Legislature(2007 - 2008)CAPITOL 106

03/19/2007 08:30 AM OIL & GAS


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08:33:49 AM Start
08:34:25 AM HB177
10:45:00 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time & Location Change --
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         March 19, 2007                                                                                         
                           8:33 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Kurt Olson, Vice Chair                                                                                           
Representative Nancy Dahlstrom                                                                                                  
Representative Jay Ramras                                                                                                       
Representative Ralph Samuels                                                                                                    
Representative Mike Doogan                                                                                                      
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                              
Representative Bob Roses                                                                                                        
Representative Berta Gardner                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 177                                                                                                              
"An  Act   relating  to  the   Alaska  Gasline   Inducement  Act;                                                               
establishing   the  Alaska   Gasline   Inducement  Act   matching                                                               
contribution  fund; providing  for an  Alaska Gasline  Inducement                                                               
Act coordinator; making conforming  amendments; and providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 177                                                                                                                  
SHORT TITLE: NATURAL GAS PIPELINE PROJECT                                                                                       
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/05/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/07       (H)       O&G, RES, FIN                                                                                          
03/06/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/06/07       (H)       -- MEETING CANCELED --                                                                                 
03/08/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/08/07       (H)       -- MEETING CANCELED --                                                                                 
03/13/07       (H)       O&G AT 3:30 PM HOUSE FINANCE 519                                                                       
03/13/07       (H)       Heard & Held                                                                                           
03/13/07       (H)       MINUTE(O&G)                                                                                            
03/15/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/15/07       (H)       Heard & Held                                                                                           
03/15/07       (H)       MINUTE(O&G)                                                                                            
03/19/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
MARCIA DAVIS, Deputy Commissioner                                                                                               
Commissioner's Office                                                                                                           
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided sectional analysis of HB 177.                                                                     
                                                                                                                                
PAT GALVIN, Commissioner                                                                                                        
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions on HB 177.                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas meeting  to order  at 8:33:49  AM.   Representatives Samuels,                                                             
Ramras, Doogan,  Kawasaki, and Kohring  were present at  the call                                                               
to order.   Representatives  Dahlstrom and  Olson arrived  as the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
8:34:25 AM                                                                                                                    
                                                                                                                                
CHAIR KOHRING announced that the  only order of business would be                                                               
HOUSE  BILL NO.  177,  "An  Act relating  to  the Alaska  Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
8:36:12 AM                                                                                                                    
                                                                                                                                
MARCIA   DAVIS,  Deputy   Commissioner,  Commissioner's   Office,                                                               
Department of Revenue (DOR), began  her sectional analysis of the                                                               
Alaska Gasline Inducement  Act (AGIA).  This act amends  AS 43 by                                                               
the addition of  Chapter 90, which is known as  AGIA.  The Alaska                                                               
Gasline Inducement Act begins with  Article 1, she said, entitled                                                               
"Inducement to  Construction of  a Natural  Gas Pipeline  in this                                                               
State."   Section 43.90.010 states  that the purpose of  this act                                                               
is to encourage expedited construction  of a natural gas pipeline                                                               
with   the  following   goals:     facilitate  North   Slope  gas                                                               
commercialization,  promote  exploration   on  the  North  Slope,                                                               
maximize benefits for the people  of the state, and encourage the                                                               
commitment of natural  gas to the North Slope  pipeline.  Article                                                               
2,  is entitled  "Alaska Gasline  Inducement Act  License."   Ms.                                                               
Davis informed  the committee that Section  43.90.100 essentially                                                               
outlines  that   the  commissioners  of  Department   of  Natural                                                               
Resources (DNR)  and Department of  Revenue (DOR) will  award the                                                               
AGIA license and inducements.                                                                                                   
                                                                                                                                
8:38:15 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS observed  that an  applicant applies  for                                                               
[one] license, not multiple licenses.                                                                                           
                                                                                                                                
MS.  DAVIS confirmed  that one  license would  be awarded  to one                                                               
applicant.   She continued  to say  that Section  43.90.110 lists                                                               
the inducements that are awarded  to the licensee.  Paragraph (1)                                                               
is the state  matching contribution, which is not  to exceed $500                                                               
million,  paid  out over  a  five  year  period, and  the  period                                                               
commences on the date of the  issuance of the license.  The terms                                                               
for matching  the matching contribution  are:   subparagraph (A),                                                               
on or  before the  close of  the first  binding open  season, the                                                               
match will be  an equal match; subparagraph (B),  after the close                                                               
of the  open season the  match is not  specified, but left  as an                                                               
item to  be resolved in the  bidding process with a  limit on the                                                               
state's  match   of  80  percent;  subparagraph   (C),  qualified                                                               
expenditures are  costs that occur  after the license  is issued,                                                               
that  are   directly  related  to  obtaining   a  Federal  Energy                                                               
Regulatory  Commission  (FERC)  or Alaska  Regulatory  Commission                                                               
(RCA) certificate, and are not  overhead costs, litigation costs,                                                               
assets or work product predating  the issuance of the license, or                                                               
civil  or criminal  penalties or  fines.   The second  inducement                                                               
provided to the licensee is  the benefit of the AGIA coordinator,                                                               
whose  duties are  more fully  specified  in AS  43.90.330.   The                                                               
licensee  also  receives the  benefit  of  a state  program  that                                                               
provides  training for  the employment  workforce needed  for the                                                               
construction of a pipeline.                                                                                                     
                                                                                                                                
8:40:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS asked  what amount  of the  state's money                                                               
will be  spent prior to the  open season and what  amount will be                                                               
spent between the open season and certification.                                                                                
                                                                                                                                
MS. DAVIS  said that total  estimates are  as low as  $50 million                                                               
and as  high as $200  million, and  the state's portion  would be                                                               
one-half.                                                                                                                       
                                                                                                                                
REPRESENTATIVE DOOGAN asked for  details about the state training                                                               
program described in Section 43.90.110(3).                                                                                      
                                                                                                                                
MS.  DAVIS responded  that  this  is the  sole  reference to  the                                                               
program.                                                                                                                        
                                                                                                                                
PAT  GALVIN, Commissioner,  Department of  Revenue, informed  the                                                               
committee that the  training program is not  established yet, and                                                               
that  the intent  is to  work with  Department of  Education, the                                                               
University of Alaska,  Department of Labor, and  the licensee, to                                                               
develop  a program  geared toward  jobs for  pipeline development                                                               
and construction.   The bill  provides assurance to  the licensee                                                               
that a  training program  will be developed  with its  project in                                                               
mind and it will be in place at the beginning of the project.                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN  surmised  that the  Palin  Administration                                                               
intends to  develop a training  program that will  train Alaskans                                                               
to build the gas pipeline.  He  asked if there was a timeline for                                                               
this training.                                                                                                                  
                                                                                                                                
COMMISSIONER GALVIN  responded that the details  and timeframe of                                                               
the  training  program  will be  available  soon,  and  confirmed                                                               
Representative Doogan's  statement of the intent  of the program.                                                               
He  noted that  the  schedule  of the  training  program will  be                                                               
dependent on the licensee.                                                                                                      
                                                                                                                                
REPRESENTATIVE  DOOGAN  asked  if   the  training  program  would                                                               
require additional legislation.                                                                                                 
                                                                                                                                
8:44:58 AM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN said, at this  point, the need for additional                                                               
legislation is not known.                                                                                                       
                                                                                                                                
REPRESENTATIVE DOOGAN asked if funding would be needed.                                                                         
                                                                                                                                
COMMISSIONER GALVIN answered yes.                                                                                               
                                                                                                                                
REPRESENTATIVE SAMUELS  asked if  the open season  is successful,                                                               
financing  is  obtained,  and  the state  has  already  paid  $25                                                               
million to  $100 million,  why would the  state spend  more money                                                               
after the open season?                                                                                                          
                                                                                                                                
COMMISSIONER   GALVIN  responded   that  the   state  anticipates                                                               
receiving  proposals that  denote  spending a  certain amount  of                                                               
money to get  to open season and that will  also specify the cost                                                               
split  with the  state for  either a  successful or  unsuccessful                                                               
open  season.   The proposals  will be  evaluated based  on their                                                               
value to  the state.   He said that  the applicants will  want to                                                               
limit the state's cost.                                                                                                         
                                                                                                                                
REPRESENTATIVE SAMUELS  noted that there is  the possibility that                                                               
there will  not be enough  gas committed to obtain  financing and                                                               
build  the pipeline.   If  the  proposal denotes  that the  state                                                               
gives to  the licensee  80 percent [of  $500 million]  for design                                                               
and permitting,  and the open  season is unsuccessful,  the state                                                               
may  be  in  a  better  position  to  keep  100  percent  of  the                                                               
inducement and develop the project without the licensee.                                                                        
                                                                                                                                
COMMISSIONER  GALVIN responded  that  the failure  of an  initial                                                               
open season is not necessarily the  fault of the licensee.  There                                                               
will be  many hurdles that  the state  and the producers  need to                                                               
identify  and overcome.    To  proceed from  the  open season  to                                                               
obtaining  a FERC  certificate requires  a  tremendous amount  of                                                               
expertise and the licensee is needed to get the certificate.                                                                    
                                                                                                                                
8:48:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS remarked, "You  are spending 80 percent of                                                               
the money  on the highest risk  part, you don't have  a customer.                                                               
You're designing it ...."                                                                                                       
                                                                                                                                
COMMISSIONER GALVIN  noted that  80 percent  is the  maximum that                                                               
the state may be requested to spend at that point.                                                                              
                                                                                                                                
REPRESENTATIVE SAMUELS said:                                                                                                    
                                                                                                                                
     But  assuming that  you  allow  them to  get  up to  80                                                                    
     percent,  going   to  100  percent,  and   just  hiring                                                                    
     somebody, because then  when you get to the  end of the                                                                    
     day ...  you have something  of value ... that  you can                                                                    
     sell it to  the producers in exchange for  the gas, you                                                                    
     could sell it back to  Mid America, you could certainly                                                                    
     make  your   money  back.  ...  You've   now  paid  for                                                                    
     something  and you  're  not going  to  get your  money                                                                    
     back.                                                                                                                      
                                                                                                                                
COMMISSIONER  GALVIN assured  the committee  that the  state will                                                               
get its  money back, the  question is  whether the state  has the                                                               
opportunity to further  maximize that return.   He explained that                                                               
the  state needs  to encourage  applicants.   Commissioner Galvin                                                               
then said:                                                                                                                      
                                                                                                                                
     If  [the applicants]  look [at]  this process  and they                                                                    
     say if we get to  an open season and it's unsuccessful,                                                                    
     then the  state is going  to kick  us out the  door and                                                                    
     bring in  somebody else and  drive the rest of  the way                                                                    
     under some other  scenario, then it's going  to be less                                                                    
     likely that  we're going to get  somebody in initially.                                                                    
     We're  locking  in  a  relationship  at  the  time  the                                                                    
     proposal is made, that's going  to carry us all the way                                                                    
     through  to  that  FERC  certificate.   ...    What  we                                                                    
     recognized, in designing this, is  sort of risk sharing                                                                    
     between  the state  and the  companies, is  we need  to                                                                    
     provide them  with the opportunity to  see a successful                                                                    
     end product and if we cut  them off at open season then                                                                    
     their  attractiveness  of  engaging   in  this  at  the                                                                    
     initial phase becomes much lower.                                                                                          
                                                                                                                                
REPRESENTATIVE SAMUELS  observed that  [the applicants]  would be                                                               
enthused about a successful open season.                                                                                        
                                                                                                                                
COMMISSIONER GALVIN responded yes, but  they also would be taking                                                               
a risk that  if they have an unsuccessful open  season they would                                                               
lose their investment.                                                                                                          
                                                                                                                                
REPRESENTATIVE SAMUELS asked about  the ramifications of a second                                                               
unsuccessful open season.                                                                                                       
                                                                                                                                
COMMISSIONER GALVIN  noted that  the state  can not  predict when                                                               
the commitments  and financing for  the project will  happen, but                                                               
AGIA will  begin a process with  the best chance to  succeed.  If                                                               
there is  a time  when the  FERC certificate  is issued,  but the                                                               
open  season has  not been  successful,  the state  will look  at                                                               
alternatives.  Commissioner Galvin said  that he believes AGIA is                                                               
the clearest path for success.                                                                                                  
                                                                                                                                
8:54:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS  said  that  his conception  is  that  the                                                               
legislature  must address  the two  valuable commodities  of time                                                               
and  money.   The  AGIA  program spends  money  to  obtain a  set                                                               
outcome in a  certain period of time.   He said that  AGIA sets a                                                               
finish line, but  the uncertainty is, whether  the producers will                                                               
cross  the finish  line and  will  transport the  gas to  market.                                                               
Representative Ramras remarked:                                                                                                 
                                                                                                                                
     It strikes me that  the whole philosophical approach to                                                                    
     AGIA is that  we swap the unknown of time  for a finite                                                                    
     amount of  time.  We seed  that with our money,  a non-                                                                    
     specified  amount,  up  to  and   not  to  exceed  $500                                                                    
     million, dollar-for-dollar,  and then  we have  to wait                                                                    
     and see  whether the producers are  good faith partners                                                                    
     or whether  the state has  a, a deeper problem.  ... Is                                                                    
     that a pretty  accurate read of what  we are discussing                                                                    
     this morning?                                                                                                              
                                                                                                                                
COMMISSIONER GALVIN agreed.   However, he added,  within one year                                                               
the legislature  will see the  schedule for the  expenditures and                                                               
will have an opportunity to reject the proposal.                                                                                
                                                                                                                                
REPRESENTATIVE DOOGAN  asked at  what point the  legislature will                                                               
approve the expenditure of the $500 million.                                                                                    
                                                                                                                                
COMMISSIONER GALVIN explained  that the intent of AGIA  is to re-                                                               
designate   $300  million   held   by   Alaska  Housing   Finance                                                               
Corporation (AHFC).   These funds  will be sufficient  to proceed                                                               
through the initial process and  through open season.  Within one                                                               
year, there will  be an expenditure timeline  from the successful                                                               
applicant, and more funds may or may not be needed.                                                                             
                                                                                                                                
9:01:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN clarified that  $300 million is needed this                                                               
legislative session.                                                                                                            
                                                                                                                                
COMMISSIONER GALVIN said yes.                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN  observed that  potential bidders  will ask                                                               
for  funds within  a range  of  zero to  80 percent  of the  $500                                                               
million.                                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN reiterated that  the maximum the bidders will                                                               
ask  for  is  $500  million;  the  determination  of  80  percent                                                               
develops as  the project  progresses, and  becomes 80  percent of                                                               
the expenditures.                                                                                                               
                                                                                                                                
REPRESENTATIVE DOOGAN noted that  one of the evaluation criterion                                                               
listed  in  Section  43.90.170 requests  the  percentage  of  the                                                               
state's matching contribution.  How  important, he asked, is that                                                               
criterion compared to the other criteria?                                                                                       
                                                                                                                                
COMMISSIONER GALVIN responded that  the primary factors important                                                               
to the  state are the value  to the state, and  the likelihood of                                                               
success.   Net Present Value (NPV)  to the state will  be part of                                                               
the evaluation  and how much money  the state will have  to spend                                                               
is a significant  factor in determining NPV.  If  a lesser amount                                                               
is  required of  the  state,  and the  applicant  is proposing  a                                                               
greater  investment on  its part,  that will  be a  factor to  be                                                               
evaluated.    Commissioner  Galvin  said  that  a  lesser  amount                                                               
required from the state will  also be considered to contribute to                                                               
the likelihood of success.                                                                                                      
                                                                                                                                
9:04:33 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN pointed  out that the bidder  needs to know                                                               
how much each  criterion is worth.  Accordingly,  if a legislator                                                               
is  evaluating  the award,  he/she  must  also  know how  much  a                                                               
criterion is worth in order to assess the award.                                                                                
                                                                                                                                
COMMISSIONER GALVIN agreed that DOR  and DNR need to provide more                                                               
detail  and  information  on  the  objectivity  of  the  economic                                                               
evaluation.    More  information  is   also  needed  on  how  the                                                               
commissioners  will judge  how the  money will  be split  and the                                                               
provisions related to the likelihood of success.                                                                                
                                                                                                                                
REPRESENTATIVE  DAHLSTROM  also  requested clarification  of  the                                                               
evaluation criteria.   She then  recalled her  conversations with                                                               
oil industry  representatives who  are encouraged  to see  a true                                                               
commitment  of  money  from  the state.    The  state's  matching                                                               
contribution, she said, has garnered  positive reactions from the                                                               
industry.                                                                                                                       
                                                                                                                                
9:07:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON asked about a  contingency plan in the event                                                               
that the $300 million held by AHFC is not re-designated.                                                                        
                                                                                                                                
COMMISSIONER GALVIN advised the  committee that AGIA, if enacted,                                                               
requires funds  to be  authorized by the  legislature.   The $300                                                               
million  will  not   come  from  the  current   budget,  but  was                                                               
previously set aside for the development of the gas pipeline.                                                                   
                                                                                                                                
REPRESENTATIVE OLSON noted  that the money was put in  AHFC so it                                                               
could not be spent last year.                                                                                                   
                                                                                                                                
REPRESENTATIVE SAMUELS  asked how  the commissioners  will answer                                                               
questions from the potential bidders  on the $500 million, and if                                                               
the evaluation be open to the public.                                                                                           
                                                                                                                                
COMMISSIONER GALVIN  said that the  commissioners will  balance a                                                               
desire to provide  a level of expectation, in terms  of what type                                                               
of proposal is  going to win favor versus another,  but they will                                                               
not  create   weighted,  specified,  percentages  to   score  the                                                               
applications.                                                                                                                   
                                                                                                                                
9:11:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS questioned how  each of the applicants can                                                               
get exactly the  same answer to questions posed over  a period of                                                               
time and during different conversations.                                                                                        
                                                                                                                                
COMMISSIONER GALVIN relayed  that Representative Samuels' concern                                                               
is shared by  the commissioners.  At this  time, discussions with                                                               
potential applicants  are focused  on the  language in  the bill.                                                               
After its  passage, the interaction  with the applicants  and the                                                               
evaluation of  the applications will  be closely regulated.   The                                                               
Request  for  Application  (RFA) will  have  clarifying  language                                                               
regarding  the  evaluation criteria  and  there  will not  be  an                                                               
informal exchange  of information  between the  commissioners and                                                               
the applicants.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SAMUELS  recalled  that the  past  administration                                                               
maintained that the gas is not  stranded.  He also suggested that                                                               
because  the  state  is  taking   more  than  half  the  risk  of                                                               
developing the gas  pipeline, and the producers will  not have to                                                               
pay  the state's  money back  or provide  equity in  the project,                                                               
AGIA is very appealing to  the producers.  Representative Samuels                                                               
reminded  the committee  that  an amendment  to  last year's  gas                                                               
pipeline bill  required each builder  to deposit $300  million in                                                               
escrow until a  successful open season occurred.   There was also                                                               
the potential of a penalty for not meeting a certain deadline.                                                                  
                                                                                                                                
REPRESENTATIVE DAHLSTROM  stressed that the  successful applicant                                                               
may not request any state money.                                                                                                
                                                                                                                                
9:15:23 AM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN emphasized  that the state is  granting up to                                                               
$500 million as an inducement  to the applicants.  The applicants                                                               
may forego requesting state funds  to strengthen their proposals.                                                               
In any  event, AGIA's  purpose is to  encourage the  producers to                                                               
submit  proposals to  build the  pipeline, or  to participate  as                                                               
shippers.  The  state has a vested interest in  seeing the Alaska                                                               
gas  pipeline  project  proceed, unlike  producers  and  pipeline                                                               
companies who can use their  assets for other projects around the                                                               
world.   Commissioner Galvin  said that the  bill is  designed to                                                               
create a robust competition for  construction of the pipeline and                                                               
increase  the  opportunities  for  the ultimate  success  of  the                                                               
project.  In  addition, AGIA responds to the  oil industry's wish                                                               
to see a financial commitment on the part of the state.                                                                         
                                                                                                                                
9:18:32 AM                                                                                                                    
                                                                                                                                
MS.  DAVIS added  that the  competitive process  between the  oil                                                               
companies  for  construction  of  the gas  pipeline  has  already                                                               
begun.   At the same  time, the state  wants to keep  the process                                                               
open  to  all applicants,  and  not  begin eliminating  potential                                                               
applicants for any reason.   After the Request for Proposal (RFP)                                                               
process and  open season, the  state will invite  competition for                                                               
the most  favorable terms for  the state.  Applicants,  she said,                                                               
will be cognizant  of the competition for  post-open season state                                                               
funds.                                                                                                                          
                                                                                                                                
REPRESENTATIVE SAMUELS  reiterated that  legislators do  not know                                                               
how  the criteria  will be  weighted so  they will  be unable  to                                                               
determine the impact  of the requested funds  on the application.                                                               
He remarked:                                                                                                                    
                                                                                                                                
     If  the 80  percent match  is equally  as important  as                                                                    
     just having  a headquarters  here ...  there is  a huge                                                                    
     discrepancy but the  bill doesn't say ...  where the 80                                                                    
     percent match  comes in.   So if somebody comes  in and                                                                    
     says "I don't want your  money, I'll spend my own money                                                                    
     and I'll  beat my competitors  that way" and  then they                                                                    
     don't beat their competitors....                                                                                           
                                                                                                                                
9:21:15 AM                                                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN  confirmed  that more  information  will  be                                                               
provided  on  how the  commissioners  will  apply the  evaluation                                                               
criteria and  how the  impact of  a successful,  or unsuccessful,                                                               
open season will be weighted.                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN  posed  three situations  to  Commissioner                                                               
Galvin for his analysis:  The  legislature does not fund the $500                                                               
million  grant;  the  legislature  gives  a  lesser  amount  than                                                               
requested; or the legislature requires some return of ownership.                                                                
                                                                                                                                
COMMISSIONER  GALVIN answered  that in  not funding,  or reducing                                                               
the amount of funding, the state  would be limiting the number of                                                               
potential applicants.   The state, he said,  must demonstrate its                                                               
commitment to the ultimate success  of the project.  Commissioner                                                               
Galvin explained that $500 million  is about one-half of the cost                                                               
of acquiring  a FERC  certificate and  an amount  that recognizes                                                               
the  potential risk  of this  project.   The application  process                                                               
also provides the  licensee an opportunity to propose  how to put                                                               
this money toward the process.   Regarding state ownership of the                                                               
pipeline,  he  said  that  a guaranteed  return  on  the  state's                                                               
investment  will  eliminate  the  state's  risk.    In  order  to                                                               
demonstrate  the   state's  interest  in  the   project,  and  to                                                               
encourage  participation in  the application  process, the  state                                                               
needs to  accept some risk in  the initial phase.   The state, he                                                               
noted,  receives  significant  value   back  for  its  investment                                                               
through more  participation, lower tariffs, expansion,  and other                                                               
provisions.                                                                                                                     
                                                                                                                                
9:26:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN acknowledged that  each of these situations                                                               
will result in less participation.                                                                                              
                                                                                                                                
COMMISSIONER GALVIN said yes.                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN said:                                                                                                     
                                                                                                                                
     If  the most  important element  of getting  a gas  ...                                                                    
     pipeline built  is to get  the producers to  commit gas                                                                    
     at  the  open  season,  so  that  the  project  can  be                                                                    
     financed,  why  aren't  we paying  the  producers  $500                                                                    
     million to  make that commitment?   Wouldn't that  be a                                                                    
     better investment of that money?                                                                                           
                                                                                                                                
COMMISSIONER GALVIN said:                                                                                                       
                                                                                                                                
     It  would, if  that  would  be enough.    But, ...  one                                                                    
     aspect  of  the  previous  contract  that  I  think  is                                                                    
     illustrative to that point is  that they put tremendous                                                                    
     value, much more that $500  million, onto that contract                                                                    
     and we didn't  get a commitment to do  much of anything                                                                    
     ... What  we're trying to  do is use that  $500 million                                                                    
     to get us something that may get them to commit...                                                                         
                                                                                                                                
REPRESENTATIVE DAHLSTROM asked if Commissioner Galvin is willing                                                                
to work with legislators on amending the evaluation criteria.                                                                   
                                                                                                                                
COMMISSIONER GALVIN said yes.                                                                                                   
                                                                                                                                
9:28:50 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS remarked:                                                                                                 
                                                                                                                                
     The fact  is that the  two commodities that are  on the                                                                    
     table  are  time  and  money.     That's  what  I  hear                                                                    
     throughout  this committee.  ...  One  of the  greatest                                                                    
     failings, apart  from fiscal certainty on  oil and gas,                                                                    
     on  the Governor  Murkowski's proposal,  the other  one                                                                    
     was the  uncertainty of the  benefit of time  spent and                                                                    
     so  what  I appreciate  about  this  proposal is  that,                                                                    
     although I  have my own reservations  about spending so                                                                    
     much  money, if  it narrows  down and  makes the  scope                                                                    
     more finite for  the time component, that to  me is the                                                                    
     most helpful element.  .... I like that  fact that this                                                                    
     thing  is  time  triggered.     And  that  we  are  ...                                                                    
     accelerating  or expediting  this  process because  the                                                                    
     loss  to  the state  for  each  year  of delay  are  so                                                                    
     significant.   We certainly studied this.  ... The cost                                                                    
     component  in  there,  that's  the  trade-off  for  the                                                                    
     certainty  of time,  is the  expenditure,  and I  think                                                                    
     that that's something  that those of us  in the private                                                                    
     sector are very accustomed to.                                                                                             
                                                                                                                                
REPRESENTATIVE SAMUELS said:                                                                                                    
                                                                                                                                
     Failed open season, we actually  design a pipeline, get                                                                    
     a FERC certificate.   Second failed open  season, now I                                                                    
     have  a  five year  contract  with  my partner  to  get                                                                    
     financing.  Now  I'm at 11 years right now,  if you add                                                                    
     a  second failed  open season  ...  Second failed  open                                                                    
     season ...  Time is  of the  essence. ...  I understand                                                                    
     this process, you're  right, it gets to  an open season                                                                    
     36 months, somebody's going to  win the license, you're                                                                    
     going to  get to  an open  season, but,  at the  end of                                                                    
     day, if  you have a  failed open season the  first time                                                                    
     and now  ... the  worst case  scenario, we've  spent 80                                                                    
     percent of  the money,  we're halfway in  so we  have a                                                                    
     partner to  the open  season and we  had 80  percent of                                                                    
     the money to the certificate,  and now we have a failed                                                                    
     open season.   Now we are  $500 million into it  and we                                                                    
     now have a partner that  we're tied to for another five                                                                    
     years, we have no gas. ... What the plan is ... other                                                                      
     than suing to take Prudhoe Bay away....                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN relayed  that  different  factors will  come                                                               
into play  after the passage of  time.  He pointed  out that AGIA                                                               
provides the  opportunity for a  mutual, or  unilateral, decision                                                               
to abandon  the project.   If sometime  during the process  it is                                                               
recognized that  a licensee or  project is not going  to succeed,                                                               
the state will have the authority to terminate the contract.                                                                    
                                                                                                                                
9:36:26 AM                                                                                                                    
                                                                                                                                
CHAIR KOHRING  announced the formation of  a subcommittee chaired                                                               
by  Representative Dahlstrom,  and consisting  of Representatives                                                               
Ramras, Doogan, and Samuels.                                                                                                    
                                                                                                                                
MS.  DAVIS   continued  her  analysis  by   noting  that  Section                                                               
43.90.120  is titled  "Abandonment  of  project."   Subsection(a)                                                               
relates that  if the  commissioners and  licensee agree  that the                                                               
project is  uneconomic, then the  inducements end, and  there are                                                               
no  further obligations  except on  the part  of the  licensee to                                                               
complete  an audit.   If  the commissioners  and licensee  do not                                                               
agree that  the project  is uneconomic,  then an  impartial third                                                               
party will make the final determination.                                                                                        
                                                                                                                                
REPRESENTATIVE SAMUELS stated that  the terms of abandonment only                                                               
address the  "uneconomics" of the  project.  If the  licensee has                                                               
decided  to abandon  the  project, and  the  arbitrator rules  in                                                               
favor of  the state, can the  licensee be forced to  continue the                                                               
project, he asked.                                                                                                              
                                                                                                                                
MS. DAVIS responded  that in this instance, the  licensee will be                                                               
in violation of  the license.  Section 43.90.240  gives the state                                                               
authority to revoke the license,  recoup state money, and release                                                               
the licensee.                                                                                                                   
                                                                                                                                
COMMISSIONER   GALVIN   added   that   AGIA   also   allows   the                                                               
commissioners to seek  remedies and damages allowable  by law and                                                               
that may be due after the breach of the terms of the license.                                                                   
                                                                                                                                
9:41:51 AM                                                                                                                    
                                                                                                                                
MS.  DAVIS  continued  to  say  that  the  abandonment  provision                                                               
establishes that  if the  state makes a  payment in  violation of                                                               
the  licensed  project  assurances,  this would  also  result  in                                                               
abandonment of the project.                                                                                                     
                                                                                                                                
REPRESENTATIVE  DOOGAN requested  the definition  of "uneconomic"                                                               
as used in AGIA.                                                                                                                
                                                                                                                                
MS. DAVIS  said that  she believes  that commercial  parties will                                                               
have  their  own  definitions  to  use  during  negotiations.  An                                                               
impartial third party would bring  to bear commercial or industry                                                               
standards.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DOOGAN observed that the  lack of a definition may                                                               
cause problems in the future.                                                                                                   
                                                                                                                                
MS. DAVIS cautioned that uneconomic  needs to be defined from the                                                               
state's perspective.                                                                                                            
                                                                                                                                
REPRESENTATIVE DOOGAN urged  Ms Davis to prepare  a definition of                                                               
uneconomic for the committee's review.                                                                                          
                                                                                                                                
REPRESENTATIVE RAMRAS remarked:                                                                                                 
                                                                                                                                
     A  12  percent  or  14  percent return  on  a  pipe  is                                                                    
     terribly  uneconomic for  Conoco,  BP, or  Exxon.   But                                                                    
     it's  remarkably economic  for  Mid  America or  Trans-                                                                    
     Canada.  ... It  means  different  things to  different                                                                    
     companies  that have  different capital  structures and                                                                    
     require   different   returns    on   investment.   ...                                                                    
     Presumably, every  potential licensee  ... is  going to                                                                    
     be a  publicly traded company,  and that's, I  think, a                                                                    
     critical piece of this to bear in mind....                                                                                 
                                                                                                                                
9:46:44 AM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN  agreed that  clarification on this  issue is                                                               
needed.   He advised that the  question of whether the  bill sets                                                               
up  the  economic  standards, or  whether  the  companies  should                                                               
establish  economic standards  in their  proposals, has  not been                                                               
answered.                                                                                                                       
                                                                                                                                
REPRESENTATIVE SAMUELS  warned that  defining uneconomic  will be                                                               
difficult.   He  added that,  after an  unsuccessful second  open                                                               
season, the  project will  be uneconomic for  everyone.   He then                                                               
asked:                                                                                                                          
                                                                                                                                
     What are  you going  to do  when Trans-Canada  comes up                                                                    
     and  says it's  uneconomic  because I  think we're  not                                                                    
     going to  get the gas?   And  you're going to  go, well                                                                    
     you can  get out, but I'm  going to sue you  for all of                                                                    
     the monies.   Or you can  get out and I'm  going to sue                                                                    
     you for damages, or you must continue with me on this                                                                      
     partnership. ... Your partner wants out ....                                                                               
                                                                                                                                
9:48:54 AM                                                                                                                    
                                                                                                                                
MS. DAVIS assured  the committee that a  definition of uneconomic                                                               
can be  stated from the perspective  of the state, and  a company                                                               
will then  base its policy  decisions on the  definition included                                                               
in the bill.  She added  that, an open season can be unsuccessful                                                               
for legitimate commercial reasons, or  perhaps, not.  The state's                                                               
perspective  is  what will  provide  the  greatest certainty  and                                                               
security  for investment  in the  project,  from the  applicant's                                                               
point of view.                                                                                                                  
                                                                                                                                
COMMISSIONER GALVIN explained that  the proposals for the project                                                               
will  include  contingency  plans  for  certain  events  like  an                                                               
unsuccessful open  season.   The state  will expect  a commitment                                                               
for  action   dependent  upon   anticipated  variables   and  the                                                               
companies  are expected  to  have made  plans as  a  part of  the                                                               
application.   However, the  state will need  to decide  what its                                                               
reaction will be if a FERC  certificate is issued and there is an                                                               
unsuccessful open season.                                                                                                       
                                                                                                                                
9:53:14 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN  agreed  that   drawing  a  definition  of                                                               
uneconomic is  difficult, but during  the project it  is possible                                                               
for the licensee  to require a change in  the previously arranged                                                               
terms.  He  recommended further discussion to  decide whether the                                                               
bill is better with or without the definition.                                                                                  
                                                                                                                                
REPRESENTATIVE DAHLSTROM  suggested that some questions  may need                                                               
to be discussed in executive session.                                                                                           
                                                                                                                                
MS.  DAVIS continued  her analysis  of Section  43.90.130, titled                                                               
"Request  for  applications for  the  license."   Subsection  (a)                                                               
requires the  commissioners of DNR  and DOR to issue  the request                                                               
for  application within  three months  of the  effective date  of                                                               
this  chapter.   Subsection (c)  declares that  the requests  for                                                               
application  are  exempt from  the  state's  procurement code  in                                                               
order to  accelerate the application process.   Section 43.90.140                                                               
relates  to  the  application  requirements,  which  details  the                                                               
request  for application  (RFA)  process.   Information that  the                                                               
commissioners,  the legislature,  and the  public will  need from                                                               
the applicant  includes filing deadlines, a  detailed description                                                               
of  the gas  pipeline  route,  the design  of  the receiving  and                                                               
delivery  points,   analysis  of   the  economic   and  technical                                                               
viability of  the project, an  economic and technical  work plan,                                                               
and  the timeline  and budget  for  developing the  project.   In                                                               
addition,   if  the   proposed  route   passes  through   Canada,                                                               
information must  be included regarding  international rights-of-                                                               
way and licensing.  Ms. Davis  noted that if the proposed project                                                               
includes  the   transportation,  storage,  and   liquefaction  of                                                               
natural  gas   (LNG),  details   of  the   additional  components                                                               
necessary for  a LNG  plant are required.   The  application must                                                               
also include a schedule for  holding the initial open season that                                                               
confirms to FERC regulations.                                                                                                   
                                                                                                                                
9:58:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS  asked:  "Why  wouldn't the  producers come                                                               
to an open season?"                                                                                                             
                                                                                                                                
MS. DAVIS  responded that uncertainty over  the proposed shipping                                                               
tariffs  is one  factor  that  may contribute  to  a failed  open                                                               
season.  Shippers  must negotiate for the  conditions attached to                                                               
their  commitments   to  buy  shipping  capacities.     Favorable                                                               
shipping  rates will  enable a  shipper to  allocate the  risk of                                                               
cost overruns  between itself and  the pipeline companies.   If a                                                               
shipper does not want  to ship gas, it may be  because it has not                                                               
been able to  negotiate favorable tariff rates.   Ms. Davis noted                                                               
that the  second factor  may be the  shippers' concern  about the                                                               
future market price for the sale of the gas.                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS suggested  that the  subcommittee look  at                                                               
tariffs in addition to the evaluation criteria.                                                                                 
                                                                                                                                
MS. DAVIS expressed her belief  that private enterprise can often                                                               
solve  its own  problems.   In addition,  in AGIA,  there is  the                                                               
opportunity for a shipper to  realize benefits from participating                                                               
in  the initial  open season.   Therefore,  the pipeline  company                                                               
will  benefit from  timing the  open season  to the  advantage of                                                               
both entities.   A level of coordination  and cooperation between                                                               
the producers and the selected  pipeline company is expected, she                                                               
said.                                                                                                                           
                                                                                                                                
10:02:27 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SAMUELS remarked:                                                                                                
                                                                                                                                
     I don't  think the state,  on a project this  size, is,                                                                    
     Trans-Canada or  Enbridge or Mid America  big enough to                                                                    
     essentially  backstop  the  tariff? ...  Are  they  big                                                                    
     enough,  as  a  corporate  entity,  to  backstop  large                                                                    
     tariff increases?   And  when the  original legislation                                                                    
     was going  through Congress, there was  talk by various                                                                    
     players, you know, and industry  disagrees on what they                                                                    
     need  or don't  need,  but the  only  one actually  big                                                                    
     enough would  be the United  States government.  ... So                                                                    
     instead of  having the tariff  subsidy they put  in the                                                                    
     loan  guarantees.  ...  Are some  of  these  relatively                                                                    
     small  companies,  which  are  huge  corporations,  big                                                                    
     enough to take on that additional risk?                                                                                    
                                                                                                                                
COMMISSIONER GALVIN  informed the committee that  the $35 million                                                               
to  $45 million  estimate described  earlier in  the presentation                                                               
represents  value  to the  state,  not  the  cost to  a  pipeline                                                               
company.  The ultimate question  is whether the risk-sharing is a                                                               
legitimate expectation,  or whether  the costs  will be  borne by                                                               
the  producers.   He  suggested  that  more information  on  this                                                               
subject will  be coming from  testimony on AGIA by  the industry.                                                               
Commissioner  Galvin  also  noted  that  the  potential  problems                                                               
associated with a failed open  season, after the FERC certificate                                                               
is issued, may lead to intervention by Congress.                                                                                
                                                                                                                                
10:07:20 AM                                                                                                                   
                                                                                                                                
MS.   DAVIS  continued   her   analysis   of  Section   43.90.140                                                               
subparagraph (B), regarding the  FERC certification process.  The                                                               
applicants  are required  to use  FERC pre-filing  procedures and                                                               
apply for  the certificate of  public convenience  and necessity.                                                               
If  the  project  requires   certification  from  the  Regulatory                                                               
Commission  of  Alaska (RCA),  the  time  commitments remain  the                                                               
same.   The applicant is  required, after the first  binding open                                                               
season,  to  commit  to soliciting  applications  to  expand  the                                                               
pipeline every  two years.   Expanding the project will  be based                                                               
on   reasonable  engineering   increments  and   by  commercially                                                               
reasonable terms.  Expansion will  also occur with the commitment                                                               
of  rolled-in rates  that are  not to  exceed 15  percent of  the                                                               
initial tariff rates.                                                                                                           
                                                                                                                                
REPRESENTATIVE DOOGAN asked:   "How did we get to  the 15 percent                                                               
figure?"                                                                                                                        
                                                                                                                                
MS. DAVIS replied that the  15 percent was derived from analyst's                                                               
determination of  the typical costs  of expansion.   According to                                                               
the  scope  of  the  expansion  on the  North  Slope,  this  rate                                                               
delivers the majority of the value.                                                                                             
                                                                                                                                
MS. DAVIS returned  to the application requirements  of AGIA, and                                                               
said  that  the  applicant  is   prohibited  from  entering  into                                                               
negotiated  rate  agreements  that  by-pass  the  rolled-in  rate                                                               
requirements.    In  addition, the  applicant,  if  its  proposal                                                               
includes using an  existing gas treatment plant,  must also agree                                                               
to  include  the  value  of   the  gas  treatment  plant  in  the                                                               
calculation of the  tariff at the net book value.   The applicant                                                               
must specify the percentage of  the state's matching contribution                                                               
after the open  season, must ensure financing does  not exceed 70                                                               
percent debt, and demonstrate how  to handle cost overruns.  This                                                               
section  of  AGIA also  requires  that  the applicant  commit  to                                                               
designate five  delivery points with distance  sensitive rates to                                                               
delivery points within the state,  establish a local headquarters                                                               
for the project in the  state, and hire qualified local residents                                                               
to work on the project.                                                                                                         
                                                                                                                                
MS. DAVIS said  that Section 43.90.150 relates to  the process of                                                               
the   application  review.   The commissioners  will receive  the                                                               
applications and  reject any incomplete  applications.   They may                                                               
request additional information, if desired.                                                                                     
                                                                                                                                
10:12:41 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN  asked if all applicants  will be requested                                                               
to supply the same information.                                                                                                 
                                                                                                                                
MS. DAVIS  confirmed that,  even though  the projects  may differ                                                               
and  the types  of  information may  be  irrelevant, the  state's                                                               
intent is that all applicants will be treated equally.                                                                          
                                                                                                                                
REPRESENTATIVE  DOOGAN stated  that  two comparable  applications                                                               
would be required to provide identical information.                                                                             
                                                                                                                                
COMMISSIONER   GALVIN  said   that   the  intent   is  that   the                                                               
commissioners can request details  about a specific proposal when                                                               
necessary.  He  added that earlier in the  process, the timeframe                                                               
will allow  for full competition  with no  competitive advantage.                                                               
Later,  the questions  and additional  information  will be  made                                                               
public at the same time as the original application.                                                                            
                                                                                                                                
MS.  DAVIS added  that additional  pieces of  information can  be                                                               
requested from all of the applicants during the review process.                                                                 
                                                                                                                                
MS. DAVIS  relayed that Section 43.90.160  is titled "Proprietary                                                               
information  and trade  secrets."   An applicant  is required  to                                                               
identify and  demonstrate that information on  the application is                                                               
proprietary  or  a  trade  secret,  and  not  subject  to  public                                                               
disclosure.                                                                                                                     
                                                                                                                                
10:16:24 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN asked  how  an  applicant can  demonstrate                                                               
that information is proprietary.                                                                                                
                                                                                                                                
MS. DAVIS  explained that the  company would need  to demonstrate                                                               
that  the information  is non-public,  unavailable, protected  by                                                               
other laws, or will, if disclosed,  put the company at a material                                                               
disadvantage.                                                                                                                   
                                                                                                                                
MS.  DAVIS   informed  the   committee  that   Section  43.90.170                                                               
identifies the  application evaluation criteria.   The evaluation                                                               
criteria  includes:  timing,  the management  of  cost  overruns,                                                               
transportation   rates,   the   initial  design   capacity,   the                                                               
percentage   of   the    state's   matching   contribution,   the                                                               
reasonableness,  specificity and  feasibility of  the work  plan,                                                               
the timeline  and budget, and the  applicant's financial records.                                                               
Section 43.990.180, she said, relates  to the application notice,                                                               
review, and comments.  After  the applications are complete, they                                                               
will be open for public comment for a 60-day period.                                                                            
                                                                                                                                
REPRESENTATIVE DOOGAN  returned the committee's attention  to the                                                               
application  criteria  paragraph  (7)  and asked  how  an  unpaid                                                               
federal   judgment  would   affect  an   applicant's  record   of                                                               
performance.                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN  indicated that this provision  is a standard                                                               
clause  to  ensure  that  the   commissioners  are  able  to  use                                                               
information to approve or reject an application.                                                                                
                                                                                                                                
REPRESENTATIVE  DOOGAN  said:    "So   this  is  a  term  of  art                                                               
someplace.   And there's either  a definition or history  to tell                                                               
us  the specifics  of how  we  would be  defining, say,  business                                                               
ethics in this?"                                                                                                                
                                                                                                                                
MS. DAVIS said that is correct.                                                                                                 
                                                                                                                                
REPRESENTATIVE  DAHLSTROM recommended  that application  criteria                                                               
paragraph (7) also be discussed by the subcommittee.                                                                            
                                                                                                                                
10:21:10 AM                                                                                                                   
                                                                                                                                
MS. DAVIS  continued her analysis  of Section  43.90.190, "Notice                                                               
to  the  legislature  of  intent  to  issue  license;  denial  of                                                               
license."  She  said that, once the commissioners  decide that an                                                               
application  meets AGIA's  criteria and  requirements, they  will                                                               
issue a determination of findings  and publish a notice of intent                                                               
to issue a  license with the written findings.   This notice will                                                               
be forwarded  to the legislature  for action.   The commissioners                                                               
also have the  right to issue a written finding  that none of the                                                               
applications meet  the criteria of  the bill.   Section 43.90.200                                                               
relates  to  legislative action  regarding  the  issuance of  the                                                               
license.  Ms.  Davis noted that within 30 days  of the receipt of                                                               
the commissioners finding, the legislature  can disapprove of the                                                               
issuance of the license by a joint resolution.                                                                                  
                                                                                                                                
CHAIR KOHRING  asked if the  disapproval is by resolution  of the                                                               
legislature.                                                                                                                    
                                                                                                                                
MS. DAVIS answered that the  notice of intent to disapprove would                                                               
be a joint resolution of the legislature.                                                                                       
                                                                                                                                
CHAIR KOHRING  asked whether the  joint resolution  would prevail                                                               
if  the  administration  did  not  accept  the  decision  of  the                                                               
legislature.                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN said  that the intent is  that the resolution                                                               
by  the  legislature  can  not be  overturned  by  the  governor.                                                               
However, he  recommended that  this question  be referred  to the                                                               
Department of Law.                                                                                                              
                                                                                                                                
REPRESENTATIVE OLSON  asked:  "What  happens if we receive  it in                                                               
the middle of the first or second special session?"                                                                             
                                                                                                                                
10:23:36 AM                                                                                                                   
                                                                                                                                
MS. DAVIS assured the committee that  the 30 day time limit could                                                               
be accommodated within a special session.                                                                                       
                                                                                                                                
CHAIR  KOHRING asked  what would  happen  if the  receipt of  the                                                               
finding occurs at the end of a regular session.                                                                                 
                                                                                                                                
MS. DAVIS  indicated that that  situation will require  a special                                                               
session.                                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN  added that  the resolution is  not required,                                                               
and would  only be  necessary if the  legislature decides  to act                                                               
and overrule the decision of the commissioners.                                                                                 
                                                                                                                                
MS. DAVIS  noted that Section 43.90.210  relates to certification                                                               
by  regulatory authority  and project  sanction.   A licensee  is                                                               
required to  accept the FERC  or RCA certificate if  awarded, and                                                               
to  proceed with  the project  within one  year, if  financing is                                                               
approved, or obtain  financing with five years.   If the licensee                                                               
does not sanction  the project at this time, it  must abandon the                                                               
project  and transfer  the certificates,  project data,  etc., to                                                               
the state, at no cost to the state.                                                                                             
                                                                                                                                
10:25:54 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  DOOGAN asked:   "Can  you explain  to me  why the                                                               
bill imagines that  the license might be awarded  to somebody who                                                               
doesn't have the financing?"                                                                                                    
                                                                                                                                
MS.  DAVIS answered  that FERC  has  the authority  to issue  the                                                               
license notwithstanding the credit worthiness of the applicant.                                                                 
                                                                                                                                
COMMISSIONER  GALVIN urged  the committee  to recognize  that the                                                               
only  entities that  can initially  guarantee  financing are  the                                                               
large  producers.   Through AGIA,  at some  point the  state must                                                               
look to the  licensee for proof of specific credit  support.  The                                                               
state is not  obligated to wait for the entire  five years.  This                                                               
provision, he  said, will alert  the applicant to the  time limit                                                               
for  obtaining the  financing  and commitments  of  gas from  the                                                               
producers.                                                                                                                      
                                                                                                                                
CHAIR KOHRING  recalled that the Alaska  Railroad Corporation has                                                               
tax exempt, low interest bonds available to companies.                                                                          
                                                                                                                                
COMMISSIONER  GALVIN  said  he was  unfamiliar  with  the  Alaska                                                               
Railroad Corporation bonds, but  that there are opportunities for                                                               
state,  federal,  consumer  groups,  utilities,  and  others,  to                                                               
participate in financing the project.                                                                                           
                                                                                                                                
10:30:50 AM                                                                                                                   
                                                                                                                                
MS. DAVIS  informed the committee that  Section 43.90.220 relates                                                               
to the  amendment or modification  of project plans.   Changes to                                                               
the plan  can be approved  through the commissioners if  they are                                                               
the result  of circumstances outside  the licensee's  control and                                                               
were not reasonably foreseeable.   However, these changes can not                                                               
diminish  the  value  to  the  state of  the  project.    Section                                                               
43.90.230 is relevant to records,  reports, conditions, and audit                                                               
provisions.   Subsection  (a) requires  the licensee  to maintain                                                               
records for audit purposes.   In addition, the commissioners will                                                               
have a representative  present at all meetings  of the licensee's                                                               
governing body  and equity  holders that  relate to  the project.                                                               
In  addition   the  representative   will  have  access   to  all                                                               
information given  to equity holders.   Section 43.90.240 defines                                                               
license violations and  damages.  Ms. Davis said  that a licensee                                                               
is in violation  of its license if it uses  state money for other                                                               
purposes, departs from  the approved plan, or  violates any terms                                                               
of AGIA,  or violates  the terms of  the license.   Commissioners                                                               
will give  written notice of the  violation and allow 90  days to                                                               
resolve the violation.   If the violation is  confirmed the state                                                               
has rights to recover.                                                                                                          
                                                                                                                                
10:33:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN asked whether the  state will take over all                                                               
the work that had been done  on the existing project, in addition                                                               
to the license.                                                                                                                 
                                                                                                                                
MS. DAVIS answered yes.                                                                                                         
                                                                                                                                
REPRESENTATIVE  DOOGAN  further  asked whether  the  license  and                                                               
project could then be transferred to another licensee.                                                                          
                                                                                                                                
MS.  DAVIS answered  yes.   She  then continued  her analysis  of                                                               
Article 3,  that focuses on  shippers and the  inducement portion                                                               
of  AGIA.   Section  43.90.300  outlines  the qualifications  for                                                               
receiving   resource  inducements.      Ms.   Davis  noted   that                                                               
inducements  are  acquired  by obtaining  a  firm  transportation                                                               
capacity at the  first binding open season.   Royalty inducements                                                               
will be based  on regulations written by the  commissioner of DNR                                                               
and will establish the fair  market value for the state's royalty                                                               
gas and to  exercise the state's right to  switch between royalty                                                               
gas  in-value and  in-kind.    As a  condition  to receiving  the                                                               
royalty  inducements  the  shipper  must  agree  not  to  contest                                                               
rolled-in  rates.    The  commissioner of  DNR  will  review  the                                                               
regulations every  two years.   A  shipper has  the right  to opt                                                               
into these benefits  if desired.  Section  43.90.320 outlines the                                                               
gas production  tax exemption.   The intent of this  exemption is                                                               
that by contract,  a shipper can exempt the amount  that is equal                                                               
to the difference  between its gas production  tax obligation and                                                               
the tax  that was  in effect  at the  first binding  open season.                                                               
This benefit continues for the  first ten years of the commercial                                                               
operation of the pipeline.                                                                                                      
                                                                                                                                
10:36:21 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN asked what the  value of this tax exemption                                                               
will be to the producers.                                                                                                       
                                                                                                                                
MS.  DAVIS explained  that  if  there is  no  change  in the  tax                                                               
structure,  the value  is  zero.   However, if  the  tax rate  is                                                               
increased in the future, the value will increase also.                                                                          
                                                                                                                                
REPRESENTATIVE  DOOGAN  questioned  whether   the  value  to  the                                                               
producers can be calculated at different tax rates.                                                                             
                                                                                                                                
COMMISSIONER GALVIN  offered to  provide the  committee estimates                                                               
of  tax rate  changes.   He  said  that the  models  will give  a                                                               
perception of risk  on the part of the producers  by limiting the                                                               
uncertainty of the state's future tax  rate.  The intent is to be                                                               
responsive to  requests from the producers.   Commissioner Galvin                                                               
opined  that Alaska  is a  stable  tax regime,  and reminded  the                                                               
committee  that   the  tax   freeze  will   need  to   survive  a                                                               
constitutional challenge.                                                                                                       
                                                                                                                                
REPRESENTATIVE DOOGAN asked:                                                                                                    
                                                                                                                                
     If  the tax  rate  right  now, is,  I  think it's  22.5                                                                    
     percent on  gas, if, how  much, making  the assumptions                                                                    
     that  you have  already  made in  your presentation  on                                                                    
     AGIA, for the kind of  pipeline you're building and the                                                                    
     ... rate at which gas can  be passed through it and all                                                                    
     the  rest  of that,  how  much  would one  percent  ...                                                                    
     increase or decrease, in that tax be worth?                                                                                
                                                                                                                                
COMMISSIONER  GALVIN indicated  that  that  information would  be                                                               
provided to the committee.                                                                                                      
                                                                                                                                
MS. DAVIS  advised the committee  that Section  43.90.330 creates                                                               
the position of the AGIA  coordinator, which is an inducement for                                                               
both the  pipeline construction company  and the shippers.   This                                                               
position will  coordinate the activities  of the  state agencies,                                                               
assist  with the  compliance  of the  requirements  of AGIA,  and                                                               
coordinate with  the federal coordinator.   The  coordinator will                                                               
focus  on  actions  taken  by  state  agencies  relating  to  the                                                               
project.                                                                                                                        
                                                                                                                                
10:41:41 AM                                                                                                                   
                                                                                                                                
CHAIR KOHRING  asked whether the  coordinator will  be authorized                                                               
to hire additional individuals to support this position.                                                                        
                                                                                                                                
MS.  DAVIS,  responding  to  questions,   stated  that  the  AGIA                                                               
coordinator will  be a  single position,  serving until  one year                                                               
after  the  operation   of  the  pipeline  begins,   and  at  the                                                               
discretion of the governor.                                                                                                     
                                                                                                                                
[HB 177 was held in committee]                                                                                                  
                                                                                                                                
10:45:00 AM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at 10:45                                                                 
p.m.                                                                                                                            
                                                                                                                                

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