Legislature(2005 - 2006)CAPITOL 124

04/28/2005 05:00 PM OIL & GAS


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05:12:37 PM Start
05:14:01 PM HCR8
05:17:07 PM Alaska Oil and Gas Conservation Commission
05:23:22 PM HB254
05:57:41 PM HB286
06:20:00 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation hearing: AOGCC, TELECONFERENCED
Cathy Foerster
*+ HCR 8 COOK INLET GAS GATHERING SYSTEM COMPLAINT TELECONFERENCED
Heard & Held
*+ HB 286 VALUE OF ROYALTY ON GAS PRODUCTION TELECONFERENCED
Moved Out of Committee
+= HB 234 OIL/GAS ROYALTY DUE DATE & INTEREST RATE TELECONFERENCED
Scheduled But Not Heard
*+ HB 254 NAT. GAS SPUR LINE AND DISTRIBUTION GRID TELECONFERENCED
Moved Out of Committee
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         April 28, 2005                                                                                         
                           5:12 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Nancy Dahlstrom                                                                                                  
Representative Lesil McGuire                                                                                                    
Representative Norman Rokeberg                                                                                                  
Representative Ralph Samuels                                                                                                    
Representative Berta Gardner                                                                                                    
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE CONCURRENT RESOLUTION NO. 8                                                                                               
Encouraging the Regulatory Commission  of Alaska expeditiously to                                                               
complete  its  investigation  of  the Cook  Inlet  Gas  Gathering                                                               
System.                                                                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
CONFIRMATION HEARING(S)                                                                                                         
                                                                                                                                
Alaska Oil and Gas Conservation Commission                                                                                    
                                                                                                                                
     Cathy P. Foerster - Anchorage                                                                                              
                                                                                                                                
     - CONFIRMATION(S) ADVANCED                                                                                                 
                                                                                                                              
HOUSE BILL NO. 254                                                                                                              
"An Act  directing the Alaska  Natural Gas  Development Authority                                                               
to use money appropriated from  the Railbelt energy fund and from                                                               
other sources  for preliminary engineering  and related  work for                                                               
the  construction  of  pipeline facilities  to  transport  Alaska                                                               
North  Slope   natural  gas  to   the  Southcentral   Alaska  gas                                                               
distribution grid,  and amending  the definition of  'project' as                                                               
applied  to  the  work  of the  Alaska  Natural  Gas  Development                                                               
Authority; and providing for an effective date."                                                                                
                                                                                                                                
     - MOVED HB 254 OUT OF COMMITTEE                                                                                            
                                                                                                                                
HOUSE BILL NO. 286                                                                                                              
"An Act amending  the manner of determining  the royalty received                                                               
by the state  on gas production by directing  the commissioner of                                                               
natural  resources to  accept, under  certain circumstances,  the                                                               
transfer price of the gas  if established by transfer price order                                                               
of  the Regulatory  Commission of  Alaska; and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - MOVED HB 286 OUT OF COMMITTEE                                                                                            
                                                                                                                                
HOUSE BILL NO. 234                                                                                                              
"An Act relating to  the due date for the payment  of oil and gas                                                               
royalty and net  profit shares and amending the  rate of interest                                                               
payable on royalties or net profit shares."                                                                                     
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HCR  8                                                                                                                  
SHORT TITLE: COOK INLET GAS GATHERING SYSTEM COMPLAINT                                                                          
SPONSOR(S): OIL & GAS                                                                                                           
                                                                                                                                
04/07/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/07/05       (H)       O&G                                                                                                    
04/14/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/14/05       (H)       -- Meeting Postponed to 4/21/05 --                                                                     
04/21/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/21/05       (H)       -- Meeting Postponed to 4/26/05 --                                                                     
04/26/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/26/05       (H)       -- Meeting Postponed to 4/28/05 --                                                                     
04/28/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
                                                                                                                              
BILL: HB 254                                                                                                                  
SHORT TITLE: NAT. GAS SPUR LINE AND DISTRIBUTION GRID                                                                           
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG                                                                                          
                                                                                                                                
04/05/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/05/05       (H)       O&G, RES, FIN                                                                                          
04/21/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/21/05       (H)       -- Meeting Postponed to 4/26/05 --                                                                     
04/26/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/26/05       (H)       -- Meeting Postponed to 4/28/05 --                                                                     
04/28/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
                                                                                                                                
BILL: HB 286                                                                                                                  
SHORT TITLE: VALUE OF ROYALTY ON GAS PRODUCTION                                                                                 
SPONSOR(S): REPRESENTATIVE(S) SAMUELS                                                                                           
                                                                                                                                
04/26/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/26/05       (H)       O&G, L&C                                                                                               
04/28/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KATE GIARD, Chair                                                                                                               
Commissioner                                                                                                                    
Regulatory Commission of Alaska (RCA)                                                                                           
Department of Commerce, Community, & Economic Development                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided comments during discussion of                                                                     
HCR 8; responded to questions during discussion of HB 286.                                                                      
                                                                                                                                
CATHY P. FOERSTER, Appointee                                                                                                    
to the Alaska Oil and Gas Conservation Commission (AOGCC)                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified as appointee to the Alaska Oil                                                                   
and Gas Conservation Commission (AOGCC).                                                                                        
                                                                                                                                
JERRY McCUTCHEON                                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Expressed concerns during discussion of HB
254.                                                                                                                            
                                                                                                                                
WARREN KEOGH                                                                                                                    
Chickaloon, Alaska                                                                                                              
POSITION STATEMENT:  Expressed concerns during discussion of HB
254.                                                                                                                            
                                                                                                                                
HAROLD HEINZE, Chief Executive Officer                                                                                          
Alaska Natural Gas Development Authority (ANGDA)                                                                                
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 254.                                                                            
                                                                                                                                
PAUL FUHS, Volunteer Lobbyist                                                                                                   
for Backbone 2                                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided comments and responded to                                                                         
questions during discussion of HB 254.                                                                                          
                                                                                                                                
SARA NIELSEN, Staff                                                                                                             
to Representative Ralph Samuels                                                                                                 
Alaska State Legislature                                                                                                        
POSITION   STATEMENT:      Presented   HB  286   on   behalf   of                                                               
Representative Samuels, sponsor.                                                                                                
                                                                                                                                
JIM POSEY, General Manager                                                                                                      
Anchorage Municipal Light and Power (ML&P)                                                                                      
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    During discussion  of  HB  286,  provided                                                               
comments and responded to a question.                                                                                           
                                                                                                                                
MARK MYERS, Director                                                                                                            
Central Office                                                                                                                  
Division of Oil & Gas                                                                                                           
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:    Testified  in support of HB  286, provided                                                               
comments, and responded to questions.                                                                                           
                                                                                                                                
MARTIN T. SCHULTZ, Commercial Analyst                                                                                           
Audit Section                                                                                                                   
Central Office                                                                                                                  
Division of Oil & Gas                                                                                                           
Department of Natural Resources (DNR)                                                                                           
POSITION STATEMENT:  Responded to  questions during discussion of                                                               
HB 286.                                                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas meeting  to order at  5:12:37 PM.   Representatives Rokeberg,                                                             
Kohring, Samuels, Kerttula, and Gardner  were present at the call                                                               
to order.   Representatives Dahlstrom and McGuire  arrived as the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
HCR 8 - COOK INLET GAS GATHERING SYSTEM COMPLAINT                                                                             
                                                                                                                                
CHAIR KOHRING [announced  that the first order  of business would                                                               
be]   HOUSE  CONCURRENT   RESOLUTION  NO.   8,  Encouraging   the                                                               
Regulatory  Commission of  Alaska expeditiously  to complete  its                                                               
investigation of the Cook Inlet Gas Gathering System.                                                                           
                                                                                                                                
CHAIR  KOHRING noted  that the  Regulatory  Commission of  Alaska                                                               
(RCA)  has developed  a preliminary  decision regarding  the Cook                                                               
Inlet  Gas  Gathering  System  (CIGGS),   thus  rendering  HCR  8                                                               
unnecessary.   He asked Ms.  Giard to comment on  the preliminary                                                               
decision.                                                                                                                       
                                                                                                                                
5:14:01 PM                                                                                                                    
                                                                                                                                
KATE GIARD, Chair, Commissioner,  Regulatory Commission of Alaska                                                               
(RCA), Department of Commerce,  Community, & Economic Development                                                               
(DCCED), relayed that in response  to a complaint filed by Agrium                                                               
U.S.,  Inc., in  October 2004,  the  RCA initiated  a process  by                                                               
which to determine  whether CIGGS was in violation of  AS 42.05 -                                                               
the Alaska Public  Utilities Regulatory Act - and AS  42.06 - the                                                               
Pipeline Act.   The RCA, in  late March of 2005,  determined that                                                               
Union  Oil  Company  of  California  (Unocal)  and  Marathon  Oil                                                               
Company -  as owners of  CIGGS -  were public utilities  and thus                                                               
qualified to  be regulated under  AS 42.05, and  then immediately                                                               
exempted  those  two  companies   from  RCA  regulation  for  the                                                               
remainder  of the  pleading cycle.   Ms.  Giard recommended  that                                                               
members read  the RCA's order  on this issue,  particularly pages                                                               
18-21,  and noted  that the  RCA has  also issued  an order  that                                                               
schedules a prehearing  conference for May 4, 2005,  at which the                                                               
issues of  settlement procedures  and consolidating  the pleading                                                               
schedule will be discussed.                                                                                                     
                                                                                                                                
[HCR 8 was held over.]                                                                                                          
                                                                                                                                
^CONFIRMATION HEARINGS(S)                                                                                                     
                                                                                                                                
^Alaska Oil and Gas Conservation Commission                                                                                   
                                                                                                                                
5:17:07 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING  announced that the  committee would  next consider                                                               
the appointment  of Cathy P. Foerster  to the Alaska Oil  and Gas                                                               
Conservation Commission (AOGCC).                                                                                                
                                                                                                                                
5:17:38 PM                                                                                                                    
                                                                                                                                
CATHY  P.  FOERSTER,   Appointee  to  the  Alaska   Oil  and  Gas                                                               
Conservation Council (AOGCC), stated:                                                                                           
                                                                                                                                
     My  training and  experience  as  a petroleum  engineer                                                                    
     make  this   position  in  the   Alaska  Oil   and  Gas                                                                    
     Conservation Commission  [AOGCC] seem  to be  the ideal                                                                    
     place for me to serve the  state of Alaska.  I've had a                                                                    
     variety  of  engineering  assignments,  from  reservoir                                                                    
     development  to   facility  design.    I've   also  had                                                                    
     opportunities to  supervise and manage broad  groups of                                                                    
     people,   from  small,   highly  technical   groups  of                                                                    
     engineers  and scientists  to  large operations  groups                                                                    
     [consisting] of ... skilled and unskilled laborers.                                                                        
                                                                                                                                
     Most  of my  early experience  was "onshore  Texas" and                                                                    
     "offshore Louisiana," but for the  last 13 years I have                                                                    
     worked the North Slope of  Alaska, from well operations                                                                    
     at  Prudhoe  Bay  to  new  field  developments  on  the                                                                    
     western North Slope.   I'm particularly proud  of a few                                                                    
     of my Alaska  work experiences and would  like to share                                                                    
     them with you.                                                                                                             
                                                                                                                                
5:18:53 PM                                                                                                                    
                                                                                                                                
MS. FOERSTER continued:                                                                                                         
                                                                                                                                
     When  I   first  came  to   Alaska  I   was  operations                                                                    
     superintendent for  the Prudhoe Bay wells  group during                                                                    
     the time when that group  helped to pioneer coil tubing                                                                    
     drilling  in  Alaska.    Now,  I was  not  one  of  the                                                                    
     brilliant, technical  people doing  this groundbreaking                                                                    
     work; I was  merely an enabler for them.   Later, I had                                                                    
     the privilege of  leading the strategic business-review                                                                    
     team  that  initiated  the West  Sak  development  that                                                                    
     Alaska is  enjoying today.   And, more recently,  I was                                                                    
     part of  the consulting team that  prepared an analysis                                                                    
     for the  Department of Natural  Resources [DNR]  on how                                                                    
     to assist  new operators  in acquiring access  to North                                                                    
     Slope facilities.                                                                                                          
                                                                                                                                
     Throughout my  career I've been blessed  with wonderful                                                                    
     opportunities  to  learn  and contribute  at  the  same                                                                    
     time,  and  I  see  this appointment  as  another  such                                                                    
     opportunity.   I'm  especially pleased  and honored  to                                                                    
     have the opportunity  to serve the people  of Alaska as                                                                    
     part  of  such  a   well-respected  commission  and  in                                                                    
     concert  with such  intelligent,  honest, ethical,  and                                                                    
     hard working gentlemen as my co-commissioners. ...                                                                         
                                                                                                                                
5:20:03 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked Ms. Foerster what she sees as being her role                                                                
at the AOGCC.                                                                                                                   
                                                                                                                                
MS. FOERSTER replied:                                                                                                           
                                                                                                                                
     Primarily  my  role will  be  to  serve the  people  of                                                                    
     Alaska  in the  four prongs  of our  mission statement:                                                                    
     prevent waste of  hydrocarbons, encourage the operators                                                                    
     to maximize  recovery of  hydrocarbons, to  protect the                                                                    
     groundwater,   and  to   protect  owners'   correlative                                                                    
     rights.    It's  been  a while  since  there's  been  a                                                                    
     reservoir  engineer  in  the  engineering  commissioner                                                                    
     position, so  I see that  I'll have the  opportunity to                                                                    
     bring a reservoir engineering  perspective to the post,                                                                    
     and I  think this is a  very important thing at  a time                                                                    
     when  one of  our biggest  issues  is going  to be  ...                                                                    
     setting a  rate for  gas withdrawal when  we get  a gas                                                                    
     pipeline  and  decide  to  blow down  the  gas  cap  at                                                                    
     Prudhoe  Bay.   That's really  a reservoir  engineering                                                                    
     set of issues.                                                                                                             
                                                                                                                                
5:21:13 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING commented that he saw  the role as a steward of the                                                               
state's resources, and  said:  "You are just one  of three people                                                               
who  have an  incredibly important  position, to  make sure  that                                                               
we're  getting  our monetary  share  ...,  our royalties  and  so                                                               
forth,  and  that  everything's   being  reported  correctly  and                                                               
properly.  Do you foresee any challenges with that?"                                                                            
                                                                                                                                
MS.  FOERSTER responded  that she  considers the  position to  be                                                               
challenging,  adding, "I  think I'm  qualified to  do the  job; I                                                               
think I  have the honesty and  the ethics to do  it properly, and                                                               
the experience and the intelligence to do it right."                                                                            
                                                                                                                                
CHAIR  KOHRING   noted  that  Ms.   Foerster's  resume   is  very                                                               
substantial, and  opined that she  seems eminently  qualified for                                                               
the position.                                                                                                                   
                                                                                                                                
5:22:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAHLSTROM made a  motion to advance from committee                                                               
the nomination  of Cathy P.  Foerster as appointee to  the Alaska                                                               
Oil and Gas  Conservation Commission.  There  being no objection,                                                               
the confirmation  was advanced from  the House  Special Committee                                                               
on Oil and Gas.                                                                                                                 
                                                                                                                                
5:22:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG   reminded  members  that   signing  the                                                               
reports regarding  appointments to  boards and commissions  in no                                                               
way reflects  individual members' approval or  disapproval of the                                                               
appointees, and that the nominations  are merely forwarded to the                                                               
full legislature for confirmation or rejection.                                                                                 
                                                                                                                                
CHAIR KOHRING concurred.                                                                                                        
                                                                                                                                
HB 254 - NAT. GAS SPUR LINE AND DISTRIBUTION GRID                                                                             
                                                                                                                                
[Contains mention of HB 253.]                                                                                                   
                                                                                                                                
5:23:22 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING announced that the  next order of business would be                                                               
HOUSE  BILL NO.  254, "An  Act directing  the Alaska  Natural Gas                                                               
Development  Authority   to  use  money  appropriated   from  the                                                               
Railbelt  energy  fund and  from  other  sources for  preliminary                                                               
engineering  and related  work for  the construction  of pipeline                                                               
facilities to  transport Alaska  North Slope  natural gas  to the                                                               
Southcentral  Alaska  gas  distribution grid,  and  amending  the                                                               
definition  of 'project'  as applied  to the  work of  the Alaska                                                               
Natural  Gas   Development  Authority;   and  providing   for  an                                                               
effective date."                                                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG,  speaking as  the sponsor,  presented HB
254 to the committee.  He explained:                                                                                            
                                                                                                                                
     This  legislation creates  the statutory  authority for                                                                    
     the  Alaska Natural  Gas Development  Authority [ANGDA]                                                                    
     to  use money  appropriated  from  the Railbelt  energy                                                                    
     fund   to  initiate   and   continue  the   preliminary                                                                    
     engineering   design   and   construction  of   a   gas                                                                    
     transmission  pipeline, or  spur  line, for  delivering                                                                    
     gas  from   the  principal  North  Slope   natural  gas                                                                    
     pipeline to [the] Southcentral Alaska gas grid system.                                                                     
                                                                                                                                
     What  this  bill  does  is   somewhat  different:    it                                                                    
     clarifies the project definition  and expands the ANGDA                                                                    
     scope of  work to include  a spur line  route, adjacent                                                                    
     to  the  Parks  Highway,   to  "Southcentral"  from  an                                                                    
     appropriate northern  point of the  main gas line.   So                                                                    
     if we build the main  gas line, we could look elsewhere                                                                    
     rather  than Glennallen.   It  also  ... provides  that                                                                    
     another  route, a  direct or  so-called "bullet  line,"                                                                    
     all the way from Prudhoe  Bay to Southcentral, could be                                                                    
     undertaken and looked at by the authority.                                                                                 
                                                                                                                                
     It  also  keeps  and  reiterates  the  spur  line  from                                                                    
     Glennallen  to Southcentral,  and the  primary pipeline                                                                    
     from Prudhoe Bay to Valdez.  ... So it doesn't diminish                                                                    
     any of  its authority; it  actually just expands  it in                                                                    
     two ways:   to clarify  that they  can look at  the so-                                                                    
     called  "Parks Highway  route" as  a spur,  and then  a                                                                    
     straight bullet [line]. ...                                                                                                
                                                                                                                                
5:25:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG continued:                                                                                              
                                                                                                                                
     Additionally ... I  would point out that  in Section 2,                                                                    
     ... subsection (c) on page  3, ... there are provisions                                                                    
     here  that   [specify]  the  authority   shall  include                                                                    
     provisions  to   implement  ...  "recovery   of  costs"                                                                    
     methodologies for  the expenditure  of the  fund that's                                                                    
     included in  the companion  bill [HB  253], of  some $8                                                                    
     million,  from   the  private  sector,  and   also,  in                                                                    
     subsection (d) on page 3,  will agree to cooperate with                                                                    
     federal grantees.                                                                                                          
                                                                                                                                
     When [we] worked on this  bill, it came to my attention                                                                    
     ...  [that]  a  consortium  of the  Cook  Inlet  Tribal                                                                    
     Council and a subsidiary  of ENSTAR Natural Gas Company                                                                    
     have  been granted  $3  million to  work  on the  Parks                                                                    
     Highway  route  that a  lot  of  people weren't  really                                                                    
     aware of.   So what [subsection] (d)  does is recognize                                                                    
     that  there may  be  some activity  on that  particular                                                                    
     spur  line,  and  with  [the]  ANGDA  now  working  and                                                                    
     looking at permitting  the Glennallen/Mat-Su Valley gas                                                                    
     distribution   hook-up,  that   there's  already   work                                                                    
     underway.    So  this  language  is  intended  to  have                                                                    
     cooperation so  there can be  trading of  material, and                                                                    
     we don't  want to duplicate these  precious dollars for                                                                    
     planning. ...                                                                                                              
                                                                                                                                
REPRESENTATIVE ROKEBERG concluded:                                                                                              
                                                                                                                                
     The  main  difference  here  is  that  [the  bill]  ...                                                                    
     recognizes that we  ought to start looking  at a bullet                                                                    
     line in terms  of our long-range future  and this other                                                                    
     routing, so we  don't get locked into  just one system.                                                                    
     So if  we don't  get a  line that goes  all the  way to                                                                    
     Valdez, we have  alternatives, albeit there's certainly                                                                    
     been  conversations about,  even if  the highway  route                                                                    
     were the primary transportation  route, [the fact that]                                                                    
     you  might  want  to  come  through  Glennallen,  given                                                                    
     costs.   But until we  do this  type of work,  we don't                                                                    
     know. ...                                                                                                                  
                                                                                                                                
REPRESENTATIVE ROKEBERG asked for the committee's support [of                                                                   
the legislation].                                                                                                               
                                                                                                                                
5:27:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER asked whether the fund that Chugach                                                                      
Electric [Association] has been talking about using for other                                                                   
projects is the Railbelt energy fund.                                                                                           
                                                                                                                                
REPRESENTATIVE ROKEBERG replied:                                                                                                
                                                                                                                                
     There are,  right now,  two fund sources.   One  is the                                                                    
     so-called  Railbelt  energy  fund:   it's  the  balance                                                                    
     that's worth some $28 million,  [and] it's the refunded                                                                    
     portion of  [an] electrical  gridline that  was planned                                                                    
     to go from Glennallen into  the Sutton area, I believe,                                                                    
     and  that  didn't work  out,  and  [so] the  money  was                                                                    
     refunded  or  reappropriated  back  into  the  Railbelt                                                                    
     energy fund.                                                                                                               
                                                                                                                                
     There's  additionally  another  pot of  money,  if  you                                                                    
     will, that's  under [the Alaska  Industrial Development                                                                    
     and  Export Authority  (AIDEA)] of  $40 million,  which                                                                    
     was  the   interest  earned   on  monies   that  [were]                                                                    
     appropriated  through the  legislature and  [the] AIDEA                                                                    
     for  what's called  the  new  Southern Intertie  route,                                                                    
     which  was   a  direct  electrical   transmission  line                                                                    
     between  Anchorage and  the Kenai  peninsula. ...  [It]                                                                    
     was ultimately  decided that that project  would not go                                                                    
     forward.   So  there is  approximately $68  million, if                                                                    
     you will, available in designated money sources.                                                                           
                                                                                                                                
     What  I  did to  avoid  the  "intermural" utility  wars                                                                    
     between  competing interests  was [to]  just focus  the                                                                    
     thrusts of  my bill and  its companion bill on  the $28                                                                    
     million.  The companion  appropriation bill provides $8                                                                    
     million for the  gas line spur study,  and a cumulative                                                                    
     $20  million  to the  City  of  Seward, Homer  Electric                                                                    
     Association,  and  Chugach  Electric  [Association]  to                                                                    
     upgrade  the   old,  existing  southern   intertie  and                                                                    
     increase the repair and maintenance on that line.                                                                          
                                                                                                                                
     I  believe there  is  significant deferred  maintenance                                                                    
     when they  were talking  about doing this  other route,                                                                    
     and  there is  some  controversy about  whether or  not                                                                    
     they should  do that.   My  opinion is:   I  think it's                                                                    
     appropriate  for the  legislature  to appropriate  this                                                                    
     money   because  it   removes   that   cost  from   the                                                                    
     ratepayer's base.                                                                                                          
                                                                                                                                
5:30:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG added:                                                                                                  
                                                                                                                                
     The  utility  could go  out  and  bond this  money,  or                                                                    
     borrow it, but  then they can turn  around and increase                                                                    
     the costs  to our  constituents.   This money  has been                                                                    
     sitting  here for  a  long time.    We've been  talking                                                                    
     about  the  northern  intertie.   Fairbanks  got  their                                                                    
     money.   I mean, the  Railbelt in the  southern section                                                                    
     really hasn't received good benefit  for the balance of                                                                    
     that money, and  I'd like to see those  monies used for                                                                    
     that purpose ... [and] spend  them before somebody else                                                                    
     spends them. ...                                                                                                           
                                                                                                                                
5:31:07 PM                                                                                                                    
                                                                                                                                
JERRY McCUTCHEON stated:                                                                                                        
                                                                                                                                
     Just because you see lots  of activity on the gas line,                                                                    
     you should not  assume it's for real, or  that they are                                                                    
     actually  trying to  secure gas  or a  gas line.   They                                                                    
     make money  churning; the cost of  churning plus profit                                                                    
     is then stuck in the gas  consumer's bill as if it were                                                                    
     real.  It is only the  illusion of the pursuit of [the]                                                                    
     gas and a gas line that  counts.  For example, a recent                                                                    
     full page ad by the  Alaska Gas Port Authority offering                                                                    
     to purchase  four billion cubic  feet of gas a  day ...                                                                    
     [was  paid for  by]  a Lower  48  gas company,  [Sempra                                                                    
     Energy], who  will stick their  gas customers  with the                                                                    
     costs - (indisc.)  all the costs they  can plus profit.                                                                    
     Sempra [Energy]  will probably  charge off  $25 million                                                                    
     to  $50  million before  they  are  done.   It  is  the                                                                    
     illusion   and  your   gullibility  that   counts,  not                                                                    
     reality.   The oil companies  are doing the  same thing                                                                    
     to their customers - it's a game they play.                                                                                
                                                                                                                                
     You,  as a  taxpayer, are  being stuck  with the  state                                                                    
     costs of  this charade  by [Governor] Murkowski.   Back                                                                    
     in  the late  '70s and  early "80s,  the gas  promoters                                                                    
     stuck the  ... [Lower] 48  gas bill payers with  over a                                                                    
     billion dollars in costs.   That's so much for the ads.                                                                    
     Mr.  Chairman, HB  254, whatever  reason there  was for                                                                    
     [the]  ANGDA, [the]  ANGDA has  been eclipsed  when the                                                                    
     [Alaska  Gas] Port  Authority  acquired  the rights  to                                                                    
     [Yukon  Pacific  Corporation's]  right-of-way  permits.                                                                    
     And,  more   importantly,  when  [ENSTAR   Natural  Gas                                                                    
     Company] went  public with  ENSTAR's gas  line studies,                                                                    
     the operation  of [the] ANGDA  is at best been  a study                                                                    
     in sophistry.   Mr.  Heinze has  gone around  the state                                                                    
     espousing  wildly   optimistic  [sophistic]  statements                                                                    
     that [the]  public is desperate  to hear and  have been                                                                    
     led to believe are possible.                                                                                               
                                                                                                                                
     There is  no longer a  reason to fund [the]  ANGDA, for                                                                    
     there  is  nothing  [the] ANGDA  can  do  that  private                                                                    
     enterprise could  not do better, at  substantially less                                                                    
     cost, but also more  realistically - private enterprise                                                                    
     without (indisc.) state funds.   Every route that [the]                                                                    
     ANGDA may wish to study,  ENSTAR has already studied or                                                                    
     is studying.   ENSTAR  has most  of the  answers; [the]                                                                    
     ANGDA has confusion, sophistry, and waste.                                                                                 
                                                                                                                                
5:33:58 PM                                                                                                                    
                                                                                                                                
MR. McCUTCHEON continued:                                                                                                       
                                                                                                                                
     A  most  important  thing is,  ENSTAR  cannot  rely  on                                                                    
     anything [the] ANGDA does; it  has to do it for itself.                                                                    
     It's got its  whole system at stake.   I've listened to                                                                    
     Mr.  Heinze peddle  his sophistry  for  hours at  [the]                                                                    
     ANGDA's  board  meetings,  for meeting  after  meeting.                                                                    
     There is  nothing that [the]  ANGDA can do  that ENSTAR                                                                    
     can't do  ... [and do]  it without state funds.   [The]                                                                    
     ANGDA is  just duplicating ENSTAR; ENSTAR  must do it's                                                                    
     own studies,  ENSTAR's whole investment is  in Alaska -                                                                    
     it's at stake - and ENSTAR  cannot and will not rely on                                                                    
     somebody else's  studies, least  of all  [the] ANGDA's.                                                                    
     It is  time to let  [the] ANGDA  die in committee.   If                                                                    
     [Governor] Murkowski  wants to fund [the]  ANGDA out of                                                                    
     his budget, that  is his call, but not a  wise one - it                                                                    
     is not one the legislature  should aid and abet.  Thank                                                                    
     you,  Mr.  Chairman, ...  for  allowing  the public  to                                                                    
     testify.                                                                                                                   
                                                                                                                                
5:35:13 PM                                                                                                                    
                                                                                                                                
WARREN KEOGH said:                                                                                                              
                                                                                                                                
     I  would  first  voice  my reservations  with  HB  254,                                                                    
     [which]  ... further  defines  the  ANGDA project,  but                                                                    
     especially to  the use of  money appropriated  from the                                                                    
     Railbelt  energy  fund,  particularly  the  $8  million                                                                    
     earmarked  for [the]  ANGDA in  the companion  bill, HB
     253.  And  my concerns come about in  part because it's                                                                    
     my feeling  that [the] ANGDA  has moved too  quickly in                                                                    
     its preliminary  planning work  for the  so-called spur                                                                    
     line from  Glennallen to Palmer.   And [the]  ANGDA has                                                                    
     rather rapidly expended, I  think, ... about [$300,000]                                                                    
     to     $500,000     for    preliminary     engineering,                                                                    
     environmental,  financial, public  outreach, and  other                                                                    
     efforts in  the past  five or six  months.   And things                                                                    
     have moved  a bit too  quickly, in my  estimation, and,                                                                    
     as  a  result, some  mistakes  have  been made  in  the                                                                    
     pipeline  routing and  also in  the ANGDA  right-of-way                                                                    
     application to [the] DNR that  was submitted ... just a                                                                    
     couple of weeks ago.                                                                                                       
                                                                                                                                
     And I'll just give three  quick examples. ... The first                                                                    
     would be an  issue of public process.   The ANGDA board                                                                    
     meeting [on] April 4 was  not properly noticed - public                                                                    
     notice  appeared in  an obscure  Department of  Revenue                                                                    
     web page  on late  Friday morning for  a 10  a.m. ANGDA                                                                    
     meeting the following Monday,  [and] public notices did                                                                    
     not  appear  in print  in  the  newspapers 'til  Monday                                                                    
     morning of the meeting day.   Another example of public                                                                    
     outreach:  this is about  a 150-mile long pipeline, the                                                                    
     terminus  of which  goes  through  numerous parcels  of                                                                    
     private property in the City of Palmer.                                                                                    
                                                                                                                                
     Those  of us  in  Chickaloon ...  have recently  become                                                                    
     aware of  the pipeline routed through  our community; I                                                                    
     took it upon  myself to call numerous  people - private                                                                    
     homeowners and  property owners  in [the]  Palmer area.                                                                    
     The pipeline,  in case you're  not aware, is  routed to                                                                    
     end in  the vicinity  of a gravel  pit where  the Trunk                                                                    
     Highway  hits the  Parks  Highway.   So  I called  some                                                                    
     folks along the Trunk "road"  and places further up the                                                                    
     line  -   approximately  a   dozen  this   past  Sunday                                                                    
     afternoon  ... -  and  not a  single  person, with  the                                                                    
     possible exception  of one person,  was ...  aware that                                                                    
     the  pipeline  was  planned  or  routed  through  their                                                                    
     private property.   And  I suggest,  with a  project of                                                                    
     this magnitude,  where an application has  already been                                                                    
     submitted, that people should be better informed.                                                                          
                                                                                                                                
5:38:25 PM                                                                                                                    
                                                                                                                                
MR. KEOGH continued:                                                                                                            
                                                                                                                                
     One last  example ...:   in my community  of Chickaloon                                                                    
     we  were  not  apprised,  that  I am  aware  of,  as  a                                                                    
     community, of  this pipeline  being routed  through our                                                                    
     property along  a proposed route  until rather  late in                                                                    
     the stage,  when the route has  already been determined                                                                    
     without  our input  or advice.   As  a result  of that,                                                                    
     last  night  the  Chickaloon community  council,  after                                                                    
     approximately  20 or  more citizens  have  worked on  a                                                                    
     resolution  for   the  past   2  weeks,  we   passed  a                                                                    
     resolution,  which the  community council  will deliver                                                                    
     to [the] ANGDA here in the next couple of days. ...                                                                        
                                                                                                                                
     Basically  it's a  resolution stating,  generally, that                                                                    
     we support  the efforts of  [the] ANGDA to  bring North                                                                    
     Slope gas  to Southcentral Alaska, but  request further                                                                    
     study  of other  routes  and it's  impacts.   And  it's                                                                    
     about  a two-page  statement, but  essentially ...  our                                                                    
     community  respectfully   requests  that   [the]  ANGDA                                                                    
     suspend  their  permit   and  right-of-way  acquisition                                                                    
     process until  all routes from  the Alaska  North Slope                                                                    
     to  Southcentral  have  been  thoroughly  assessed  for                                                                    
     their  suitability  and  their  economic,  social,  and                                                                    
     environmental impacts, and that  the public process for                                                                    
     this project include proper  notice and sufficient time                                                                    
     for meaningful  comments from the  Chickaloon community                                                                    
     council.                                                                                                                   
                                                                                                                                
5:39:49 PM                                                                                                                    
                                                                                                                                
MR. KEOGH asked that if the  ANGDA is to receive further funding,                                                               
that the  ANGDA be held  accountable for  "what they do  and what                                                               
they don't do."   He commented, "This testimony comes  about as a                                                               
result of  what, in  my view,  is the  rather hurried  efforts of                                                               
[the] ANGDA to acquire the pipeline right-of-way.                                                                               
                                                                                                                                
5:40:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG commented that the bill should be                                                                       
consistent with the Chickaloon community council's goal in that                                                                 
it looks at other routes.                                                                                                       
                                                                                                                                
5:41:00 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked the representative from the ANGDA to give                                                                   
consideration to Mr. Keogh's concerns.                                                                                          
                                                                                                                                
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas                                                                      
Development Authority (ANGDA), Department of Revenue (DOR),                                                                     
testified in support of HB 254.  He went on to say:                                                                             
                                                                                                                                
     There are  probably just two  major points I'd  like to                                                                    
     make about  the bill,  and then I  would like  a little                                                                    
     bit  of  chance,  maybe, to  respond  to  the  previous                                                                    
     testimony.   Two things.   One, this  bill is  the bill                                                                    
     that will facilitate the looking  at what I consider to                                                                    
     be  a more  direct route  from the  North Slope  to the                                                                    
     Cook  Inlet  area.   Right  now,  our funding  and  our                                                                    
     efforts ... have been looked  at from the point of view                                                                    
     of  tying into  either  a highway  pipeline going  down                                                                    
     through  Canada, or  a pipeline  following  a route  to                                                                    
     Valdez, Alaska, along  the Trans-Alaska Pipeline System                                                                    
     [TAPS].     And  that's  why   we've  focused   on  the                                                                    
     Glennallen  to Palmer  connection, because  it was  the                                                                    
     missing link in terms of  different ways that one might                                                                    
     get gas  to Cook Inlet.   But it was done  very clearly                                                                    
     with the  intention of fitting  in with  those projects                                                                    
     on it.                                                                                                                     
                                                                                                                                
     Representative    Rokeberg's    bill   represents    an                                                                    
     opportunity  to  expand  that   horizon;  HB  254  very                                                                    
     clearly is  directed towards the  other parts  of those                                                                    
     efforts to  find a  way down.   Currently we  are aware                                                                    
     that there  is a  proposal involving Cook  Inlet Tribal                                                                    
     Council, [ENSTAR  Natural Gas Company], and  some other                                                                    
     parties, that  is looking for federal  funding to study                                                                    
     that  route.   There have  been some  previous studies,                                                                    
     but in  terms of  ... the spur  line, we  would believe                                                                    
     that this would provide the  kind of grubstake we would                                                                    
     need to really  look seriously at that  route and bring                                                                    
     it to a level of  design and engineering and permitting                                                                    
     and other things that would make it real.                                                                                  
                                                                                                                                
5:43:28 PM                                                                                                                    
                                                                                                                                
MR. HEINZE went on to say:                                                                                                      
                                                                                                                                
     The other  point ...  I'd really  wanted to  make about                                                                    
     the bill is  that we view this funding  as a grubstake.                                                                    
     We believe that the  Railbelt energy fund provides that                                                                    
     opportunity  to get  the project  going.   The  project                                                                    
     would be financed  of itself at a much  larger sum and,                                                                    
     once it  was financed,  we would  expect that  it would                                                                    
     generate revenues sufficient to  pay back the fund very                                                                    
     quickly.  And  that would be [the]  ANGDA's intent, ...                                                                    
     to pay this money  back.  We look at this  as a loan, a                                                                    
     grubstake, whatever you want to call it, for us.                                                                           
                                                                                                                                
     [And]  ... just  in brief  comment as  to the  previous                                                                    
     testimony,   on  the   record,  [the]   ANGDA  started,                                                                    
     seriously,   both   public   notice   and   contracting                                                                    
     processes  related to  this spur  line last  September.                                                                    
     We were  very open about  it; as  a matter of  fact, we                                                                    
     ran  some ads  in  the "Frontiersman"  and other  local                                                                    
     publications -  full-page color ads indicating  what we                                                                    
     were  doing  and why  we  were  doing  it in  terms  of                                                                    
     meeting  the energy  needs of  Southcentral.   At  that                                                                    
     time,  then,  ...  one  of our  first  efforts,  as  we                                                                    
     started our contractors around the  first of this year,                                                                    
     was  to actually  have an  individual go  out and  do a                                                                    
     certain amount of  public outreach.  At  that time, the                                                                    
     funds and the  time were limited, but we  did contact a                                                                    
     few people in the Chickaloon area.                                                                                         
                                                                                                                                
5:44:48 PM                                                                                                                    
                                                                                                                                
MR. HEINZE continued:                                                                                                           
                                                                                                                                
     Since then, I personally have  gone up there and I have                                                                    
     spent time in both Sutton  and Chickaloon.  We had some                                                                    
     good meetings  at the community council,  received some                                                                    
     very good suggestions, and we've  actually been able to                                                                    
     incorporate  a number  of  those  suggestions into  the                                                                    
     application.  The exact routing  in the Chickaloon area                                                                    
     is something that  we will study further,  just as [in]                                                                    
     several  other places  along  the line,  ...  as we  go                                                                    
     through it.                                                                                                                
                                                                                                                                
     The application, right now, on  the table, is for state                                                                    
     land  only.   It has  nothing  to do  with the  private                                                                    
     land.   And, in  particular in  the Palmer  area, we've                                                                    
     felt that  we would probably be  using existing utility                                                                    
     right-of-ways that have been  granted there by both ...                                                                    
     the  state  and  the  borough.   So  again,  we've  not                                                                    
     addressed, in  any great detail  - and the  funding was                                                                    
     not sufficient  at this point  to address in  any great                                                                    
     detail   -  what   we  would   do   with  the   private                                                                    
     contractors.   There [are] ... additional  funds in the                                                                    
     supplemental budget  to allow  us to  do those  kind of                                                                    
     efforts, and we look  forward to, hopefully, that being                                                                    
     approved, and moving on.                                                                                                   
                                                                                                                                
5:46:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  referred  to  the  supplemental  budget                                                               
vetoed by  the governor,  and asked  whether the  money earmarked                                                               
for the ANGDA, assuming it is  budgeted in another bill, would be                                                               
sufficient to sustain the ANGDA through all of 2006.                                                                            
                                                                                                                                
MR. HEINZE offered his understanding  that the $2.17 million that                                                               
was  passed by  the legislature  in the  fast track  supplemental                                                               
bill  but vetoed  by the  governor is  now part  of the  "working                                                               
amendments"  to the  supplemental  bill currently  in the  Senate                                                               
Finance Committee.  He added:                                                                                                   
                                                                                                                                
     That $2.17  million is  the sum of  money to  take this                                                                    
     next step ... [of] -  once we receive a right-of-way to                                                                    
     cross the  state the land,  which is the  dominant land                                                                    
     position along  the way  - ...  dealing with  issues of                                                                    
     very  specific  design  in   certain  areas  along  the                                                                    
     pipeline, acquiring right-of-way,  doing the permitting                                                                    
     and other types  of work like that,  that are necessary                                                                    
     to basically  put together the funding  package for the                                                                    
     project.    And,  again, this  will  be  a  bonded-type                                                                    
     package as a  utility company, and the  $2 million gets                                                                    
     us towards that next step. ...                                                                                             
                                                                                                                                
     We  would be  prepared to  issue those  contracts at  a                                                                    
     time that  is fairly coincident with  whatever contract                                                                    
     or  whatever  agreement is  made,  or  reached, on  the                                                                    
     North Slope project, whether it  be down the highway or                                                                    
     to  Valdez.   And the  reason for  that is,  we believe                                                                    
     that it  is wisest to do  the spur line as  a pre-build                                                                    
     into the big project, to  cut the time delay in getting                                                                    
     the critically needed  gas to the Cook  Inlet area. ...                                                                    
     That  is all  that money  does, and  it, very  frankly,                                                                    
     barely does that.  That's  cutting it pretty tight on a                                                                    
     number of items  in that budget.  But  that is entirely                                                                    
     different from  what we would  see as the need  for the                                                                    
     broader  issue  of  getting North  Slope  gas  to  Cook                                                                    
     Inlet, if necessary, even by  some direct route or some                                                                    
     other route.                                                                                                               
                                                                                                                                
5:50:17 PM                                                                                                                    
                                                                                                                                
PAUL  FUHS, Volunteer  Lobbyist  for Backbone  2, explained  that                                                               
Backbone  2   is  a  citizen  organization   promoting  gas  line                                                               
development in  Alaska.  He  stated that [the bill]  is important                                                               
in order for  Alaska to maintain all of its  options for bringing                                                               
gas down [from the North Slope].   He said, "While we support the                                                               
bigger projects  and hope  that they go  through, ...  there's no                                                               
guarantee that any of the big  projects are going to move forward                                                               
quickly."  He added:                                                                                                            
                                                                                                                                
     The other  thing that's important about  this, from the                                                                    
     strategic  sense of  bringing the  gas to  Southcentral                                                                    
     Alaska,  is  that we  know  the  biggest battle  is  to                                                                    
     secure a gas  supply for the project,  and there's been                                                                    
     a lot of discussions  about that lately, ... [regarding                                                                    
     the things] that  the state might do to  help make that                                                                    
     happen if, in fact, there's  no willingness on the part                                                                    
     of the  producers to either produce  the gas themselves                                                                    
     or  to sell  it  to  anybody else.    This project,  as                                                                    
     proposed as a bullet line,  is a 24-inch line and could                                                                    
     operate  with the  state's royalty  gas from  the North                                                                    
     Slope,  and it  is critical  that we  bring the  gas to                                                                    
     Southcentral.                                                                                                              
                                                                                                                                
5:51:58 PM                                                                                                                    
                                                                                                                                
MR. FUHS noted  that the price for  gas has been going  up and is                                                               
projected to  double in the next  five years.  He  also predicted                                                               
that "without  getting Alaska  gas, we're going  to lose  the LNG                                                               
[Liquid Natural Gas]  plant in Kenai," and noted that  LNG is not                                                               
considered a  manufactured product.   He mentioned that  there is                                                               
also propane in  the gas, and therefore propane  could be shipped                                                               
to  coastal and  rural Alaska  to provide  relief regarding  high                                                               
energy prices.   He opined,  "I do  think this is  an appropriate                                                               
use of the  Railbelt energy fund because  energy's critical, both                                                               
to the  cost of living  [for] ...  people in Southcentral  and to                                                               
the competitiveness,  as a region,  as a place for  businesses to                                                               
operate."   In addition,  he offered his  belief that  the ENSTAR                                                               
Natural  Gas Company  would be  interested in  "this" because  it                                                               
would be  a tax-exempt corporation.   Such accounts for  about 35                                                               
percent in federal taxes and  net proceeds, and those savings can                                                               
be passed on to the consumers and users of gas in Southcentral.                                                                 
                                                                                                                                
5:53:47 PM                                                                                                                    
                                                                                                                                
CHAIR  KOHRING asked  if the  proceeds from  the Alaska  Railroad                                                               
bonds could be used to build a gas line.                                                                                        
                                                                                                                                
MR.  FUHS  replied affirmatively,  and  added  that the  "federal                                                               
guarantees" could also be used for this project.                                                                                
                                                                                                                                
CHAIR  KOHRING  mentioned passage  of  a  bill  a few  years  ago                                                               
authorizing the  use of up  to $18  billion in low  interest rate                                                               
tax-exempt bonds as a funding source to build a gas line.                                                                       
                                                                                                                                
5:54:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  Mr. Fuhs  if he  could work  with                                                               
Representative Rokeberg's office on that issue.                                                                                 
                                                                                                                                
MR. FUHS replied that he would.                                                                                                 
                                                                                                                                
5:54:52 PM                                                                                                                    
                                                                                                                                
CHAIR  KOHRING, after  ascertaining that  no one  else wished  to                                                               
testify, closed public testimony on HB 254.                                                                                     
                                                                                                                                
5:54:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KERTTULA asked  if the bill was  written such that                                                               
it is in essence a loan to the ANGDA.                                                                                           
                                                                                                                                
REPRESENTATIVE  ROKEBERG referred  to subsection  (c) on  page 3,                                                               
and explained that it is actually an appropriation.  He said:                                                                   
                                                                                                                                
     The  idea is  ... to  look and  see if  we can  get the                                                                    
     recovery of  those costs, pay  it back to  the Railbelt                                                                    
     energy fund from the private  sector. ... The idea here                                                                    
     is to  get the preliminary  work done in a  more timely                                                                    
     manner and seek to form  an organization ..., some type                                                                    
     of authority which can take  advantage of the taxes and                                                                    
     funding perhaps, but it would  be a project entity from                                                                    
     which this group could recover the funding.                                                                                
                                                                                                                                
5:56:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE McGUIRE  moved to report  HB 254 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.   There being no objection,  HB 254 was reported  from the                                                               
House Special Committee on Oil and Gas.                                                                                         
                                                                                                                                
HB 286 - VALUE OF ROYALTY ON GAS PRODUCTION                                                                                   
                                                                                                                                
5:57:41 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING  announced that the  final order of  business would                                                               
be  HOUSE  BILL   NO.  286,  "An  Act  amending   the  manner  of                                                               
determining the royalty  received by the state  on gas production                                                               
by  directing the  commissioner of  natural resources  to accept,                                                               
under certain  circumstances, the  transfer price  of the  gas if                                                               
established by transfer price order  of the Regulatory Commission                                                               
of Alaska; and providing for an effective date."                                                                                
                                                                                                                                
SARA  NIELSEN,  Staff  to Representative  Ralph  Samuels,  Alaska                                                               
State  Legislature,  sponsor,  presented  HB  286  on  behalf  of                                                               
Representative Samuels.  She stated:                                                                                            
                                                                                                                                
     House Bill 286  is a simple housekeeping  bill that was                                                                    
     brought  forward  by  [Anchorage] Municipal  Light  and                                                                    
     Power  (ML&P).   This  bill amends  current statute  by                                                                    
     adding language  that allows the Department  of Natural                                                                    
     Resources [DNR]  to use the  gas transfer price  set by                                                                    
     the [Regulatory Commission of  Alaska (RCA)], much like                                                                    
     DNR  uses the  contract price  for gas.   The  transfer                                                                    
     price  is the  rate  that ML&P  is  required to  charge                                                                    
     itself for the Beluga Field gas that [it] uses.                                                                            
                                                                                                                                
     [The  Department of  Natural Resources]  agreed to  let                                                                    
     ML&P ... continue  to use the current  statute based on                                                                    
     the  "ML&P/Shell"  contract   even  after  ML&P  bought                                                                    
     Shell's  interest  in  the  field,  but  that  contract                                                                    
     expires at  the end of  this year.  While  ML&P's share                                                                    
     in the Beluga River Field  will assure ML&P of a supply                                                                    
     of gas  without this  legislation, ML&P will  be unable                                                                    
     to continue  to use current  statute for its gas.   The                                                                    
     proposed change  is consistent with the  purpose of the                                                                    
     original law, and also will  help ensure that Anchorage                                                                    
     electric  consumers  have  certainty and  stability  in                                                                    
     their electric rates.                                                                                                      
                                                                                                                                
5:59:55 PM                                                                                                                    
                                                                                                                                
JIM POSEY,  General Manager, Anchorage Municipal  Light and Power                                                               
(ML&P),  by  way  of  introduction,   reiterated  a  few  of  Ms.                                                               
Nielsen's comments.                                                                                                             
                                                                                                                                
6:01:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG asked how the price is set.                                                                             
                                                                                                                                
MR.  POSEY replied  that the  RCA  sets a  transfer price  that's                                                               
based on  the interest payments  on the $120 million  that [ML&P]                                                               
used to buy the  field.  He added, "It is a price  set by the RCA                                                               
that allows  us to  sell it  to ourselves  and have  a reasonable                                                               
rate without having harm to our rate payers."                                                                                   
                                                                                                                                
CHAIR KOHRING  ascertained that regulatory  counsel for  ML&P was                                                               
available for questions.                                                                                                        
                                                                                                                                
6:02:24 PM                                                                                                                    
                                                                                                                                
MARK  MYERS, Director,  Central Office,  Division of  Oil &  Gas,                                                               
Department  of  Natural  Resources  (DNR), stated  that  the  DNR                                                               
supports HB 286.  He added:                                                                                                     
                                                                                                                                
     It  was ...  recognized previously  by the  legislature                                                                    
     that  utilities  need  a stable  price,  and  under  AS                                                                    
     38.05.180(aa), they  ... don't have to  use our "higher                                                                    
     of" provision  - they actually  use the sales  price in                                                                    
     providing gas to  their customers.  And  then the state                                                                    
     gets  that  sales price,  not  the  "higher of"  value,                                                                    
     which  [is]  an  average  of those  received  by  other                                                                    
     producers  from  the  same producing  area.    So  [it]                                                                    
     provides  a mechanism  to provide  a  stabile rate  and                                                                    
     base for royalty  gas sold to public  utilities, and it                                                                    
     recognized [that]  the good of  a public utility  is in                                                                    
     the best interest of the state.   So we have an unusual                                                                    
     situation here,  where the  public utility  [that] uses                                                                    
     the  gas is  also the  gas producer,  and that's  never                                                                    
     been covered in our law before.                                                                                            
                                                                                                                                
     So this  amendment allows that affiliated  producer and                                                                    
     marketer/seller  of  the gas  to  use  a simple  value.                                                                    
     And,  again,   sometimes  there  can  be   concerns  of                                                                    
     affiliated transfers, that  they don't represent actual                                                                    
     value;  however,  in this  case,  because  you have  an                                                                    
     independent price-setting  agency, ... [the]  RCA, that                                                                    
     provides sort  of an independent  review of  that price                                                                    
     to   make   sure   it's   not   artificially   low   or                                                                    
     unreasonable.   So in  this case,  again, if  [the] DNR                                                                    
     would disagree, they still could  go back and challenge                                                                    
     it, but in  general I think we would  be satisfied with                                                                    
     the RCA.  ... So we're  very comfortable; this  is well                                                                    
     within   the   intent   of  what   [the   original   AS                                                                    
     38.05.180(aa)] was supposed to do.                                                                                         
                                                                                                                                
6:04:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG  said that according to  prior testimony,                                                               
it seems  as though the  prices would  be relatively low  if they                                                               
are  based solely  on the  interest  rates paid  on the  original                                                               
purchase  price.   He asked  how  the state's  interests will  be                                                               
protected.                                                                                                                      
                                                                                                                                
MARTIN  T. SCHULTZ,  Commercial Analyst,  Audit Section,  Central                                                               
Office, Division  of Oil &  Gas, Department of  Natural Resources                                                               
(DNR),  explained that  under HB  286, the  ML&P -  or any  other                                                               
entity -  would still have  to apply to the  DNR to have  its gas                                                               
valued at the transfer price, which  would be reviewed by the DNR                                                               
commissioner,  and the  DNR  could decline  to  use the  transfer                                                               
price  to establish  royalty value  if the  commissioner believes                                                               
that that price is unreasonably  low.  He mentioned that proposed                                                               
AS 38.05.180(aa)(2) outlines the aforementioned review process.                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked whether ML&P pays  royalty fees to                                                               
the state.                                                                                                                      
                                                                                                                                
MR. SHULTZ said yes.                                                                                                            
                                                                                                                                
REPRESENTATIVE ROKEBERG asked for clarification.                                                                                
                                                                                                                                
MR. SCHULTZ said  that ML&P currently pays royalty on  the gas it                                                               
uses "internally"  at its affiliated  utility, and that  price is                                                               
based on the negotiated third  party contract price that was used                                                               
when  [Shell Western  E&P Inc.]  sold  gas to  ML&P.   Therefore,                                                               
currently, the "higher of" value is not applied to that gas.                                                                    
                                                                                                                                
6:07:26 PM                                                                                                                    
                                                                                                                                
MR. MYERS added  that the royalty rate itself  is consistent with                                                               
the  "under the  lease"  contract.   The  only  question left  to                                                               
debate is what  the actual sale price would be,  since the gas is                                                               
being taken "in-value" rather than  "in-kind."  He predicted that                                                               
the RCA would  not want to use  a price if it  were determined to                                                               
be artificially low,  and also that the DNR would  not allow such                                                               
a price anyway.   The goal is  to treat the ML&P  just like every                                                               
other utility and provide it with a long-term stable price.                                                                     
                                                                                                                                
6:08:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG said  it seems like one  could, under the                                                               
bill and using  the transfer price, have a price  lower that what                                                               
it is currently.                                                                                                                
                                                                                                                                
MR. SCHULTZ reiterated that if  the transfer price was determined                                                               
to be  an unfair price,  then the DNR commissioner  would decline                                                               
to use it.                                                                                                                      
                                                                                                                                
6:09:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG asked whether a  finding would have to be                                                               
made any time there's a change in the price.                                                                                    
                                                                                                                                
MR. MYERS said  he didn't think the  question would automatically                                                               
go back  to the RCA; instead,  the issue would be  decided by the                                                               
commissioner of the DNR.  He  added that if ML&P's "rate base was                                                               
based" on a higher  gas sales price, then it could  go to the RCA                                                               
and ask for a rate increase.                                                                                                    
                                                                                                                                
6:10:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE     ROKEBERG     noted    that     proposed     AS                                                               
38.05.180(aa)(1)(B)   says,  "the   transfer  is   an  affiliated                                                           
interest,  as that  term  is  defined in  AS  42.05.990, and  the                                                           
transfer price between the lessee  and the utility is established                                                           
by an  order of the Regulatory  Commission of Alaska".   He asked                                                           
whether   that   language  applies   to   a   different  set   of                                                               
circumstances.                                                                                                                  
                                                                                                                                
MR. MYERS  explained that  that language is  the default;  if the                                                               
DNR doesn't think that that  price is justifiable, it can decline                                                               
to use it.   He reiterated that AS  38.05.180(aa)(2) outlines the                                                               
review process  criteria, and that the  ML&P could go to  the RCA                                                               
and ask for a rate increase.                                                                                                    
                                                                                                                                
REPRESENTATIVE  KERTTULA  referred to  page  2,  line 13-14,  and                                                               
noted that it says in part,  "and ... unless".  She characterized                                                               
that   sentence  construction   as  confusing,   and  asked   for                                                               
clarification.                                                                                                                  
                                                                                                                                
MR. SCHULTZ replied  that under the way the  statute is currently                                                               
structured,  which will  remain  the same  even  with the  change                                                               
proposed by  the bill, the  producer makes an application  to the                                                               
DNR for the  treatment specified in AS 38.05.180(aa)  and it gets                                                               
to use  its contract - or,  under a change proposed  in the bill,                                                               
its  transfer price  - unless  the commissioner  makes a  written                                                               
finding declining  to use that  price.   Thus, if the  DNR didn't                                                               
issue any finding, the contract  price or transfer price would be                                                               
used.                                                                                                                           
                                                                                                                                
6:14:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KERTTULA noted that line 9, page 2, contains the                                                                 
word "or", and suggested that its use may constitute a                                                                      
grammatical error.                                                                                                              
                                                                                                                                
6:14:32 PM                                                                                                                    
                                                                                                                                
KATE GIARD, Chair, Commissioner,  Regulatory Commission of Alaska                                                               
(RCA), Department of Commerce,  Community, & Economic Development                                                               
(DCCED),  said that  the  RCA  has read  the  legislation and  is                                                               
comfortable with  it.   In response  to questions  posed earlier,                                                               
she said:                                                                                                                       
                                                                                                                                
     The  RCA   issued  order  number  U-96-36,   ...  which                                                                    
     discusses and  clarifies, for  the members,  the method                                                                    
     of calculating the transfer price  that is discussed in                                                                    
     this  legislation.    And  annually,  from  this  point                                                                    
     forward, ML&P will file with  us a calculation of their                                                                    
     transfer  price,   and  it's  based  on   their  actual                                                                    
     production costs  times their  debt-service ratio.   So                                                                    
     they'll  take  their  costs  -   and  for  purposes  of                                                                    
     illustration, let's  just pretend  it's a $1  million -                                                                    
     then  they'll  multiply  that $1  million  times  their                                                                    
     debt-service coverage rate,  which is 1.6.   So we then                                                                    
     will  calculate  from  that; we'll  have  their  actual                                                                    
     production  costs  and  we'll have  their  debt-service                                                                    
     coverage  that  we  set, and  we'll  ...  review  their                                                                    
     proposed calculations to us of the ... transfer price.                                                                     
                                                                                                                                
     So   to  answer   the  questions   that  Representative                                                                    
     Rokeberg  ... [asked],  the calculation  will be  fully                                                                    
     analyzed  and   vetted  here  within   the  commission.                                                                    
     Frequently,  when ML&P  proposes  or  brings forward  a                                                                    
     tariff, which they'll do every  single year now - we've                                                                    
     ordered them  to do that  - there's an  opportunity ...                                                                    
     for  the  public  advocate,  which is  an  arm  of  the                                                                    
     attorney general,  to participate in the  evaluation of                                                                    
     that  calculation.    And so  there  is,  through  this                                                                    
     process,  a coming  to the  RCA -  a mechanism  for the                                                                    
     public to weigh  in.  And obviously  the advocate would                                                                    
     be  looking at  those costs,  making sure  that they're                                                                    
     not  too  low or  too  high,  as  well as  [having]  an                                                                    
     opportunity to  opine on whether  ... they're  fair and                                                                    
     reasonable.                                                                                                                
                                                                                                                                
     So all  of that is  brought before  us, and we  take it                                                                    
     into consideration when  we make a calculation.   And I                                                                    
     appreciate  that the  Department  of Natural  Resources                                                                    
     probably  wanted to  put a  failsafe ...  [mechanism in                                                                    
     the  bill], but  believe, truly,  that it'd  be a  very                                                                    
     rare event, where  we would fully vet  a calculation of                                                                    
     this nature and then that  it would have a problem with                                                                    
     it.                                                                                                                        
                                                                                                                                
6:17:22 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING, after ascertaining that no one else wished to                                                                    
testify, closed public testimony on HB 286.                                                                                     
                                                                                                                                
6:17:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG moved  to report HB 286  out of committee                                                               
with individual recommendations and  the accompanying zero fiscal                                                               
notes.   There being no objection,  HB 286 was reported  from the                                                               
House Special Committee on Oil and Gas.                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at                                                                       
6:20:00 PM.                                                                                                                   

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