Legislature(2007 - 2008)BARNES 124
04/10/2007 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 177 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 10, 2007
1:02 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Vic Kohring
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Anna Fairclough
Representative Berta Gardner
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (H) READ THE FIRST TIME - REFERRALS
03/05/07 (H) O&G, RES, FIN
03/06/07 (H) O&G AT 3:00 PM BARNES 124
03/06/07 (H) -- MEETING CANCELED --
03/08/07 (H) O&G AT 3:00 PM BARNES 124
03/08/07 (H) -- MEETING CANCELED --
03/13/07 (H) O&G AT 3:30 PM HOUSE FINANCE 519
03/13/07 (H) Heard & Held
03/13/07 (H) MINUTE(O&G)
03/15/07 (H) O&G AT 3:00 PM BARNES 124
03/15/07 (H) Heard & Held
03/15/07 (H) MINUTE(O&G)
03/19/07 (H) O&G AT 8:30 AM CAPITOL 106
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
03/20/07 (H) Heard & Held
03/20/07 (H) MINUTE(O&G)
03/21/07 (H) O&G AT 5:30 PM SENATE FINANCE 532
03/21/07 (H) Heard & Held
03/21/07 (H) MINUTE(O&G)
03/22/07 (H) O&G AT 3:00 PM BARNES 124
03/22/07 (H) Heard & Held
03/22/07 (H) MINUTE(O&G)
03/23/07 (H) O&G AT 8:30 AM CAPITOL 106
03/23/07 (H) Heard & Held
03/23/07 (H) MINUTE(O&G)
03/24/07 (H) O&G AT 1:00 PM SENATE FINANCE 532
03/24/07 (H) -- Public Testimony --
03/26/07 (H) O&G AT 8:30 AM CAPITOL 106
03/26/07 (H) Heard & Held
03/26/07 (H) MINUTE(O&G)
03/27/07 (H) O&G AT 3:00 PM BARNES 124
03/28/07 (H) O&G AT 7:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/28/07 (H) O&G AT 8:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/29/07 (H) O&G AT 3:00 PM BARNES 124
03/29/07 (H) Heard & Held
03/29/07 (H) MINUTE(O&G)
03/30/07 (H) O&G AT 8:30 AM CAPITOL 106
03/30/07 (H) Heard & Held
03/30/07 (H) MINUTE(O&G)
03/31/07 (H) O&G AT 1:00 PM BARNES 124
03/31/07 (H) -- MEETING CANCELED --
04/02/07 (H) O&G AT 8:30 AM CAPITOL 106
04/02/07 (H) Heard & Held
04/02/07 (H) MINUTE(O&G)
04/03/07 (H) O&G AT 3:00 PM BARNES 124
04/03/07 (H) Moved CSHB 177(O&G) Out of Committee
04/03/07 (H) MINUTE(O&G)
04/04/07 (H) O&G RPT CS(O&G) NT 3DP 2NR 2AM
04/04/07 (H) DP: RAMRAS, DOOGAN, OLSON
04/04/07 (H) NR: SAMUELS, KAWASAKI
04/04/07 (H) AM: DAHLSTROM, KOHRING
04/04/07 (H) O&G AT 8:30 AM CAPITOL 106
04/04/07 (H) -- MEETING CANCELED --
04/05/07 (H) O&G AT 3:00 PM BARNES 124
04/05/07 (H) -- MEETING CANCELED --
04/10/07 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
DON BULLOCK, Attorney
Legislative Legal and Research Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided an overview of CSHB 177(O&G) and
answered questions.
PATRICK GALVIN, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 177, answered
questions.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 1:02:51 PM. Representatives
Gatto, Johnson, Seaton, Roses, Guttenberg, Edgmon, Kawasaki,
Kohring, and Wilson were present at the call to order. Also in
attendance were Representatives Fairclough and Gardner.
HB 177-NATURAL GAS PIPELINE PROJECT
1:03:18 PM
CO-CHAIR GATTO 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." [CSHB 177(O&G) was before the
committee.]
1:05:08 PM
DON BULLOCK, Attorney, Legislative Legal and Research Services,
Legislative Affairs Agency, Alaska State Legislature, began by
stating that he is nonpartisan and is charged with the
responsibility of drafting the legislation and any requested
amendments. He pointed out that the legislation was originally
drafted and introduced at the request of the administration.
However, once the legislation is in the legislature, the
Legislative Legal and Research Services Division drafts the
amendments and committee substitutes. He related that CSHB
177(O&G) incorporates many changes that the administration
requested as well as amendments requested by members of the
House Special Committee on Oil and Gas.
1:06:27 PM
CO-CHAIR GATTO pointed out that the committee packet should
include a document from Governor Sarah Palin to Senate President
Lyda Green dated March 2, 2007. The committee packet should
also include an executive summary dated March 5, 2006.
1:06:55 PM
MR. BULLOCK informed the committee that questions regarding the
policy behind a certain amendment or provision put forth by the
administration would be best posed to the administration.
1:07:31 PM
MR. BULLOCK then proceeded to review CSHB 177(O&G). He
explained that Section 1 establishes a new chapter to Title 43,
which is the revenue and taxation title. This new chapter
includes provisions that: state the purpose of the Alaska
Gasline Inducement Act (AGIA); address the state's inducement
for someone to apply for and receive a license for the project,
including the cash incentive and the expenditures to which the
state will contribute; require that the commissioners of the
Department of Natural Resources (DNR) and the Department of
Revenue (DOR) act together jointly in pursuing licensees and
reviewing applications; require the commissioners to start the
application process as soon as practical after the Act is
enacted; provide a list of equipment and information that an
applicant must submit to the state; establish the criteria which
the commissioners will use to rank and evaluate each
application; and allow the public to comment. After the
commissioners have reviewed all of the applications, they will
reject those that weren't responsive to the request or don't
meet the statutory requirements. Therefore, the commissioners
will narrow the applicants down to a group that satisfy the
application requirements, although they may not necessarily be
in the best interest of the state. The complete applications
are then placed before the public, after which the commissioners
narrow the group to a single applicant that it recommends to the
legislature for approval. The commissioners also have the
option to determine that none of the applications offer
significant benefit for the state to make the cash contribution.
In the aforementioned situation, the commissioners have the
ability to start [a new application process]. If the
commissioners do find a satisfactory application that meets the
requirements and is in the best interest of the state, notice is
sent to the presiding officers of the House and Senate. The
Rules Committee in each house will introduce legislation for
approval.
1:10:32 PM
MR. BULLOCK reminded the committee that HB 177 originally
provided 30 days to disapprove a license. If the legislature
didn't disapprove the license, the commissioners/state would be
able to issue the license and begin contributing to the
expenditures. Now both CSHB 177(O&G) and its Senate companion
require affirmative approval by the legislature. Therefore, if
the legislature doesn't take affirmative action to approve [a
license], then it's effectively disapproved. He highlighted
that CSHB 177(O&G) requires a bill for approval and the Senate
companion requires the introduction of a resolution for
approval. Mr. Bullock opined that requiring an approving bill
is most appropriate based on the State v. A.L.I.V.E. Voluntary
case. When the legislature takes actions that impact those
outside of its body, it must be done through a bill rather than
a resolution. Because a bill [is required], there is timing
that is built into consideration of a bill. He acknowledged
that there have been discussions of time limits, which is a
policy decision for the committee to consider. He pointed out
that if a bill isn't passed, then a license won't be issued and
thus the license fails. In such a case, there would the
opportunity for the licensee to raise the separation of powers
argument. The separation of powers doctrine in the constitution
is based on Article 2, Section 1 - Legislative Powers and
Article 3, Section 1 - Executive Powers. If the legislature
doesn't act, the license is disapproved and the licensee could
go to court, under the executive branch's separation of powers,
to obtain the license from the executive branch.
1:14:48 PM
REPRESENTATIVE WILSON asked whether including language allowing
the legislature to vote [on an application/license] anytime it's
called together for session would make a difference.
MR. BULLOCK answered that it would. However, the requirements
of three readings, referral to committee, et cetera would
remain. With regard to the introduction of a bill, Mr. Bullock
suggested that the committee should think about how much review
the committee wants to give the license itself. This
legislation sets up a lot of policy and directs the
commissioners to review the net present value of the future cash
flow to the state and the likelihood of success of the project.
Mr. Bullock acknowledged that the committee does have the option
of including more criteria and policy decision in the Act
itself, which may reduce the amount of time that would be
necessary for the legislature to make its own decision regarding
whether to issue a license.
1:16:37 PM
REPRESENTATIVE SEATON asked whether the bill is the only way to
go, and was the original tact of disapproval disregarded for
legal reasons.
MR. BULLOCK answered that he didn't know. When the bill was
introduced it was a little more consistent with the separation
of powers doctrine in that the legislature could review it and
it was an advisory request. The issue would only arise if the
legislature disapproved a license and the argument is whether
it's the legislature's opinion or is binding on the governor.
If it's binding on the governor, then under the A.L.I.V.E.
Voluntary case it should probably be in the form of a bill.
1:18:29 PM
CO-CHAIR GATTO asked whether it's a legal posture to say if
something isn't disapproved by default, it's approved. Is the
legislative approval mandatory and does it count if the
legislature simply doesn't disapprove, he further asked.
MR. BULLOCK specified that under CSHB 177(O&G) if the
legislature does nothing, the license dies. The legislation
requires the legislature to take positive action to approve the
license before it can be issued. In further response to Co-
Chair Gatto, Mr. Bullock said that the original legislation
specified that if the legislature did nothing, that would be
deemed to be approval.
1:19:38 PM
MR. BULLOCK, continuing discussion of the separation of powers
issue, pointed out that CSHB 177(O&G) establishes a coordinator
position in the governor's office. This position would "grease
the skids for the licensee; it's supposed to make sure that
state agencies aren't doing anything unnecessary to hold up the
project and to expedite, but still make sure that all the
reviews are appropriate," he said. This bill and the governor's
original bill required that the person appointed to this
position be approved by the legislature. There's a
constitutional issue because the constitution has been narrowly
construed to limit those positions subject to legislative
approval. Mr. Bullock clarified that this coordinator position
isn't the head of any agency, it's a position that has a job to
do. When thinking of a potential challenge, one must identify
who would challenge the action. Mr. Bullock opined, "If the
governor's agreeing to this, this was the position of the
governor's bill, you can expect that [the legislature] will have
the say on the confirmation. However, there's always the
possibility that if the governor were to feel that the
nomination was unfairly rejected, then that would present the
separation of powers issues."
1:21:49 PM
MR. BULLOCK turned to another constitutional issue, which arises
in the statute of limitations in which a challenge to the
constitutionality of the Act must be brought within 90 days
after the license is issued. The question becomes whether
something is constitutional if there's a challenge within a
certain period of time. He said, "Generally, an issue like that
doesn't die and there's also the Alaska Declaratory Judgment Act
in AS 22.10.020(g) ... requires an actual controversy." The
courts, he related, have been reluctant to issue declaratory
judgments unless there's something in controversy. In the case
of a constitutional challenge with regard to contracting away
the tax issue, there's the possibility that the courts could say
that since the taxes haven't been increased there is no
knowledge as to the actual tax benefit "under that tax exemption
that the state basically guarantees that whatever the tax rate
is at the beginning of the first binding open season, that
that's going to be the tax rate that applies to producers that
make a commitment to ship through the pipeline for 10 years.
So, the courts say, 'Well, it's not ripe yet; let's see how it
works.' and then take the case ... would be outside the 90
days." Although there are issues with the 90-day parameter,
it's a good idea because timing is important to this matter.
1:23:33 PM
MR. BULLOCK then turned to the severability section that the
administration requested be added. He said that all legislation
the legislature enacts is presumed to have the severability
clause. The severability clause means that if any provision in
an Act is found to be unconstitutional, the remainder of the Act
survives. However, at the same time one reviews severability,
one must consider the importance of the provision. If a
provision that's found to be unconstitutional is critical to the
entire project, the severability clause isn't of much help
because the project won't go forward.
1:24:19 PM
CO-CHAIR GATTO asked then if Mr. Bullock is suggesting that the
90-day provision isn't necessary or that it should be included
with the hope that it isn't challenged.
MR. BULLOCK answered, "You don't decide constitutional issues,
but you can decide risks." With regard to the issue of
contracting away the tax, it has been said many times that the
Supreme Court will be the final arbiter regarding
constitutionality. However, the legislature would need to
decide where to take the risk and the likelihood of success.
1:25:00 PM
REPRESENTATIVE GUTTENBERG related his understanding that those
who put in a proposal that's considered have to waive the right
to challenge. He asked if there's an ability to limit those who
don't put forth a proposal.
MR. BULLOCK directed the committee's attention to page 3, line
25. He pointed out that under the proposed AS 43.90.130 the
license itself is a contract. This section also includes the
commitment that the applicant won't appeal if the application is
accepted or if the commissioners don't award an application to
anyone. The aforementioned is a contractual provision between
the state and the person who submitted the application. Mr.
Bullock noted that anybody in the state has standing to
challenge the constitutionality of it and aren't bound by [the
aforementioned contractual provision]. Furthermore, certain
issues that are a matter of public policy may be challenged.
The provision not to appeal only applies to the licensee, which
is why something similar to the statute of limitations provision
is necessary to limit the period in which someone can bring
forward a challenge, he said.
1:27:32 PM
CO-CHAIR GATTO posed a scenario in which a licensee has a side
agreement with a subcontractor, and asked if that would be an
adequate connection allowing a subcontractor to sue for loss of
revenue or profit.
MR. BULLOCK explained that when the commissioners evaluate the
applications they will review who the applicant is going to rely
on to carry the application forward. He then noted that the
commissioners can establish additional requirements beyond those
specified in the legislation.
1:28:23 PM
MR. BULLOCK, returning to Representative Guttenberg's earlier
comments, pointed out that the ability to waive the right to
appeal the award to another applicant is located on page 8, line
22. At this point, the applicant is committing to that. If the
committee desires to address that directly, as a condition of
receiving the license, the licensee could also be required to
have the subcontractors make the same waiver. Mr. Bullock
opined that one must ensure that the requirements don't become
so onerous that no one applies. Therefore, there must be a
balance with regard to the number of requirements imposed.
1:29:50 PM
REPRESENTATIVE WILSON inquired as to how involved the
application is for the [state].
MR. BULLOCK explained that the plan in the bill is that the
commissioners will issue a request for applications. That
request will have certain requirements that the applicant will
have to meet. There are also statutory requirements that the
application must meet, which must be very complete. After all
the applications have been received by the commissioners, the
applications are reviewed per the requirements. The applicants
that don't satisfy the requirements are rejected by the
commissioners. Under proposed AS 43.90.140, on page 9, the
statute specifies that the commissioners can request more
information. Once those applications are complete, the
information and applications are released to the public. After
public review, the applications are evaluated and ranked as laid
out on page 10, proposed AS 43.90.170. At this point, the
commissioners make the decision based on what the applications
present. During this time the commissioners review the
anticipated cash flow to the state, the net present value of
anticipated cash flow from the project, as well as the
likelihood of success. At that point the information has to be
very complete. In fact, the information probably has to be
completed prior to the notice for public comment because at that
point the applications that will be considered will have been
identified.
1:33:23 PM
MR. BULLOCK turned to the net present cash flow. He related
that the state's greatest interest in the gasline will be the
netback value on the North Slope. The netback value starts with
the price of the gas coming out of the pipe minus the
transportation costs, which in the case of an over land route
would be the tariff while for a marine route it would be tanker
costs, liquefaction, the pipeline to the North Slope, and the
cost of the gas treatment plant. Mr. Bullock pointed out that a
project that looks great for the pipeline company, their tariff
will guarantee a rate of return. However, there still may be no
wellhead value if the tariff is so high that it [surpasses] the
difference between what the gas sells for after subtracting the
transportation costs. The aforementioned is why so much of this
bill is aimed at keeping the tariff down. One intent of the
bill is that the $500 million contributed by the state not be
included in the base that the Federal Energy Regulatory
Commission (FERC) or the Regulatory Commission of Alaska (RCA)
will review when determining the tariff. He explained that the
pipeline owner is going to receive a certain return on his/her
costs, and therefore keeping the $500 million out will reduce
the costs and keep the tariff down. He noted that the
commissioners will also review the ability of whoever is
carrying the project forward to minimize cost overruns. Anytime
there are costs, one must keep in mind the effect it will have
on the tariff. Provisions in CSHB 177(O&G) relate to the gas
treatment plant on the North Slope, which is part of the tariff
and thus there are additional requirements put in place by the
committee that request more information related to the netback
value. The netback value, he highlighted, is the basis for
determining the value of the royalty. Furthermore, with the
petroleum production profits tax (PPT) that's the starting point
for determining the taxable value of gas.
1:35:49 PM
CO-CHAIR JOHNSON asked if by merely submitting an application,
an entity gives up its right to appeal.
MR. BULLOCK responded, "That's the condition of this, that they
have to make that commitment in the application."
CO-CHAIR JOHNSON asked if people can be deprived of due process.
MR. BULLOCK opined that the courts will have to decide that. He
pointed out that the courts will take into consideration the
fact that the legislature has said that it is a final action and
not subject to further approval. However, he mentioned that in
the K&L Distributors case the courts said that if there is a due
process violation, it will be reviewed because a person's
constitutional rights are separate from a legislative enactment
that doesn't allow an appeal. At the same time, there is a
presumption that what the legislature passes is constitutional.
Therefore, the courts will review and strictly construe a
provision to uphold its constitutionality while a due process
challenge may trump a legislative prohibition.
1:37:12 PM
CO-CHAIR JOHNSON said he envisions a situation in which someone
submits an application that is rejected. He related his
understanding that between the time the legislature [receives an
application] and approves a contract, all the applicants that
weren't awarded could go to court before the legislature has the
opportunity to make the award.
MR. BULLOCK specified that the application is the commitment not
to protest, and therefore would apply to anyone who submits an
application. The commissioners have a lot of discretion along
with some guidance. When the court reviews administrative
determinations, it will defer on factual decisions made by an
agency, the commissioners, so long as they are reasonable. If
there's a flaw in the process, such as a due process issue, and
the consideration of the applications does violate due process,
then that becomes a legal issue that the courts must evaluate.
He mentioned that there would be constitutional issues that
override. Basically, if the legislature does everything
reasonably and follows the procedures to which everyone has
notice, there won't be much basis for appeal.
1:39:10 PM
CO-CHAIR JOHNSON expressed concern that the legislature is in
court before reaching the process or anyone submitting an
application based on denial of due process.
MR. BULLOCK said this is one of those issues on which one must
speculate. He asked if including a provision in the application
requirements would discourage someone from even taking the risk.
There may be those who are willing to take the risk and submit
an application, while retaining the ability to appeal based on
the constitutional right to due process. Mr. Bullock opined
that if more than one application is received, litigation of
various issues in HB 177 should be expected.
1:40:26 PM
CO-CHAIR GATTO posed a scenario in which there's a winning
bidder and a license is issued, and asked if the winning bidder
could back out at that point.
MR. BULLOCK pointed out that the legislation includes two
provisions that provide for revoking a license once it is
issued. One such provision is the abandonment provision, which
is based on whether the project is uneconomic. The other issue
in which the license could be terminated is if there's a
violation of the license agreement. He noted that the state
makes assurances that benefits to a competing pipeline won't be
given. If the aforementioned is violated, there's a requirement
that the state pay treble damages, which are based on the amount
of qualified expenses the licensee spent. The license could
also be revoked if there has been a violation of the terms of
the license by the licensee. The commissioners will determine
whether the violation has been cured, at which point the parties
can continue the project. The bill includes provisions for the
case of a revoked license such that permits and information
generated during the project will be transferred to the state.
1:42:02 PM
REPRESENTATIVE SEATON commented that there's a lot of case law
regarding nonresponsive bids being thrown out. He asked if
that's the point at which the state would be in court.
MR. BULLOCK replied no. By regulation, the commissioners are
required to set up informal appeal rights as specified on page
3, line 21, as follows:
(c) The provisions of AS 36.30 do not apply to
requests for applications under this chapter, but the
commissioners shall adopt regulations that provide
protest and appeal procedures relating to the
solicitation of the applications and award of a
license that are substantially similar to the
provisions of AS 36.30.550 - 36.30.699.
MR. BULLOCK opined that the aforementioned provision along with
the commitment not to appeal would preserve the applicants
administrative appeal rights before the commissioners, but that
they wouldn't take it to court after that. That, he said, could
be made clear in the bill.
1:43:37 PM
REPRESENTATIVE GUTTENBERG inquired as to the timeline, and asked
if the procedures have to be written in regulations prior to the
issuance of request for proposals (RFP).
MR. BULLOCK answered that it could happen concurrently. He
noted that there are several places in the bill that require
regulations. The administration can provide a better idea of
the timeframe to do so. He recalled testimony [from the
administration] that the hope is that there will be a licensee
in the next session. He then noted that there is a provision
for emergency regulations, which shortens the time period during
which regulations would be adopted. The PPT bill includes a
provision specifying that the agencies can adopt regulations
that are retroactive to the start date of the effective date of
the Act, provided that's specified. Therefore, some of the
regulations may not be complete at the time the applications are
received, but the regulations could apply later. Of course,
there will be a timing issue, he acknowledged.
1:45:27 PM
REPRESENTATIVE ROSES recalled that Mr. Bullock said there would
be several issues that would probably end up being litigated.
MR. BULLOCK replied yes, adding that it depends upon where the
interest lays. He identified the following issues: separation
of powers issues, legislative approval of [the license] or
nominee to the coordinator, statute of limitations,
constitutionality of locking the tax benefit by contract. In
further response to Representative Roses, Mr. Bullock related
that there are a number of provisions in the bill that address
possible litigation. He related his understanding that the
administration offered a bill that tried to eliminate as many
possibilities of litigation as possible. However, one must
realize that there are parties that are directly connected to
the bill, the applicants, and their constitutional rights to due
process and fair consideration of the applicant. There are also
those who will simply have political differences with the
process. Mr. Bullock emphasized his belief that it's impossible
to stop litigation on a project this big. He opined that the
bill does as good a job as possible to avoid litigation or
lessen the issues that could be litigated. Giving the
commissioners discretion is helpful so that the action they take
can't be struck down so long as they acted reasonably and there
was a reasonable basis of what they reviewed to support their
decision.
REPRESENTATIVE ROSES commented that he found comfort in Mr.
Bullock's comments.
1:49:34 PM
MR. BULLOCK opined that CSHB 177(O&G) contains some structural
improvements. For example, originally the coordinator position
and the intent that agencies expedite the review of anything
related to the license were moved into Article 2 since they were
directly related to the licensee. Another structural change was
to move the earlier mentioned abandonment section of the bill to
the end of Article 2. The public review and comment was moved
ahead of the ranking and evaluation section by the commissioners
in order that the structure of the bill is consistent with the
intent for the public to review all the applications. Mr.
Bullock pointed out that CSHB 177(O&G) includes a requirement of
an applicant for a gas utility revolving loan fund, which means
that the applicant must have five take-off points within the
state to provide gas to the state. The aforementioned would
provide at least one option for financing a utility to install
gas lines for home delivery.
1:52:14 PM
CO-CHAIR GATTO asked if the location of the five take-off points
are defined.
MR. BULLOCK said that the committee [could craft language]
specifying the location of the take-off points. He noted that
the bill includes references that as more gas fields are
developed that there be in-take points along the line.
1:52:57 PM
CO-CHAIR GATTO related his understanding that an off-take point
is nothing more than a place where a valve is and asked if
that's correct.
MR. BULLOCK deferred to DNR staff.
1:53:10 PM
REPRESENTATIVE GUTTENBERG pointed out that a provision of FERC
Order 2005 includes an in-state needs study. The provision
specifies that any prospective applicant must conduct or adopt a
study of gas consumption needs and prospective points of
delivery within the state. He asked if Mr. Bullock is aware of
that.
MR. BULLOCK said that he was aware of it. Furthermore, many of
the requirements that are required to be submitted to the
commissioner are similar to those in FERC's regulations relating
to an open season. This Act is written so that it could be
applied to either a project that is eventually offered to FERC
or that would be presented to the RCA. He pointed out that a
license is a contract and thus regardless of the in-state study,
there would be five take-off points allowing people in the state
access to the gas.
1:54:53 PM
REPRESENTATIVE GUTTENBERG questioned whether it's an appropriate
section to have in AGIA as well as the FERC study.
MR. BULLOCK acknowledged that the committee could do the
aforementioned. He pointed out that the committee could also
make someone else make the determination. Again, it's a
balancing act in which the state provides $500 million and
places requirements [on the licensee]. The question is at what
point would a potential applicant decide not to submit an
application because of the requirements.
1:56:12 PM
REPRESENTATIVE GUTTENBERG opined, "The sooner something like
this is in consideration, the better off we would be as far as
the study."
1:56:27 PM
MR. BULLOCK, returning to the issue of whether the project is
uneconomic or not, pointed out that one of the changes embodied
in CSHB 177(O&G) is that an arbitration panel will be used. The
governor's bill was originally introduced such that in a
situation in which the commissioners believe a project is not
uneconomic and the licensee believes it is, the licensee and the
commissioners would agree on a third party to make a decision.
He recalled that at the request of the administration, the bill
was changed such that the aforementioned situation would go to
an arbitration panel selected by the American Arbitration
Association. The decision of that panel would be filed in court
and be the decision that's acted upon. He noted that there are
provisions if the project is found to be uneconomic.
CO-CHAIR GATTO related his understanding that the aforementioned
situation is when each side picks an arbitrator and the two
sides pick a third arbitrator to make the decision.
MR. BULLOCK said he believes that's the case. He pointed out
that the abandonment of a project is addressed in proposed AS
43.90.240 on page 16, line 24, in which subsection (b) is the
arbitration provision.
1:58:28 PM
CO-CHAIR GATTO highlighted that the bill doesn't address
environmental considerations. He posed a situation in which
there is a charge that the polar bears will suffer due to the
construction of the pipeline, which causes the pipeline to be
stopped halfway. In such a situation, do the pipeline builders
take all of the costs or does the state share in the
abandonment.
MR. BULLOCK opined that this bill is, in some ways, quite
narrow. This bill, he explained, solicits someone that wants to
develop the project, obtain the financing, and live up to the
requirements and commitments made in the application. The bill
includes a provision that if there is a state agency reviewing
an environmental issue, it's to be done fairly and quickly in
order not to unreasonably hold up the project. He noted that
since it's a pipeline project, there will be environmental
impact statements associated with it and addressed by other
environmental and state laws. The risk associated with any
project that could result in an environmental challenge aren't
addressed in this bill, which he said he didn't believe is the
place to address it.
2:00:26 PM
CO-CHAIR GATTO inquired as to what happens the day after this
bill is passed.
MR. BULLOCK highlighted that the effective date is an issue.
Section 6 of the Act says that it's the intent of the
legislature that the request for applications be issued within
90 days. He suggested that the administration be asked if it's
working on that aspect already. In further response to Co-Chair
Gatto, Mr. Bullock related his understanding that the 60 days
for review comes after the applications have been received. The
time that isn't addressed in the bill is the time the
commissioners will set for the applications to be returned to
them. The requirements, he pointed out, seem to be quite
detailed.
2:03:00 PM
CO-CHAIR GATTO surmised then that in the worst case scenario 90
days is necessary to get it out, an undetermined amount of time
for the applicants to be returned, and a 60-day review period.
MR. BULLOCK clarified that the 60-day period for public review
is after the commissioners have determined that all the
applications are complete. The initial application review by
the commissioners prior to [the 60-day public review period] is
in proposed AS 43.90.140 on page 9 and doesn't specify a time
period. Therefore, that period is flexible.
2:04:24 PM
CO-CHAIR GATTO posed a scenario in which the commissioners
reject an application on the basis that it's nonconforming, but
a winner hasn't been selected. In such a situation, is there
any reason that an applicant couldn't modify his/her
application.
MR. BULLOCK pointed out that those applicants that don't respond
adequately are "out." As long as an applicant has a complete
application, that applicant will move forward. Those applicants
without a complete application have an option to reconsider and
start the process over again.
2:05:15 PM
REPRESENTATIVE GUTTENBERG drew attention to proposed AS
43.90.140, on page 9, line 19, and inquired as to the definition
of "timely".
MR. BULLOCK explained that when commissioners send out notice of
the need for additional information, it specifies a response
time. Therefore, "timely" would be established by the two
commissioners.
2:05:50 PM
CO-CHAIR GATTO inquired as to what happens if the two
commissioners disagree.
MR. BULLOCK related his assumption that the boss of the
commissioners [the governor] would break the tie. He did
mention that by the time this goes forward there could be
another governor. He then noted that there are provisions of
the license that continue after the license has been issued.
Mr. Bullock opined that at some point, perhaps after 10 years
when the project has commenced operation, the license and terms
would probably just run out.
2:07:09 PM
REPRESENTATIVE SEATON posed a scenario in which there is an
uneconomic decision or an arbitration panel. He related his
understanding that the language on page 17, line 22, means that
a licensee can't pull the license but is required by the
contract to deliver the license if the state agrees to pay.
MR. BULLOCK noted his agreement that the licensee is required to
give that information and the reimbursement is based on the
qualified expenditures described in proposed AS 43.90.110. The
qualified expenditures are what the state money has gone to.
Mr. Bullock then related his belief that there could be a
determination that the project is uneconomic, which means that
the state isn't involved, but the project itself could continue.
The legislation doesn't say that the pipeline itself is
uneconomic, rather it's whether it's uneconomic to the state to
keep paying money or for the project applicant to continue to
have to meet the requirements imposed as a condition of the
license. He noted that there's the possibility that the
pipeline would continue without the restrictions of the license.
2:08:56 PM
REPRESENTATIVE SEATON asked if the legislation should include
language to preclude such a scenario and that a determination is
made regarding whether the state wants to do that.
MR. BULLOCK acknowledged that it could be addressed. The
Senate's companion bill includes a statement specifying that
AGIA doesn't preclude someone else from building a pipeline.
Within CSHB 177(O&G), if the inducements offered in AGIA are
offered to a competing pipeline, then this license ends and the
state has violated its assurance. This bill, he opined, is
about inducements that draw someone to put a project together.
2:10:37 PM
CO-CHAIR GATTO opined that he didn't foresee anyone lending
money [for a pipeline] without a firm transportation (FT)
commitment. Therefore, he surmised that until transportation
commitments are obtained, there is no pipeline.
MR. BULLOCK deferred to DNR and the Department of Revenue (DOR).
However, he related his understanding that FT commitments mean
that "they" are committing to the capacity and even if they
aren't shipping gas, they are still going to pay money to the
project.
2:12:23 PM
CO-CHAIR JOHNSON asked if the Senate companion legislation
allows for a competing pipeline by removing the treble damages.
MR. BULLOCK emphasized that this Act is to offer state money as
an encouragement for someone to move forward with a pipeline and
in return for the state's money there is the desire for certain
assurances that the [applicant] makes in the application. There
would still be gas on the North Slope and the need for the
pipeline to be developed, he opined. As written, this bill
doesn't preclude another pipeline from going forward.
2:13:44 PM
CO-CHAIR JOHNSON asked if another pipeline would receive the tax
credits.
MR. BULLOCK replied no, those are the commitments to a project
licensed under AGIA. In further response to Co-Chair Johnson,
Mr. Bullock said he didn't believe there is anything in AGIA
that prevents a private entrepreneur from going forward with a
project.
2:14:16 PM
CO-CHAIR JOHNSON recalled that in the original bill the pipeline
[coordinator] couldn't utilize state agencies to assist other
pipelines, which is no longer in CSHB 177(O&G). He asked if
anything in CSHB 177(O&G) prohibits the pipeline or a state
agency from lending its assistance in forwarding a venture.
MR. BULLOCK pointed out that the assurances that the state makes
under AGIA are on page 23, line 13. He highlighted the language
on page 23, lines 16-21, which read:
If, before the commencement of commercial operations,
the state extends to another person preferential
royalty, tax, or monetary treatment for the purpose of
facilitating the construction of a competing natural
gas pipeline project in this state and if the licensee
is in compliance with the requirements of the license
and with the requirements of state and federal
statutes and regulations relevant to the project, the
licensee is entitled to payment from the state ...
2:16:08 PM
CO-CHAIR JOHNSON posed a hypothetical situation in which three
or four years from now the legislature decides it should revisit
the PPT and pass a law. He asked if the aforementioned would be
construed, under AGIA, as an economic inducement to build a
pipeline and the [state] would be forced to treble damages.
MR. BULLOCK answered that it could be. He pointed out that with
monetary treatment one must review what is being given and
whether it's for the purpose of the construction of a competing
pipeline. He characterized it as a judgment call.
2:17:08 PM
CO-CHAIR JOHNSON asked if by attempting to stay out of court,
the state is giving up its ability to change any taxes on the
North Slope for the next 10-15 years or when the pipeline is
started.
MR. BULLOCK said that if something the state does monetarily
could be construed to violate the assurance, then the state
would have to pay damages under this section. If it were a
general law, then arguably it wasn't for the purpose of
facilitating another pipeline. With regard to whether the state
is locking taxes, the only provision that attempts to do so is
the tax inducement that's offered to shippers. Mr. Bullock
opined that he didn't believe what's being proposed could be
viewed as prohibiting the legislature from changing the tax
structure.
2:18:35 PM
REPRESENTATIVE SEATON, referring to page 23, line 17, asked if
the language "the state extends to another person preferential
royalty, tax, or monetary treatment" would mean that the state
would be giving an inducement to a company or pipeline entity
solely as a preference. If the state decided to change its tax
or royalty treatment, he opined that it wouldn't be a
preferential tax.
2:19:17 PM
CO-CHAIR JOHNSON posed a scenario in which "Craig's Pipeline
Company" obtains the pipeline contract and the producers receive
a tax break even though they're not involved in the pipeline.
He asked if that is preferential treatment to allow them to
construct a pipeline. As "Craig's Pipeline Company", he
contended that the aforementioned would be preferential
treatment and would result in the company going to court.
REPRESENTATIVE SEATON said that would be the case if it's a
preferential tax for a pipeline. However, if it's referring to
the PPT or an oil tax change that impacts the entire state or a
region, that wouldn't be a preferential tax.
MR. BULLOCK said the aforementioned are good questions for the
administration. He then posed a scenario in which the route
that's selected is the in-state route with the liquefaction of
natural gas and water-borne delivery. At some point, the state
may decide to pass a bill similar to AGIA that offers the same
benefits. He opined that is what this [provision] is aimed at.
2:20:43 PM
CO-CHAIR GATTO, referring to page 23, line 16, inquired as to
the meaning of "commercial operations."
MR. BULLOCK said that the term refers to sending gas down the
line, which is specified in the definitions section of the bill.
He pointed out that the definition refers to the gas that would
be subject to the tariff, not test gas.
2:21:19 PM
CO-CHAIR GATTO related his assumption that there's much work
that can be done prior to commercial operations. In fact,
during that time is when there's the secondary builder. He
asked if it's possible to simultaneously have a 48-inch line
going down the highway and a 16-inch line going to Valdez.
MR. BULLOCK responded that he didn't know. However, he pointed
out that one of the restrictions in the assurances is that a
competing natural gas project has to be capable of more than 500
million cubic feet (mcf) and it has to be North Slope gas.
Therefore, it depends upon the size and throughput of the source
of gas.
2:22:17 PM
REPRESENTATIVE GUTTENBERG related his understanding that nothing
in AGIA addresses property taxes and the waiver of property
taxes during construction. He asked if the aforementioned is
assumed to be excluded from this and that an applicant
interested in such would need to include such a provision in the
proposal.
MR. BULLOCK pointed out that the state does have a 20 mills tax
on oil and gas property as specified in AS 43.56. This would be
a good question for the administration.
REPRESENTATIVE GUTTENBERG recalled that under the previous
administration's plan there was a study identifying pipeline
impacts, which amounted to about $180 million.
2:23:45 PM
CO-CHAIR GATTO mentioned that the state has had plenty of
experience with the impact of the Trans-Alaska Pipeline System
(TAPS) on communities. However, the impact to communities
occurs even before construction, although there's no revenue.
2:24:15 PM
REPRESENTATIVE GUTTENBERG recalled that under TAPS there was an
exemption during construction, but impact aide was available to
the state.
MR. BULLOCK highlighted that one interesting provision in HB 177
is the provision that provides that a project licensee would
benefit from a state training program. That inducement has been
changed in CSHB 177(O&G) by including a provision that requires
the commissioner of the Department of Labor & Workforce
Development (DLWD) to develop a state training program, which
could be construction jobs or jobs to operate the pipeline upon
its construction.
2:25:25 PM
CO-CHAIR GATTO surmised then that there's no explanation as to
what is expected to happen, just that the DLWD commissioner is
charged with that ability.
MR. BULLOCK noted his agreement, and pointed out the language on
page 24, line 21, proposed AS 43.90.470, which read:
The commissioner of labor and workforce development
shall develop a job training program that will provide
training for Alaskans in gas pipeline project
management, construction, operations, maintenance, and
other gas pipeline-related positions.
2:25:54 PM
CO-CHAIR GATTO asked if the funding to do so would come from
general fund (GF) monies or would a funding bill be required.
MR. BULLOCK indicated that the aforementioned language could be
the basis for another bill. However, there are already
institutions and other vocational schools that may design the
curriculum, but there would be funding involved at some point.
CO-CHAIR GATTO surmised that there probably would be a fiscal
note submitted by the Department of Commerce, Community, &
Economic Development (DCCED) with regard to its part of this.
MR. BULLOCK said he isn't sure.
2:26:46 PM
REPRESENTATIVE WILSON related her understanding that the federal
government has committed to helping Alaska with money for that
when the time comes.
CO-CHAIR GATTO asked if there is a way to verify that statement.
MR. BULLOCK said that he would ask the commissioner of DLWD.
2:27:37 PM
CO-CHAIR JOHNSON asked if anything in this legislation keeps the
$500 million or the matching funds from being used for
vocational education.
MR. BULLOCK pointed out that in the proposed AS 43.90.110 there
are descriptions of the qualified expenses for which the state
will pay. He directed attention to the provision on page 2,
starting on line 30. He related his understanding that the
language means to do those things necessary to go through the
first binding open season. He opined that the aforementioned
section would directly include that.
2:28:39 PM
CO-CHAIR GATTO surmised then that one could arguably say that it
isn't necessary to select Alaskans to help build the pipeline
and that it wouldn't be a necessary component of the bill.
MR. BULLOCK referred to page 8, line 18, paragraph (15), which
specifies that the applicant must commit to hire qualified state
residents for pipeline-related positions to the extent permitted
by law.
CO-CHAIR GATTO highlighted the word "qualified", and inquired as
to whether it's statutorily determined or is determined by the
person hiring the individual.
MR. BULLOCK expressed the need to train people in the skills the
employer needs.
2:30:32 PM
REPRESENTATIVE WILSON related her understanding that some of the
universities and technical schools in the state are already
ramping up and extending their programs to offer certification.
2:31:53 PM
REPRESENTATIVE GUTTENBERG, referring to page 8 and the section
on local hire, pointed out that line 20 addresses businesses.
He asked if there are similar local hire restrictions on
businesses.
MR. BULLOCK said that he would expect similar scrutiny, although
it's generally subject to a lower equal protection analysis.
2:32:44 PM
REPRESENTATIVE WILSON opined that there would be times when it
would be more costly to deal with a business in Alaska rather
than a business from somewhere else. Therefore, she suggested
that be given some thought if there is an effort to keep the
pipeline costs down in order to keep the tariff low.
2:33:18 PM
CO-CHAIR GATTO related his understanding that the people who are
hired have to: 1) have a skill set; 2) pass a drug test; 3) be
available to work during hunting and fishing season.
2:34:21 PM
MR. BULLOCK, in response to Representative Seaton, specified
that on pages 2 and 3, proposed AS 43.90.110(1)-(3) are three
inducements offered by the state. In further response, Mr.
Bullock clarified that the structure of the proposed statute is
that (1)-(3) are paragraphs within subsection (a).
2:35:47 PM
CO-CHAIR GATTO then turned attention to page 3, line 3, and
inquired as to the jurisdiction of FERC and the RCA.
MR. BULLOCK pointed out that there are in-state tariffs that
would fall under the RCA and interstate tariffs that fall under
FERC. He related his impression that the RCA would have
jurisdiction over the gas produced on the North Slope through
the in-state delivery points.
2:37:08 PM
REPRESENTATIVE EDGMON returned to the vocational opportunities
and other benefits that would accrue to Alaskans, and asked if
this bill speaks to opportunities along the entire pipeline,
including areas outside of Alaska as well.
MR. BULLOCK answered that it isn't based on location so much as
the project itself. If the selected project goes through
Canada, it would be subject to another nation's jurisdiction,
which is a matter the commissioners will review. Mr. Bullock
clarified that it's focused on project work and to hire, when
possible, residents who are qualified to work on the project
without identifying from where they would come or where they
would actually perform the work. In further response to
Representative Edgmon, Mr. Bullock said that the commitment to
hire qualified state residents, as related on page 8, describes
qualified state residents and the positions for which they would
be hired without specifying a location.
2:39:25 PM
CO-CHAIR GATTO related his belief that the pipeline will be
constructed at four different locations simultaneously. In
which case, one segment could be located entirely in Alaska and
another segment could be located entirely in Canada and another
segment could cross the border. The aforementioned will create
a bigger demand for labor, quicker use of materials, and more
need for equipment. However, that's a minor inconvenience when
considering that time is money.
REPRESENTATIVE GUTTENBERG noted his agreement that there will be
many segments of the pipeline going on simultaneously.
MR. BULLOCK pointed out that the criteria the commissioners will
use relates to the likelihood of success. Furthermore, the net
present value evaluation criteria will also relate to how soon
the pipeline will be built.
CO-CHAIR GATTO opined that within the four separate sections
there can be 12 separate sections depending upon the terrain.
MR. BULLOCK reminded the committee that the focus of the bill is
one project and the sections would be left to the licensee.
2:41:37 PM
MR. BULLOCK, speaking as the drafter, suggested that he can best
and most expediently serve the committee with amendments that
are marked up clearly with regard to the concept on the working
document. He said that statutory language isn't necessary as he
[and the other attorneys] would do their best in that realm.
2:43:27 PM
REPRESENTATIVE GUTTENBERG inquired as to how the chair intends
to proceed with HB 177.
2:43:35 PM
CO-CHAIR GATTO announced that there's a schedule in which the
administration will offer the next presentation. Co-Chair Gatto
pointed out that much has already been done on HB 177, and
therefore the committee has the opportunity to markup the bill
and pen questions for the administration. Co-Chair Gatto
announced his goal to try to get HB 177 to the House Finance
Committee by the end of the following week. He then sought any
committee discussion regarding the information brought forward
today.
2:45:01 PM
REPRESENTATIVE SEATON expressed concern with the structure of
the bill in which a bill is required to approve the contract.
2:47:04 PM
PATRICK GALVIN, Commissioner, Department of Revenue, explained
that with the original legislation, the administration
envisioned that the legislative process would be a safety valve.
The legislative process provides the legislature the assurance
that if the commissioner has made a decision with which the
legislature doesn't agree, the legislature would have the
opportunity to "put the breaks on it." Commissioner Galvin
said, "We felt that it was a reasonable response to the concern
to move the project through that process, to allow the
legislature the opportunity to act to stop the decision, but
also to allow the legislature to let it go if there was no
opposition. And we wouldn't have to go through the exercise of
convening the body and going through the formal steps, if
everybody was in agreement that the decision was proper."
2:48:09 PM
CO-CHAIR GATTO inquired as to how much time is consumed in the
process in which the legislature doesn't do anything.
COMMISSIONER GALVIN answered, "There's 30 days." In further
response to Co-Chair Gatto, Commissioner Galvin agreed that if
the legislature meets on a date certain for only three days to
make the decision, it's ahead of everything. The question
becomes what is the more likely area of delay. If there is a
license that isn't likely to be opposed, then the 30 days
probably won't slow down the process. The concern is that even
if there's a 60-day deadline to approve the licensee, it merely
means that the commissioners can start the entire process over
again if it doesn't happen within 60 days. "Clearly, if the
legislature is basically trying to get to a decision, that 60
days is just going to pass and we're going to keep working to
try to get to a decision. We're not going to start the whole
process over again, if we're basically trying to work to a
resolution." Therefore, he opined that by switching from the
structure of the legislature acting if it chooses to reject [the
licensee] to require the legislature to act in order to approve
the [licensee], the timeframe doesn't matter because the step of
legislative approval, no matter how long it takes, must occur.
To some extent, the matter is in regard to what the appropriate
role of the legislature is in the decision-making process at
that point. Commissioner Galvin said this is an area ripe for
discussion.
2:51:53 PM
REPRESENTATIVE GUTTENBERG related his understanding that if the
legislature passes AGIA, then the administration goes out with
an RFP. Once the RFPs return, the commissioners make a decision
on the licensee and the first open season begins. He inquired
as to what occurs in the time between when the licensee is
designated and the first open season. He inquired as to what
inducements would occur and for what reason.
COMMISSIONER GALVIN stated that the qualified expenditures are
those that move [the licensee] to certification from the FERC or
the RCA. As the engineering, field work, and cost estimates are
being done, there will be the determination that there's enough
information to have the first open season. He noted that
different companies will draw the line in different places
depending upon how much certainty is desired prior to the
initial open season. Within AGIA, the companies are allowed to
propose that. He recalled previous testimony on the bill in
which some companies have said they could have an open season
within months after expending tens of millions of dollars, half
of which would be state dollars. However, ConocoPhillips
Alaska, Inc. said it would take them a couple years and
approximately $400 million in order to reach that initial open
season. Commissioner Galvin said:
All of it is the same type of work ... involved in
moving from a project on paper to ground-truthing it
and making sure that you actually have a good sense of
what your costs are going to be. But, it's just a
matter of how far the company's come already, in terms
of work they've already done before they get the
license, how much work they feel they need to do, and
how fine of a target they're willing to put on that
open season. And all that is subject to their own
discretion and it's part of the proposal process.
2:54:54 PM
CO-CHAIR GATTO noted that he has been asked how each of the 20
requirements would be weighed.
COMMISSIONER GALVIN clarified that the 20 requirements are the
requirements to be considered for evaluation. In the previous
committees, there was refinement of the evaluation criteria such
that it has been narrowed down to the following two major
criteria: net present value to the state, likelihood of
success. Within those two criteria, there's a breakdown of
criteria in order to provide the more objective number for net
present value. The projects will be ranked based on that
number, which will be weighted on the likelihood of success.
Within the likelihood of success there are many variables,
including work plans, permits, participants in an open season,
and when the open season is held. All of those variables will
be weighed against the net present value estimate in order to
rank [the projects]. Commissioner Galvin opined that although
the way it has been re-structured will provide more clarity with
regard to how the analysis will be done, it will be a judgment
call on the factors. Therefore, there will be a substantial
written finding associated with explaining how the decision is
made.
2:58:20 PM
CO-CHAIR GATTO inquired as to what is the tariff and the tax.
COMMISSIONER GALVIN said that the answer is that AGIA is
established to create an opportunity for the various commercial
players who want to participate to provide the answer to those
questions. The administration anticipates that it is going to
receive a reflection of the view of various companies on the
various aspects of the two different types of projects. The
administration, he related, recognizes the need to get those
numbers out on the table in order to review the range between
the different choices and the factors going into the various
estimates and how much confidence can be had in any of those
estimates. Through AGIA, a project will be selected that
provides the best balance in order to end up with the best
possible tariff structure.
3:01:09 PM
COMMISSIONER GALVIN then turned to the tax, which is known and
specified in statute. The appropriate question is whether
that's the appropriate tax, which can't be answered at this
point as information is still being gathered. The
administration recognizes, he said, that within AGIA a point in
time has to be chosen in order to provide that predictability
and durability on the tax side. Commissioner Galvin related his
belief that the state nor the producers want to lock into the
current tax, knowing that there's work to be done on determining
whether it's the appropriate tax. Therefore, the bill locks in
a rate that's in existence at the time of the commitment that
the Act tries to induce, which will be the tax at the time of
the open season. In summary, Commissioner Galvin said that he
doesn't know what the tax and tariff will be, but pointed out
that AGIA will move to the point of obtaining those answers.
3:03:11 PM
REPRESENTATIVE SEATON asked if the intent is for the
administration to set the tax rate at the time of the open
season.
COMMISSIONER GALVIN said that the point of the bill is that at
the time of open season there will be a tax rate established by
the legislature on the books. That tax rate will then be the
basis for the aforementioned durability. However, he mentioned
that there's no commitment or expectation in the bill that there
will be a change to the tax rate between now and the [open
season].
3:04:19 PM
REPRESENTATIVE SEATON surmised then that the intent of the
legislation is that the legislature will set the tax rate. He
then inquired as to the royalty rate.
COMMISSIONER GALVIN specified that the royalty rate is the rate
that's established in the leases, which isn't changed by the
bill. The royalty rate is a contractual right that the company
will have in place from existing leases or will have from leases
that are obtained. The bill doesn't attempt to change the
royalty rate, although there are changes offered with regard to
the treatment of royalty valuation that's alternate from what
exists in current leases. He noted that there's another option
to change the way that royalty in-kind and royalty in-value
switching can be done by the state. Other than those two
potential changes in the lease, there's no other proposed change
in the royalty structure.
3:05:47 PM
REPRESENTATIVE SEATON expressed concern that the criteria and
the valuation criteria don't include environmental criteria. He
requested that the aforementioned be addressed tomorrow in light
of the recent Supreme Court decision. He also requested that
tomorrow there be discussion regarding retaining fugitive
methane and other green house gas.
3:07:25 PM
CO-CHAIR GATTO said he expects that the federal government will
have a carbon tax and carbon caps in place long before the
pipeline is built. He suggested that the aforementioned will
change the tariff and the netback.
3:08:20 PM
COMMISSIONER GALVIN said that [the administration] is working on
the best way to instill those concerns and values in the bill to
make the project as environmentally friendly as possible. In
the end, the biggest selling point for this project is that it
provides a source of fuel that will hopefully be available to
replace other sources currently being used and will ultimately
be recognized as a solution to some of the concerns raised.
[HB 177 was held over.]
3:09:05 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:09 p.m.
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