04/05/2002 09:15 AM House O&G
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 5, 2002
9:15 a.m.
MEMBERS PRESENT
Representative Hugh Fate, Vice Chair
Representative Fred Dyson
Representative Mike Chenault
Representative Vic Kohring
MEMBERS ABSENT
Representative Scott Ogan, Chair
Representative Gretchen Guess
Representative Reggie Joule
COMMITTEE CALENDAR
HOUSE BILL NO. 302
"An Act establishing the Alaska Gas Corporation, a public
corporation, and providing for its structure, management,
responsibilities, and operation, and requiring the development
of a project plan to evaluate whether construction and operation
of a natural gas transmission pipeline project by the
corporation is feasible."
- MOVED HB 302 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 302
SHORT TITLE:ALASKA GAS CORPORATION
SPONSOR(S): REPRESENTATIVE(S)WHITAKER
Jrn-Date Jrn-Page Action
01/14/02 1953 (H) PREFILE RELEASED 1/4/02
01/14/02 1953 (H) READ THE FIRST TIME -
REFERRALS
01/14/02 1953 (H) O&G, RES, FIN
04/01/02 (H) O&G AT 9:00 AM CAPITOL 124
04/01/02 (H) -- Meeting Canceled --
04/05/02 (H) O&G AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE JIM WHITAKER
Alaska State Legislature
Capitol Building, Room 411
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of HB 302.
WILSON L. CONDON, Commissioner
Department of Revenue
P.O. Box 110400
Juneau, Alaska 99811-0400
POSITION STATEMENT: Contrasted HB 302 with the proposed
initiative and HB 410.
JACK CHENOWETH, Assistant Revisor of Statutes
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: Answered questions regarding the similarity
of HB 302 to the proposed initiative.
ACTION NARRATIVE
TAPE 02-21, SIDE A
Number 0001
VICE CHAIR FATE called the House Special Committee on Oil and
Gas meeting back to order at 9:15 a.m. Representatives Fate,
Dyson, Chenault, and Kohring were present at the call back to
order. [For minutes on the overview regarding oil and gas
incentives, see the 8:06 a.m. minutes for this date.]
HB 302-ALASKA GAS CORPORATION
[Contains discussion of HB 410]
Number 0027
VICE CHAIR FATE announced that the committee would hear HOUSE
BILL NO. 302, "An Act establishing the Alaska Gas Corporation, a
public corporation, and providing for its structure, management,
responsibilities, and operation, and requiring the development
of a project plan to evaluate whether construction and operation
of a natural gas transmission pipeline project by the
corporation is feasible."
VICE CHAIR FATE informed members of his intention, because of
the critical need to expedite a gas pipeline, to move the bill
from committee that day.
Number 0059
REPRESENTATIVE JIM WHITAKER, Alaska State Legislature, sponsor,
acknowledged that HB 302 is controversial because it embodies
both constitutional and philosophical issues. He said his
intention that morning wasn't to dwell on those broad issues,
however, but on an initiative [Initiative 01GSLN, the "All-
Alaskan Gasline Initiative"] that probably will be placed on the
next ballot.
REPRESENTATIVE WHITAKER explained that the initiative troubles
him because it is route-specific regarding an Alaskan gas
project, restricting the route to one that goes from the North
Slope to Valdez, which [would require] conversion of natural gas
to liquefied natural gas (LNG). However, that isn't the
preferred alternative of many of the players. He suggested it
would be foolish of the legislature to allow such a significant
muddying of the waters.
Number 0278
WILSON L. CONDON, Commissioner, Department of Revenue (DOR),
came forward to testify. He explained major differences among
HB 302, the proposed initiative, and HB 410, sponsored by [the
House Special Committee on Oil and Gas, which is chaired by]
Representative Ogan. First, HB 302 is available for whatever
project will work best for taking North Slope gas to market; by
contrast, the initiative and HB 410 both restrict the activity
of the organization they would establish to the promotion and
development of a project that would take gas to Prince William
Sound, turn it into LNG, and market it somewhere. Second, there
is no "target date" in HB 302, whereas the initiative and HB 410
both have the objective of getting gas to market by 2007, which
has consequences regarding what must be done right now.
COMMISSIONER CONDON explained the third difference. Under HB
302, responsibility for the upfront feasibility studies that a
publicly owned project would require are assigned to the Joint
Committee on Natural Gas Pipelines; consequently, the DOR's
[zero] fiscal note for HB 302 is very different from that for HB
410, since the department has read both the initiative and HB
410 to put that responsibility on the DOR until a corporation is
actually set up and functioning. "We were concerned about the
2007 date as a target date for completing the project, which
necessarily means you need to plan to spend lots of money
relatively soon, in our judgment," he explained. "Under
Representative Whitaker's bill, that judgment's really left in
the hands of the joint committee, and the responsibility of
getting that work done - or at least getting it started - is
assigned to them."
COMMISSIONER CONDON referred to Representative Whitaker's
mention of possible constitutional controversy and said, "I
don't think that we're disobeying the command of the
constitution in terms of the way we're conducting ourselves
right now, but that's a philosophical discussion that we don't
need to get into."
Number 0636
REPRESENTATIVE DYSON brought attention to a paragraph in the
analysis section of the DOR's fiscal note that begins, "Because
a legislative committee would pay for and manage the feasibility
study ...." He asked which committee that refers to.
COMMISSIONER CONDON clarified that it is the Joint Committee on
Natural Gas Pipelines.
Number 0686
VICE CHAIR FATE requested that Representative Whitaker discuss
the prospect of a legal challenge regarding the similarities of
HB 302 and the [initiative].
REPRESENTATIVE WHITAKER deferred to Jack Chenoweth, who had
provided the legal opinion [a memorandum dated January 21, 2002]
contained in the bill packet.
Number 0760
JACK CHENOWETH, Assistant Revisor of Statutes, Legislative Legal
Counsel, Legislative Legal and Research Services, Legislative
Affairs Agency, came forward to testify, noting that he was both
the drafter of HB 302 and the author of the opinion referenced
by Representative Whitaker. With regard to the similarity
between the bill and the initiative, Mr. Chenoweth said he's
assuming, as the sponsor is, that the signatures have been
counted and are sufficient, and that the initiative is certified
for the November general-election ballot. He pointed out that
whether a bill passed by the legislature displaces an initiative
is a matter for the lieutenant governor to decide; it isn't a
decision that he or the legislature can make.
MR. CHENOWETH then explained that in the written opinion he'd
provided, he'd tried to identify what he regarded as the
significant differences between HB 302 and the initiative, and
to discuss them in terms of whether they are so significantly
different that the lieutenant governor necessarily would have to
say they are not substantially the same. He told members that
he doesn't think any of the points identified by either himself
or Commissioner Condon, in his testimony, necessarily compel a
conclusion that the two are not substantially the same. He went
on to say:
I think the lieutenant governor could find that
adoption of a bill in this form, or substantially
similar to it, is substantially the same as the
initiative, as presented, and could displace the
initiative from the November ballot if this bill is
enacted.
I realize that there are differences in the magnitude
and the direction of the project as described in the
initiative from what is described here in the bill.
But I think that's a function of time and the passage
of time and of activity taking place outside of
Alaska, particularly in the Congress. And I think
that ... you, the legislature, have latitude to
develop a bill, with an eye on the initiative, ... and
that you have a lot of latitude as you develop that
bill.
Number 0920
MR. CHENOWETH pointed out that discussed in his memorandum is
the leading case in this area, Warren v. Boucher, which is about
25 years old. He brought attention to the first two full
paragraphs on page 3 of the memo, noting that these are the
significant ones and "generally point to the fact that if the
subject matter is very technical, very large in size, then the
legislature has more latitude to shape legislation and have that
legislation accepted as being substantially the same as the
initiative as presented." He further said:
I think that this is a very good example of where the
legislature does enjoy that kind of ... latitude.
This is a project that, according to the
administration - at least, according to a bill that
they have submitted - asks for the permission for the
Alaska Railroad Corporation to issue as much as $17
billion of financing to support ... a gas line project
that runs down ... from Prudhoe Bay to the Interior,
and then out ... to connect to the domestic North
American transportation system. And that is ... large
by anyone's ... measure.
The remaining portions of the bill that go to other
questions about structuring the corporation,
confirming the members of the board, and things of
that sort, I think, are secondary issues. I do think
that as you take a look at how you're going to support
efforts to bring gas to market, that you are in a
position to make a decision as to where it is likely
going to be marketed, and draw your legislation
accordingly.
And I think that ... the lieutenant governor could
find that ... your end product is substantially the
same as the initiative, and displace the initiative
from the November general-election ballot. I'm not
saying she will; I'm saying that there's nothing
that's in this bill that ... compels her to do
otherwise.
Number 1070
REPRESENTATIVE DYSON surmised that the authors of the initiative
will not be pleased to have it removed from the ballot and
therefore will challenge this in court. He asked: If the
lieutenant governor were to rule that this bill supersedes the
initiative, what would the timeframe and process be under which
a court challenge could be brought?
MR. CHENOWETH noted that the statutes weren't in front of him,
but recalled that an action would have to be commenced in
superior court within 30 days after a final determination of the
lieutenant governor.
Number 1156
REPRESENTATIVE DYSON asked whether the court is mandated to give
its decision within a time that would allow the [initiative] to
be placed on the ballot.
MR. CHENOWETH replied:
Not that I know of. And in fact, if it's a close
question, if it turns out that the lieutenant governor
says that whatever bill is passed does displace the
initiative and ... the sponsors of the initiative ...
don't like that decision and challenge it - ... and I
can concede that they might be able to present the
arguments and make it a close question - my sense is
that the court probably would put a hold on the
lieutenant governor's decision, ... if they couldn't
determine this in advance, ... and allow it to go on
the ballot and sort it all out later on. If they
eventually decide that Lieutenant Governor Ulmer's
decision to displace the initiative was correct, the
results would be set aside. If they decide that there
are points that she didn't consider properly, and that
she should have allowed it to be on the ballot, the
results would stand as certified.
Number 1260
REPRESENTATIVE DYSON moved to report HB 302 from committee with
individual recommendations and the "interesting" zero fiscal
note.
VICE CHAIR FATE asked whether there was any objection. [There
was no audible response, but Representative Kohring raised his
hand].
Number 1283
REPRESENTATIVE KOHRING explained that his objection regards the
state government's getting involved in the potential
construction of a gas pipeline; he said he assumes this would be
a forerunner to that. He acknowledged the sponsor's intent in
part to preempt a ballot initiative, but suggested the
legislature shouldn't be too preoccupied with that. He
indicated he doesn't believe having a government-constructed and
government-owned pipeline is the proper way to go. He expanded
on his explanation:
I just philosophically disagree with the issue of
building a pipeline, and if you could point to the
past history of government's involvement of
constructing and owning and maintaining capital
projects, you'll see that we have a very poor track
record. ... I point to things like the Seward grain
terminal, the Point MacKenzie dairies in my area,
[the] Delta barley farm project, and others. And
they've proven to be quite massive boondoggles,
unfortunately, at the expense ... of the public, with
their dollars that have been wasted on these projects.
And I really do appreciate the sponsor's efforts, and
I know his intent is honorable as far as trying to get
the ... gas fields developed and get dollars into the
treasury, and that's certainly a laudable goal. I
just question the wisdom of the state being involved
in a project of this nature.
REPRESENTATIVE KOHRING suggested that government involvement
should be looked at throughout the country, and that market
conditions should be used [as an indicator] regarding whether it
is feasible to proceed. "My fear is that we'll end up investing
billions of dollars in a gas line and the public is [going] to
end up footing the bill, whether it works or not," he added. He
requested to hear from the sponsor.
Number 1440
REPRESENTATIVE WHITAKER replied as follows:
In response, we could have that broad philosophical
debate. I'm prepared to do that, Mr. Chairman, if
it's your desire to do so.
I can point out that while the state is probably not
well prepared to maintain, operate, or build a project
of this nature, it is appropriate that the state
facilitate a project of this nature through ownership,
in much the same way that the state facilitates
commerce through ownership of roads, airports, and
ports. A pipeline transportation system is, at its
basis, a transportation system. And it is not
inappropriate, under any economic model, for the state
to own a basic transportation infrastructure.
Having said that, and not wanting to go a lot deeper,
if that satisfies the concerns of Representative
Kohring, I would prefer to leave it there, although I
am prepared to go deeper if that is the wish of the
committee.
Number 1537
VICE CHAIR FATE requested confirmation that HB 302 doesn't
demand the state's involvement any more than the [initiative]
would regarding construction of a pipeline.
REPRESENTATIVE WHITAKER said it is probably less. He explained:
The intent of the bill is to restrict the state's
involvement to ownership, in much the same manner that
the state's involvement in the management of the
permanent fund is restricted to an ownership role. I
would not envision a state bureaucratic entity. I do
envision a very small ownership function.
Number 1600
VICE CHAIR FATE stated his understanding that in speaking of an
ownership function, Representative Whitaker meant "an equity
interest in the pipeline, in the transportation system itself."
REPRESENTATIVE WHITAKER responded, "Either equity or outright
ownership, and that is, the function of determination as to the
state's ownership role will be related to any number of economic
analyses."
VICE CHAIR FATE asked, "Would the corporation ... be the entity
that makes that determination?"
REPRESENTATIVE WHITAKER said yes.
Number 1623
REPRESENTATIVE DYSON voiced support for the bill, noting that he
also shares Representative Kohring's reservations about public
involvement in private enterprise. He explained that, indeed,
he thinks of this [pipeline] as transportation, and further
believes there ought to be on the table at least a consideration
of having the pipeline be a common carrier, which would greatly
assuage many minor leaseholders' concerns about access to get
their products to market. He said he also realizes it's
difficult for the private sector to "get all the things to the
table to ... build a project." He mentioned the possibility
that a tax-free structure and the state's borrowing power might
help to make the project more viable.
REPRESENTATIVE DYSON offered his belief that marketing LNG to
the Pacific Rim and the West Coast needs to be a part of whole
project. He said the limited scope of the initiative and its
tendency to preclude other options is of great concern to him,
however. He also said his first choice is to have a "hub"
somewhere in the Interior "that lets all options go forward, ...
depending on their economic viability."
Number 1736
REPRESENTATIVE DYSON told members that Upper Cook Inlet, the
area he represents, will have gas shortages beginning in 2009 or
2010. Unless there are major developed gas sources there, the
fertilizer plant in Nikiski and LNG exports will be curtailed.
For him, he said, being able to run a "stub" line to Cook Inlet
in the future is "absolutely a nonnegotiable." He added, "I'm
not interested in any solutions that preclude half the
population of the state and the economic development of that
area to be truncated." He said that is another reason for his
support [of the bill].
Number 1783
REPRESENTATIVE DYSON offered to withdraw his motion if there
weren't enough votes to move the bill from committee.
Number 1803
VICE CHAIR FATE called an at-ease at 9:38 a.m. He called the
meeting back to order at 9:42 a.m.
REPRESENTATIVE KOHRING announced that he still had concerns
about the ultimate result of this effort, but also recognized
that without the legislation, the initiative would still exist
and could "result in even worse things." He suggested there
would be ample opportunity to voice concerns in other committees
of referral. He reiterated his concern that this legislation is
a forerunner of building a pipeline, which he believes should be
strictly market-based. He also offered his belief that if the
market currently were demanding that a pipeline be built, the
industry would step forth to do it.
Number 1866
REPRESENTATIVE KOHRING withdrew his objection, noting that he
would add his [individual recommendation to the committee
report].
[There was confusion over the existing motion; the ultimate
result was a restating of the motion to move the bill from
committee with an "interesting" zero fiscal note.]
Number 1912
VICE CHAIR FATE asked whether there was any objection. There
being no objection, HB 302 was moved out of the House Special
Committee on Oil and Gas.
ADJOURNMENT
Number 1926
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 9:43
a.m. [For minutes on the overview regarding oil and gas
incentives, see the 8:06 a.m. minutes for this date.]
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