadline for filing an application  for a contract with                                                                    
     the state.   Such a  contract would be approved  by the                                                                    
     legislature  and  would contain  provisions  addressing                                                                    
     the  issues of  tax-and-royalty clarity  and certainty,                                                                    
     and other issues important to the parties.                                                                                 
Number 2113                                                                                                                     
MR. MARQUEZ continued:                                                                                                          
     A little  more on the temporary  property-tax exemption                                                                    
     provided in the  bill:  it does not apply  to any taxes                                                                    
     currently  being collected,  so  present revenues  will                                                                    
     not be  affected by this bill.   Only if a  pipeline is                                                                    
     built  and  the  state  enjoys  the  benefits  of  that                                                                    
     development will  the investment of this  temporary tax                                                                    
     exemption be made.  It  is temporary and lasts only for                                                                    
     the period of  construction and the first  two years of                                                                    
     operations.   At  its  expiration -  if  this bill,  in                                                                    
     fact, encourages the producers  and a pipeline is built                                                                    
     - the state and local  governments will have a pipeline                                                                    
     on which to levy taxes  for many years; a new industry,                                                                    
     a gas  industry, will have  been created;  in-state use                                                                    
     of  gas   will  be  possible;  and   Alaskans  will  be                                                                    
     employed.   If it is not  built, there will not  be any                                                                    
     of these.                                                                                                                  
     Just a year or so ago,  when gas prices were very high,                                                                    
     everyone  thought  the  pipeline was  just  around  the                                                                    
     corner.    Now,  reality  has set  in  again,  and  the                                                                    
     project's  enormous  risks  and   costs  make  it  very                                                                    
     doubtful that it  will be built unless  action is taken                                                                    
     to keep the project alive.   VECO, together with Fluor,                                                                    
     performed  the study  for the  producers  that ...  has                                                                    
     been  referenced.    VECO recognizes  the  great  risks                                                                    
     involved  with the  project, but  believes that  if the                                                                    
     state takes  action to reduce  the risks and  costs, we                                                                    
     can make it happen.                                                                                                        
     There  may be  concern that  this will  be viewed  as a                                                                    
     giveaway and that, instead,  the state should negotiate                                                                    
     with the  gas owners  before any incentives  are given.                                                                    
     VECO feels a sense of urgency.   If action is not taken                                                                    
     this  year,  the  only opportunity  for  a  significant                                                                    
     boost to the  state economy may be lost.   If we take a                                                                    
     year or two  or three to negotiate  any incentives, the                                                                    
     opportunity may  be lost  as the  producers move  on to                                                                    
     other  projects.   There  will be  time  in the  coming                                                                    
     years under the Alaska  Stranded Gas Development Act to                                                                    
     negotiate, but  VECO believes  concrete action  must be                                                                    
     taken this year to keep the project going.                                                                                 
Number 2239                                                                                                                     
MR. MARQUEZ continued:                                                                                                          
     Further,  the bill  requires  that  the producers  must                                                                    
     meet  certain   conditions  to  be  eligible   for  the                                                                    
     temporary tax exemption.  First,  it must be a pipeline                                                                    
     that follows  the southern route.   The bill  lists six                                                                    
     other   conditions,  including   compliance  with   the                                                                    
     federal  Acts relating  to the  natural gas  pipelines.                                                                    
     Amendments [to  those Acts] ...  would be  favorable to                                                                    
     Alaska  and are  being  currently  considered with  the                                                                    
     pending federal  enabling legislation.  And  [the bill]                                                                    
     includes Alaska ... hire, buy, and build.                                                                                  
     The  Alaska Stranded  Gas Development  Act, which  this                                                                    
     bill  reopens, provides  the  opportunity for  tax-and-                                                                    
     royalty certainty  and clarity  that will  benefit both                                                                    
     the state  and the  producers.  The  state and  the oil                                                                    
     owners were  locked in  long, costly,  and antagonistic                                                                    
     disputes over  issues relating to the  determination of                                                                    
     taxpayers'  liability for  severance  tax and  royalty.                                                                    
     VECO  has been  informed  that  the producers  strongly                                                                    
     desire that  such disputes be  avoided as to  gas [and]                                                                    
     that   the  risk   associated  with   [tax-and-royalty]                                                                    
     uncertainty and lack  of clarity is one  more risk that                                                                    
     ... burdens this already risky project.                                                                                    
     The stranded  gas Act provides  a good process  for the                                                                    
     state  and  producers  to negotiate  such  clarity  and                                                                    
     certainty;  in  fact,  it  offers  the  opportunity  to                                                                    
     negotiate  what tax  regime would  be in  the long-term                                                                    
     fiscal  interest  of  the  state,  while  accommodating                                                                    
     affected municipalities and  the project sponsors under                                                                    
     a   wide  range   of  economic   conditions,  potential                                                                    
     structures,  and  marketing   arrangements.    And  the                                                                    
     legislature  has the  power to  authorize execution  of                                                                    
     the  contract.   The  Act gives  the municipalities  an                                                                    
     important  role through  the formation  of a  municipal                                                                    
     advisory group.                                                                                                            
Number 2323                                                                                                                     
MR. MARQUEZ concluded:                                                                                                          
     In  summary, House  Bill 519  is  crucial and  contains                                                                    
     perhaps  the  only  chance  left to  try  to  keep  the                                                                    
     possibility of  a gas line  project alive for  the next                                                                    
     few years, or it may  be decades before the opportunity                                                                    
     arises again.   VECO also  wants to make it  very clear                                                                    
     that  it  does not  consider  this  to be  a  "producer                                                                    
     bill."   This  is an  Alaska bill  that provides  for a                                                                    
     short-term investment by Alaska that  will pay off in a                                                                    
     project  that  could  be shipping  gas  for  a  hundred                                                                    
     Listening  to  the  previous testimony,  ...  it  seems                                                                    
     clear that we agree that  an incentive is necessary for                                                                    
     this pipeline [and] that  the most leveraging incentive                                                                    
     would be ...  an exemption from the property  tax.  And                                                                    
     really,  this  bill comes  down  to  the philosophy  of                                                                    
     timing.  VECO  believes that it is  very important that                                                                    
     a signal  be sent,  this year,  that Alaska  wants this                                                                    
     pipeline.   The Stranded  Gas Development  Act provides                                                                    
     the opportunity to negotiate later,  and we believe the                                                                    
     producers  will  want to  use  that  bill in  order  to                                                                    
     attain tax  certainty and clarity.   And the  whole tax                                                                    
     regime can then be addressed.                                                                                              
VICE  CHAIR  FATE  reminded  testifiers  they  could  either  fax                                                               
written  testimony or  provide  it in  person  [to the  committee                                                               
Number 2428                                                                                                                     
REPRESENTATIVE  OGAN   told  Mr.   Marquez  he   appreciates  his                                                               
testimony and  supports doing  whatever possible  to "jump-start"                                                               
this project.   He referred  again to  the analysis in  the DOR's                                                               
fiscal note, however, and said there  is no way to recoup revenue                                                               
[when there are profits] under this  bill.  He also referred to a                                                               
previous  recommendation  by  Pedro  van Meurs  to  "give  a  tax                                                               
holiday  on  these  ad  valorem   taxes."    Representative  Ogan                                                               
indicated  there   previously  had  been  no   objection  by  the                                                               
producers  to the  state's  having the  ability  to recoup  money                                                               
later; to his reading, though, this  bill lacks that ability.  He                                                               
asked Mr.  Marquez whether VECO  Corporation would object  to the                                                               
concept of letting the state  recoup lost revenues later on, when                                                               
the pipeline is operating and making money.                                                                                     
MR. MARQUEZ answered:                                                                                                           
     I  disagree with  you, in  your analysis  of the  bill,                                                                    
     because  ...  if this  tax  exemption  - temporary  tax                                                                    
     exemption  -  is granted,  I  think  that will  send  a                                                                    
     signal that  could very well spur  continuation of work                                                                    
     on  this  pipeline.    I  also  think  that  it's  very                                                                    
     important  for   the  producers  ...  to   achieve  tax                                                                    
     certainty and  tax clarity, and  the same  for royalty.                                                                    
     So, I believe that they  will, right away, want to come                                                                    
     in and  use the Stranded  Gas Development Act  in order                                                                    
     to obtain important tax clarity and tax certainty.                                                                         
     When that  happens, it  seems to  me, under  the Alaska                                                                    
     Stranded Gas  Development Act that  you worked  so hard                                                                    
     on - and  as a former employee of ARCO  Alaska, Inc., I                                                                    
     appreciate all the  hard work you put into  that bill -                                                                    
     that will present the opportunity  for everything to be                                                                    
     on  the table,  and for  the whole  tax regime  for the                                                                    
     pipeline to be  negotiated.  And I think  that would be                                                                    
     possible, for there to be a recoupment later.                                                                              
     VECO's position is, let's grant  this incentive.  Let's                                                                    
     send  a   signal  and  negotiate  later,   rather  than                                                                    
     spending a  year or two  or three ...  negotiating now,                                                                    
     perhaps  at  some  point  arriving   at  some  sort  of                                                                    
     incentive, but  perhaps missing the  train -  the train                                                                    
     has  left the  station  because  these large  producers                                                                    
     have other  projects that they'll turn  their attention                                                                    
Number 2613                                                                                                                     
REPRESENTATIVE  OGAN  said  he  agreed  wholeheartedly  with  Mr.                                                               
Marquez's last  statement and  was willing  to seriously  look at                                                               
doing that.   He respectfully  disagreed, however - based  on the                                                               
DOR's  information, especially  -  that there  is  an ability  to                                                               
negotiate later to  recover some of the money.   He proposed that                                                               
the  current committee  should work  on that  issue to  make sure                                                               
members know what will happen if this bill passes.                                                                              
Number 2648                                                                                                                     
VICE  CHAIR  FATE  inquired about  Mr.  Marquez's  assessment  of                                                               
whether this  bill is needed  before or after the  proposed final                                                               
amendments to the energy legislation before Congress.                                                                           
MR.  MARQUEZ offered  his understanding  that  Congress would  be                                                               
turning attention  to aspects of  gas development in  that energy                                                               
legislation,  but said  he believes  it  is likely  that a  final                                                               
package of energy  legislation would be enacted after  the end of                                                               
Alaska's  legislative  session.    He   said  that  is  why  VECO                                                               
Corporation   would  like   Alaska  to   send  a   signal  before                                                               
adjournment  of this  current session,  so that  the rest  of the                                                               
country can see  that Alaska wants this pipeline.   He added that                                                               
the  federal legislation  may not  pass  - including  going to  a                                                               
conference committee - before summer or later.                                                                                  
Number 2723                                                                                                                     
REPRESENTATIVE GUESS noted  that Senator Torgerson has  put a lot                                                               
of time  into the Joint  Committee on Natural Gas  Pipelines, and                                                               
that  [the   Senate  Resources   Standing  Committee]   has  just                                                               
introduced a  bill [SB  360] similar  to [HB  519] in  some ways.                                                               
She  asked Mr.  Marquez  why the  legislature  should favor  this                                                               
approach in  HB 519, which  offers an incentive because  it isn't                                                               
economic otherwise, versus the approach  of [SB 360], which says,                                                               
"Show us it's not economic before we give you an incentive."                                                                    
MR. MARQUEZ responded:                                                                                                          
     I  think one  of  the issues  with Senator  Torgerson's                                                                    
     bill is  the test in which  you have to show,  by clear                                                                    
     and convincing evidence,  that without whatever benefit                                                                    
     is being sought, the project  would not be economic.  I                                                                    
     think that's  a very  vague test.   I  think it  may be                                                                    
     even an  insurmountable test.   But  ... I  can predict                                                                    
     that  it'll   be  a  test  that   will  discourage  the                                                                    
     producers from  wanting to  take that  on and  seek the                                                                    
     I think the scheme  that Representative Ogan and others                                                                    
     spent  a long  time  working out  in  the Stranded  Gas                                                                    
     Development Act provides for a  ... good test, and that                                                                    
     is whether whatever  is being proposed is  in the long-                                                                    
     term fiscal interests  of the state.   And the Stranded                                                                    
     Gas Development  Act sets forth all  sorts of different                                                                    
     factors that need  to be balanced and  considered.  And                                                                    
     I  think that  scheme ...  is  a good  scheme, and  one                                                                    
     that's ready  to go, and  I think ... that  the parties                                                                    
     will want  to ... use  that scheme.   And I'm  not sure                                                                    
     that  they're going  to want  to use  that scheme  when                                                                    
     facing the  ... test  of clear and  convincing evidence                                                                    
     that it's  otherwise uneconomic,  because I'm  not sure                                                                    
     they'll understand how they can meet that test.                                                                            
Number 2825                                                                                                                     
RHONDA  BOYLES, Mayor,  Fairbanks North  Star Borough,  testified                                                               
via  teleconference, noting  that she  also is  a businessperson.                                                               
She thanked the  committee for its hard work over  the last 12 to                                                               
14 months.   She told members  although HB 519 isn't  perfect, it                                                               
is "one leg  of a three-leg stool" requiring  federal, state, and                                                               
municipal support.   She said  it certainly asks for  clarity and                                                               
certainty, which  as a businessperson she  believes are critical.                                                               
It  also  asks  for  economic  incentives  through  a  waiver  of                                                               
municipal property  taxes for  a limited period  of time.   "That                                                               
certainly is not unreasonable," she said.   "In fact, I believe -                                                               
as  leaders   in  our   state  and   leaders  in   the  boroughs,                                                               
municipalities - we have an  obligation to provide an environment                                                               
that is  conducive to economic  development, and that  would mean                                                               
economic incentives."                                                                                                           
MS. BOYLES  emphasized how critical  this project is  to Interior                                                               
Alaska,  and  stressed  the  need   for  gas  and  its  long-term                                                               
benefits.  Without a gas  line, there wouldn't be those long-term                                                               
property  taxes  being  collected.     She  suggested  discussion                                                               
regarding recouping property taxes  during the operation phase is                                                               
appropriate.   She also  referred members to  Article 6  under AS                                                               
43.82 and  said discussion regarding socioeconomic-impact  aid is                                                               
appropriate as well.                                                                                                            
[Not  on tape  because of  the tape  change, but  written in  the                                                               
committee  secretary's log  notes,  was Ms.  Boyle's remark  that                                                               
most  important, she  believes municipalities  deserve a  seat at                                                               
the table regarding long-term tax structuring of this project.]                                                                 
TAPE 02-23, SIDE B                                                                                                              
Number 2980                                                                                                                     
MS. BOYLES concluded as follows:                                                                                                
     I  can tell  you,  pitting the  municipalities and  the                                                                    
     state and  the producers,  in ...  determining assessed                                                                    
     values  of  the  TAPS  [Trans-Alaska  Pipeline  System]                                                                    
     asset,  is an  inappropriate  mechanism  to deal  with.                                                                    
     The municipalities  need ... a  seat at the  table now.                                                                    
     And although you do a  wonderful job representing us, I                                                                    
     don't think  it needs to  be said that there's  a trust                                                                    
     factor  ...   between  municipalities  and   the  state                                                                    
     legislature, and I think an  even more obvious lack-of-                                                                    
     trust   factor   between   the  legislature   and   the                                                                    
     producers.   And  in a  business  partnership, lack  of                                                                    
     trust doesn't make for a good project.                                                                                     
     So,  I  think we  need  to  set our  political  agendas                                                                    
     aside.   We need  to facilitate this  gas project.   We                                                                    
     need to bring natural gas to  the state of Alaska.  And                                                                    
     I would ask  you to continue to lead our  state and its                                                                    
     citizens  into   the  next  decade  with   some  fiscal                                                                    
     certainty, additional jobs, and  the benefits that this                                                                    
     huge project would bring to us.                                                                                            
Number 2878                                                                                                                     
REPRESENTATIVE  KOHRING thanked  Ms.  Boyles and  said he  agreed                                                               
with her.   He suggested this  is the kind of  legislation needed                                                               
to spur  development in the  industry, and  said it fits  in with                                                               
his own budget proposal for major  cuts over a ten-year period in                                                               
government bureaucracy,  coupled with major expansion  in the oil                                                               
and gas  industry.  He  suggested this bill  would go a  long way                                                               
towards  helping the  state's fiscal  situation, "not  to mention                                                               
growth in our  economy from jobs and just dollars  flowing in the                                                               
economy through construction of this nature."                                                                                   
Number 2819                                                                                                                     
BILL  ALLEN,  Chairman and  Chief  Executive  Office (CEO),  VECO                                                               
Corporation, came  forward to testify in  support of HB 519.   On                                                               
his behalf, Rick Smith, Vice  President of VECO Corporation, read                                                               
the following:                                                                                                                  
     Mr.  Chairman and  members of  the committee,  it is  a                                                                    
     pleasure to  be here with  you today, and  I appreciate                                                                    
     the opportunity  to speak with  you on an issue  of the                                                                    
     utmost importance to Alaska.                                                                                               
     I  know most  of you  personally.   Over the  years, we                                                                    
     have had  the chance  to work  together on  many issues                                                                    
     important to  Alaskans:  creating jobs  and local hire,                                                                    
     improving education, encouraging  business and economic                                                                    
     development, to name just a few.                                                                                           
     I'm  here today  to tell  you  that in  my opinion,  no                                                                    
     single issue is more  important to Alaska's future than                                                                    
     the legislation  you now  have before  you.   Alaska is                                                                    
     truly  at  a  crossroads.    Many  of  our  traditional                                                                    
     industries are  struggling - often through  no fault of                                                                    
     their  own.    Our  oil resources  are  declining,  our                                                                    
     timber,  mining,  and  fishing industries  are  on  the                                                                    
     ropes  -  because  of   factors  largely  beyond  their                                                                    
     But  the  bottom line  is  that  as those  traditional,                                                                    
     mainstay    Alaskan    industries   struggle,    Alaska                                                                    
     struggles,  and Alaskans  find themselves  out of  work                                                                    
     and  unable   to  provide  for  their   families.    In                                                                    
     addition, as our state's economy  shrinks, so does your                                                                    
     ability to  ensure better schools,  better communities,                                                                    
     and a better quality of life for all Alaskans.                                                                             
     Mr.  Chairman, I  believe  the  legislation before  you                                                                    
     offers  an opportunity  for Alaska  to control  its own                                                                    
     destiny.   We  know  that the  North  Slope has  enough                                                                    
     proven reserves  of natural gas  to fill a  pipeline to                                                                    
     capacity  for the  next 50  years -  35 trillion  cubic                                                                    
     feet, and  that's just the  known reserves.   Estimates                                                                    
     suggest there may be much  more, perhaps enough to keep                                                                    
     the  pipeline  - and  the  jobs  and revenues  it  will                                                                    
     create - operating for the next 100 years.                                                                                 
Number 2623                                                                                                                     
     Unfortunately, before  Alaska can realize any  of those                                                                    
     benefits, a pipeline  must be built.  A  few years ago,                                                                    
     like  most  Alaskans,  I  was  enthusiastic  about  the                                                                    
     prospects for  the gas line.   With prices  soaring, it                                                                    
     looked as if  the pipeline was just  around the corner.                                                                    
     Well, we  know what  happened next.   Just  as quickly,                                                                    
     prices dropped, and the economics suddenly changed.                                                                        
     After  months of  study, it's  now  clear that  without                                                                    
     some  economic  incentives,  private  industry  is  not                                                                    
     going to  be willing  to risk  the billions  of dollars                                                                    
     necessary to construct the gas  line at this time.  The                                                                    
     project  simply  does not  "math  out"  at current  and                                                                    
     foreseeable  prices, unless  some  of the  construction                                                                    
     and startup risks are offset.                                                                                              
     We  know that  we have  some of  the largest  known gas                                                                    
     reserves in the world.   We know that we have reliable,                                                                    
     private-sector  partners who  can  help Alaska  develop                                                                    
     and market  our vast, untapped  resource.  But  we also                                                                    
     know that  Alaska is  not the only  place in  the world                                                                    
     where  natural   gas  exists.     And  as   with  other                                                                    
     industries,  international competition  increases every                                                                    
Number 2562                                                                                                                     
     I guess  more than  anything, I am  here today  to urge                                                                    
     you to act  quickly to seize a  unique opportunity that                                                                    
     can help ensure Alaska's future.   I believe the window                                                                    
     of opportunity  is still  open, if we  act now  to help                                                                    
     make this project  a reality.  I  also strongly suspect                                                                    
     that if that window shuts, it may never open again.                                                                        
     In the  past several weeks,  I have talked  with senior                                                                    
     officials  from the  production companies.   They  have                                                                    
     indicated a  willingness to proceed,  providing federal                                                                    
     and state legislation is passed  to help offset some of                                                                    
     the  project's   tremendous  risk.    They   also  seek                                                                    
     reasonable  assurances  of  stability in  our  tax  and                                                                    
     economic climate.                                                                                                          
     In that regard, for the  past several months members of                                                                    
     our  congressional  delegation  have  worked  to  enact                                                                    
     federal  incentives  to  help   make  the  gas  line  a                                                                    
     reality.     But  ...  as  with   any  Alaska  resource                                                                    
     development  issue,  they  are  fighting  a  difficult,                                                                    
     uphill fight, and they need our help.                                                                                      
Number 2504                                                                                                                     
     Last week, [U.S.] Senator Murkowski  called me and said                                                                    
     that opponents  of the  gas line  are now  pointing out                                                                    
     the absence  of state action  on the issue -  and using                                                                    
     that point  to try  to defeat our  delegation's efforts                                                                    
     in  D.C.   "If Alaska  does  not care  enough to  offer                                                                    
     incentives," they say, "why should we?"                                                                                    
     Senator Murkowski  and the rest of  our delegation have                                                                    
     indicated that  passage of  HB 519 will  go a  long way                                                                    
     toward  demonstrating   Alaska's  commitment   to  this                                                                    
     project.   It will  send a  clear signal  to Washington                                                                    
     and  the producing  companies that  Alaska is  ready to                                                                    
     step up to the plate to help build Alaska's future.                                                                        
Number 2465                                                                                                                     
     I  have  been asked  what  this  legislation will  cost                                                                    
     Alaska.   My answer has  been very simple  - absolutely                                                                    
     nothing,  because  without  this legislation,  the  gas                                                                    
     line  will  never  likely  be built.    You  can't  tax                                                                    
     something   that  doesn't   exist.     So,  any   taxes                                                                    
     potentially  deferred by  this legislation  would never                                                                    
     have been realized anyway.                                                                                                 
     On the  other hand, I  believe the true cost  to Alaska                                                                    
     lies in  doing nothing.   If this legislation  does not                                                                    
     pass  and the  gas line  is not  built, what  will that                                                                    
     cost Alaska?   The  gas line  will create  thousands of                                                                    
     new  jobs  and billions  in  new  revenue and  economic                                                                    
     activity.    It  can  help provide  a  stable  economic                                                                    
     climate for  Alaska at least  well into this  century -                                                                    
     and long  after you  and I  are gone.   At a  time when                                                                    
     Alaska    is   desperately    seeking   new    economic                                                                    
     opportunities,  I   suggest  to   you  that   the  best                                                                    
     opportunity is  very close at  hand, if we  will simply                                                                    
     reach out and grasp it.                                                                                                    
Number 2394                                                                                                                     
REPRESENTATIVE OGAN concurred with  Mr. Allen's testimony, saying                                                               
he would  like to  see the  legislation move along  as well.   He                                                               
then  asked whether  VECO Corporation  would object  if the  bill                                                               
were amended  to add a way  for the state to  possibly recoup the                                                               
foregone  revenue later  on, if  prices  are up  and profits  are                                                               
being made.                                                                                                                     
MR. ALLEN  referred to HB  393 [which became the  Alaska Stranded                                                               
Gas Development  Act in 1998].   He said  from what he  could see                                                               
from  that Act,  that could  be  negotiated.   He suggested  that                                                               
would  begin fairly  quickly once  there is  federal legislation.                                                               
Speaking  of the  producers,  he  said, "I  don't  know why  they                                                               
wouldn't do that."                                                                                                              
REPRESENTATIVE OGAN  pointed out  that there  is a  difference of                                                               
opinion  between the  DOR's reading  of the  bill and  how it  is                                                               
being portrayed  by the  producers.   He said  he'd like  to sort                                                               
that out.   He asked whether  Jack Chenoweth, the drafter  of the                                                               
legislation, was available.                                                                                                     
VICE CHAIR  FATE indicated the  committee aide would  contact Mr.                                                               
Number 2176                                                                                                                     
REPRESENTATIVE KOHRING  thanked VECO Corporation for  its efforts                                                               
with this legislation  and contributions to the  economy in terms                                                               
of jobs,  local hire,  and so  forth.   He suggested  perhaps the                                                               
bill could  be moved from  the current committee, with  the House                                                               
Resources  Standing  Committee  then   being  asked  to  look  at                                                               
Representative Ogan's concerns.                                                                                                 
Number 2124                                                                                                                     
PAMELA  LaBOLLE, President,  Alaska  State  Chamber of  Commerce,                                                               
came forward  in support of  HB 519.   She offered  the following                                                               
     The Alaska  State Chamber represents 35  local chambers                                                                    
     and 700  businesses, most of whom  are small businesses                                                                    
     deeply concerned  with the  economic future  of Alaska.                                                                    
     ... As  the voice  of Alaska  business and  the leading                                                                    
     advocate  for business  headquartered  here in  Juneau,                                                                    
     we've  always appreciated  the  opportunity to  address                                                                    
     bills of importance to the  economic development of the                                                                    
     Our  legislative   priorities  are  developed   at  the                                                                    
     grassroots level by our  membership, through a several-                                                                    
     month-long  process of  proposal,  review, and  debate.                                                                    
     And among our top priorities  - one of our five highest                                                                    
     priorities  -   is  urging  the  legislature   and  the                                                                    
     governor  to encourage  the producers  to proceed  with                                                                    
     development  of  a   southern  gas-line  route  through                                                                    
     The chamber  speaks in  favor of HB  519 and  urges its                                                                    
     passage.  Alaska absolutely needs  a gas pipeline.  For                                                                    
     our  members to  have their  businesses thrive  or even                                                                    
     just   remain  viable,   Alaska's  resources   must  be                                                                    
     developed.  It sometimes  seems that people outside our                                                                    
     state have  a much greater  say in what happens  in our                                                                    
     state  than  we do.    With  the  defeat of  ANWR  [the                                                                    
     opening to development of  the Arctic National Wildlife                                                                    
     Refuge] in Congress just yesterday,  there are no other                                                                    
     large developments  on the horizon  that will  spur the                                                                    
     growth of our economy in the near term.                                                                                    
     Our  executive  committee   meets  monthly  around  the                                                                    
     state, often  in smaller communities;  we were  just in                                                                    
     Petersburg yesterday.   And  as a  result, we  are very                                                                    
     concerned  with  what  we're seeing  happening  in  the                                                                    
     state's economy - little or  nothing. ... We would like                                                                    
     to  know  what  the  state plans  to  do  to  encourage                                                                    
     economic  growth, to  try to  have  a hand  in our  own                                                                    
     While  the  final  results   of  the  producers'  study                                                                    
     haven't  been released  yet, it  should be  apparent to                                                                    
     everyone that  this is a  project of enormous  cost and                                                                    
     risk.   The state  and local governments  would benefit                                                                    
     greatly, for  years to  come, if  we can  encourage the                                                                    
     producers  to  take the  risks  inherent  in this  huge                                                                    
     project and  develop the North  Slope gas  resources by                                                                    
     building a project through Alaska.                                                                                         
Number 1975                                                                                                                     
MS. LaBOLLE continued:                                                                                                          
     The  temporary  tax  exemption provided  by  this  bill                                                                    
     should be  looked upon  as an  investment by  the state                                                                    
     and the  municipalities, to encourage the  producers to                                                                    
     go  forward  with  a project  that  will  create  jobs,                                                                    
     benefit    municipalities,    [and]    spur    economic                                                                    
     opportunity for businesses that  will start a whole new                                                                    
     industry - a gas industry for Alaska.                                                                                      
     By  revitalizing the  Alaska  Stranded Gas  Development                                                                    
     Act and having it apply  to this project, the state and                                                                    
     producers can  create a contract  that will  assure tax                                                                    
     clarity and  certainty, and protect vital  interests of                                                                    
     the state and affected municipalities.                                                                                     
     How often  does the state  have an opportunity  to take                                                                    
     such  a bold  step  to  encourage large-scale  economic                                                                    
     growth?   Several states and  cities around  our nation                                                                    
     have  offered  to  businesses  tax  incentives  to  ...                                                                    
     encourage them  to invest.   This state should  be less                                                                    
     concerned with  perhaps giving away too  much, and more                                                                    
     concerned  with not  missing a  significant opportunity                                                                    
     for economic growth,  perhaps the only one  in the next                                                                    
     few decades.                                                                                                               
VICE CHAIR  FATE thanked  Ms. LaBolle  and informed  members that                                                               
Mr. Chenoweth was online to answer questions.                                                                                   
Number 1891                                                                                                                     
REPRESENTATIVE OGAN noted DOR's  position that [the bill] doesn't                                                               
allow  recoupment of  foregone  revenue and  is  basically a  tax                                                               
waiver;  however, other  testifiers suggest  there is  an ability                                                               
under the  Alaska Stranded  Gas Development  Act [if  renewed] to                                                               
negotiate  and possibly  recover  some  of that.    He asked  Mr.                                                               
Chenoweth, drafter of the bill, for his opinion.                                                                                
Number 1837                                                                                                                     
JACK  CHENOWETH, Assistant  Revisor,  Legislative Legal  Counsel,                                                               
Legislative  Legal  and  Research Services,  Legislative  Affairs                                                               
Agency, responded via teleconference:                                                                                           
     I  think  there's  probably  some  truth  to  ...  both                                                                    
     positions.   The  bill  as offered  ...  does put  off-                                                                    
     limits  the property  and other  associated efforts  in                                                                    
     conjunction with  the gas  line ...  for the  period of                                                                    
     gearing   up   and   during   the   first   period   of                                                                    
     construction, for a  period, as I recall, of  up to two                                                                    
     years -  and we're talking about  the property-tax levy                                                                    
     that can be reached under [AS 43.56].                                                                                      
     But the  bill also  loops in the  stranded gas  Act, in                                                                    
     its last  two sections.   And as  you may  recall, from                                                                    
     the  effort with  the stranded  gas  Act several  years                                                                    
     ago, other provisions  in that Act - if ...  the Act is                                                                    
     brought  into play  - do  provide  for some  sort of  a                                                                    
     contractual arrangement  which ... might provide  for a                                                                    
     recoupment, after the fact, of  taxes that are not paid                                                                    
     ... early in the life of the project.                                                                                      
Number 1776                                                                                                                     
REPRESENTATIVE  OGAN asked  whether, then,  enough of  the Alaska                                                               
Stranded  Gas Development  Act is  incorporated into  HB 519,  as                                                               
written,  so  that there  possibly  could  be recoupment  if  gas                                                               
prices were high, for example.                                                                                                  
MR. CHENOWETH answered that the amendment  in Section 9 of HB 519                                                               
broadens  the purposes  for which  the  stranded gas  Act can  be                                                               
brought into  play, and the  amendment to Section 10  extends the                                                               
period in  which applications  may be made  to take  advantage of                                                               
that  Act.     He  pointed  out   that  the  contract-development                                                               
provisions of  AS 43.82.200, and  the sections that  follow, talk                                                               
about  the  use  of  periodic   payments  and  similar  kinds  of                                                               
arrangements  to  cover  taxes   generally  identified  as  being                                                               
associated with  oil and gas  production, transportation,  and so                                                               
Number 1673                                                                                                                     
REPRESENTATIVE JOULE  referred to  Section 4, new  paragraph (7),                                                               
page 6, lines  25-26, which reads in part, "for  purposes of this                                                           
paragraph,  'Alaska  North Slope  natural  gas  project' has  the                                                           
meaning given in  AS 38.35.240."  He noted that  the reference is                                                           
to  the  definition  [in Section  3(b)],  and  includes  "related                                                               
facilities".   He asked  what that means  and what  the potential                                                               
implications are.                                                                                                               
MR.  CHENOWETH noted  that the  cross-reference to  "Alaska North                                                               
Slope natural gas  project", on page 6 [line 6]  of Version L, is                                                               
to  AS 38.35.120(a)(1)(B).    He said  that  definition talks  in                                                               
terms of  all the facilities of  a total system of  pipe intended                                                               
to transport,  deliver, store, or  provide for further  or onward                                                               
transportation of natural gas.  Mr. Chenoweth said:                                                                             
     This  language was  taken from  another bill,  the idea                                                                    
     being, I  think, in  fairness, that  what ...  they are                                                                    
     trying to cover  or bring under the umbrella  is all of                                                                    
     the  facilities  that  ...   might  be  involved  in  a                                                                    
     potential  natural  gas  pipeline project:    gathering                                                                    
     lines; gas fabrication plants and  things of that sort;                                                                    
     and then down  at the other end, if  ... you're talking                                                                    
     about  LNG,  the  facilities at  ...  at  tidewater  or                                                                    
     whatever it might happen to be. ...                                                                                        
     Because  we are  tying  ... the  definition of  taxable                                                                    
     property  to  this  definition,   we  are  providing  a                                                                    
     broadened definition  for the project as  it relates to                                                                    
     ... particularly  the property tax that  may be imposed                                                                    
     under  [AS] 43.56  by the  state, and  under the  other                                                                    
     provisions  that allow  a local  government to  come in                                                                    
     ... and levy the tax.                                                                                                      
     At one  point, there was some  discussion about whether                                                                    
     gathering lines and  things on the fields  ahead of the                                                                    
     point of  entry into  a gas  pipeline should  or should                                                                    
     not be covered ... by this  provision.  I think the way                                                                    
     it's drafted, in the absence  of any kind of a specific                                                                    
     exception, it would be given  a broad reading and those                                                                    
     sorts  of  facilities  would   be  covered  under  this                                                                    
     definition   and,  therefore,   made  subject   to  the                                                                    
     pipeline property  tax, rather  than the  exclusive tax                                                                    
     of ... a particular local unit of government.                                                                              
VICE CHAIR FATE thanked Mr. Chenoweth and called on Mr. Konrad.                                                                 
Number 1435                                                                                                                     
KEN KONRAD, Senior Vice President, BP Exploration (Alaska) Inc.,                                                                
came forward to testify, noting that he is Vice President of Gas                                                                
for his company.  He offered the following testimony:                                                                           
     I am here  this morning to testify in  support of House                                                                    
     Bill 519.   Creating a supportive  government framework                                                                    
     is  an   essential  ingredient  towards   developing  a                                                                    
     successful ANS  [Alaska North Slope]  gas project.   An                                                                    
     international  project of  this  magnitude brings  many                                                                    
     inherent  risks.   Governments, working  constructively                                                                    
     with industry, can play a  major role in reducing these                                                                    
     risks  by setting  clear  and  predictable rules  under                                                                    
     which a project would be undertaken.                                                                                       
     BP,  with our  partners,  has previously  laid out  key                                                                    
     government   actions  that   would  facilitate   future                                                                    
     investment on  this massive undertaking:   a  clear and                                                                    
     efficient  U.S. federal  regulatory process  - progress                                                                    
     is  being made  with  Alaska  gas provisions  currently                                                                    
     part  of  this  pending  U.S. Senate  energy  bill;  an                                                                    
     efficient   and   predictable  Canadian/First   Nations                                                                    
     regulatory process  -  BP  continues to be  very active                                                                    
     working  in Canada  to establish  such  a process,  and                                                                    
     progress  is  indeed  being  made;  and,  finally,  [a]                                                                    
     simple,  clear,  and  predictable fiscal  framework  in                                                                    
     Alaska such  that the massive,  long-payout investments                                                                    
     being   contemplated  can   be   undertaken  with   the                                                                    
     knowledge that the rules won't change.                                                                                     
     House  Bill  519  would  be  a  positive  step  towards                                                                    
     achieving  the necessary  fiscal  framework in  Alaska.                                                                    
     The bill  is modeled  after House  Bill 393,  which was                                                                    
     passed in  1998.  As  we did  in 1998, BP  continues to                                                                    
     support  the  content  and  approach  inherent  in  the                                                                    
     stranded  gas Act,  which  this legislation  refreshes,                                                                    
     updates,  and  makes  available   for  a  gas  pipeline                                                                    
Number 1328                                                                                                                     
MR. KONRAD continued:                                                                                                           
     House   Bill  519   and  the   stranded  gas   Act,  in                                                                    
     combination,  would  first demonstrate  leadership  and                                                                    
     intent  by the  legislature  to  provide stable  fiscal                                                                    
     terms  that  encourage  development of  ANS  gas  while                                                                    
     fully and fairly compensating the  people of the state.                                                                    
     Second, it  would establish a protocol,  beginning with                                                                    
     an application  and followed by  a process  to exchange                                                                    
     information between investors and  the state.  It would                                                                    
     empower the state to enter  into a contract negotiation                                                                    
     to  achieve clear  and simple  tax  and royalty  terms;                                                                    
     these terms  would need to be  subsequently approved by                                                                    
     both the executive branch and the legislature.                                                                             
     It  provides a  process  with the  state and  investors                                                                    
     while providing  for municipal input.   It provides for                                                                    
     contract    review,    approval,   [and]    termination                                                                    
     provisions, inclusive  of municipal  input; legislative                                                                    
     authorization; and  judicial review.  It  also provides                                                                    
     for ...  prioritization of state  agency support  for a                                                                    
     qualifying  project.    In aggregate,  it  sets  out  a                                                                    
     thoughtful ...  and a workable framework  through which                                                                    
     important  fiscal issues  [are]  subject to  subsequent                                                                    
     approval by ... this legislature.                                                                                          
     The  bill also  encourages Alaska  hire, training,  and                                                                    
     purchasing.   BP has and  continues to support  the use                                                                    
     of  in-state  capability.     However,  some  technical                                                                    
     modifications may  be considered  to ensure  the bill's                                                                    
     language does not draw legal challenge.                                                                                    
     Passage  of HB  519 would  send a  positive message  to                                                                    
     investors  and provide  a framework  to achieve  fiscal                                                                    
     clarity, simplicity,  and predictability.  BP  is fully                                                                    
Number 1240                                                                                                                     
REPRESENTATIVE OGAN asked  Mr. Konrad, "Are you going  to build a                                                               
gas pipeline."                                                                                                                  
MR. KONRAD answered, "I hope so.   We're busting a gut to try and                                                               
make it  happen, and  I think  we're probably  as close  as we've                                                               
ever been in the last 30 years - or, indeed, closer."                                                                           
Number 1199                                                                                                                     
REPRESENTATIVE  OGAN offered  his understanding  that two  of the                                                               
three producers  are agreeable to providing  economic models, but                                                               
that one isn't.   He asked, "Are you one  of the producers that's                                                               
agreeable to providing it?"                                                                                                     
MR. KONRAD said his company is  happy to work with the state, but                                                               
the  essence  of  this  bill  is  to  set  out  a  framework  for                                                               
predictability and stability.  He explained:                                                                                    
     Economic models  may be part  of that, but I  think the                                                                    
     bigger  piece   of  predictability  and   stability  is                                                                    
     knowing what  the rules  are.   Models assume  what the                                                                    
     rules  are, but,  of course,  the rules  are much  more                                                                    
     fluid than whatever you put in  a model. ... But BP has                                                                    
     ...  shared   information  with  the  state   on  other                                                                    
     activity,  including ...  the  activity  we had  around                                                                    
     Northstar,  so I  think that's  a bridge  we've already                                                                    
Number 1084                                                                                                                     
REPRESENTATIVE OGAN asked  whether, in the working  group, BP was                                                               
agreeable to  letting the results  of that working group  and the                                                               
economic  models   that  were  produced   be  known   before  the                                                               
MR. KONRAD answered:                                                                                                            
     We're planning  to roll out information  on the project                                                                    
     here very, very shortly -  or the update on the project                                                                    
     - and if  there's further information that  needs to be                                                                    
     provided, then  we're happy to  provide it, as  long as                                                                    
     it's  ...  not  proprietary.  ...  Economic  models  in                                                                    
     themselves  are  not  proprietary, and  I  don't  think                                                                    
     there's a fundamental issue around that.                                                                                   
REPRESENTATIVE OGAN  asked whether there  is an agreement  in the                                                               
working group  that all three  must agree [if the  producers are]                                                               
to provide the economic models.                                                                                                 
MR. KONRAD  replied that  some people  have been  struggling with                                                               
the  issue of  confidentiality.   "As I  said, BP  has done  that                                                               
before on  other projects," he  added, "and I don't  foresee that                                                               
being a problem on this project."                                                                                               
REPRESENTATIVE  OGAN asked  whether BP,  then, isn't  one of  the                                                               
producers that  would object to releasing  information discovered                                                               
in the working group.                                                                                                           
MR. KONRAD answered,  "I'm not actually sure  what you're talking                                                               
about.  ...  I  haven't  heard people  saying  that  there's  one                                                               
company  for  this  ...  or   not.    We've  historically  shared                                                               
information with the state, and we  don't have a problem with ...                                                               
sharing it in the future."                                                                                                      
Number 0954                                                                                                                     
REPRESENTATIVE  OGAN expressed  frustration  about not  receiving                                                               
information,  including economic  models,  requested in  January.                                                               
"I'm  supportive of  this legislation  because I  think it's  the                                                               
right thing  for Alaska and it'll  help," he remarked.   "But ...                                                               
it would give me  ... a lot less heartburn to  vote 'yes' on this                                                               
if the  producers and the  working group [were]  more forthcoming                                                               
with the information that we requested and haven't gotten."                                                                     
MR. KONRAD responded:                                                                                                           
     The reason  this project isn't economic  yet is because                                                                    
     the  risks outweigh  the rewards,  and  we've tried  to                                                                    
     identify, as  clearly as we  can, ... three of  the key                                                                    
     risks,   which  is   regulatory  risk   in  the   U.S.,                                                                    
     regulatory  risk  in Canada,  and  fiscal  risk in  the                                                                    
     state of  Alaska.  And  those are the ...  key elements                                                                    
     around reducing the  risk of the project.   Clearly, we                                                                    
     have  a job  to do,  to reduce  costs and  reduce risks                                                                    
     around costs and manage the  costs, but ... that's kind                                                                    
     of  our job,  and  that will  take  an enormous  future                                                                    
     investment and ... engineering to do that.                                                                                 
     What we want  is a framework in place.  ... We've spent                                                                    
     $125 million.   We go to the next phase,  it's going to                                                                    
     be quite  a bit larger ...  than the first phase.   And                                                                    
     just knowing  that there's a predictable  framework out                                                                    
     there, ... that the rules  aren't going to change, that                                                                    
     ... really has been the  essence of our requests around                                                                    
     fiscal stability in the state of Alaska.                                                                                   
Number 0820                                                                                                                     
REPRESENTATIVE OGAN concurred, but said legislators would like                                                                  
more information in order to be able to explain to constituents                                                                 
why the legislature is providing these incentives.                                                                              
MR. KONRAD said:                                                                                                                
     It   would  fully   be  BP's   intent  to   enter  into                                                                    
     negotiations  with the  state  around fiscal  stability                                                                    
     ... as quickly as possible.   So, it's fully our intent                                                                    
     to  do  that,  and  those  negotiations  could  go  ...                                                                    
     wherever they went.  But, at  the end of the day, there                                                                    
     would ... need to be a mutual agreement.                                                                                   
     I think the second thing ...  to observe is that to the                                                                    
     extent  there were  a property  tax  holiday, that  ...                                                                    
     would lower  the tariffs ...  on the line for  the life                                                                    
     of the line,  because ... those taxes  would not become                                                                    
     ... part of the capital costs  ... of the line.  Hence,                                                                    
     with  lower  tariffs  over the  life  of  the  project,                                                                    
     royalty receipts would  be higher over the  life of the                                                                    
     project,  and  ...  severance  tax  receipts  would  be                                                                    
     higher over  the life of the  project.  So there  is an                                                                    
     inherent, natural recoupment....                                                                                           
REPRESENTATIVE OGAN and VICE CHAIR FATE thanked Mr. Konrad.                                                                     
Number 0699                                                                                                                     
VICE CHAIR  FATE called an  at ease at 9:40  a.m.  He  called the                                                               
meeting back to order at 9:44 a.m.                                                                                              
Number 0635                                                                                                                     
JOE  MARUSHACK,   Vice  President,  ANS   Gas  Commercialization,                                                               
Phillips Alaska,  Inc., came before  the committee to  testify in                                                               
support of HB 519, noting  that his primary responsibility is the                                                               
development of Phillips'  ANS gas resources and  that Phillips is                                                               
committed  to  achieving  its  goal  in  a  timely  and  economic                                                               
fashion.    He  read  from  his written  testimony,  with  a  few                                                               
changes, as follows:                                                                                                            
     As you know,  we have been focusing this  year on those                                                                    
     areas that we  believe are most likely to  result in an                                                                    
     economically viable  gas pipeline project to  the Lower                                                                    
     48.  We  have completed our joint analysis  of the work                                                                    
     the  producers  initiated  last  year,  [and  will  be]                                                                    
     setting  up a  time  to review  the  results with  you.                                                                    
     Phillips is ready to start  discussing these items, and                                                                    
     we're waiting on partner approvals.                                                                                        
     [For] several  months, however,  most of  Phillips' gas                                                                    
     emphasis  has been  directed at  the  federal level  to                                                                    
     achieve  the   congressional  legislative   changes  to                                                                    
     advance   our  project.      [These]  include   federal                                                                    
     legislation that  creates permitting certainty -  and I                                                                    
     believe  you  are well  aware  of  the current  federal                                                                    
     legislation that's in the [U.S.] Senate bill.                                                                              
     The second  - and  perhaps the  most important  - thing                                                                    
     that will  help us achieve  a project is a  federal tax                                                                    
     mechanism  to  help  mitigate the  unacceptable  market                                                                    
     risk of a project of  this magnitude.  I understand you                                                                    
     are probably aware of current  drafts of this mechanism                                                                    
     that  provide downside  mitigation,  but also  provides                                                                    
     repayment  of   any  credit,  if  used,   and  that  is                                                                    
     currently  assessed by  the U.S.  government as  having                                                                    
     zero cost.  This piece  of legislation is, in Phillips'                                                                    
     view,  a most  critical element  in moving  the project                                                                    
     forward.   It  shares the  benefits that  the Lower  48                                                                    
     consumers will see  from ANS gas coming  to the market,                                                                    
     while addressing the risk inherent  in such a large and                                                                    
     costly project.                                                                                                            
     Phillips  is  also   pursuing  additional  federal  ...                                                                    
     issues such as accelerated  depreciation and perhaps an                                                                    
     investment tax credit on part of the assets.                                                                               
Number 0438                                                                                                                     
MR. MARUSHACK continued:                                                                                                        
     Given achievement  of the federal legislation  - and at                                                                    
     this point, it is not a  certainty - it is important to                                                                    
     the  economic  viability  of the  project  to  progress                                                                    
     fiscal matters at the state level.                                                                                         
     Fiscal matters  include fiscal certainty.   And what we                                                                    
     really mean  is, we need to  know - with a  fair degree                                                                    
     of specificity  - how our  taxes and royalties  will be                                                                    
     calculated  and administered.   We  would also  like to                                                                    
     address  potential  opportunities  to  gain  assurances                                                                    
     that those taxes and royalties  won't change once we've                                                                    
     made  our  investment.     We  believe  that  strategic                                                                    
     participation  by the  state in  mechanisms to  improve                                                                    
     the economic viability of the project are important.                                                                       
     While  there  may  be  a   need  for  minor  clarifying                                                                    
     language,   we  are   encouraged  by   the  committee's                                                                    
     consideration of HB 519 that  proposes both a temporary                                                                    
     property tax  abatement and the revival  of an existing                                                                    
     statutory  process by  which pipeline  project sponsors                                                                    
     can  work with  the state  to gain  the kind  of fiscal                                                                    
     certainty and  clarity that will reduce  risks and help                                                                    
     the  project move  forward.   [The temporary]  property                                                                    
     tax  abatement  is  an important  signal  to  the  U.S.                                                                    
     Congress that  Alaska has stepped  up to try to  make a                                                                    
     project happen.                                                                                                            
     By  itself,   an  ad  valorem   holiday  is   not  [of]                                                                    
     sufficient  size   that  it   can  singularly   make  a                                                                    
     challenged  project  economic.     However,  it  is  an                                                                    
     important  step  in  a series  that  along  with  other                                                                    
     actions at the state/federal  level, [and] actions from                                                                    
     the   producers,   including  potential   technological                                                                    
     improvements,  we  believe  can  reduce  the  risk  and                                                                    
     improve the project economics.                                                                                             
Number 0297                                                                                                                     
REPRESENTATIVE OGAN asked, "Are we going to build a pipeline?"                                                                  
MR. MARUSHACK replied that he doesn't believe anybody will know                                                                 
to a certainty whether a pipeline will be built for several                                                                     
years.  He added:                                                                                                               
     However, what  I can tell you  is this:  If  we achieve                                                                    
     the  federal legislation  that  we  need, the  enabling                                                                    
     legislation,   the   tax   mitigation,  and   the   tax                                                                    
     mechanisms  we  need,  and we  can  achieve  the  state                                                                    
     fiscal certainty  that we  need, Phillips  is committed                                                                    
     to  moving forward  with the  process, to  initiate the                                                                    
     permitting  process  and  try   to  make  this  project                                                                    
     happen.   So what I'm  telling you is, if  these things                                                                    
     can happen,  we are  committed to ...  finding partners                                                                    
     and investing several times more  than the $125 million                                                                    
     we've  already  invested in  this  project  to make  it                                                                    
     The reason  that you  may think I'm  hedging on  you on                                                                    
     this is ... it'll take a  long time to work through all                                                                    
     the  permits,  all  the  procurement,  all  the  design                                                                    
     factors  [to] make  sure we  have a  project. ...  Just                                                                    
     like every other project I've  ever worked on - we will                                                                    
     not  know for  absolute certainty  that we're  going to                                                                    
     build the project  until the steel is  landed and we're                                                                    
     welding it.                                                                                                                
Number 0177                                                                                                                     
REPRESENTATIVE OGAN again mentioned  the economic models from the                                                               
working group, as well as  his understanding that it will require                                                               
all three  producers' signing off  on releasing  the information,                                                               
but that  one producer will  not.   He asked whether  Phillips is                                                               
one of the working group members that wouldn't sign off on it.                                                                  
MR. MARUSHACK answered:                                                                                                         
     [Phillips  Alaska, Inc.]  is committed  to working  and                                                                    
     providing  information  to   the  legislature  and  the                                                                    
     administration on what  we've accomplished through this                                                                    
     $125-million  process.   We're  in the  ... process  of                                                                    
     putting that information together.   As I said, I think                                                                    
     it's in a pretty good [position] to go forward. ...                                                                        
     All of us  have internal approvals that need  to be ...                                                                    
     secured, and those  are happening right now.   I ... do                                                                    
     understand  your frustration  in  not  seeing the  data                                                                    
     sooner.   And let me say  that ... in our  view, it has                                                                    
     not  been  anything  that  has been  a  result  of  not                                                                    
     wanting  to get  the information  or anything  sinister                                                                    
     like that.                                                                                                                 
     I can tell you that my  view is, the federal issues are                                                                    
     the most important things to  move the project forward,                                                                    
     in  that if  those don't  happen, I  don't know  how we                                                                    
     move a  project forward.   So we  have been  focusing a                                                                    
     tremendous  amount of  hours and  effort  on trying  to                                                                    
     work those federal  issues.  I apologize  that that has                                                                    
     resulted in us  not getting you the  information [in] a                                                                    
     more timely fashion, but I  am committed to getting you                                                                    
     that information, also....                                                                                                 
TAPE 02-24, SIDE A                                                                                                              
Number 0001                                                                                                                     
REPRESENTATIVE  OGAN  thanked  Mr.  Marushack  and  told  him  he                                                               
appreciated the answer,  although it would give  him more comfort                                                               
on  passing legislation  to see  some numbers  and justification.                                                               
He  said he  was willing  to  let the  legislation move  forward,                                                               
however, because  he believes  it in  the state's  best interest.                                                               
Without a  pipeline, it is  a rhetorical question about  how much                                                               
tax will be collected from it, he added.                                                                                        
Number 0092                                                                                                                     
REPRESENTATIVE  DYSON moved  to  report from  committee CSHB  519                                                               
[version   22-LS1651\L,  Chenoweth,   4/18/02]  with   individual                                                               
recommendations and the accompanying fiscal note.                                                                               
REPRESENTATIVE OGAN informed members  that although he'd had some                                                               
concerns about the ability to  have "payback on the upside," that                                                               
concern had been addressed fairly well by Mr. Chenoweth.                                                                        
Number 0162                                                                                                                     
VICE  CHAIR  FATE  remarked,  "We've   discussed  this  with  the                                                               
sponsor, and  we'll still  be looking at  ... omitting  Section 2                                                               
from this particular  bill."  He said it would  be discussed with                                                               
[Representative  Kott] as  the bill  moves forward  to the  House                                                               
Resources Standing Committee.                                                                                                   
Number 0173                                                                                                                     
VICE CHAIR FATE asked whether there was any objection to the                                                                    
motion.  There being no objection, CSHB 519(O&G) was moved out                                                                  
of the House Special Committee on Oil and Gas.                                                                                  
Number 0196                                                                                                                     
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at 9:55                                                                  

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