Legislature(2007 - 2008)BARNES 124

03/20/2007 03:00 PM OIL & GAS


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03:06:19 PM Start
03:06:42 PM HB177
05:00:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         March 20, 2007                                                                                         
                           3:06 p.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 Carl Gatto                                                                                                       
Representative David Guttenberg                                                                                                 
Representative Craig Johnson                                                                                                    
                                                                                                                                
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                                                                             
03/19/07       (H)       Heard & Held                                                                                           
03/19/07       (H)       MINUTE(O&G)                                                                                            
03/20/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARCIA DAVIS, Deputy Commissioner                                                                                               
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Presented portions of HB 177 and answered                                                                   
questions.                                                                                                                      
                                                                                                                                
PATRICK GALVIN, Commissioner                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented portions of HB 177 and answered                                                                  
questions.                                                                                                                      
                                                                                                                                
BONNIE HARRIS, Senior Assistant Attorney General                                                                                
Oil, Gas & Mining Section                                                                                                       
Department of Law (DOL)                                                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions on HB 177.                                                                              
                                                                                                                                
TOM IRWIN, Commissioner                                                                                                         
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Responded to questions on HB 177.                                                                          
                                                                                                                                
DON BULLOCK, Attorney                                                                                                           
Legislative Legal Counsel                                                                                                       
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
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  3:06:19 PM.   Present  at the  call to                                                             
order were Representatives Kawasaki,  Olson, Samuels, Doogan, and                                                               
Kohring.   Representatives  Dahlstrom and  Ramras arrived  as the                                                               
meeting was in progress.   Representatives Gatto, Guttenberg, and                                                               
Johnson were also present.                                                                                                      
                                                                                                                                
3:06:42 PM                                                                                                                    
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
3:07:09 PM                                                                                                                    
                                                                                                                                
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."                                                                                               
                                                                                                                                
MARCIA DAVIS,  Deputy Commissioner, Department of  Revenue (DOR),                                                               
continued   her  sectional   analysis  of   the  Alaska   Gasline                                                               
Inducement Act  (AGIA).  She  explained that Section  330 directs                                                               
the  governor   to  appoint  an   AGIA  coordinator   to  oversee                                                               
coordination  of  state  agencies  involved in  the  project,  to                                                               
ensure compliance by state agencies  with the provisions of AGIA,                                                               
and to  coordinate with  the federal  coordinator of  natural gas                                                               
projects in  the state.   This coordinator shall serve  until one                                                               
year after the gas pipeline  commences commercial operation.  She                                                               
stated that this  language is modeled after federal  law and that                                                               
the coordinator answers directly to the governor.                                                                               
                                                                                                                                
3:10:13 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  explained that  Section 340  is modeled  after federal                                                               
law  and   outlines  requirements  imposed  on   state  agencies.                                                               
Essentially,  this  provision  requires expeditious  handling  of                                                               
permits  and prohibits  inclusion  of any  discretionary term  or                                                               
condition that is not required by state law.                                                                                    
                                                                                                                                
MS.  DAVIS  explained  that Section  400  provides  a  procedural                                                               
mechanism to account for matching  contributions for the pipeline                                                               
inducement  fund.   Section 410  authorizes the  commissioners of                                                               
DOR and DNR to adopt regulations to implement AGIA.                                                                             
                                                                                                                                
3:11:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS expressed  concern  with the  possibility                                                               
that  statutory changes  may affect  the  regulatory scheme,  and                                                               
referenced   prior   legislative  changes   regarding   qualified                                                               
expenditures for the production profits tax (PPT).                                                                              
                                                                                                                                
MS.  DAVIS replied  that qualified  expenditures  are defined  in                                                               
AGIA and  will be incorporated  into the license,  therefore will                                                               
have  a  contractual  basis.    That  will  give  that  provision                                                               
constitutional protection, she explained.                                                                                       
                                                                                                                                
REPRESENTATIVE  DOOGAN asked  whether  the matching  contribution                                                               
fund is a non-lapsing operating budget fund.                                                                                    
                                                                                                                                
PATRICK  GALVIN, Commissioner,  Department of  Revenue, explained                                                               
that the  fund is not a  capital fund, but is  a non-lapsing fund                                                               
to be used for purposes established under AGIA.                                                                                 
                                                                                                                                
REPRESENTATIVE  DOOGAN  queried  about the  constitutionality  of                                                               
this provision.                                                                                                                 
                                                                                                                                
BONNIE  HARRIS, Senior  Assistant  Attorney General,  Oil, Gas  &                                                               
Mining Section,  Department of  Law (DOL),  opined that  the fund                                                               
proposed by AS  43.90.400 is not unusual and is  similar to other                                                               
funds for other agencies.                                                                                                       
                                                                                                                                
3:16:11 PM                                                                                                                    
                                                                                                                                
MS.  DAVIS  explained that  Section  420  contains a  statute  of                                                               
limitations  provision  that  requires lawsuits  challenging  the                                                               
constitutionality of  AGIA to be  filed 90  days from the  date a                                                               
license  is issued.   Section  430 sets  forth the  procedure and                                                               
rate to determine interest due  the state on delinquent payments.                                                               
Section  440, the  license  project  assurance section,  provides                                                               
fiscal  stability  to the  pipeline  builders.   Once  the  state                                                               
awards a  license and construction  begins, the state  is limited                                                               
in its  ability to  extend offers  to other  competing proposals.                                                               
This provision contains  a section which would  require the state                                                               
to  reimburse the  original  lessee  for up  to  three times  its                                                               
reasonable development  costs should  the state  extend favorable                                                               
treatment to a competitor, she  explained.  She indicated that if                                                               
the state  was to consider a  change in the project  lessee, this                                                               
provision  contemplates legislative  evaluation  of the  economic                                                               
benefits and costs attributable  to extending favorable treatment                                                               
to a party other than the original lessee.                                                                                      
                                                                                                                                
3:19:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GUTTENBERG   asked   whether  the   statute   of                                                               
limitations contained in Section 420 is authorized by law.                                                                      
                                                                                                                                
MS. HARRIS  opined that  it is defensible  to put  limitations on                                                               
rights of action, but that it  is uncertain whether a court would                                                               
sustain  a limitation  on  the right  to  bring a  constitutional                                                               
action.                                                                                                                         
                                                                                                                                
3:20:44 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  explained that  the DOR  anticipates some  fluidity in                                                               
the project participants over the  life of the project, therefore                                                               
Section 450  allows transfers of licenses  in certain situations.                                                               
License  transfers must  be approved  by  the commissioners,  and                                                               
transfer of royalty inducements is  allowed in conjunction with a                                                               
transfer of  all the licensee's other  assets.  Section 460  is a                                                               
fairly "boiler plate" provision on conflicting laws.                                                                            
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked  whether  there  were  discussions                                                               
about the possibility  of allowing project proposals  to grow and                                                               
develop before  a final exclusive  lessee is determined so  as to                                                               
allow a better examination of which project is preferred.                                                                       
                                                                                                                                
COMMISSIONER GALVIN  replied that initially the  state considered                                                               
a  different  method,  but  explained  that  the  state  received                                                               
feedback that interested parties  wanted assurance that the state                                                               
would go with one project.   He noted that there were concerns by                                                               
interested parties that a party  could spend time and money, only                                                               
to have the  state choose another licensee later  in the process.                                                               
He  indicated  DOR  had  considered a  staged  process,  but  had                                                               
determined to proceed as set out in AGIA.                                                                                       
                                                                                                                                
3:26:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN  observed that  the license will  become an                                                               
economic asset since it is transferable under Section 450.                                                                      
                                                                                                                                
COMMISSIONER GALVIN explained that  as the project moves forward,                                                               
the commercial  dynamics are going to  change.  He said  that the                                                               
state needs  to provide  opportunities for  the dynamic  to shape                                                               
the  project,   and  noted  that  the   transfer  provisions  are                                                               
structured to protect the state's value.                                                                                        
                                                                                                                                
3:28:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN asked  whether the  original licensee  can                                                               
sell license to another company  if the provisions of Section 450                                                               
are met.                                                                                                                        
                                                                                                                                
COMMISSIONER GALVIN agreed with  the aforementioned scenario, and                                                               
opined  that a  more likely  scenario is  that the  licensee will                                                               
bring in a partner.                                                                                                             
                                                                                                                                
3:29:11 PM                                                                                                                    
                                                                                                                                
MS. DAVIS explained that AS  43.90.900 contains definitions while                                                               
Section  990  sets forth  the  act's  short  title.   Sections  2                                                               
through  4  of HB  177  are  conforming  sections and  Section  5                                                               
provides for an immediate effective date.                                                                                       
                                                                                                                                
3:29:59 PM                                                                                                                    
                                                                                                                                
MS. DAVIS  explained in response  to a question that  proposed AS                                                               
43.90.440 does not allow the state  to take back the project from                                                               
a licensee  at will,  and would  only be  activated if  the state                                                               
extended  favorable  financial  treatment   to  a  competing  gas                                                               
pipeline project.   If the state wanted to take  the project back                                                               
because  of concerns  about economics,  the state  would activate                                                               
the  third-party  arbitration  clause   contained  in  AGIA,  she                                                               
explained.                                                                                                                      
                                                                                                                                
COMMISSIONER  GALVIN  explained  that  if the  state  decided  it                                                               
wanted  to terminate  the contract  with the  licensee, it  would                                                               
inform that  party.  It  is likely  that the licensee  would then                                                               
attempt  to invoke  the  provisions of  AS  43.90.440, and  there                                                               
would likely be  some negotiations.  He indicated  there would be                                                               
a way for the state to recover its maximum costs.                                                                               
                                                                                                                                
3:31:20 PM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN  responded to  a query  about the  process to                                                               
resolve differences between  the commissioners of DNR  and DOR by                                                               
explaining that the DOR and DNR  would work together to come to a                                                               
resolution  of disputed  issues.   If the  departments could  not                                                               
come to  a resolution  on an  issue, the  governor would  have to                                                               
decide, he said.                                                                                                                
                                                                                                                                
TOM IRWIN,  Commissioner, Department  of Natural  Resources (DNR)                                                               
offered his opinion  that the decision making model  in AGIA will                                                               
provide  a  healthy tension  between  the  two commissioners  and                                                               
reminded the committee that the  legislature and governor will be                                                               
involved.                                                                                                                       
                                                                                                                                
REPRESENTATIVE DAHLSTROM said she  is satisfied with the proposal                                                               
that the commissioners of DOR and DNR be the decision-makers.                                                                   
                                                                                                                                
3:34:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS asked  how the tariff rate  would adjust if                                                               
the  equity shares  were adjusted  to allow  investment by  state                                                               
entities  such  as  the Permanent  Fund  Corporation  and  Alaska                                                               
Retirement Management Board (ARMB).   He said he would appreciate                                                               
further  information regarding  different methodologies  by which                                                               
state  entities  can participate  in  the  gas pipeline  revenues                                                               
without  compromising  the  state's position  as  the  sovereign.                                                               
However, he  offered his opinion  that other state  agencies with                                                               
some  independence  may be  able  to  have some  involvement  and                                                               
reiterated his desire for state  participation over and above the                                                               
70:30  debt-equity formula.   He  further  reiterated his  desire                                                               
that  constituent  groups  in  the  state  have  the  ability  to                                                               
participate in the  project in some manner.  He  noted that there                                                               
are  many complexities  regarding  this issue  and  that it  will                                                               
effect different entities  in different ways.  He went  on to say                                                               
he  also would  like  to see  disclosure  of alignment  interests                                                               
related to the project, perhaps through an amendment.                                                                           
                                                                                                                                
3:45:06 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  GALVIN responded  that DOR  will provide  different                                                               
scenarios   based  on   different  tariff   rate  increases   and                                                               
adjustments  to the  debt-equity ratio  in order  to provide  for                                                               
possible investment by quasi-state agencies.                                                                                    
                                                                                                                                
3:46:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS  asked  for  information  on  whether  the                                                               
state's share of equity investment  is diminished if the pipeline                                                               
costs rise  from $20  billion to  $30 billion.   He  offered that                                                               
interested  state   entities  would   like  to  know   how  their                                                               
investment  and  tariffs would  be  effected  by rising  pipeline                                                               
costs  and  that  he  would  like DOR  to  provide  some  further                                                               
information on this issue.                                                                                                      
                                                                                                                                
REPRESENTATIVE  SAMUELS   also  expressed  interest   in  further                                                               
information on  the effect  of an  adjustment in  the debt-equity                                                               
ratio  and  the  risks  associated   with  participation  in  the                                                               
project.                                                                                                                        
                                                                                                                                
3:49:14 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  IRWIN  offered  his opinion  that  competition  for                                                               
proposals is a  good method to choose a project.   However, there                                                               
is a risk in letting a  parallel competitive process carry on too                                                               
far  as  parties  begin  to spend  money  and  make  commitments.                                                               
Furthermore, there can  be a duplication of efforts  if more than                                                               
one party is moving along with the process.                                                                                     
                                                                                                                                
REPRESENTATIVE  SAMUELS   cautioned  that  it  is   difficult  to                                                               
determine the best proposal at the beginning of a process.                                                                      
                                                                                                                                
COMMISSIONER  GALVIN  agreed  this  is  a  difficult  issue,  but                                                               
disagreed with any suggestion that  the state will have "no idea"                                                               
which  proposal is  best at  the beginning  of the  project.   He                                                               
noted that  the process  has been  designed to  give the  state a                                                               
very good  idea of which project  to choose, but agreed  there is                                                               
no guarantee as to which project is the best one.                                                                               
                                                                                                                                
REPRESENTATIVE  SAMUELS noted  that the  decision making  process                                                               
may be difficult as the producers  will all have many of the same                                                               
attributes, such  as experience  and costs,  at the  beginning of                                                               
the project.   This may  make it  hard to determine  which entity                                                               
will do the best job, he indicated.                                                                                             
                                                                                                                                
3:54:47 PM                                                                                                                    
                                                                                                                                
COMMISSIONER GALVIN opined that it  would be favorable if all the                                                               
producer proposals  are similar.   However,  he said  he believes                                                               
that the  proposals will likely  be somewhat different  from each                                                               
other.  He said the state  is trying to create an opportunity for                                                               
parties  in addition  to the  producers  to come  forward with  a                                                               
proposal.  He  reiterated his belief that  the interested parties                                                               
want a commitment at the beginning of the process.                                                                              
                                                                                                                                
3:56:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN noted  that  while there  is an  extensive                                                               
review of  an initial licensee's  qualifications, the  process by                                                               
which  a license  can be  transferred appears  to involve  a less                                                               
rigorous examination  and questioned  whether some  provisions of                                                               
the original criteria should be added to the transfer process.                                                                  
                                                                                                                                
CHAIR    KOHRING   assigned    the   aforementioned    issue   to                                                               
Representative  Dahlstrom's  sub-committee.   He  expressed  some                                                               
concern about the  possible lengthy term of  the AGIA coordinator                                                               
and asked about the administrative  support the coordinator would                                                               
receive.                                                                                                                        
                                                                                                                                
COMMISSIONER  GALVIN explained  that the  position is  designated                                                               
for life of  project.  However the person in  that position would                                                               
serve  at  the  pleasure  of  the  governor.    The  fiscal  note                                                               
accompanying AGIA  contemplates funding of four  positions in the                                                               
coordinator's office.                                                                                                           
                                                                                                                                
DON  BULLOCK, Attorney,  Legislative  Legal Counsel,  Legislative                                                               
Legal  and Research  Services, Legislative  Affairs Agency,  told                                                               
the committee  he would be  the drafter  as HB 177  moves through                                                               
committee.   He  offered that  the bill  is structured  into five                                                               
basic articles which address AGIA's  purpose, the license process                                                               
and  cash  inventive,   the  shipper  inducements,  miscellaneous                                                               
provisions,  and  definitions.    He directed  the  committee  to                                                               
proposed AS 43.90.110, the section  that provides for the state's                                                               
matching contributions  of $500 million.   He explained  that the                                                               
matching funds are paid in two  intervals.  The first interval is                                                               
from the time the license is issued  to the end of the first open                                                               
season.   During that time, the  state will provide a  50 percent                                                               
match to  licensee funds expended.   If there are  matching funds                                                               
remaining after the first interval,  the state can match licensee                                                               
funds spent  up to 80  percent, he  explained.  He  suggested the                                                               
committee may want to consider  requiring the license application                                                               
to  indicate how  much the  licensee plans  to spend  through the                                                               
first open  season.   He went  on to say  that this  section also                                                               
refers to a state training  program for gas pipeline related jobs                                                               
and suggested that this reference needs  to be clarified as it is                                                               
being offered as an incentive category.                                                                                         
                                                                                                                                
4:06:51 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK suggested  that the  proposed Section  120 regarding                                                               
abandonment of  the project be  moved to  a later section  of the                                                               
bill.     He  opined  that   Section  130,  which   requires  the                                                               
commissioners to  commence a public  process within  three months                                                               
of the bill's effective date,  is problematic if the process does                                                               
not begin  within the  three months.   He suggested  that wording                                                               
this  as an  intent  section at  the  end of  the  bill could  be                                                               
preferable.                                                                                                                     
                                                                                                                                
REPRESENTATIVE   RAMRAS   requested  some   further   information                                                               
regarding  how  to take  some  of  the  subjectivity out  of  the                                                               
criteria  evaluation  process.     He  referred  to  proposed  AS                                                               
43.90.130's  provisions regarding  the evaluation  of application                                                               
and asked  for some guidance  as to  how to set  forth evaluation                                                               
criteria.                                                                                                                       
                                                                                                                                
MR. BULLOCK suggested  that this issue is policy  driven, and one                                                               
criteria may be  to maximize the well-head value  to provide more                                                               
PPT and royalty  revenues to the state.  He  noted that there may                                                               
be proposals  for two  routes, each  with different  cost overrun                                                               
concerns that will  be difficult to compare due  to the differing                                                               
nature   of  the   projects.     Another  consideration   is  the                                                               
availability of gas for in-state  consumers and whether the state                                                               
could  request   that  off-take   points  be  specified   in  the                                                               
application.  He  offered his belief that  the committee consider                                                               
its  priorities  for this  project,  and  advised that  the  bill                                                               
contain these provisions in statute  so that the commissioners of                                                               
DNR  and   DOR  can  consider   the  legislative   priorities  in                                                               
evaluating license  applications.   He noted that  the evaluation                                                               
criteria need  to be defensible  if there  is a challenge  to the                                                               
decision.                                                                                                                       
                                                                                                                                
4:16:01 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK  reviewed  the  bill sections  that  relate  to  the                                                               
evaluation  criteria.     First,   he  noted  that   the  license                                                               
application requirements  are in proposed AS  43.90.140.  Second,                                                               
section 170 contains the application  evaluation criteria.  Last,                                                               
he stated there is some  uncertainty with the timing contained in                                                               
Section  180,  which requires  notice  and  review  in a  60  day                                                               
period.  He  said that the notice for public  comment comes after                                                               
the evaluation criteria,  but queried whether the  intent was for                                                               
the public to  see all the applications  the commissioners deemed                                                               
as  qualified,  or whether  the  commissioners  will submit  only                                                               
their favored application  for public review.   He suggested this                                                               
be clarified.   He  went on  to discuss  the issue  regarding the                                                               
"30th  legislative  day"  and  the  problem  that  arises  if  an                                                               
application  is submitted  with fewer  than 30  days left  in the                                                               
regular  legislative  session.    As  the  bill  is  written,  an                                                               
application  will carry  over into  the  next year's  legislative                                                               
session if  submitted when there  are fewer  than 30 days  of the                                                               
session remaining.  He explained that  the timing is in the hands                                                               
of  the commissioners  and  that he  is  considering this  issue,                                                               
especially  in  conjunction  with  its  relationship  to  special                                                               
legislative sessions.                                                                                                           
                                                                                                                                
REPRESENTATIVE DOOGAN asked what  would happen if the legislature                                                               
had a 60 day review period.                                                                                                     
                                                                                                                                
MR.  BULLOCK reminded  the committee  that  special sessions  are                                                               
limited to  30 days, although  the legislature has  discretion to                                                               
call more than  one special session.  He noted  that the issue is                                                               
how  many  legislative  days  will  be  available  to  review  an                                                               
application.                                                                                                                    
                                                                                                                                
4:18:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO  asked if the  language could be  changed to                                                               
accommodate timing concerns.                                                                                                    
                                                                                                                                
MR. BULLOCK  said that he understands  that the intent of  HB 177                                                               
is  to get  the gas  pipeline project  started in  an expeditious                                                               
manner, and that  intent may effect the timing  provisions in the                                                               
statute  so  that  applications  can  be  submitted  without  the                                                               
applicant  having  to wait  until  the  next regular  or  special                                                               
session.                                                                                                                        
                                                                                                                                
REPRESENTATIVE DAHLSTROM asked for  clarification as to whether a                                                               
submitted, but incomplete, application will be considered.                                                                      
                                                                                                                                
MR. BULLOCK replied that some  applications will be weeded out as                                                               
non-responsive, while others  may require additional information.                                                               
The  commissioners will  review  all  responsive applications  to                                                               
choose  the   one  they  deem   best  for  presentation   to  the                                                               
legislature.    If  the  legislature  does  not  disapprove,  the                                                               
application  will go  forward.   In  response to  a question,  he                                                               
agreed there are  ways to word these provisions so  as to express                                                               
a preference for a particular date or time period.                                                                              
                                                                                                                                
REPRESENTATIVE  DOOGAN asked  whether  the  provision giving  the                                                               
legislature  30 days  to  disapprove the  license  is a  standard                                                               
approach.                                                                                                                       
                                                                                                                                
MR.  BULLOCK  replied that  an  issue  that  arose in  prior  gas                                                               
pipeline  discussion  was  the   issue  of  executive  power  and                                                               
legislative power.   He  offered that some  consider the  type of                                                               
contractual  agreement  contemplated  by  AGIA  as  an  executive                                                               
function.   In  that  case,  the decision  of  who  to award  the                                                               
license to  would be  subject to legislative  review.   He opined                                                               
that by  enacting AGIA,  the legislature  would be  consenting to                                                               
allow the executive branch to  take the lead, while reserving for                                                               
itself the right to review the license  award.  He went on to say                                                               
that proposed AS  43.90.210 covers licenses for  the in-state and                                                               
out-of-state portions  of the line  and suggested that  there may                                                               
be  further  review of  this  by  persons experienced  in  tariff                                                               
matters.                                                                                                                        
                                                                                                                                
MR.   BULLOCK  discussed   the  possibility   that  the   section                                                               
authorizing the AGIA project coordinator  be moved to section two                                                               
of  the bill.    He went  on  to  say that  there  are issues  to                                                               
consider  when  a  person  is  appointed to  a  position  by  the                                                               
governor, such as whether the  governor has the ability to remove                                                               
that person from the appointed  position.  He also suggested that                                                               
there be  minimum qualifications  required for this  position and                                                               
that the  coordinator be authorized  to hire  additional experts.                                                               
He  suggested  the bill  be  amended  to  reflect that  the  AGIA                                                               
coordinator is under the governor's authority.                                                                                  
                                                                                                                                
4:26:10 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK  said  he  is  unsure  how  the  royalty  inducement                                                               
provisions   of  AS   43.90.310  operate,   but  said   that  his                                                               
expectation  is that  the producer  will not  want to  commit gas                                                               
that  cannot go  into  the gas  pipeline.   He  opined that  this                                                               
provision was intended  to give some security as to  how much gas                                                               
the producer will have available for the gas pipeline.                                                                          
                                                                                                                                
MR. BULLOCK reviewed the gas  production tax exemption in Section                                                               
320.   There may  be a  constitutional issue if  the tax  rate is                                                               
locked into the  contract, and the legislature  later changes the                                                               
tax  rate,  since Article  I,  Section  15  of the  Alaska  State                                                               
Constitution  prohibits impairment  of  contracts, he  explained.                                                               
This bill does not attempt to  lock a tax rate into the contract,                                                               
but  provides a  remedy through  an  exemption if  the tax  rates                                                               
increase.   He  opined that  the exemption  is in  reality a  tax                                                               
credit.   He suggested that another  option would be to  exempt a                                                               
portion of  the production commodity  from taxation.   He offered                                                               
his opinion  that an  exemption approach is  more in  accord with                                                               
examples of  exemptions in  Article 9, Section  4, of  the Alaska                                                               
State Constitution.   He opined that AGIA is a  general law which                                                               
the legislature has the ability to reconsider.                                                                                  
                                                                                                                                
4:30:14 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK explained  that a  special fund  is not  a dedicated                                                               
fund  and that  this can  be made  clear in  the language  of the                                                               
bill.                                                                                                                           
                                                                                                                                
REPRESENTATIVE RAMRAS  asked about  the remedies  for state  if a                                                               
qualified applicant does not show  commitment at the time of open                                                               
season.                                                                                                                         
                                                                                                                                
MR.  BULLOCK  replied  that  this would  likely  come  under  the                                                               
abandonment section  of the bill,  and noted the purpose  of open                                                               
season is for the applicant to show commitment to the project.                                                                  
                                                                                                                                
REPRESENTATIVE RAMRAS  asked about the remedies  available to the                                                               
state if  the process  does not  go beyond  open season  and what                                                               
type  of inducement  components  apply to  the  open season  time                                                               
period.                                                                                                                         
                                                                                                                                
MR.  BULLOCK indicated  that the  current litigation  surrounding                                                               
the  Point   Thompson  lease   termination  litigation   may  set                                                               
precedent  in this  area as  those leases  were withdrawn  by the                                                               
state due  to lack of  development.   He said that  AGIA provides                                                               
incentives for shippers to commit to the gas.                                                                                   
                                                                                                                                
REPRESENTATIVE  RAMRAS expressed  serious concern  as to  how the                                                               
state will induce the producers  to proceed with development upon                                                               
reaching open season.                                                                                                           
                                                                                                                                
REPRESENTATIVE  DAHLSTROM  expressed  some  skepticism  with  the                                                               
likelihood that the producers will walk away from the project.                                                                  
                                                                                                                                
REPRESENTATIVE  SAMUELS  opined  that   there  is  a  significant                                                               
difference between taking away an  undeveloped area such as Point                                                               
Thompson, and taking away a  lucrative and developed area such as                                                               
Prudhoe Bay  from a producer.   He  expressed concerns as  to the                                                               
remedies  and  options  available  to the  state  if  there  were                                                               
difficulties  during  the second  open  season.   He  noted  that                                                               
economic incentives  can change and  make a planned  project less                                                               
lucrative.                                                                                                                      
                                                                                                                                
MR. BULLOCK  noted that leases are  a matter of contract  and can                                                               
be renegotiated.                                                                                                                
                                                                                                                                
REPRESENTATIVE  DOOGAN expressed  concerns  as  to whether  there                                                               
would be enough  gas committed at open season to  go forward with                                                               
the gas pipeline.                                                                                                               
                                                                                                                                
COMMISSIONER IRWIN relayed his opinion  that it was important for                                                               
the  state to  act to  encourage  gas pipeline  development.   He                                                               
opined  that  the  business  world   will  be  likely  to  desire                                                               
participation in a project of this size.                                                                                        
                                                                                                                                
4:47:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   RAMRAS  reiterated   his  concern   as  to   the                                                               
inducement  component of  AGIA  at the  critical  period of  time                                                               
surrounding  open  season.    He  also  expressed  concern  about                                                               
inducement to actually connect to the gas pipeline.                                                                             
                                                                                                                                
COMMISSIONER GALVIN  said that the state  cannot anticipate today                                                               
exactly what  the dynamics will  be at  the time of  open season.                                                               
Therefore, there  has been much  consideration as to how  to make                                                               
the  producers  commit to  this  project  in  light of  the  many                                                               
unknowns.  The approach of AGIA  is to move through and eliminate                                                               
the uncertainties  as much  as possible, he  explained.   That is                                                               
why  the state  is  providing support  through  the risky  period                                                               
before open  season.   He said  that at that  point more  will be                                                               
known  about  the  project  costs.   He  opined  that  given  the                                                               
options, the best  approach for the state is to  get to the point                                                               
of open season.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  RAMRAS opined  that  the  legislative process  is                                                               
designed  to  anticipate  and correct  problems.    He  expressed                                                               
concern  regarding the  lack of  inducement at  the time  of open                                                               
season and suggested that the legislative process address this.                                                                 
                                                                                                                                
COMMISSIONER  IRWIN cautioned  that  the aforementioned  approach                                                               
can cause some difficulties.                                                                                                    
                                                                                                                                
4:58:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO opined that the  free market is an incentive                                                               
for  development,  particularly  in   Prudhoe  Bay  because  non-                                                               
development of  gas affects the  ability to remove and  ship oil.                                                               
He  opined that  if the  state gives  the producers  enough of  a                                                               
reason, the gas development will happen.                                                                                        
                                                                                                                                
5:00:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS noted  that one  approach is  to use  the                                                               
open  season to  provide a  tax break,  but that  there are  many                                                               
complexities in how to use a tax as leverage.                                                                                   
                                                                                                                                
COMMISSIONER  GALVIN set  forth that  AGIA has  been designed  to                                                               
allow   commercial  forces   to   be  the   primary  drivers   of                                                               
development.    The hope  is  that  by  creating a  project,  the                                                               
producers  can  make   their  own  decision  as   to  whether  to                                                               
participate  or  not,  he  explained.   If  the  project  is  not                                                               
developed despite  favorable economics, the state's  approach may                                                               
depend on the  details of the situation because  at present there                                                               
are unknowns, he indicated.                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO reminded  the  committee  that the  federal                                                               
government also wants  the gas pipeline project to  happen and it                                                               
may provide some assistance in the area of inducements.                                                                         
                                                                                                                                
[HB 177 was held in committee.]                                                                                                 
                                                                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at 5:06                                                                  
p.m.                                                                                                                            

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